Why are most added fees and surcharges so high?
It is becoming more common everyday to read or listen to a report about the growing practice of adding “below the line” charges to guest folios by the lodging industry. This practice has been business as usual in the air travel industry for some time, but now it is emerging at hotels, especially in popular travel destination cities.
Las Vegas hotels frequently apply a $19.95 per day resort fee. The list of amenities and benefits associated with this fee are items that are rarely used or requested. It does not even include high-speed internet. A boutique property I recently stayed at in downtown San Francisco charged a $15.00 administration fee. When I asked the manager what the fee was for and what it included, he chuckled and tried to quickly come up with some reasonable and appropriate items, but struggled to sound convincing and offered to credit it back if I was had a problem with it. He didn’t want this charge to result in my deciding to never stay there again.
Those are some of the more extreme examples I have personally encountered recently. There have been many more that amount to much less in cost and generally attract less attention, but over time they add significantly to the cost of travel for the guest. In some cases they add significantly the hotel revenues, but most of the time the revenue is not retained by the property. Municipalities love to tap the traveler’s pocket book for additional revenues so they do not have to raise taxes as much on the locals. It all adds up to the reality that it is becoming more frequently true that the quoted rate for a hotel room doesn’t mean much where the total cost of the stay is concerned.
Why is this practice likely to become more common in the future? What are the factors driving the growth of it? we have been told repeatedly that the lodging industry knows that the traveler’s decision about which hotel to stay at can be affected by as little as $2.00 per night for a room rate. This places a lot of pressure on the hotel to advertise the lowest room rate possible. Raising a rate to cover an added cost can cause occupancy to decline to unacceptable levels. Further, room rates tend not to be a fixed amount and keeping track of a host of add-on amounts for that reason becomes somewhat like trying to pick up a ball of mercury. And, guests have come to expect a final folio amount to significantly exceed what the quoted room rate is, up to a point. So a quoted $89.95 per night rate can easily become a $113.00 or more per night actual cost. Travelers are becoming conditioned to this reality and resistance to it is softening increasingly as time goes by. Also, occupancy taxes are charged against the room rate. So as a room rate increases, so do the tax amounts. Setting out special fees separately from the room rate can lead to avoiding increased tax charges.
Is the added fees practice a bad one that is probably not going to continue? It turns out that is the wrong question. It is almost a certainty that add-on charges will continue as a standard practice because it is the best solution to a growing market challenge. There are many sources and types of operating cost increases. Consumers who rent hotel rooms have been trained to be highly sensitive to quoted room rates, the same as they have for the cost of a gallon of gas. Close examination of these attitudes reveal they are not particularly rational for the most part, but we all do it anyway. So rate management practices for hotels tend to be driven by room rate indexing as a marketing strategy. Below the line extra charges are the best and only option available to recover rising expenses, as well as in some cases increase earnings. The add-on option is especially helpful for recovering or avoiding expense for transaction based services that hotels use. This is a fair way to pass along the related expense directly to the guests. They are ultimately who has to absorb operating costs in the long run, without negatively impacting the profitability of the hotel.
The lodging industry has the air travel industry to thank for blazing the trail of ala carte fees charged to travelers. Compared to what air travelers are experiencing, they are going to be increasingly less inclined to object to, if perhaps even notice, when the hotel they are staying at adds a small cost recovery fee to their room charge.