Finally, the FTC warns hotels on resort fees

06 Dec
Las Vegas hotels began adding resort fees to deal with the recent recession.

Las Vegas hotels began adding resort fees to offset declining business during the recent recession.

I remember well the first time I was asked to pay a resort fee. It was at the Mirage in Las Vegas, where I was staying while covering the Consumer Electronics Show a few years back. I’d stayed there a few times before and found it to be nice enough and decently priced. But the sudden addition of the fee, which was about $25 per night, was enough to sour me on the place.

The desk agent sprung the fee on me as I was checking out. Having been there for a week, I was on the hook for another $150 or so, which is enough of an extra charge to make you sit up and take notice. When I asked what the fee was for, I was told it was for things like access to the gym, the sauna and the daily newspaper delivery. I explained that I wouldn’t have wanted those amenities at the best of times, let alone during CES, when I was too busy to even think about them. The clerk basically said tough noogies: it was mandatory. I was ticked, and have avoided staying there since.

The resort fee started in Las Vegas as a reaction to the latest recession. With the town hit hard by the downturn a few years ago, hotels began using some underhanded tactics to draw visitors back. Rather than simply lowering their rates, they went ahead with the appearance of doing so. Advertised prices did in fact go down, but the new resort fees effectively kept the per-room revenue steady. In a city where the average room rate is $107 a night, a $25-per-night fee is really shady.

The problem in many cases is that the new fees aren’t disclosed until the customer checks in, or worse, until they check out. Sometimes they’re buried in the fine print on the hotels’ websites. In every case, there’s a clear effort made to hide them from customers.

Sound familiar? Yes indeed, it’s the same strategy telecom companies and airlines have been using for years. The difference is, at least here in Canada, there are movements afoot to limit such abuses by both industries. The Canadian Radio-television and Telecommunications Commission is finally looking to craft regulations on cellphones, following the initiative taken by several provinces, while the federal government is at long last cracking down on airlines (full-fare rules also went into effect in the U.S. this year).

Canada hasn’t had the same problem with resort fees as the United States mainly, because, well, we don’t really have resorts. In the U.S., the sickness has spread, with the fees now widespread in popular resort locations, including Las Vegas, Miami and Hawaii. (UPDATE: It turns out the issue is prevalent in Canada too, to a lesser extent, with “destination marketing fees” also being charged in places such as Niagara Falls and the Rockies, despite government warnings.)

U.S. consumers have apparently had enough. Last week, the Federal Trade Commission – after hearing many complaints from said consumers – warned 22 hotel operators in a letter that resort fees “may be deceptive” and therefore illegal. The hotel chains may in fact be guilty of “drip pricing,” a technique where “firms advertise only part of a product’s price and reveal other charges as the customer goes through the buying process.”

“Consumers are entitled to know in advance the total cost of their hotel stays,” said FTC chairman Jon Leibowitz in a release. “So-called ‘drip pricing’ charges, sometimes portrayed as ‘convenience’ or ‘service’ fees, are anything but convenient, and businesses that hide them are doing a huge disservice to American consumers.”

Free-market idealogues will argue – as they have with cellphones and airlines – that regulation on such matters is unnecessary because competition will ultimately decide whether such fees live or die. Not charging resort fees, they’ll say, should actually become a competitive advantage for hotels that go against the grain, since they’ll be able to attract consumers who are turned off by them.

But the prevalence and spread of resort fees are actually proof that intervention is sometimes needed even in a perfectly competitive market, because market failures do occur.

Las Vegas is a great example. It’s hard to imagine a more competitive market than the city’s hotel industry, which has more than 124,000 rooms for rent on any given day. Yet the number of establishments that don’t charge a resort fee are in the stunning minority. Even suburban hotels well off the main strip are charging them.

The explanation seems rather simple, with hotels having one of two choices: they can either go against the tide and hope to attract customers who became miffed elsewhere, or they can opt to join ’em rather than fight ’em and hope the extra fees are ultimately accepted as the new normal. Clearly, that’s what has happened in telecom, airlines and hotels.

There is also the argument that resort fees are actually a good deal; many bundle in internet access too, for example. But even the most ardent of free marketeers would agree that customers should have the option to pick and choose the services they want. If you’re never going to use a hotel’s spa, you certainly shouldn’t have to pay for it.

Will the hotels eliminate resort fees in light of the FTC’s warning? If airlines and telecom companies are anything to go by, it’ll take a more serious threat of action for that to happen. In the meantime, if you’re staying in Las Vegas, Hawaii or Miami any time soon, you may want to print out the FTC’s letter and bring it along for when you inevitably end up arguing with the hotel manager.

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Posted by on December 6, 2012 in CES


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