<B>Energy Sparks Fly</B>
<I>Starwood Auditing Per-Property Costs To Pacify Corps.</I>
By Chris Davis
The daily energy surcharges on hotel rooms that recently have spread from California to certain metropolitan areas in the Midwest and Northeast have sparked the wrath of corporate meeting buyers, many of whom characterize the surcharge as unscientifically designed, their implementation haphazard and their negotiability at odds with their supposed necessity.
One of the largest corporations in the country, consulting firm Deloitte & Touche, has made the existence of an energy surcharge a deal-breaker for any contracted or future meeting.
Though hotel chains defend the surcharges, calling their implementation a temporary move designed solely to recoup costs from rapidly increasing energy costs, and noting that no surcharges are placed on meeting room or audiovisual equipment energy use, one large chain will change the manner in which surcharges are calculated and applied.
Starwood Hotels & Resorts has retained Redmond, Wash.-based energy consultancy Energard to audit energy cost per unit at selected properties over the first five months of 2001 against the commensurate period last year, said Starwood senior vice president of global sales of North America Christie Hicks. That audit, which will be performed at properties that show significantly higher energy costs, will offer quantitative evidence of cost-per-unit increases and allow the chain to implement daily energy surcharges on a mathematical scale, or reduce existing surcharges if needed. Any deviations from that scale sought by a property would require the approval of several senior Starwood execs, Hicks said.
"I think there's a perception we're just putting these charges in for the sake of doing so, and this will quantify those charges based on cost per unit," Hicks said. "This is not a profit center."
The two other major chains with widespread energy surcharges--Marriott International and Hilton Hotels Corp.--as of press time had not followed suit.
Some corporate meeting buyers have rebelled against the surcharges, though, emboldened by their negotiability.
Wilton, Conn.-based Deloitte & Touche, ranked seventh on BTN's Corporate Travel 100 issue (BTN, Aug. 28, 2000) of the largest corporate travel programs, has declared that it will not book a meeting into any property that refuses to remove them from contracts.
So far, every property has yielded, said global conference group senior manager David Kassel.
"We feel it is an increased cost of doing business and there should be no privilege to pass those off as a direct expense to the consumer," Kassel said. "When a hotel calculates the room rate, they take into account a targeted profitability index they want, including cost of utilities. We don't see any credits coming when utility costs have lowered. We have been assured by hotel companies that these are temporary, and that they will be removed as fast as they were put in. We feel human nature--not just hotelier nature--does not necessarily support that thought process."
Kassel's conference services department began to question the concept of the energy surcharges after discerning inconsistencies in the willingness to keep or drop the surcharge between hotels in the same chain or even salespeople in the same hotel.
"The credibility factor was diminished," Kassel said. "We did not feel there was a scientifically designed approach to recoup costs on a black-and-white basis. I think the industry shot itself in the foot with the informal, causal and confusing rollout. If there had been more structure to the rollout, as well as the delivery of the message to the industry, they may have been successful in achieving their goals. To us, this is an ethical and moral situation."
Kassel said Deloitte & Touche on May 29 officially began refusing to sign contracts with energy surcharges, but the company had not paid even prior to that date. "We will not compromise the meeting. We can find alternates with no problem. But they have stepped back and are not willing to lose the piece of business."
But the chains counter with the fact that they have not implemented the surcharge in every property nationwide, and their targeted nature shows the measure is designed only to recoup costs in areas with sharply higher energy costs (BTN, May 21).
"It's just in those markets, which are not just in California. Texas has increased costs 36 percent in one year," said Hilton spokeswoman Jeanne Datz. Hilton charges $3 per night per room in certain locations in the Midwest and Northeast, as well as the West Coast.
Noting that Hilton has won awards for energy conservation initiatives, Datz pointed out that the chain does not charge for energy used for corporate meetings other than the guest room surcharge. "We're not charging for meeting space or any other audiovisual power, and they're not bringing in generators. That's our power. And that's why this discussion needs to take place: What does the meeting consist of? This is a challenge for everyone."
Yet, while Starwood, which has expanded the surcharges to some major metropolitan areas throughout the country, seeks to provide buyers with hard evidence of the charges' necessity, there still is a significant gray area around the structure of the charges.
Hicks said Starwood's policy is to list the surcharges as a separate line-item on the bill, though she could not aver that no property has incorporated it into the room rate. The chain lists them separately to clarify that the charges are temporary, she said, but she has received conflicting messages from meeting buyers as to their preferences.
"Some feel that tacking it on to the bill instead of incorporating them into the room rate gives the impression that they are negotiable charges," Hicks said.
While that may be the case for new meetings, applying the surcharges to contracted events is a far more difficult maneuver. "It's been very contentious, understandably," Hicks said. The current procedure is that the hotel will call the client and discuss the changes. If they object, we will involve multiple levels of the organization, up to me or senior vice president of industry relations Dave Scypinski. Then, decisions will be made."
Starwood's largest clients actually have been the most understanding of the surcharges, Hicks said, when asked how meetings volume and market share delivered would be incorporated into the decision whether to apply a surcharge to contracted meetings.
"I find that fascinating, but we have a relationship with them and have been able to help them with very specific matters," she said. "Others feel it's a breach of contract."
While most other corporate meeting buyers have not addressed the surcharges officially, as has Deloitte & Touche, they have developed strategies to deal with or avoid the additional expense.
"We have an addendum letter that insists the hotel must tell us all charges up front," said Gilda Caputo, director of travel and meeting management for Florham Park, N.J.-based PricewaterhouseCoopers. "We fight if they try to add it to a contracted meeting. This is new to the contract process for upcoming meetings, so we'll push harder to see where we can take it. We will not have any part of it."
Caputo, who has seen the charge average about $3 per attendee per night, said she's also examining proposals to ensure that hotels will not include the surcharge as part of the quoted room rate, and to ensure properties have documented evidence showing actual increases in their energy costs.
"I certainly hope they're not using this as a profit center, and the hotels have said that's illegal," Caputo said. "But this is a huge expense for us."
"We haven't run into the situation a lot, because we haven't been contracting a lot of new meetings," said Katherine Fox-Ehlert, contracts manager for marketing and events at Palo Alto, Calif.-based Sun Microsystems. "But, at this point, we would have a hard time paying the surcharge for meetings, and this is definitely something we would look to negotiate out, especially if it's at a location outside of California. It's like taxes--once it's slipped in, 20 years later it could still be there."
Another California meeting buyer who requested anonymity said hotels have tried to apply the surcharge to previously contracted meetings but were easily rebuffed.
"Obviously, as energy costs more money, it comes straight out of their operating costs and they have to raise prices, so we would not issue a blanket denial of the charge," she said. " But it has to be fair and it needs to be somewhat provable. So far, the hotels' approach has been somewhat knee-jerk.