Buyers Rebuff Energy Fees

Sounding the death knell for energy surcharges, Marriott International and Starwood Hotels & Resorts Worldwide late last month followed the example set earlier this summer by Hilton Hotels Corp. and Hyatt Hotels Corp. and announced they were discontinuing the special charges that they had imposed on room rates in the spring.

When the charges, which typically ranged from $1 to $5 per room per night, first were introduced, travel buyers—as well as consumer advocates—reacted with dismay bordering on outrage. They were frustrated with the surcharges, but the issue also touched a deeper nerve that hotel companies hadn't anticipated.

Business travel buyers had grown impatient with what they viewed as a series of hidden charges, including early departure fees, myriad telephone charges and mandatory gratuities added by hotels as a surreptitious way of increasing revenues in lieu of raising room rates. Buyers also were taking a more aggressive stance because the market had changed as a result of the weakened economy. With occupancy rates and room revenues down in many markets, buyers believe they're in a stronger negotiating position this year and feel emboldened to speak their minds.

Even though the lifting of the surcharges was announced in the past few weeks, the change doesn't necessarily take effect at once. While the rollback at Marriott and Hilton was scheduled to occur Aug. 31 and Sept. 1, respectively, at Starwood it isn't effective until Nov. 15.

"The surcharges seemed unwarranted from the beginning, and the way they were implemented struck people as inappropriate," said Cathy Spivey, senior manager for travel services at The Home Depot in Atlanta, who compared the situation to a restaurant that suddenly decides to charge its patrons for water. "Businesses in all industries are dealing with increased energy costs," she said. "It was just a charge I never thought we'd be paying."

While hotels positioned the charges as temporary, they weren't clear as to how long they might be in force. "Hotels may be wary to raise room rates, but the surcharges were nothing more than a thinly veiled price increase," said Richard Kessler, vice president of supply management at Mestek Inc., a specialty manufacturer in Westfield, Mass. "It certainly isn't something we would do with our customers. That hotels have rescinded the charges is a real victory."

Buyers acknowledged that the actual charges relatively were nominal on a per night basis, but still expressed frustration at the particular timing. "Buyers are already under pressure this year to keep an eye on costs and here was an add-on that hadn't been budgeted for, nor was it subject to negotiation," said Carole Brusa, travel services manager for The Weather Channel in Atlanta.

Yet, buyers didn't react solely to the issue of the charges. The lack of disclosure also was an irritant. "Guests weren't notified, nor were travel managers," Kessler said. "Our travelers were hit cold at checkout."

Litigation threatened against the hotel companies by attorneys general in California, Florida, New Jersey and Texas was over this aspect of the issue.

In levying the charges, the hotels argued that the modest fees were warranted, given the skyrocketing energy costs they faced. The charges, which only applied to company owned and managed properties, were first introduced in California and other western states, where the energy crisis was most severe. But the charges soon were rolled out across the country (BTN, May 21).

"Because the situation in California was so extreme, travelers were prepared to accept the charges there," said Dale Turner, president of Turn Key Hotel Advisors, a consulting firm in Dallas. "But other hoteliers around the country, where the situation wasn't as dire, saw a potential revenue generator and pushed for surcharges there as well. That's when the industry took a misstep. The traveling public just didn't believe the charges were warranted."

The hotel companies said the energy crisis had abated and, in some markets, costs actually had declined, which is why the surcharges were being discontinued now.

"Energy costs in the affected markets seem to be stabilizing," said Dieter Huckestein, Hilton president of hotel operations. In announcing the rollback, Huckestein credited Hilton's ongoing energy conservation efforts with also making the suspension of the surcharge possible.

Similarly, spokesmen at Marriott and Starwood said that their companies were committed to conservation and that the surcharge rollback in no way meant the conservation efforts— which include capital improvements as well as education at the guest level and staff training—were being cut back.

For buyers, the timing of the discontinuation of the surcharges mirrors the start of the request for proposals process, which culminates in rates being set for 2002. Spivey, Kessler and Brusa each said that, had the surcharges continued, they planned to raise the issue on this year's RFP.

Ironically, the new modular approach to the electronic request for proposals that was introduced by the National Business Travel Association this year includes a user-defined module intended specifically for these kinds of questions.

"We wanted buyers to be able to ask about charges like these, given how controversial they'd become, how much the charges were and how they were being applied," said Wendy Nathan, chairman of the National Business Travel Association's hotel committee. Previously, this kind of request would have required a special addendum to the form.

"Had the charges not been lifted, we were going to ask for a blanket disclaimer as part of the RFP that our travelers would have been exempt from the charges, if we were going to work with that hotel company," Kessler said.

In terms of other miscellaneous charges, the experience with energy surcharges has made Spivey much more cautious. "It just makes you look much more closely at the responses on the RFP," she said. "Once you understand that hotels are adding charges, you realize that you can't take anything for granted."

The fact that the rollback comes at the same time as the RFPs is no coincidence, according to Bjorn Hanson, head of the hospitality and leisure practice at PricewaterhouseCoopers.

"Buyers had been saying to hotel companies that if they even wanted to be on the list of hotels worth talking to for 2002, the surcharges had to be eliminated," Hanson said.

Meeting planners took the lead on this aggressive stance, starting in July. "Meeting planners began writing the provisions into their short-term meeting contracts that there would be no surcharges or mandatory gratuities unless specific wording was added to that effect," he added.

As far as other add-on charges are concerned, Hanson views 2002 as a year of experimentation. "Energy surcharges are off the table, but hotel companies will still be looking to see which other charges they can come up with that buyers either will accept or resist," he said.

Hotels' underlying motivation remains the same: to generate whatever additional revenue streams they can as an alternative to raising rates. For example, Hanson foresees hotels offering a "business package" for a flat daily fee that will bundle various services that now are offered for free.