Hotel Phone Revenue Keeps Plummeting

Hotel revenue from local and long-distance telephone calls in 2004 fell to the lowest level since the 1980s, with the downward trend showing no sign of abating, according to a study released last month by the Hospitality Research Group. Hotels in 2004 averaged approximately $2 of such revenue per occupied room, down from approximately $2.22 in 2003. The $2.00 is less than half of the $4.16 hotels earned per occupied room in 2000, the industry's peak year for this income.

Travel buyers who have fielded traveler complaints about excessive hotel phone access fees and other surcharges likely won't be surprised by the findings. Faced with what they viewed as exorbitant fees, travelers—with buyers' blessing—increasingly have used cell phones and calling cards from hotel rooms, bypassing hotel phone systems.

Starting in the 1990s, hotels' telephone operations became a significant profit center. "During that peak performance year of 2000, for example, the telephone department's profit contributed 4 percent to the typical hotel's net operating income," said Robert Mandelbaum, director of research information services for HRG, which is part of PKF Consulting in Atlanta.

Given the 2001 to 2003 industry downturn, the drop in telephone profits has been even more troubling. "Not only have revenues declined to a greater degree than total hotel revenues, but so have telephone-related profits," Mandelbaum said.

From 2000 to 2003, the typical U.S. hotel suffered a decline in net operating income of $5,062 per available room, or 36.2 percent. During the same period, telecommunications department profit dropped about $421 per available room, or 72.7 percent.

"In effect, the decline in telephone-related profits accounted for 8.3 percent of the decline in total hotel profits," Mandelbaum said.

Hotel companies in 2004 reacted to the decline in different ways. Some hotel chains, especially those at the higher price points, continue to add surcharges to calls made from guest rooms. Such chains as Wyndham International Hotels & Resorts will make an exception for members of its frequent guest program to build guest loyalty.

On the other hand, a number of chains, especially those in the midprice category, have begun to offer complimentary local and long-distance phone calls for all guests, building the cost of the service into the basic room rate.

Such chains as Cendant Hotel Group's Wingate Inns International and Hilton Hotels Corp.'s Hampton pioneered this effort, which has become standard across the category.

Other hotel companies still follow a hybrid approach. At Marriott International, for example, midprice brands offer telephone service free to guests, while its full-service brands have adopted a bundled approach, in which guests pay a flat daily rate for free telephone calls, fax and high-speed Internet access.

"Chains offering complimentary usage, in effect, have conceded that the current low level of revenue and profit is a fact of life and are attempting instead to leverage the marketing value of free phone calls," according to HRG's Mandelbaum.

In light of corporate travel buyer concerns about excessive charges, the National Business Travel Association hotel committee has included a listing of such fees in its electronic request for proposal format.

Changes to the questions are not anticipated for the 2006 bid season, according a hotel committee spokesman.