Occupancy numbers are currently riding high across the industry, putting power in the hands of hotels to drive rate. But one way to increase profits below the surface without actually raising rates is through the introduction of fees and surcharges, a practice that was benched in 2008 but is now back in the game.
Last year the industry raked in a record $2.35 billion from fees and surcharges alone, but that number is forecast to reach $2.47 billion by the end of 2015, according to the New York University School of Professional Studies.
While this increase is also attributable to a 3-percent increase in occupied guestrooms this year, it’s also boosted from the increased number of fees and surcharges being doled out and higher numbers earned per charge, for a total increase of 5 percent.
Bjorn Hanson, clinical professor for the NYU School of Professional Studies and the Tisch Center for Hospitality and Tourism, said fees and surcharges are thriving in full-service hotels in the upper-upscale and luxury segments, primarily in urban markets and resort locations. Aside from resorts, which have the ability to charge a resort fee, surcharges are most often applied in hotels with a constant stream of business travel. By contrast, economy hotels charge fewer fees because of their price-sensitive guests and fewer amenities.
According to Hanson, some organizations, such as the American Hotel & Lodging Association, assert that the practice of charging resort fees has diminished, a claim he disagrees with.
“The industry is growing more than resorts are growing as part of supply; their share of supply is decreasing,” Hanson said. “Resort fees are so common that guests just accept them. They understand them. And the industry has gotten good at removing opportunities for guests to complain about them.”
This may have been a concern a year ago after the Federal Trade Commission issued letters to 22 hotels based on their practice of charging “hidden fees” to consumers. The letters, in response to complaints from state attorneys general, addressed the disclosure of these fees, and Hanson said that since then the industry has continued to do better with disclosure.
“I’m not sure if the letters specifically did anything to change the practice of charging fees, but the brands have been finding more ways to subtly disclose their practices on fees,” Hanson said. “Front-desk workers can now show guests the disclosures they signed on email confirmations and more. But even more important, the industry is now better at responding to guest complaints over the charges than in the past. They are more personable about them.”
Hanson said he is often surprised with the new surcharges the industry invents each year, with this year’s example being the “early-arrival fee.” If check-out is at noon and a guest wants to extend his or her stay, a fee to keep their room for a few hours makes sense. But when check-in is at 1 p.m. and the guest arrives at noon, sometimes a hotel will only allow them access for a charge between $30 and $50.
The new normal
Practicing with experimental fees is possible now that the industry is experiencing occupancy numbers approaching 66 percent in the U.S. With more 100-percent occupancy days occurring, hotels have the freedom to test fees, safe in knowing another guest will soon appear. But Hanson said one other recent trend in the industry has paved the way for other surcharges: free Wi-Fi.
In many midscale hotels, joining a loyalty program is often all a guest needs to do to earn free Wi-Fi for their stay. Hanson said that concession (for a feature that is often deemed essential for most travelers) acts almost as a test for a hotel. “If a guest doesn’t have to pay for Internet, the idea of fees as surcharges becomes less offensive to them,” Hanson said. “Other fees become more tolerable.”
Hanson also said that the hotel industry is buffered somewhat by comparisons to the airline industry with respect to hidden fees. “Airline fees come off as more bold than hotels,” Hanson said. “People are on planes because they have to travel. There is little space for storage, they are charged more based on the weight of their luggage, every meal is expensive, the Wi-Fi is expensive and all that has provided cover for the lodging industry.”
Hanson also said many new travelers don’t know that fees are increasing, and often believe it is the norm. The only time Hanson expects to see pushback against surcharges is if the U.S. encounters another recession, such as in 2002 and 2009, where the number of occupied rooms dropped.
“At that time the industry knew, ‘Now is not the time to make guests mad at us,’” Hanson said. “There are extreme times to avoid charging fees, but the long-term trend is that there will be more fees, more ways to maximize revenue.”