In the Poker Game of Hotels, Resort Fees are the Rake
By David Eisen, Director of Hotel Intelligence and Customer Solutions for HotStats
Nothing irks people more than paying for something they don't need or use. I once paid $50 for a pair of pants I never ended up wearing—but that's on me. I'm to blame. It's another thing altogether when you are forced to pay for a pair of pants that you didn't want in the first place.
I, like many others, have endured this experience. On a recent one-night hotel stay, the things I used consisted of the bed, the TV, the shower, the sink, and the toilet—all things one would plausibly use over the course of a stay. Imagine my chagrin when, upon checking out the next morning, I was slapped with a $35 facility fee. I didn't pick up a dumbbell, I didn't make a local call, I didn't even open the minibar door.
Why should I have to pay this fee? Alas, I had no recourse: "Sometimes you eat the bear, and sometimes the bear eats you."
I am not alone in my exasperation. These miscellaneous fees are germinating across the hotel industry—from the city center to the 'burbs—and rather covertly, appended to folios at time of departure and frequently unbeknownst to guests at the time of booking. (There might be a reference to the fee in the fine print.) They are sprouting up at a time when the hotel industry as a whole is in the midst of flagging RevPAR numbers that are impacting both overall revenue and profitability.
Fee-ding the Coffers
These fees are something that many within the industry have been outspoken about before. Bjorn Hanson, an adjunct professor at the New York University School of Professional Studies Jonathan M. Tisch Center for Hospitality and Tourism, projected last year that total fees and surcharges collected by hotels in the United States would reach a high of $2.93 billion in 2018. "The increase," he told The New York Times, "reflects a combination of approximately 2.5 percent more occupied hotel rooms than in 2017, and 6 percent more fee and surcharge categories and higher amounts."
Hanson also predicted that more urban hotels would implement such fees in 2018, with the total amount of resort fees collected climbing by $110 million. Further, these fees would sprawl outward to both secondary and tertiary markets.
At the same time, they are an artful way for hotels to generate more revenue while not raising actual room rates.
According to HotStats data, resort fees are on the rise. Of a sample of 117 U.S. hotels, resort fees on a per-available-room basis were up 11.3% in 1Q19 over 1Q18. As a percentage of total revenue, they are also growing, up .25 percentage points in 1Q19 over 1Q18.
And as these additional fees become more prevalent, they are also being further scrutinized. Earlier this month, Marriott International was sued in the District of Columbia over its policies and practices regarding resort fees and what's referred to as "drip pricing," a technique whereby a top-line price is advertised at the beginning of the purchase process, followed by additional fees, taxes or charges, which may be unavoidable, and are then incrementally disclosed or "dripped." The lawsuit claims that Marriott's use of resort-fee pricing misrepresents material facts and misleads consumers. "This is a straight-forward price deception case," the lawsuit states.
In a twist, resort fee pervasiveness is now having an adverse impact on hotels. Although online travel agencies collected double-digit commissions off room rates from the beginning, they didn't mess with resort fees—until now.
Booking.com said in June that it would begin collecting a 15% commission on resort fees in the U.S. And while Expedia Group said it would not follow Booking.com's lead, it decided to dole out its own form of punishment by pushing hotels that charge resort fees down in its sort order.
Raked Over the Coals
In the movie "Rounders," Edward Norton's character, Worm, exclaims in a moment of exasperation: "In the poker game of life, women are the rake." It's a bad take and infers that women can be irritating.
A rake in poker is a commission fee taken by a card room that's operating a poker game, usually 2.5% to 10% of the pot for each hand. Since poker is a person-to-person game, and the house does not wager against players, the rake is a way to generate revenue where there otherwise isn't any. In other words, it is a vexing and specious fee.
In the poker game of life, resort fees are the rake—a nuisance to guests. But hidden in its perceived underhandedness is the hotel industry's worry over diminishing revenue. In order to counteract slowing RevPAR, hotels take to tactics that can ensure more revenue, such as resort fees and cancellation fees, the latter of which hotel companies have been fiercer about enforcing by narrowing cancellation windows.
These devices help undergird bottom lines because fees like these have low-operational impact, and so more of the money flows through.
It's a gain for hoteliers that comes at a guest's expense and overall experience. Will they last? I'm not going to make that bet one way or the other.
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