The federal government last month fired a warning shot at the hotel industry over one of the most contentious issues between hoteliers and their guests, including event planners and attendees: ancillary charges often billed as resort fees.
For the first time, the Federal Trade Commission (FTC) threatened hoteliers with legal action if they continue an online pricing practice called “drip pricing,” in which charges for specific amenities like newspapers, in-room safes and use of the hotel exercise room are excluded from an otherwise total price, consisting of room rate plus taxes, displayed at booking.
The FTC sent a letter to operators of 22 hotels stating that an investigation “found that in at least some instances mandatory resort fees are not included in the reservation rate quoted to consumers” and that “these practices may violate the law by misrepresenting the price consumers can expect to pay for their hotel rooms.”
Annette Soberats, an FTC staff attorney and the agency’s contact for the hotel operators, says the letter was intended to “send a message to the industry that these fees need to be disclosed up front.
“We decided to narrow our scope to these 22 hotels for the time being, but our message is much broader than that,” Soberats says. “Certainly there are more hotels that hide resort fees. Hopefully, hotels will take the warning and clean up their act.”
Soberats declined to provide a timeline for the hotels to comply, but she indicated the FTC will give the hotels ample opportunity.
“This is the first time we’ve provided clear, specific guidance to the industry,” Soberats says. “At this time, we’d like to work with them privately so they cooperate with us and make the changes we believe are necessary.”
Judging from the response of Joe McInerney, chief executive of the American Hotel & Lodging Association (AH&LA), the industry’s chief trade association, hoteliers will need all the time they can get.
“We don’t think we’re doing anything wrong,” McInerney says. “All the chain [websites] I’ve gone to where there’s a resort property, they list the resort fees; and if there’s an Internet fee, if there’s a parking fee.”
AH&LA takes no position on hotel pricing policies, according to McInerney, such as whether the price quoted at booking should include the room rate, taxes and all mandatory or unavoidable fees, or whether the fees can be disclosed separately.
“We don’t set policy, and we can’t give them legal advice,” McInerney says. “We sent out an advisory to our members that they should check with their [legal] counsel.”
McInerney says that hotels grappled with price quotes about a decade ago as consumers started booking travel online in mass numbers, but he lays the blame now primarily on third-party travel bookers.
“It was a learning process,” McInerney says of hotels. “But to get rid of the complaints, they put it on their website, and they tell people when they check into the hotel: There is a fee. Our problem is with third-party reservations systems; in many cases they don’t tell the customer about the fees.”
YOU CAN'T HIDE
The FTC investigation stemmed from an agency-sponsored conference last May on drip pricing in the hotel industry. The letter that resulted details examples of what the FTC considers obscure—and potentially illegal—pricing practices:
“At some of these sites, the applicable resort fee is listed nearby, but separate from, the quoted price. In others, the quoted price is accompanied by an asterisk that leads consumers to another location at the site—sometimes on the same page, sometimes not—where the applicable resort fee is disclosed, typically in fine print. A few sites fail to identify applicable resort fees anywhere, and instead inform consumers that other undefined fees may apply.”
By contrast, the FTC specifies what it expects from hoteliers:
“While a hotel reservation site may breakdown the components of the reservation estimate [e.g., room rate, estimated taxes and any mandatory, unavoidable fees], the most prominent figure for consumers should be the total inclusive estimate.”
The letter adds that “these mandatory fees can be as high as $30 per night, a sum that could certainly affect consumer purchasing decisions.”
BUSINESS IS BOOMING
The U.S. hotel industry will tally a record $1.95 billion in revenue from fees and surcharges in 2012, on top of a record $1.85 billion in 2011, according to a forecast released last August by Bjorn Hanson, dean at the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at New York University and a longtime observer of hotel fees.
The increase reflects higher hotel occupancies nationwide this year over 2011, according to Hanson, but he also attributes the increase to “higher fees and surcharge amounts at many hotels, especially resorts.”
He reports that hoteliers are introducing fewer new fees than in years past, possibly because they’ve already created so many as cataloged by Hanson, starting with his years at PricewaterhouseCoopers, where he founded and led the professional services firm’s lodging practice.
In addition to general resort or amenity fees, Hanson’s list includes early departure and early reservation cancellation fees along with charges for the hotel to restock the mini-bar.
For groups, Hanson cites increased charges for catering staff and for meeting-room set-up and breakdown, along with fees for master-folio billing and to hold luggage for guests after check out but prior to their departure.
“Most fees and surcharges are highly profitable; most have incremental profitability of 80 to 90 percent or more,” Hanson writes.
FULL DISCLOSURE
Tyra Hilliard, associate professor in the Restaurant, Hotel & Meeting Management Program at the University of Alabama, says that event planners can protect themselves and their attendees from opaque pricing and unexpected charges, but not enough do.
“I don't see nearly enough planners putting a clause into their contract that requires full disclosure of the ancillary fees to the planner or the attendees,” says Hilliard, who is also a meetings industry attorney. “The ones who are using such a clause are usually the planners who have been burned before—either a budget that got out of control because rooms were on a master bill or attendees who were angry because the rate they paid was not the rate they expected.”
Not surprisingly, hotels will more readily agree to disclose ancillary fees up front rather than reduce or eliminate them, Hilliard says.
Still, she adds that many planners negotiate favorable terms for their attendees.
“I encourage planners to use that as a marketing tool by saying something like ‘Attendees at ABC Meeting will pay a reduced resort fee of $10 per night, which includes wireless Internet,’” Hilliard says of resort fees and other ancillary charges. “Then it's fully disclosed, and attendees know the planner was aware of it and negotiated it down, or had more valuable things included, like Internet instead of pool, golf or other things attendees can't use during the meeting.”
Some longtime observers doubt the FTC warning letter will readily prompt hoteliers to practice more transparent pricing, while others believe it’s just the shove the industry needs.
“I think owners are calling the shots and are probably willing to take a chance to get the additional revenue until they are mandated to disclose and until this goes to court,” says Joan Eisenstodt, of Eisenstodt Associates.
But Jan Freitag, a senior vice president at lodging industry tracker STR (Smith Travel Research), predicts that the FTC’s action will blunt the hotel industry’s appetite for ancillary fees, let alone the opaque pricing practices associated with them.
“It will be interesting to see if hoteliers will abandon the charges or, more likely in my opinion, increase their room rates,” Freitag writes in his 2013 hotel-industry trend predictions, posted this week on STR’s HotelNewsNow.com. “Get ready to see a lot more resorts advertising their prices ‘now without resort fees.’
“For too long some customers have not been able to see the full extent of their hotel charges up front,” Freitag adds, “and the FTC is rightly putting a stop to this habit.”
Marshall Krantz has covered the meetings industry for the past 15 years.
