HB ON THE SCENE: Riding the Wave of New Revenue Streams

NEW YORK—These days, guests are more demanding of hotels, expecting personalized, curated experiences. On the flip side, the cost-per-square-foot of bringing a hotel out of the ground has been consistently increasing, making it increasingly important for hotels to make the most out of revenue-generating space—without making guests feel like they’re being nickel-and-dimed. Last week, Hotel Business, along with host and sponsor The Wall Street Journal, held its executive roundtable, “Riding the Wave of New Revenue Streams,” here at The Wall Street Journal’s headquarters. During the conversation, industry veterans discussed and debated the various ways hotels could add value for both guests and owners. One such stream? The urban resort fee.

Bob Habeeb, president/CEO, First Hospitality Group Inc., noted, “I think the tricky thing with resort fees or amenity fees is they’ve got to represent a real value for the consumer and not be just a veiled play for ADR. During the waning days of the Obama administration, the FTC called Katherine Lugar [president/CEO, AHLA] and said we’ve been looking at the way your industry uses these amenity fees as a backdoor way to collect unspecified and undisclosed revenue, and I think we’re going to look at this.” He noted that after the election, the government backed off this issue, but added, “It’s inevitable that consumers are going to push back if these fees don’t represent something that they can find value in. It’s a great idea to have little packages people can buy into and enhance their experience, but you’re on slippery ground when you start talking about charging a fee for things people perceive should be part of what they paid for in the first place.”

Kelly McCourt, director of sales & marketing at The Darcy Washington DC, Curio Collection by Hilton, which is part of Sage Hospitality’s portfolio, noted that urban resort fees can work well as long as properties create a real value add for the guest. “I have found that in properties, if you create a compelling offering, people do not push away from paying this extra fee,” she said. “It could include things like Vespas and bicycles; cocktails in your local bar, which is quite a hot spot; ice creams from a cool, local spot. To me, that is really funneling though revenue and creating a meaningful experience to guests, and there is a value to that. If they bought one cocktail, it would be the same price as that amenity fee, and what you just did is got someone into your bar and restaurant, who is going to have a great cocktail—and maybe a second—and is going to generate more revenue. It creates more revenue and creates this compelling guest experience.”

Jay Stein, CEO, Dream Hotel Group, agreed, noting you can make it meaningful. “If you do a reasonable fee—we started doing some in Manhattan that are $4.95 or $9.95 a day—and you multiply it by 300 rooms and 90% occupancy, it truly adds up,” he said. “As long as you think about it smartly, there’s an opportunity to make guests feel good about it.” For instance, he said, include the bottled water in the room, which guests usually have to pay $9 for at many hotels, or the partnership with the local gym.

The key, Stein said, is to not add the amenity fees in a way that guests feel are deceitful. “We’re looking to do it in a way that people feel good about it, as opposed to saying, ‘You guys are just ripping us off.’”

“That’s the key,” Richard Jones, SVP/COO, Hospitality Ventures Management Group, said. “It’s a good time in the business, demand is high, and when the market is high, there’s a good opportunity to do that.” He noted that his company has resort fees, but hasn’t done any urban amenity fees. “I’ve been subjected to them and have personally felt it was a nickel-and-dime play, taking advantage of the fact that it was there and they can, so they did,” he said, noting that it’s different when hotels can point to tangible value in the fee.

Hans van Wees, GM, Hotel Vermont, Westport Hospitality Group LLC, had a word of caution about learning to depend on amenity fees: “Once you’re on it, you can’t get off it, because you build it into your P&L; suddenly it’s a $2 million revenue stream, and you can’t take it away.”

For more coverage, look for the editorial feature in the Jan. 15 issue of Hotel Business.