Hotel fees and surcharges on the rise

National Report – What do resort fees, amenity fees, baggage holding fees and meeting breakdown fees have in common? They are all back in a big way.

A recent report released by Bjorn Hanson, clinical professor for NYU’s Preston Robert Tisch Center for Hospitality, Tourism and Sports Management, and the NYU School of Professional Studies found that approximately $2.25 billion in fees and surcharges will be collected in the U.S. hospitality sector during 2014. This is up from the previous record of $2.1 billion collected in 2013.

According to Hanson, fees are rising fastest in Las Vegas, which was the first market to implement early check-in fees capable of penalizing guests for early arrival.

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“It is more widespread in Las Vegas than other markets, but this is a national trend,” Hanson said. “Resort and service fees have a dramatic effect on the economics of the hotel industry. Receiving local phone calls or overnight packages can all result in additional fees.”

Fees and surcharges are rising fastest in Las Vegas, but the trend of increasing fees is consistent nationwide.

Fees and surcharges are rising fastest in Las Vegas, but the trend of increasing fees is consistent nationwide.

Hotel fees and surcharges first emerged as a common practice in 1997. Now these additional charges have become commonplace. According to Hanson, more guests are accustomed to the fees, a concept the airline and car rental industries have helped advance.

This model of steadily increasing fees works best when occupancy is high, Hanson said. Since their introduction, lodging surcharges have only been reduced twice: once following Sept. 11, 2001, and again in 2009, when fees and surcharges dropped nearly by half.

“Hotels knew they couldn’t lose or offend guests; they needed occupied rooms,” Hanson said. “Now, property-level managers and executives have become fluent in what fees, and in what amounts are acceptable to guests. Changes in training have followed to help respond to guest complaints, and as a result there are fewer fees being removed from guests’ bills than ever before.”

PROPER DISCLOSURE

The main reason guests have difficulty overturning charges is that the industry has become that much better at disclosing them. Charges are being displayed on the room-service menu, hotel minibar and email confirmation, depending on the hotel property. Though the charges may not all be in one place, they will be displayed somewhere.

The estimated amount of fees and surcharges collected by year

Year Amount (in billions)
2014 $2.25*
2013 2.1
2012 2.0
2011 1.85
2010 1.7
2009 1.55
2008 1.75
2007 1.75
2006 1.6
2005 1.4
2004 1.2
2003 1.0
2002 0.55
2001 1.0
2000 1.2

*forecast

Source: Bjorn Hanson, the Preston Robert Tisch Center for Hospitality, Tourism and Sports management, and the NYU School of Professional Studies

“Some guests will object to a charge here and there if they think it through. The challenge is for those guests to be diligent,” Hanson said. “If an amenity has a tag on it there won’t be justification for removing that charge, but something like an ‘automatic housekeeping surcharge?’ That won’t be visible in bold font but it could appear on an email confirmation somewhere.”

According to a statement from the American Hotel & Lodging Association, resort fees are often bundled to provide guests with a selection of amenities and services under one price that would otherwise cost more if charged for individually. Despite this, hotels should be aware of how they are handling challenges to their fees. If a guest successfully argues for a charge to be removed, only to see it reinstated on the final bill, a hotel risks drawing its guest’s ire.

The hotels that benefit the most from this increase in fees operate in the full service and luxury segments, as they offer more services and amenities and therefore more opportunities to introduce new charges.

Hanson said that some charges also are more appealing to hotels than others, such as the early departure fee. In the past, a guest checking out a day early might net them a $50 charge, but in some cases that charge has been extended to include a full night. Hotels argue that they could be selling that room to another guest to produce additional revenue.

NEW FEES

In 2000, hotels introduced energy surcharges. Since then, no new major fees have been introduced until recently, when select properties began to charge for Internet access, with the majority of hotels undecided on whether to charge for the service or not. In 2013, operators spent an average of $40,000 per property to upgrade their Internet services. Such an investment is putting pressure on owners to find a way to pay for these and future upgrades.

“Travelers frequently compare their free Internet access at Starbucks to the paid access they have in hotels, but they aren’t downloading movies at Starbucks,” Hanson said. “There is a different level of demand on the system. It does bother consumers, but the industry is responding and finding ways to do it that are fair.”

A tiered pricing model for Internet access is being implemented by many properties, with paid options available to guests interested in streaming music and video, with bonuses for loyalty members. But apart from Internet charges, what new fees could have made their way into the industry?

The newest one Hanson has seen is a charge for surface parking. “Not in a parking garage, valet or attended lot, just a suburban parking lot,” Hanson said. “It is a keycard for a gated parking lot, not a new service but a new charge for an expected service.”

The most confusing aspect of this system is that fees and surcharges are not consistent, but change hotel by hotel. “The same brand of property on the east and west side of Manhattan will have different charges, and these charges can change week to week,” Hanson said. “For this reason, rate transparency is so important, but it’s difficult to track because of how complicated it all is.”