Meeting Mentor Magazine

August 2022

Buyer Beware

More Hotel Fees Make
Seller’s Market Even Harder to Take

Meeting, business and transient travelers are encountering more and higher fees every time they check into a hotel.

U.S. hotel fees in 2013 hit a high of $2.1 billion (1.7 percent of total hotel revenues of $122 billion). That record will be broken in 2014, when these fees increase to $2.25 billion, projected Bjorn Hanson, Ph.D., clinical professor at NYU School of Professional Studies, Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management in his annual analysis report. The only existing fee that is decreasing is the minibar restocking charge, and that’s because fewer rooms feature minibars.

The newest wrinkles:
Meeting room rate management. If hotels charge more for guest rooms at peak occupancy, they’re thinking: why not the meeting rooms?
Room setup or breakdown fees when a meeting room needs to be reset several times.

These fees “have been around for a while, but there’s more implementation,” he said. The burgeoning hotel fees and surcharges are highly profitable at 80 to 90 percent of the amounts collected. They  also skew “almost exclusively” toward the upper upscale and luxury segments that attract meetings, Hanson noted. Lower-priced market segments simply have fewer opportunities to charge these fees.

Surprisingly, hotel fees and surcharges are not consistent across brands; they also change frequently. “You can visit one hotel brand on the East Side of New York one day, and that same brand on the West Side another day, and even go back to the first hotel weeks later, and the fees will be different,” Hanson said. The industry views fees as a “local market” issue, he noted, with hotels doing “what they need to be competitive.”

The good news for meeting professionals is that they continue to have the opportunity to negotiate away many, if not all, of these fees as part of their overall contract, Hanson said. Meeting groups put on banquets — “the most profitable part of food and beverage” — and create activity for everything else in the hotel, he cited. They also allow hotels to charge higher rates for the remaining rooms on property. “This is where the really professional meeting planner makes a difference in cost and in quality of experience,” Hanson pointed out.

The bad news for meetings professionals is that hotel forecasts keep getting revised…up, with 2015 set to gallop in with the highest hotel occupancy levels in 20 years. So predicts PwC US, especially for the group segment, which still has room to recover to peak levels, the company reported. It projected 64.8% occupancy in the U.S. hotel market next year — the highest since 1995 — which will push room rates even higher. Meanwhile, price compression from higher-priced hotels will drive demand downstream to lower-priced market segments.

“The better the news for hoteliers, the more meeting planners will have to plan for higher room rates and more limited availability,” said Jan Freitag, senior vice president of strategic development, STR. Demand is increasing from all sources: leisure, business and group, “giving hoteliers pricing power for the foreseeable future.” To find the “right space for the right price, meeting planners will have to look a bit further out than they used to.”

By the end of 2015, demand for lodging accommodations will increase more than 25% since the trough of the recession in 2009, according to PKF-HR, compared to just 5.6% growth in hotel room supply. As a result, average daily rate (ADR) will rise 5.7% per year from 2015 through 2017. PKF-HR has not seen six years of such strong and sustained profit growth in the 78 years it has been tracking the U.S. lodging industry.

“The hotels that have recovered the fastest and achieved exceptionally high occupancy levels are the upper upscale and luxury hotels in major markets,” cited Robert Mandelbaum, PKF-HR director or research. “They have the meeting space, and occupancy for those two segments will exceed 73% at least through 2017.” Plus, many of these hotels are in preferred coastal locations for meetings: New York, San Francisco, Los Angeles, Miami, Boston, San Diego and Seattle. “That’s forcing buyers to look at secondary cities,” he noted. “What’s unique about this recovery is that lodging has been a leading indicator, when it typically lags.” — Maxine Golding

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About MeetingMentor
MeetingMentor, is a business journal for senior meeting planners that is distributed in print and digital editions to the clients, prospects, and associates of ConferenceDirect, which handles over 13,000 worldwide meetings, conventions, and incentives annually.

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