Analysts: Lawsuit could spell death of resort fees

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Pesky hotel resort fees could soon be on their way out. At least, that's what some hospitality analysts predict might happen following news that the District of Columbia attorney general earlier this month filed a lawsuit against Marriott International, accusing the hotel giant of deceptive fee practices.    

The suit, which was filed with the District of Columbia Superior Court, accuses Marriott of employing "an unlawful trade practice called 'drip pricing' in advertising its hotel rooms, whereby Marriott initially hides a portion of a hotel room's daily rate from consumers." 

That hidden portion, according to the AG's office, is typically labeled a resort, amenity or destination fee.

Marriott declined to comment on the pending litigation but said, "We look forward to continuing our discussions with other state AGs."

The problem of drip pricing and poorly disclosed fees isn't unique to Marriott, however. In fact, the practice is rampant among Las Vegas hotels and resorts.

The industry as a whole has long made use of the practice, generally revealing any mandatory resort fees only at the conclusion of the booking process, resulting in a final price that can differ substantially from the original advertised amount, thus discouraging price-comparison shopping.

Robert Cole, Phocuswright's senior research analyst for lodging and leisure travel, said one of the fundamental issues with drip pricing is that hotels and resorts are often forced to engage in the practice simply to remain competitive.

"The hotel groups that don't use drip pricing are disadvantaged, because their properties look artificially more expensive than the other hotels that are participating in this anti-consumer behavior and are artificially making their pricing look low," Cole said. "If you are doing the right thing for the consumer, you are at a structural disadvantage to those who are being hostile to the consumer, and that's a problem."

While Cole said he expects that the D.C. lawsuit alone won't be enough to end drip pricing, he said he believes a legislative solution, similar to past crackdowns that have reined in problematic pricing practices in the airline and car rental industries, could be in the offing.

"We have a president in the White House who seems to be pro-business and whose family is in the hospitality industry, so there's not a strong likelihood of the Federal Trade Commission (FTC) doing something immediately, but it's been on their radar," Cole said.

Citing a series of warning letters the FTC sent to various hotels in 2012 and an economic analysis of hotel fees released by the agency in 2017, he added, "This is an issue that has no consumer benefits and few proponents. Hotels have managed to skirt it for a while, but it certainly looks like a change is inevitable at this point."

Not everyone is quite as bullish on legislative progress. Industry consultant Bjorn Hanson, an adjunct professor at New York University's Tisch Center, called D.C.'s lawsuit "imprecise" and asserted that any substantial change in the hotel resort fee and drip pricing landscape is "very unlikely."

Moreover, Hanson said that resort fees have become increasingly important to hoteliers in an environment where revenue growth has stagnated and expenses are rising.

"In 2019, average daily rates are probably going to increase by less than 2%, and inflation is going to increase by slightly less than 2%," Hanson said. "But hotels are being subjected to large increases in labor costs as well as in insurance, real estate and financing costs, which are all growing faster than inflation. Despite occupancy being the highest it's been since 1981, the industry can't achieve pricing power, so there's definitely pressure to increase revenues."

Late last year, Hanson released an analysis predicting that fees and surcharges at U.S. hotels would grow 8.5%, to a record $2.93 billion, for 2018. Hotel fees and surcharges in the U.S. have increased every year since 2010.

This rapid rise and proliferation in fees, however, may have finally hit a tipping point among guests. 

"I think consumers are getting angrier," said Christopher Elliott, founder of the nonprofit consumer advocacy group Elliott Advocacy. "More hotels have adopted fees, and the fees have been going up without a corresponding upgrade in amenities.

"A hotel that may have had a $15 resort fee five years ago may now be charging $25, and consumers are not stupid. They know they're getting less and paying more, and they don't like being shown a lower price and then having to pay more at the end of their booking process. But I don't think that resort fees are going to change with a single lawsuit. It's going to take a lot of little things adding up together to finally do away with it."

Meanwhile, Phocuswright's Cole asserted that creating a more transparent booking process is very much in a hotel's best interests.

"Hospitality and drip pricing are two mutually exclusive things," Cole said. "Drip pricing is the antithesis of putting the guest first and what hospitality is supposed to mean. It's in complete conflict with the industry's messaging."

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