The Secret of Resort Fees

Your first meeting at a top-notch resort has just concluded. Throughout the week, your boss has been congratulating you on a smoothly run program and the great group rate you negotiated. Suddenly, things turn ugly at the check-out desk, as attendees angrily question extra charges that have unexpectedly appeared on their bills. Worse, they're blaming you.

So, how did you go from hero to zero in 60 seconds? By overlooking resort fees, service surcharges, and gratuities—those

a la carte expenditures in excess of room rate that can add up to hundreds of dollars.

Fees on the Rise

"Our challenge these days," says Steve Collins, national account manager for ConferenceDirect in Breckinridge, CO, "is that as hotels have seen consumers become more accepting of resort fees, they now see dollar signs and a new revenue stream." While many charges have been around for years, the list is indeed increasing, confirms Bjorn Hanson, Ph.D., global industry leader for PricewaterhouseCoopers' Hospitality & Leisure Practice in New York City. "Hotels have been experimenting in the last few years, and are finding which fees guests will accept." The more acceptable, he says, "are being more rigorously enforced, and it is harder to get them waived." These include service or gratuity charges. "A gratuity is paid to employees, so if it says, 'mandatory gratuity,' guests may object less, because at least they know it's going to the employees, not the profit of the owner." Traditionally, gratuities are for employees who "touch" the guest, according to Tom Blackman director of sales for the Seascape Resort in Monterey, CA—typically the bell staff, concierge, housekeeping, and desk staff. "By and large," says Blackman (whose property does not charge resort fees), "a percentage of the resort fee goes to the employees and a percentage goes to the house. Say, 50 percent goes to the bell staff, 10 percent to the concierge desk, and 10 percent to the desk staff, with the rest going to the resort." What added value does the house give for its cut? Not much. "The costs associated with the amenities and services that are exchanged for the resort fee would likely still exist if the resort fee were not charged," says Blackman. While it is not necessarily "free money," he adds, "The house's cut of the resort fee has little or no cost associated with it—some hotels include a newspaper or access to a fitness center. Only the newspaper costs anything—if the house's cut on a $20 resort fee is $5 and the paper costs 50 cents, that's a fat margin."

Attendees think it's nickel and diming. "The 'free newspaper, free coffee in the room' really, really grates on people, because they were getting that before there were any fees," says Deborah K. Gaffney, director of conference planning for the Washington D.C.-based Tax Executives Institute. "I just recently returned from a meeting where the room rate for the majority of the rooms was well in excess of $250 a night," says Jack Chiasson, director, meetings and conventions at the National Association for Independent Life Brokerage Agencies in Fairfax, VA. "The property added a $9-per-night resort service fee—it basically covered USA Today delivered to the door, and free local calls. I don't think it even included Internet access!" Says Collins, "Many a hotel has priced itself out of the running simply because, although its room rates were competitive, the resort fee made it more expensive than the rest."

Hilton, Marriott, and Starwood have policies against resort fees. When Kingston Plantation, A Hilton and Embassy Suites Resort, Kingston Plantation, SC, went under the Hilton flag two years ago, it ceased to charge resort fees. "Hilton will not allow resort fees," explains Sabena Robinson, director of sales and marketing at the resort. "Surcharging a guest when [the cost] should already be inside the room rate sends a negative message." The reaction to the end of surcharges? "Our customers were ecstatic."

Opting Out?

Mary de la Fe, conference planner for the National Trust for Historic Preservation in Washington D.C., wonders, "How cost-effective is it to take a coffee maker out of the room?" Planners do try, and sometimes succeed. Michael Mancke, director of sales and marketing for Florida's Radisson Suite Beach Resort on Marco Island, says, "If it gets down to it, our service charges are a gratuity and are optional." (Eliminating this, however, shifts the burden of gratuities to the individual attendee.)

Another possible solution is to customize the resort fee to suit the group's needs, which is problematic, according to Gaffney: "The problem is that it will never be administered across the board. People will check out and it will be wrong on their folio. The front desk clerk won't know what they are talking about. Or you've negotiated turndown or extra bottled water for everyone, and you inform your group of this, and it doesn't happen for some people." The reason, says Blackman, is that customization makes no difference to the resort's cost centers: "A meeting planner asks that the room rate be reduced and in turn the group attendees will do without maid service. But the expense of maid service is calculated monthly, not per group. A hotel will not directly feel relief from those expenses for one group because the same number of housekeeper hours will be paid out over a month's period of time."

