By Jack Lindemuth
Hotel operational expense growth pacing higher than revenue growth has made it more challenging than ever for many hotel owners to achieve their profitability goals. The pandemic turned the previous labor shortage into a crisis and new types of accommodation, such as Airbnb and Sonder continue to cause disruption. This new industry landscape requires a recalibrated business model for most hotels and resorts to achieve financial success, and one way to do that could be implementing resort and urban fees. While these are not necessarily the silver bullet, resort and urban fees can provide owners and hoteliers with additional incremental revenues that are highly profitable and notable if strategically executed.
Resort and urban fee adoption growth
These fees started in resorts many years ago to help cover increased amenity costs, deter “nickel and diming” guests and improve profitability. Common fee inclusions were, and are to this day, high speed internet, bottled water, social hour wine and snacks, select recreational activities as well as access to spas, pools, and fitness centers.
According to CBRE, just over half of US resorts were charging a fee immediately before the pandemic and that was already a growth of about ten percent compared to 2015. Resort fee revenues made up nearly four percent of total resort revenues at this point, illustrating how impactful this revenue stream can be.
In urban hotels these fees were unheard of until about 2015, which was when a few properties began experimenting across major markets and found quick success. Urban fee property participation growth has been steady since, equating to about thirteen percent from 2015 to 2019, which is a higher growth rate than resorts, bearing in mind of course, that only about three percent of urban properties were charging a fee by 2019.
Currently, only six to seven percent of the total US hotels and resorts charge some type of an add-on fee. Having said that, the adoption rate growth has been steady and is likely to turn those numbers into double digits within the next few years, given that hotels are now under considerable pressure to achieve their profitability goals. The adoption rate will primarily grow mainly thanks to upper upscale as well as luxury hotels and resorts, given that limited service and midscale properties tend to have difficulties creating a strong value proposition. Additionally, some properties are likely to be tempted to introduce a fee based on the growing volume of success stories around them.
So how can YOU successfully execute this type of fee at your property?
Resort and urban fees have and continue to be a “hot topic” within the industry because some hotels and resorts did and continue to do a poor job of implementing them, which has resulted in bad press, lawsuits, and serious backlash from dissatisfied guests. In a recent survey conducted by AHLA, 80% of consumers were willing to pay mandatory resort and urban fees if the value proposition was there, although 89% of them wanted to be informed of the fee at the beginning of the reservation process and 61% preferred the fee clearly broken out versus lumped together in the total price. This is good news because it suggests that most guests don’t have a problem with the fee as such, but rather with opaque or outright deceitful execution they may have experienced at some hotels.
There are three elements you should incorporate in your fee implementation and execution process, if you want this revenue stream to be successful at your property:
- Transparency
Online booking channels, reservations, and sales teams should notify all guests of the fee at the beginning of the booking process. Historically, a notable portion of the negative press and guest dissatisfaction has been driven by the fact that the fee came to them as a surprise at the end of the booking process, because it was hidden intentionally, because it didn’t show on a booking platform or because it wasn’t clearly communicated by the staff. Nowadays technological gaps can’t really be used as an excuse, seeing as online booking technology has evolved through the years and allows for the fees to be displayed prominently at the start and throughout the reservation process. Likewise, any confusion caused by staff not communicating the value proposition or inclusions clearly can easily be solved, via the second element that should be the base of your fee execution process.
- Training
Your guests will only see your fees as transparent if your teams can communicate and manage them. Front desk, reservations, and sales teams should receive appropriate training before the fees are introduced, so that they can be confident selling and explaining the value proposition behind them to guests and prospective clients. The more confident your teams are explaining the value, the more successful your guest service scores and fee capture rate will be. It is also a good idea to authorise your teams to discount or waive the fee in certain service recovery scenarios or when dealing with the very small percentage of guests who simply refuse to pay the fee because they didn’t use any of the value adds.
- Clear and attractive value proposition
A solid list of inclusions is typically easy for resorts to create, given the array of amenities and services they provide. This can be a little harder for urban properties however, as they need to be more creative in establishing an inclusion list viewed as a strong value-add by most guests. Successful urban hotel examples include transportation service within a certain mile radius, welcome drinks, bikes, and F&B credits.
Once you’ve included all three of these elements in your plan, you still need to be prepared to adjust them to any changes in global circumstances. Failing to do that could fuel the negative attitudes towards resort and urban fees in the press, which is just what happened when some properties did not consider adjusting their fees to accurately reflect the decrease in amenities and services provided throughout the pandemic. Here is to hoping that this will be the last wave of significant negative press on these fees however, as more owners and hoteliers learn from their mistakes and embrace the proper way to execute them moving forward.
