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If you’re a hotelier, should you be more concerned about making money from charging fees or a potential consumer backlash?
That’s a question hoteliers may want to ask themselves this year, especially as the Federal Trade Commission (FTC) scrutinizes hotel fees.
This year is set to be another record year for U.S. hotels in terms of the amount of money they will collect from fees and surcharges. Last year saw a record of $2.45 billion and in 2016 U.S. hotels are on track to collect $2.55 billion according to a new report from Bjorn Hanson, a clinical professor with NYU’s Jonathan M. Tisch Center for Hospitality and Tourism.
Fees and surcharges collected by the U.S. lodging industry have increased every year except for 2002 and 2009 when demand dropped.
These fees can mean much greater profitability for hotels that implement them.
Although 2016 will be another record year in terms of fees collected, the 4 percent increase is the lowest since 2009. Hanson said the jump in fees was a reflection of 2 percent more occupied hotel rooms than in 2015, more fee and surcharge categories, and higher amounts being charged. He also noted that there were lower fees and charges for high-speed Internet access this year.
“There were no major changes this year,” Hanson told Skift. “The amount increased, but not by a lot, but it did set a record level of fees and surcharges. There also weren’t many new fees or surcharge categories introduced, maybe because most that could be introduced have been introduced. This is a year of fine-tuning for the industry, about what fees and surcharges should be in place, and at what pricing levels.”
Newer types of fees, Hanson noted, were those relating to the guarantee of a specific room type, based on availability, as well as fees for unattended parking, early check-in, and holding checked luggage.
Charging for Wi-Fi: A Thing of the Past?
In this year’s J.D. Power rankings for North American Hotel Guest Satisfaction, the most important amenity noted by guests was free Wi-Fi (71 percent of respondents in the survey received it).
Hanson said that more hotel brands are also taking note of this consumer demand, and changing their brand standards to require hotel owners to increase access to high-speed Internet and/or upgrade their existing bandwidth.
“In a preliminary estimate I’ve prepared, I estimate that the typical branded hotel will spend close to $60,000 to upgrade their high-speed Internet access next year,” Hanson said. “Brands are also requiring this expenditure and changing their policies so there aren’t any charges for loyalty members for a base level of usage, or implementing tiered pricing.”
Although more hotel guests are now able to get free Wi-Fi for becoming members of hotel loyalty programs, Hanson doesn’t believe those hotel fees for Wi-Fi will be going away anytime soon.
Will Cancellation Fees Become the Norm?
Last year, Hilton Worldwide began testing out $50 guest cancellation fees and while its customers “unsurprisingly hated” them, Hilton CEO Christopher Nassetta hasn’t completely given up on the idea, although the company stopped the pilot program in February.
Hanson said that cancellations and no-shows make it very hard for hotels to manage their inventory and that hoteliers are trying to come up with creative methods to incentivize travelers not to cancel, or to pay more to have the option of canceling, without instituting an actual cancellation fee per se.
“I think we’ll see the advance timing needed to cancel a reservation move up from 24 hours to 48 hours, 72 hours, or maybe even a week in advance,” Hanson said. “Or customers can pay a prepaid, non-refundable rate for about a 10 percent discount.”
Should Hotels Be Concerned About the FTC?
The short answer? Probably.
The last time the FTC’s Division of Advertising Practices issued a warning to the hotel industry about resort fee disclosure was in 2012 but this year, the FTC is one again focused on hotel fees, Hanson said.
In February 2016, Missouri senator Claire McCaskill, a Democrat, announced she would introduce legislation addressing “deceptive hotel fees.” She characterized their prevalence as “bait and switch” practices, after hearing from hundreds of her constituents.
After McCaskill asked consumers to access her “Submit Your Scam” web tool to relate stories of misleading or deceptive hotel fees, an advisory panel at the U.S. Department of Transportation made a recommendation that such fees should be included in the advertised price of a hotel room.
“The thing to watch is whether the government decides that hotel companies are failing to disclose fees adequately, or if the government decides it has a role in deciding how private industries price their services,” Hanson said.
While many hotel fee critics have asked why more hotels don’t include resort fees and other surcharges in their room rates, Hanson said there are reasons why hotels choose not to offer inclusive prices. Hotel room rates fluctuate constantly depending on demand and availability while fees mostly do not. Also, if room rates rise to reflect the addition of these fees, the guest would also have to pay more for local lodging taxes.
Hanson also said that, for most travelers, the room rate is their primary focus when choosing a place to stay.
Hanson said, “Assuming there’s no fraud, misrepresentation, or failure to disclose, the question becomes: Is it the role of government to tell private business how to structure their prices?”
Fees aren’t a new concept in the travel industry, either. A report on 2015 ancillary fee revenue for airlines from IdeaWorks Company showed that the three legacy U.S. airlines (United, American, and Delta) collected nearly $14.7 billion in ancillary fee revenue in 2015. That number overwhelms the $2.55 billion that U.S. hotels are projected to collect this year and illustrates how much more dependent the airlines are on fees compared with hotels.
|U.S. Lodging Industry Fee and Surcharge Collections 2000-2016|
|2016||$2.55 billion (forecast)|
Source: Bjorn Hanson, New York University Jonathan M. Tisch Center for Hospitality and Tourism.