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"
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
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
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,"
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.
Source: Business Travel News