<B>Energy Fees Explode</B>
<I>Hotels Expand Nightly Surcharges Beyond West Coast</I>
By Bruce Serlen
Regional power shortages and cost increases took on a national dimension this month as three of the biggest hotel chains extended energy surcharges to properties in states beyond the West Coast.
The surcharges have tended to be $1.50 to $3.50 per night. Marriott International, however, raised the stakes to $5 per night when it imposed surcharges last week at all of its hotels in Manhattan and its full-service properties in the New York metropolitan area.
Hilton Hotels Corp. extended the surcharges to properties in 12 additional states--Colorado, Illinois, Minnesota, Missouri, New Jersey, New York, Pennsylvania, Oklahoma, Oregon, Texas, Virginia and Washington--and the District of Columbia. Yet, unlike its policy in California, Hilton is allowing senior regional managers to determine which hotels in each state will impose the charge. Similarly, at Bass Hotels & Resorts, discretion is being left to individual properties throughout the United States.
In addition, Hyatt Hotels Corp. this month said it was joining other hotel companies in imposing these nightly charges at its California properties.
Citing rapidly escalating energy costs, Marriott and Starwood Hotels & Resorts began implementing the fees in March--Marriott at company-owned and managed properties in California, and Starwood at its comparable properties in California, Washington and Oregon (BTN, March 26).
While the charges in all cases have been described as temporary, there remains no indication of when they might be lifted. Surcharges apply to negotiated corporate rates, as well as other rates. Charges for group bookings, however, are being negotiated on a case-by-case basis. By restricting the charges to owned and managed properties, hotel companies leave franchisees free to impose whatever charges they see fit at hotels they own.
<B>Energetic Conservation Efforts</B>
At the same time hotel companies are authorizing surcharges, they continue to implement and promote programs to make properties less energy-dependent. "By reducing overall energy consumption, hotel companies have come to realize that they can achieve significant savings in operating costs," said Larry Gomez, president of Senercomm Inc., a hospitality energy management consulting firm in Palm Beach Garden, Fla.
The extent to which hotel companies' energy costs have skyrocketed in recent months became clear when publicly held hotel companies released their first-quarter earnings reports. At Marriott, for example, total domestic energy expenditures rose 30 percent during the quarter. Lodging industry analyst Paul Keung of CIBC World Markets focused on this--and rising labor costs--in his report on the company. "The 30 percent included surges of 40 percent in the West and 54 percent in New York City," Keung said.
Hotel companies' conservation efforts start with creating a master energy management plan for all their properties nationwide. Plans then are customized on a regional or local basis, depending on local variables.
At Hilton, for example, the focus has been on five areas: converting to more efficient lighting; conducting building tune-ups; installing load reducers, such as window film and better insulation; upgrading fan systems; and improving heating and cooling systems. According to George Neeson, Hilton vice president of engineering and housekeeping, these efforts will enable Hilton to reduce energy use overall by 5 percent in 2001, which should equate to savings of 5 percent in energy costs. "Energy management for our hotels is always important, but it takes on added significance when prices escalate like we've seen recently," Neeson said.
Senercomm's Gomez concentrates on technology that conserves energy in the guest room during the day, when the traveler is out of the room.
"Guests will needlessly leave the thermostat set at 70 degrees in the summer when they go out," he said. "We'll pick a five degree to six degree energy set back. An intelligent thermometer linked to the entry door switch then constantly searches for motion in the room and makes adjustments should guests return."
Advanced technology aside, conservation efforts also can translate into something seemingly more mundane. Hilton's flagship Waldorf-Astoria Hotel in New York, for example, replaced 1,700 fluorescent lamps this year with a more energy-efficient variety, while their 100-watt incandescent bulbs were switched to lower wattage fluorescent lamps. The retrofits are expected to save the property 1.2 million kilowatt hours a year, "approximately $72,000 in savings," Neeson said.
Meanwhile, hotel industry consultants have given the surcharges mixed reviews. "Our clients certainly are cognizant that energy costs are rising rapidly," said Alison Guilbeaux, manager of business development for corporate hotel programs at WorldTravel BTI in Atlanta. "They see it at the gas pump and in their own utility bills. Yet, at the same time, while the per room, per night charge may be modest, it adds up if you're bringing thousands of room nights to a property in the course of a year and you're under pressure to keep a lid on costs. And the pressure to contain costs is especially intense for our clients right now because the economy has softened."
As for the travelers themselves, in many cases they may not even be aware an energy charge has been tacked on their bill. "Frequently, travelers check out in a hurry, and because the surcharge is listed as a separate charge on the folio, along with things like the room tax, they may not even notice it," Guilbeaux said. "And because they're in a hurry, they're also less likely to question it."
Hotels' stepped up conservation measures, furthermore, aren't always apparent. "Too often, travelers see such things as meeting room lights left on at night and air conditioning going full blast, and it makes them wonder," Guilbeaux said.
In many ways, the soft economy is what's driving the extra charges, said industry consultant Eric Sieb, who is president and CEO of the Phoenix-based Sieb Organization. "Right now, all costs related to hotel operations are under intense scrutiny in relation to the economy. Profit and loss statements are adjusted daily, with the management team carefully analyzing every expense, energy included," Sieb said.
Increased attention is being paid to revenue enhancement. "This means hotels are looking to identify any cost that can be extended to the guest, with energy costs again being a prime example," said Sieb. "The strategy is to maintain the room rate at all costs, while passing along the extras in as invisible a way as possible. In this environment, there are likely to be things on a folio travel managers have never seen before."
Nor is Sieb optimistic that hotels' energy sources will improve radically anytime soon--and, consequently, the surcharges are likely to remain in place. "It's going to take a huge capital investment to really turn the situation around," he said, "and it is not clear how long it will take to build this new infrastructure."
Yet, hotel companies hardly are unanimous in choosing to pass along their increased energy costs to travelers in the form of extra fees.
"We haven't done it and, at present, don't anticipate that we will," said Jay Riley, vice president of hotel marketing for Four Seasons Hotels & Resorts. "It's comparable to certain restaurants requesting a bread charge. It's just not something we'd be comfortable doing.