Resort fees popular, not popular, and not going away

NATIONAL REPORT – Whatever you want to call them — resort, destination, or “junk” fees — industry experts say they aren’t going anywhere anytime soon.

In addition, many say most of the proposed solutions aren’t intended to end the practice but just to make the hotel industry more transparent on what its real rates are.

“This goes back to how you feature something on a website when you’re booking. And I think that they’re often hidden as service offerings of the hotel,” said Lily Sanders, director of asset management at The Ascott Ltd., Singapore. “So, you’re basically bifurcating the service offering. And if you’re not clear what you’re giving, I think it becomes kind of junky.”

These fees, common at resorts for things like beach chairs or gym access, are now showing up at many hotels under different names. Hotels are getting more creative with what they name these fees and what they charge. The first resort fees started showing up in 1997, according to a Federal Trade Commission report, and they’ve only grown since then.

“They seem to be a good source of revenue for hotels to try and tack on an additional fee in exchange for providing access to certain services… It was always about that value-add to capture some additional revenue,” said Romy Bhojwani, senior vice president and head of asset management at HHM Hotels, Philadelphia.

“They’ve been a significant source of top-line revenue," Bhojwani continued. “What’s great about resort fees is that they don’t have a lot of operating costs associated with them. Usually, the infrastructure to provide that service already exists at the hotel. So, the flow-through margin contribution from that additional revenue is pretty significant to the bottom line. So owners love them, and asset managers love them.”

But whether consumers love them is a different story.

Consumer Reports reported that the hotel industry brought in a then-record $2.9 billion in resort and other fees in surcharges in 2018.

There’s little doubt that the number has skyrocketed over the past few years. The fees have received renewed attention from travelers coming out of the pandemic because they booked a rate only to see the daily total rise 25% or more on the final bill because of taxes and fees.

Transparency as a solution

Experts say successfully implementing fees is more a matter of being transparent with your communication with guests about how much they cost and what they are for.

Lily Sanders, director of asset management at The Ascott Ltd.

“I do see [transparency] becoming the norm, and effectively it’s just putting a fixed component into your ADR,” Sanders said. “But at the same time, it forces many of these properties, which have added them hastily, to rethink what they offer. I think there’s a lot of junky junk fees out there, to be honest.”

Sanders said that transparency can also be used to enhance the experience for guests. She used as an example a hotel in Niagara Falls that offered guests a free flight of beers from an adjacent brewery as part of an amenity fee.

“That transparency forces the consumer to evaluate what they’re paying for. And I do think that there is some real value in using the amenity fee to engage the guests,” Sanders said. “The idea is it gets the guests connected to the neighborhood, but then encourages the guest to use the services on site.”

Government, industry intervention

A plethora of litigation and legislation has been proposed to improve or end the practice of adding hotel fees. 

Earlier this month, the California Hotel and Lodging Association announced its support for the California Transparency Standard for Lodging Fees, which supports a single standard across all lodging.

“Equal requirements must exist for hotels, short-term rentals and other transient accommodations, as well as the various booking channels that exist, from direct options to online travel companies and even metasearch sites, as all mandatory fees are included in upfront pricing so guests can more clearly see any costs associated with their stays,” Lynn Mohrfeld, president and CEO of CHLA said in a press release.

President Biden brought the topic of junk fees up in the State of the Union address in February. And the U.S. Senate has proposed legislation, though there is skepticism anything can happen during a Presidential Election cycle.

There has been lots of movement on the litigation side, with highlights including the Texas Attorney General suing Hyatt regarding the true price of its hotel rooms. Travelers United also sued Hyatt in a class action lawsuit last month for the same thing.

And there has been movement on the transparency end this summer, with Marriott saying in May it would include resort fees in the first price travelers see on its site and app. Hyatt did the same a few months later. 

Romy Bhojwani, senior vice president and head of asset management at HHM Hotels

“When you look at the lawsuits that some of the state attorney generals have filed, it is not about the fee itself. It’s not about they’re not trying to control the ability of businesses to charge the fee. It is about transparency,” Bhojwani said.

