Travel managers grapple with resort fees as Marriott gets sued for them

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Travel managers have railed against the recent increase in "drip pricing" practices among their hotel partners. At BTN's recent Business Travel Lodging Summit, Cognizant North America travel manager Drew Mitchell asked the buyer audience, "Who paid a destination fee for your property this week? Great. That was 8% to 15% of your room rate that you don't get to track or claim as leverage for your negotiations next year."

It's not just travel managers who are increasingly concerned. Attorneys general in all 50 states and the District of Columbia have been investigating the mandatory charges variously called "resort fees," "destination fees," "service fees" or "amenities fees" at a number of hotel brands, including big names like Hilton, Hyatt, InterContinental Hotels Group, Marriott International and others. D.C. Attorney General Karl Racine has filed an individual case against Marriott independent of the of the broader investigation.

Marriott has "reaped hundreds of millions of dollars over the past decade from this deceptive drip pricing," said Racine, whose suit cites daily fees ranging from $9 to $95 dollars at 189 Marriott properties globally. It's not the fees themselves, however, that are the grounds of the lawsuit; it's the way they are disclosed.

"Resort fees" or "destination fees," which cover items like newspapers, access to fitness rooms or gyms, Wi-Fi and other amenities, can actually turn up in any type of hotel, not just resorts and high-end leisure destinations. The charges aren't listed in online booking tools as part of the rate, either on consumer sites like Expedia or Booking.com or on corporate booking tools. Rather, they appear after the traveler initiates the booking and payment, if the payment is made up front. If just making the reservation online, travelers may not see the fee until they check out at the hotel front desk.

"We initially saw this on the group side," said travel and meetings buyer Amy Perrone. "It's often in compressed markets, and they look to any buyer like a way to make us pay more without officially raising the rate."

Racine called that "bait-and-switch advertising" and said it is "unfair and illegal."

Hospitality consultant and executive vice president of 795 Fifth Avenue Corp. Bjorn Hanson argued there are plenty of reasons an individual hotel or group of hotels would separate a fee from the base rate and there's a difference between an "unpopular" pricing strategy and an "unlawful" one.

Challenging market dynamics have been one reason, Hanson said, estimating average daily rate growth in the U.S. at about 2% for 2019. "But things like real estate taxes, labor costs and insurance will increase by much more than 2%." That means U.S. lodging industry profits are likely to decline this year, despite the likelihood that occupancy rates could be at their highest since 1981, he said. "When pricing power isn't enough to keep up with costs, you start to see these kinds of fees."

He also argued there are customers who like to see the fees separated in order to weigh the value of what is being offered in the amenity package. He elaborated, "You could argue that pricing amenities separately provides more transparency" for the customer. Hanson also said that such fee structures could save consumers some money, as most cities don't impose occupancy taxes on fees.

Asked whether hotel owners or managers could take advantage of such structures simply to make their rates appear lower, he acknowledged, "Almost certainly."

Marriott is by far not alone in such practices. Racine may have targeted the Bethesda-based hospitality giant because the company is headquartered in D.C.'s backyard and his team was deputized to cover the brand in the industrywide investigation. 

Yet, Hanson suggested the lawsuit as currently filed may be imprecise, given that Marriott manages hotels on behalf of owners for the vast majority of all properties flying one of Marriott's 30 flags. In some cases, Marriott established the fees. In other cases, an owner or private management established fees. In almost all cases, Hanson argued, Marriott is not the primary beneficiary of the resort or destination fees. That would be the hotel owner. Naming Marriott as the sole defendant, he said, looks "uninformed."

How drip pricing affects travel managers

That asset-light commercial structure, which has become more common among larger hotel brands, is part of the frustration for travel managers. Mitchell's complaint is not simply that resort or destination fees are in play but that there is no systematic way to determine which hotels will apply them, or when, even though travel managers may officially negotiate such fees out of their contracted rates.

"Even if you have volume and are lucky enough to get that fee waived," the fees may still show up. "And it is not easy to recognize them," he told the audience at the lodging conference in New York City, where his partner hotel -- he did not disclose the brand -- incidentally charged him a destination fee.

"I looked at my app last night, [and] there was a $25 fee. I looked [deeper] and it said 'Cognizant exempt from this fee.' When I drilled down further in the app, I saw ... it's still going to be on the folio, [but] I'll get a $25 food credit."

Mitchell said he contacted the elite desk about the matter. "I was pressing them and pressing them. What does this mean? Do you have a report for me? I want to know what we have left on the table with this credit." After extensive questioning, the desk told Mitchell not to worry about it since the fee won't affect him. "That answer isn't good enough," he said.

Ultimately, Mitchell took screenshots and asked his national account managers for reporting, but nothing was available. "They came back to me and said they didn't have a report, that they don't control the food and beverage and it's a franchise so they can't capture it. I feel like partners hide behind their franchisees or management companies to prevent us from getting that insight or knocking those fees out. Two years ago, I came to the same location, I did not pay a destination fee."

Mitchell is not alone in this frustration. Hanson, who compiles an annual hotel fee analysis, detailed to BTN last year a marked increase in hotel service and amenity fees. He recently has asked corporate travel managers: Have you been charged fees on the hotel folio that should not have been there based on a contract in place with the brand?

"The answer was often yes," Hanson revealed. "I've also asked the question: Were you ever not able to have it removed? The answer to that question is 'no.' That does not mean the process of getting it removed was without frustration," he added.

Will the lawsuit help travel managers?

Should Racine prevail in the case, Marriott would presumably be compelled to disclose mandatory fees in upfront pricing, which would at least give travelers a means to make informed decisions for the brands beneath that umbrella. That assumes corporate online booking tools would be able to display the fee information.

It remains to be seen whether broader legal action might result from the larger industry investigation, but so far, the FTC, which would normally prosecute a consumer case like this, has not gotten involved. That could be an indicator of the strength of the suit. Regardless, Hanson said, the industry is watching closely since virtually all brands have a stake in the outcome.

In the meantime, market forces may already be in play to favor hotel companies that adjust fee practices without government intervention. Booking.com and Expedia, both of which were among 22 hotels and online booking sites served a 2012 "warning letter" by the FTC about drip pricing schemes, have taken their own actions. 

Booking.com, looking at its own commercial issues more than the consumer backlash, moved in May to charge commissions on the base rate plus the fees, where previously the company had charged commission only on the room rate. The move obviates the rationale for hotels to separate rates and fees to avoid paying commissions. It does not, however, address how rates and fees are displayed in search results.

Expedia, on the other hand, is planning a display-biasing approach. A company executive said last month that it is working to push lower on the list of search returns those hotel rooms that have added resort and destination fees. Because fee schemes have been an effective tactic for hotels to game their positioning in online travel agency sort orders, such commercial moves could mute their usage.

Can OTA machinations solve any issues for corporate buyers? If they can dissuade properties from imposing mandatory fees and, rather, induce them to include the entire rate up front, it could. As the market dynamics play out, Racine has indicated that filing a suit against Marriott might at least raise awareness among travelers of the broader practice.

That's the last line of defense for Mitchell. At least for now, he said, he has to rely on his managed travelers to notice such fees and either report them or individually get them refunded.

Hanson had a different read on the situation. "There's a risk for one jurisdiction to go off on its own with an imprecise complaint," he said.

In other words, if the D.C. lawsuit doesn't accurately address the issue, it raises the chances that the plaintiff will lose and signal to the industry that the fee situation is A-OK.
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Source: Business Travel News

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