Hidden Hotel Fees Disappear

Hidden hotel charges, which buyers found particularly irritating as lodging industry profits soared in 1999 and 2000, largely have vanished this year.

The disappearance follows the industry's steep declines in occupancies and room revenues beginning in 2001. As buyers gained a stronger hand in negotiations for 2002 rates, hotels scrambled to come up with items they could put on the table in lieu of further concessions on rate.

While the hidden charges—which often would catch both buyers and travelers off guard—covered a range of items, the most common were fees for local telephone calls, access for toll-free calls, early departures and canceled reservations. Similar charges, which hotels now increasingly are waiving, included fees for suite upgrades, breakfast, parking, shuttle service and use of a property's health club.

Through 2000 and into 2001, buyers were vocal in their unhappiness with the practice. "In many cases, the amounts of money involved were relatively modest, but hotels still saw the charges as a way of generating additional revenue," said Kevin Maguire, Tokyo Electron America travel manager.

The turnaround started during a bidding season where proposed rates repeatedly were revised downward. With bids delayed as a result of Sept. 11, hotels' willingness to negotiate the extra charges added to the confusion. "Both 1999 and 2000 had been such banner years, the hotel industry just didn't seem to know what was going to happen in 2002," said Bruce Miller, Fleet Boston Financial travel manager. What galled buyers most about the hidden charges was that, in many cases, they felt they already were paying top dollar on room rates. Consequently, such minor charges as phone access and parking added insult to injury. "Too often, the hotels didn't value the long-term relationship with the buyer," Maguire said, "even though they gave lip service to doing exactly that."

Hotels often downplayed that many of the charges even existed. That now has changed, though the items under discussion are being positioned as value-added extras. "Hotel companies were hearing from their customers every day about creating added value, so many of these items started to come up in negotiations," said Kevin Kelly, newly named executive director of business transient sales for Fairmont Hotels & Resorts, formerly with Wyndham Hotels and Hilton Hotels.

It was the logical next step. "The hotels are under tremendous pressure to show profits, so they only have so much leeway on rates," Kelly said. "The question then becomes, 'What else can we negotiate?' "

As it were, many of the rates negotiated for 2002 either were flat compared with 2001—or decreases. "From a pricing standpoint, buyers clearly were either looking to stay where they were or step back," said Tom Chevins, Omni Hotels senior vice president of sales and marketing.

Buyers were under their own pressure to contain costs. "Our major clients came back to the industry as a whole and said, 'Look we want to renegotiate rates,' " said Thomas Klein, senior vice president of the Americas for Raffles International Hotels, which includes Swissôtels.

Given the steep declines they were experiencing, hotels feared being shut out of an account. "Hotel sales managers worried that if they didn't find a way to negotiate further, they risked losing the relationship altogether," Kelly said.

Yet, hotels weren't ready to negotiate the value-added items across the board. "Much depended on the particular market and the exposure the hotel company was under in that market," said Gary Polito, manager of corporate travel at Bose Corp. Polito generally was successful in having breakfast charges waived, which was important to his travelers. By contrast, Maguire found hotels more willing to waive cancellation fees.

The hotel execs said they worked with each account on a case-by-case basis. "No buyer was going to get every item waived, so sales managers had to ask their customers to prioritize and decide which items are most crucial," Kelly said.

The choice of rate versus value-added items could vary. "For some clients, consideration on rate remained the single critical factor. They might be willing to forego waiving a value-added item like breakfast," Klein said. "Conversely, other clients saw a value in waiving the breakfast charge. It might have been an incremental cost to us, but represented a good value for them. We had to be flexible."

Buyers' frustration with hidden charges reached a boiling point in mid-2001 over the energy surcharges that hotels imposed to help compensate them for their higher energy costs. "In the face of tremendous buyer resistance, these charges were quickly rescinded," said Bjorn Hanson, director of the hospitality and leisure practice at PricewaterhouseCoopers. "In a similar way, the hotels this year dropped some of the more extreme hidden charges—mandatory housekeeping and bellmen charges, for example—because they were so offensive, but also because they were a distraction from their main function—getting guests in the house."

Buyers, however, might have been disappointed if they expected to get credit for negotiating away the hidden charges. "Senior management might be outraged the company was paying some of these fees in the first place," Hanson said.