share
by Tim Brown | February 23, 2015

You can't pick up a trade publication today without reading about escalating hotel fees and surcharges. Yes, ancillary hotel fees have been around for years, but we are now seeing an unprecedented number of new fees and innovative methods to boost hotel revenues and profits.

Unlike the airlines, which added fees to boost sagging revenues during the recession years, hoteliers are doing so during this current hot seller's market. How hot? 2015 will mark the hotel industry's highest performance ever for occupancy, average daily rate, and revenue per available room (RevPAR). According to Smith Travel Research (STR), this strong seller's market will continue through 2020, with a projected compounded annual RevPAR growth rate of 4.9 percent (assuming there's no unforeseen economic or political disaster).

Be Proactive In Negotiating Hotel Fees and Surcharges

If hotel revenues and profits are at an all-time high, why do hoteliers continue to introduce new fees? The easy answer is "because they can." But the reality is that meeting planner budgets are not keeping pace with hotel-projected revenues. In 2014, ancillary fees were $2.1 billion in the U.S. alone.

If you follow my Strategic Perspective columns, you have heard me discuss—okay, it's often a rant—the topic of hotel fees. My mission here is to discuss fair and balanced strategies so that planners can successfully address this important issue.

Today, hoteliers are turning down three meetings for every one that they go to contract with, so it is essential to assess your leverage from each RFP and have a negotiations plan which includes eliminating or reducing hotel fees and surcharges.

Think Like a Hotel Revenue Manager

Because hoteliers can be choosy, planners must assess and leverage all revenues from each RFP and have open conversations on flexibility points that work for both sides.

Revenue Management Variables That Drive Availability and Pricing

—Sleeping Room Block / Revenue: the biggest profit center at 77 percent gross profit
—Peak Night Pattern / Flexibility: all hotels focus on pattern selling, by market segment 
—Group Food & Beverage / Revenue: the second biggest profit center at 38 percent gross profit
—Room To Space Ratio: hotels use meeting space to sell total group rooms inventory
—Ancillary Spending: projected revenue for business center, AV, production, Internet, golf/spa, sponsored events, etc.
—Meeting History: 3 to 4 years
—Season: demand over your date(s)
—Other groups in-house: their revenue contributions

Utilizing A Custom Hotel Contract

Many planners utilize contract addendums, which only include concessions and select performance clauses. It is important to put all contract clauses and requests on the table at one time and the best way to achieve this is to use a custom hotel contract (ready for signature) that can be edited for each meeting, big or small. Your custom contract should address all contract components, value-added concessions, hotel fees and surcharges, performance clauses, and company legal and liability language.

Negotiating Hotel Fees and Surcharges

Your custom hotel contract will not include fees and surcharges and you can address all hotel counteroffers, including ancillary fees, as part of your negotiations plan. Popular hotel fees include: 

—In-room internet fee
—Fitness Center
—Receive or send fax / mail
—Meeting room set up / rental
—Accept / store / deliver meeting materials
—Hotel / Resort fee
—A/V service charge
—Valet & self-parking
—Special event fees
—Early arrival & departure fees
—Additional Master Account set up / administration fee
—Automatic bellman / maid gratuities
—Outside vendor fees
—Room rate energy surcharge

Conclusions

Let's face it: Hotel fees and surcharges are here to stay. But the key to success is being proactive in your negotiations process and having a value-based plan for each meeting. In addition to assessing your revenues and leverage from each RFP, also track all meeting activity and spend, by category and by individual hotel and chain and leverage for maximum success. From each countersigned contract, you can create a cost savings and risk reduction / cost containment report, which can be shared with senior management and stakeholders.