Hotels follow airline industry, add fees

A new study shows that lodging surcharges are on the rise, prompting fears of more nickel-and-diming.

By InvestorPlace May 4, 2010 10:01AM

hotel fees baggageCustomers have long been complaining about how most airlines nickel-and-dime them on everything from food to extra bags to seat assignments. Well brace yourself, weary travelers, because it now appears that hotels are getting in on the act by tacking on the fees.

 

A new study from New York University found that while total fees collected by U.S. hotels declined to $1.55 billion last year, they are on the rise in 2010 -- tracking toward $1.7 in annual surcharges. According to NYU staff, the dip last year was largely due to a faltering economy and as booking increase so will the add-ons.

 

The fees were initially started by high-end hotels in the late 1990s for access to spas and putting greens -- now they appear to be creeping across even moderately priced hotel chains.Though currently fees are imposed mostly on a site-by-site model for most major hotel operators, there’s a real chance some chains like Choice Hotels Inc (CHH), Marriott (MAR) or Wyndham Worldwide (WYN) could institute businesswide charges for much more than just the minibar.

 

According to the NYU survey, fees charged by hotels last year covered many things you’d expect to pay more for -- such as room service. But increasingly common are charges like a fee for canceling reservations without adequate notice, storing luggage and even automatic gratuity for cleaning or turndown.

 

There’s hardly an industry standard on the charges. Heck, the policies are even different within franchises -- Hyatt Hotels (H), for instance, offers Internet access for free at some locations but charges up to $10 a day at others. But one thing is clear, as put plainly by Southwest Airlines (LUV) CEO Gary Kelly: “Business travelers don’t like fees.”


In fact, many insiders think Southwest airline’s success has been loyalty from customers due to its resistance to tack on fees as its competitors have. Southwest Airlines has managed to post a profit in each of the last four quarters despite a down economy, compared with four straight quarterly losses at competitor US Airlines (LCC).

 

But long-term loyalty may not be on the radar for hotels that have been battered by the recession. Choice Hotels’ first-quarter earnings fell 3.2% as U.S. revenue per available room, a key industry benchmark, fell 10% on the quarter.


Upscale hotel operator Wyndham Worldwide isn’t looking to hot either, with three consecutive quarters of shrinking EPS despite signs of improvement across the broader economy. And Marriott International said in late April that it returned to profitability in the first quarter compared with last year, but you can bet execs are looking to continue the growth trend since Marriott lost $23 million in Q1 of 2009 and is still on the mend.

 

Again, no industrywide or chain-wide changes are in the works … but travelers would be wise to read the fine print next time they book a hotel stay. Otherwise that early check-out might cost you.


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