The Case for Fees and Surcharges

In defense of resort fees, Mancke asserts that the resort fee assures services that can make the difference between a good stay and a great stay. "The resort fee focuses the dollars to be put into a service area in a way that actually benefits the guest stay as much as or more than the hotel room side. It focuses the dollars on the guest, while the dollars on the hotel room pay for the cleaning of it."

And, in spite of views to the contrary, planners looking for savings should take another look at resort fees. For example, what's often overlooked, says Hanson, is the tax situation. "A gratuity is not subject to sales tax. A service charge is, so it's more expensive than a gratuity." However, Hanson points out, the surcharge is not subject to the occupancy tax charged on the room rate. "If I charged you $250 to stay in my hotel," he says, "you would have to pay sales and occupancy taxes on that. But if I charge you $220 for your hotel room and $30 in surcharges that are subject to sales but not occupancy tax—some creative hotelier could argue he's doing the guest a favor."

Blackman agrees. "My property doesn't charge a resort fee but a property nearby does. I will ask a meeting planner to compare us. The other hotel may be competitive on room rates but when you include a $20 resort fee into the room rate, it's more expensive." However, it's not necessarily so. "In California, resort fees are not taxable, but room rate is. In some cases," admits Blackman, "a resort fee could have substantial savings."

What to Look For

When negotiating meetings and events, planners and properties agree: Always begin with room rate, since it is invariably the most flexible cost center. "The easiest thing to negotiate is the room rate," says Robinson. "Most hotels aim at the high end, because we're not sure of the budget, but we will try to stay within the budget restraints." What's key is to leverage the room for savings in other areas. Hanson advises planners to know their group and its needs, and use this knowledge in negotiations. "For example, you could say, 'My attendees are high-volume users of the business center and all these other services, so you're going to get all that revenue from all these different departments. I need a better room rate, or this doesn't work for us.' "

Following room rate, the next flexible item for resort properties is parking. In many cases, non-valet parking is free at resorts; where it isn't, it's often a soft profit center. Phone usage and in-room Internet access, says Blackman, are still other places to look for savings. "Phone usage could be waived because, once a property has the equipment, it is already paid for. Resorts may have added it to their mortgage or have already an amortized plan on taking hits on it, but as far as its being mandatory, it's just not that expensive to offer free Internet when a meeting could fill up your property for four days." (Be advised, however, phone usage is now a substantial profit center for hotels, adding up to four to five percent of revenue, according to Hanson.)

First-time planners, and sometimes even experienced planners, often forget to ask the property, "Is there anything else I should know about?" According to Joan Eisenstodt, president of Washington D.C.-based Eisenstodt Associates, LLC, "Resorts assume we all know about their fees and surcharges, and many planners never ask."

"I think it's almost become the obligation of a meeting planner, conference planner, or business travel manager," says Hanson, "to write into a contract or include in the contract, all fees and charges that will be applied have been disclosed in this agreement. That leaves the planner some options. One is to negotiate them, because they've all been disclosed."

Says Blackman, "Every hotel and resort has unique circumstances that may allow for your costs to come down. Each charge will have a reason. To understand those charges may give you a better ability to negotiate costs, prices, and charges."

All of the hoteliers interviewed here expressed an interest in offering extra value, especially during "soft" seasons. Says Michael R. McMahon, hotel manager, Ritz-Carlton Golf Resort Naples, FL, "Planners can add value to their programs by looking for seasonal breaks and by avoiding weekends. A group arriving on Sunday in early June could save $75 to $100 per room compared to a weekend pattern in May."

Debora Bridges, speaking for The Phoenician in Scottsdale, AZ, says, "When we have a group that has a golf tournament, we throw in a free golf cart."

