Resort Fees and Pricing Power

Yvonne McDowell, CRME Revenue Manager at Kaanapali Beach Hotel, HSMAI Revenue Rising Leader Council Member

As Resort Fees (or Urban Fees) become more common for hotels as a new revenue stream, what are the guests feeling about it? What are the values provided by bundled services, and should we give guests more options?  The Revenue Rising Leader Council discussed some issues near and dear to my heart: drip pricing, budling, unbundling, and resort fees.

Price Dripping and Resort Fees

Drip pricing is the pricing strategy where an initial lower price is offered to a customer, but during the purchase process, additional fees are added on, resulting in a higher total price. We see this more in the airline industry, as we are getting charged extra luggage fees and priority boarding.

So, on the other hand, an increasing number of hotels are now charging resort fees. And, if they are urban hotels, they are charging an urban fee. It includes things like a bottle of water, free Wi-Fi, free calls, pool usage, gym usage, etc. Many things we have taken for granted as hotel guests for the longest time, most of the resort fees are mandatory, meaning our guests do not have a choice.

The Case for Unbundling?

Unbundling the resort fees to me is the ultimate question in terms of the pricing structure for hotels. Yes, resort fees are a great salary revenue for hotels, but I think we should consider:

  • Is this good for consumers?
  • Do guests have unique needs while traveling with different purposes?
  • Should we be more like an airline industry with unbundling services and amenities to cater to the different segments?

I asked the RLC about their experience with hotel unbundling services charging for and salary revenues.

One RLC member shared, “I have one property that charges a destination fee. We haven’t gotten a ton of pushback on it. From what we’ve heard from guests, I feel like it could just be a part of the price for transparency’s sake. I don’t necessarily agree with a fee on top of the rate. We could just increase the rates by that amount.”

Another RLC member offered a different perspective, “I help oversee is New York City market, so it’s not like a ton of the hotels have resorts or facilities. Even the luxury hotels that supply a little bit extra, obviously that’s unbundled, and people must pay for more. I think what we’ve seen in New York is because we have such an oversupply in inventory. Everybody plays the rate game – if I drop my rate super low, then I’ll be able to convert. For example, they’ll put out an $80 rate and add a $40 resort fee. You’re still coming in with $120 and more times than not, there are no fees or commissions applied to that resort fee. And it’s just X number of room nights per year at that resort fee that just goes straight to the bottom line or goes to guest services or helps hedge with things like inflation.”

The group agreed on how at different properties, guests have varied tolerance for resort fees. One RLC member said, “Guests don’t mind paying that little bit extra because of what’s being offered. That combined with the service at the property is really helping us to keep loyal guests. They come back and continue to pay even higher rates if it’s peak season in addition to an amenity fee, just because they know the value and service that they’re getting.”

Members thought there were some interesting arguments in favor of unbundling, including how unbundling could make hotel stays more accessible to certain guest segments. Another interesting idea was to customize the guest experience and to have tiered options in the process. All agreed that transparency and perceived value are key to the guest experience. Many agreed that it would be difficult to operationalize unbundling or tiered bundling, with their current technology.

Categories: Revenue Management, Pricing
Insight Type: Articles