Experts say that the big brands have already done a lot of work on assigning a value (4x, for example) for services that come with any resort fees. But that doesn’t mean there still isn’t room for bad actors in the industry.

“If you’re a branded hotel, there are some good guardrails in place,” Bhojwani said. “When a brand approves the hotel charging this fee, they undergo a rigorous exercise. You need to submit an application. You need to provide the list of services that you will provide in exchange for the fee. You need to calculate the retail value of those services.

“So for branded hotels, for the most part, it’s not a concern, where some of these frivolous services come into play is more the unregulated independent hotels where a customer could potentially not perceive as much value in the in the services that are being offered.”

Sanders said the spotlight on the fees is forcing hoteliers to take a new look at what they are charging and how much it is valued.

“Personally, the flow through for my resort fees is not 100%. When you start to look at things in more detail, there’s always a cost associated with any service you’re offering,” Sanders said. “The devil is in the details… What’s happening is the brands are encouraging and enforcing some true value to be represented, which then does have an impact on the bottom line. But they’re still incredibly profitable… They are more profitable than room revenue.”

While experts said, for the most part, ridiculous fees for things like electricity have been taken out of the equation, there are legitimate revenue opportunities that come with research.

Christoph McLaughlin, vice president of asset management strategy at Ashford Inc., said in 2019 that he found out about a “historic preservation” fee that fit in some of their portfolio, particularly for its Remington management company.

Christoph McLaughlin, vice president of asset management strategy at Ashford Inc.

“And I realized that they were helping offset some of their R&M costs by targeting this historic preservation fee," McLaughlin said. “And realize that we could be doing the same. Back then when we started rolling it out it was somewhere around $5 per night. But we’re starting to see it as high as $15 per night at some hotels.” 

He said the new revenue allowed the hotels to do additional renovations that probably wouldn’t have been done otherwise, but it did help offset a lot of repair and maintenance costs.

“It had a significant improvement on our bottom line,” McLaughlin said. “What we found when we did the analysis on it was that it was going to add millions of dollars of value to our portfolio, and given that we have a sizable portfolio and number of historic hotels it was very, very material.”

Why resort fees could be here to stay

Experts say charging fees is already baked into current hotel investments despite the legislation and lawsuits. 

“I don’t think the policies are going to be changed. In my experience, any fees are underwritten on an acquisition basis. They’re also penciled in renovations,” Sanders said. “These have become accepted by the investment community. So it’s hard to say, ‘Oh, yeah, because this legislation has been introduced, everything will change immediately.’”

I do see [transparency] becoming the norm, and effectively it’s just putting a fixed component into your ADR. But at the same time, it forces many of these properties, which have added them hastily, to rethink what they offer. I think there’s a lot of junky junk fees out there, to be honest.

Lily Sanders

Share this quote

Sanders added that it’d be unusual to underwrite something without a fee that’s in place, “So if you’re underwriting a hotel with an amenity fee that generates $2 million a year, I think it’d be unusual to underwrite the deal without that $2 million,” he said.

And even if legislation were to happen and fees were banned, Sanders said it isn’t as easy as increasing the room rate to compensate for that lost revenue.

“I don’t find that possible in highly competitive markets… like urban markets. You would tend to see these fees being allocated extra services on site,” Sanders said. “I would expect food and beverage costs on the property to jump proportionately so that they can cover their costs… I would envision because everyone’s gotten comfortable with this added income that you’d see more charges as you go through your hotel.”

Bhojwani added that resort fees aren’t as much of an issue during this unique post-COVID recovery for the hotel industry. If that changes, then adding fees could become even more popular. 

“Resort fees are very popular when it was harder to grow rate in general,” he said. “This has been an ADR-driven recovery, and in previous cycles, it’s been more of an occupancy-driven recovery. When that changes, this topic will get more of a focus when owners and asset managers look for different ways to drive revenue.”