Share the Love

Realize that negotiations are not meant to be adversarial. Surprisingly, the best key to successful negotiations is the promise of a long-term relationship. "Planners responsible for the same regular events should begin inquiries by asking each resort how interested they are in keeping the business for the longterm," says Adelaide de Vivie, spokesperson for Monaco's Hotel Metropole Monte-Carlo. "We look for history," says Robinson. "We ask, 'What's your budget range?' And if the budget doesn't fit, we look at the rates and try to fit the dates to the budget. So that's how we start the conversation off with new meeting planners, because they are very nervous, they don't know what and how far they can get with negotiations." Hal Powell, director of sales at Lansdowne Resort in Lansdowne, VA, recommends first-time planners use a complete meetings package, but "never be afraid to ask for a budget." Loretta Lowe, CMP, an independent planner in San Francisco, says, "I often remind novice planners that hotels are not nonprofit organizations. Rooms are perishable nightly, capital improvement costs are high, stockholders demand a return on their investment, and labor costs continue to rise. Many favorite hotels have closed their doors in the past few years. Hoteliers have the challenge of dealing with a fickle public who want high quality at only a fraction of the cost."

SIDEBAR

And The List Goes On
Charges can grow out of every nook and cranny of the resort stay

"Some charges I've seen recently," says Bjorn Hanson of Pricewater-houseCoopers, "are for an in-room safe (whether you use it or not), delivery of overnight packages (from $5 to $7 a day—it can add up), and a minibar restocking charge." The latter means "$3 for the first can of soda, but with a per-day restocking charge of maybe $2.50." Hanson also says that energy surcharges are making a comeback (although there are planners out there who can tell you of places where they never left!).

Loretta Lowe, CMP, a San Francisco independent planner, has encountered an "early check-in fee"—an extra charge for wanting the room before the official 3 p.m. check-in time, while Hanson notes that early departure and early cancellation fees are also on the rise, as are services that were previously free, such as rooms for F&B functions. Warns Hanson, "Office staff are now being trained how to respond when guests say, 'You've got to be kidding!' whereas 18 months ago, it was, 'OK, I'll remove it.' Hotels will continue to experiment to get as many surcharges and increased fees as possible. There are probably some fees that will go away, and some that will emerge as the survivors."


SIDEBAR

Disclosure: A Two Way Street
Both hoteliers and planners must tell the whole story to attendees

"I have never seen taxes and gratuities not disclosed by the sales staff, " says Tom Blackman, director of marketing for the Seascape Resort in Monterey, CA, "but planners do forget to ask." Following lawsuits against properties for failing to disclose extra costs, hotels have stepped up efforts to protect themselves, and to inform planners of their own responsibility to disclose. Ellen Carr, head of E. Carr Meeting Consultants in Scotts-dale, AZ, received a contract with the following clause: "In addition to the rates set forth above, there will be a Resort Amenities Fee charged to each room, each day. That fee is $10.00 per day and it includes newspaper delivered to the room Monday through Friday, in-room coffee, local phone calls, 800 access calls, incoming faxes and access to exercise room. GROUP shall be solely responsible for informing its attendees of these fees and that they are separate and distinct from the room rate and from taxes. Group may not, in any printed materials regarding the meeting or in any other manner, combine these fees into any other category such as tax or room rate."

Therefore, planners who negotiate meetings at resorts where fees apply should make this clear to their attendees.* "I work as hard as I can to get the best rate I can," says Deborah K. Gaffney, director of conference planning for the Tax Executives Institute in Washington, D.C. "When we're finally agreed, I say, 'Now, reduce the rate by the resort fee.' When my members complain about the fee, I say, "Well, the original rate was $250 plus a $10 resort fee. The rate you are paying is $200 plus resort fee, so I think you've come out ahead." Says Steve Collins, national sales manager, Conference-Direct, in Breck-inridge, CO, "When I send a proposal to my clients, I add this fee directly to the room rate, so in effect, their room quote is that much higher (before anyone screams too loudly, I point out that it is a resort fee, but then I show it added to the room rate, so there is full disclosure). The client doesn't really care what that charge is called, to him or her, it is simply part of the room rate."

*If you've negotiated the gratuity as part of the meeting rate, by all means bring this to your attendees' attention! It keeps them from handing out more money in tips.