Hotel Fees Grow 7% In 2006

Hotel fee and surcharge revenues, already at record levels in 2005, surged another 7 percent in 2006, according to PricewaterhouseCoopers. Many of these charges, which generated $1.6 billion in revenue for the industry this year, apply to corporate groups, and some meeting buyers said they are fed up with the so-called nickel-and-dime approach. However, the 7 percent increase is the lowest rate of increase since 2002, indicating that the number of surcharges and amounts charged may be stabilizing, said PwC. Still, three years ago, the industry generated just $550 million in fees and surcharges—meaning fee revenues have roughly tripled since 2003.

"The increases are slowing every year, as many of the hotels and resorts that would be appropriate for increasing fees and surcharges have done so. We haven't put out our forecast for next year yet. My guess is it will be similar to the 7 percent number," said Bjorn Hanson, principal of PwC's hospitality and leisure practice, in anticipation of the 2007 PwC Lodging Industry Forecast, to be released later this month.

According to PwC, half of the 7 percent increase in revenues this year from surcharges can be attributed to the 3.1 percent increase in occupied rooms. However, the remaining percentage was generated from an increase in the number of hotels that levy additional charges, the increasing range of fees and surcharges and the increased amounts charged.

Typical surcharges levied on groups include increased bartender charges, cancellation fees, master folio billing fees of up to $1,000, automatic gratuities, resort fees and earlier room block guarantee date requirements.

Resistance to increased and new surcharges has done little to deter properties from charging them. "Guests continue to express concern over undisclosed fees and surcharges, but hotels have become much more educated as to which fees and surcharges guests will accept. They have invested in training front-office staff on how to respond to objections raised by guests, so there is less pushback and better response on the hotels' part," Hanson said.

Some buyers said they rely on their own budgeting tools rather than take a chance on hidden fees and surcharges.

"We have our own system that gives our clients the cost of the hotel very accurately," said Eugene Emond, event management executive for Princeton, N.J.-based drug research and development firm Covance Clinical and Periapproval Services. "I really haven't been surprised at fees. The cost of hotels is exorbitant," Emond said.

Covance pushes hotels to disclose all fees up front. The information then is compiled into the budget tool and approved by management.

In general, hoteliers have become better at the upfront disclosure of mandatory fees, such as phone charges or minibar restocking fees, than they have been of optional surcharges, such as Internet charges or room service delivery fees, PricewaterhouseCoopers' Hanson said. Buyers seem to appreciate the frankness.

"We're not seeing a shift in marketshare away from those hotels that issue these kinds of disclosures," Hanson said.

Even surcharges that meeting buyers are used to seeing on their final bill are rising. Fax service, for example, has risen from an average $1 per page to up to $5 per page at some properties.

Corporate group customers become much more sensitive to fees and surcharges as room rates rise, according to Jim Schultenover, president of Washington D.C.-based Krisam Group, a national sales company for independent hotel and resort properties.

"Resort fees seem to be one of the most common complaints, but they are here to stay for now," Schultenover said.

Even with fees, "everything is negotiable," according to Schultenover. "Unlike other seller's market cycles, hotels are in front of the customer saying everything is negotiable. It won't go away, but cancellation is negotiable, attrition is negotiable, food and beverage spend is negotiable."

As buyers look for any leverage point to lower their final cost, corporations have become more willing to move their meetings to low-demand properties and dates, he added.

The battle over hidden hotel surcharges has reached U.S. courts. In July, Wyndham International Inc. reached a $2.3 million settlement over undisclosed automatic surcharges in a lawsuit filed by the state of Florida on behalf of its own government travelers.

Under the terms of its settlement, the company agreed to clearly and conspicuously disclose any automatic fees, such as resort service charges and transportation surcharges, when a reservation is made. The case, as well as growing complaints by buyers about undisclosed hotel fees, may bring about a change in how properties list their pricing.

Currently, most hotel chains list the total price after the property is selected and the details of the reservation are made. Though consultants said the industry is trending toward listing total price from the beginning of a reservation, one of the first moves toward total cost pricing ended in failure: InterContinental Hotels Group in 2005 began listing total price from the initial point of booking, but the move caused abandonment rates to rise and the project was ended.

Daphne Meyers, a former corporate meeting planner for Microsoft and now managing partner of Red Barn Group, a meeting and event consulting firm based in Durbin, N.D., said she hadn't heard about IHG's attempt at total cost pricing, but that she would be willing to pay a higher hotel rate instead of a string of ancillary fees. In reality, extra fees and surcharges have grown prolific, she said.

"It used to be a surprise when you were charged these fees and now it's a bonus when you're not," Meyers said.

The "creative revenue" streams hotels have found in everything from additional A/V charges to Internet access fees seem to do more damage to the hotel's image than they are worth in revenue, she said.

"I know the hotels are in business to make money," Meyers said, "but give me the information up front so that I can make an apples-to-apples decision. That might be idealistic on my part."

Even a laundry list of fees, given to a buyer during the initial site selection, is preferable to being surprised at additional charges on a final bill, Meyers said. Arguing over petty charges is not helpful to either side, she added, and distracts from the real issues that buyers should be concerned about. The real problem isn't the amount of fees and surcharges—it's how and why they are charged.

"Nickel-and-diming is an attempt to deceive, and that bothers me," she said. "If it was hidden, whether intentional or not, it leaves a doubt in my mind about whether you want to engage in business with me."

Meyers said luxury and upscale properties are notoriously the worst when it comes to ancillary fees.

"Why is it the higher-end hotels are more likely to do this?" Meyers said. "I understand there is supposed to be better service, but I'm willing to pay that in my room rate."

Buyers have to present a total price to stakeholders and senior management when seeking budget approval, Meyers said, so hotels should extend the same courtesy to their best customers.