Buyer Beware

Hotels are sneakily trying to emulate the airlines by charging extra for some services, says David Churchill

Business travellers on a tight budget - and who isn't these days? - might be tempted to check in at the easyHotel at London Heathrow, where rates start from £25 a night. Although the rooms are a bit small and basic, the hotel - located between the M4 and Bath Road - is fairly convenient for those people simply looking for a bed before an early morning flight. It will cost £4.50 to get to the terminal by shuttle taxi, but that is to be expected.

Perhaps, however, you are having a meeting first and will need to stay a day or so to meet business contacts or colleagues? Then the charges start to mount up - £10 for a room clean, and £5 a day to watch the television. Store your luggage? That'll be another £5 per item per 24 hours. Wi fi? That will be £5 an hour, or £1 for 10 minutes' use of a hotel computer if you've forgotten your laptop.

The easyHotel concept, of course, is the brainchild of Sir Stelios Haji-Ioannou, founder of low-cost carrier easyJet, which, along with Ryanair, has perfected the art of charging extra for things (which may in the future include a pound to spend a penny on a Ryanair flight) that we used to take for granted. So it is to be expected that he would base his fledgling hotel venture on his airline business model.

But Stelios is not alone. Other budget chains have taken note that if the airlines can get away with charging for extras, then why can't they? Travelodge, for example, now seeks £10 from those wanting to check in early (midday instead of 3pm) or check out late (2pm instead of noon), while others have developed their own innovative ways of boosting bottom-line revenues by putting a price on such extras.

And this practice is not confined to low-cost businesses. Just as some of the full-service airlines now charge extra for services such as putting your luggage in the hold - surely something most people consider part of the package of flying them to their destination - so hotels further up the scale are also looking at ways to bring in more money.

Don't forget that the hospitality industry - like the airlines - has gone through its worst ever trading period in living memory and so the response is not so different from how businesses in general have reacted - that is, cutting costs and raising revenues. The airlines learnt their lessons from previous downturns, when they reacted by trying to raise fares, which invariably failed to stick.

Yet when American Airlines became the first full-service carrier to levy charges in 2008 for carrying luggage, it gave the strategy credibility (this was no fly-by-night airline) and its rivals soon followed. Passengers who balked at paying higher fares reluctantly accepted that charging for bags was okay. Now the airlines show little shame when seeking new ways to charge passengers - from August 1, low-cost US airline Spirit will charge up to US$45 for storing carry-on luggage in the overhead lockers.

Even British Airways is prepared to charge its business travellers up to £60 a sector to choose their seats more than a day in advance, unless they are on a corporate deal (which many SMEs are not) or are silver or gold members of its Executive Club.

The point is that the airlines have started generating substantial revenues from such extras - US carriers pulled in a total of US$7.8 billion for ancillary fees last year, US$2.7 billion of which came from baggage charges alone, according to figures from the US Bureau of Transportation Statistics.

Yet while airlines and hotels share many similarities, there are some significant differences. One is that hotels have viewed extra charges (such as for telephone calls, room service, package delivery fees, and so on) as revenue-generators for many years, "unbundling" the price of a room to exclude some of the additional services associated with staying in a hotel - typically, the rule of thumb was that hotels would get between a quarter and a third of total room revenues in this way.

Full-service airlines, on the other hand, operated a largely unbundled model until years of losses and the impact of recession forced them into drastic action, although the low-cost operators had already started to show them the way.

Still, hoteliers on both sides of the Atlantic have been trying to be as aggressive with the airlines, not only enforcing more rigorously the fees and charges they already impose but also by developing new ones. But will these stick? Bjorn Hanson, a former PricewaterhouseCoopers hotel consultant in the US and now a professor at New York University covering the hospitality industry, has for many years monitored hoteliers' tactics for generating extra revenues.

He has also been among the most bullish about their use, arguing that fees are becoming a more accepted part of the travel experience as a result of the airlines introducing them, "which has given hotels greater confidence to apply and enforce their fees".

The reason, he adds, is clear: "Hotel fees and surcharges are especially profitable as most have incremental profitability of 80 to 90 per cent or more." This year he forecasts total fees and surcharges collected by US hotels will top US$1.7 billion, compared with $1.55 billion in 2009. But not everyone is so convinced that hotels can make extra charges stick, especially in the UK and Europe.

Margaret Bowler, HRG's director of global hotel relations, believes that while extra fee revenue overall will inevitably go up as hotel occupancies improve, there is a major structural difference between airlines and hotels in that there are many more hotels than airlines, which are also flying a limited number of routes. Corporate travel buyers looking for the best deal may eschew hotels imposing extra fees, she adds.

Jonathan Langston, managing director of TRI Hospitality Consulting, thinks the recovery in the UK and European hotel markets remains fragile, which will limit the ability of full-service hotels to impose extra charges. "Budget hotels are continuing to enter the market and we are seeing full-service properties having to discount, often close to a budget hotel price point, to attract or retain volume," he says.

At the same time, he believes hotels are becoming tougher about insisting on payment in full for items such as "non-refundable" rooms booked online, as well as for conferences that have been cancelled. In the past - that is, during the boom years - hotels were more lenient on the basis that they would rather keep customers happy in the hope they would return. But it is clear that an increasing number of hoteliers no long think this approach is commercial in the current market.

This attitude means that while the issue of extra hotel charges has simmered along for years, the extent of unrest post-recession appears to be gaining momentum this year, according to hotel industry observers.

This is partly down to the fact that many travellers are becoming incensed at what they see as a lack of transparency by many hoteliers when it comes to imposing extra charges and fees they feel are unjustified. But unlike previous generations of business travellers, 21st-century road warriors do not keep their angst to themselves, preferring to share it online via social networking sites and blogs.

Airline transparency on charging extra fees is significantly greater, in fact, because the aviation world is more tightly regulated and there are far fewer airlines compared with the many chain hotels and independents around the world. IATA, for example, has 230 airline members, while the number of European chain hotels alone is estimated by MKG Hospitality to be 11,600. In the US, estimates suggest there are 75,000 or more.

The hotel world is also different in that, while the urge by chains to impose centralised control remains great, on the ground, hotel managers have considerable latitude over pricing and profitability. While the leading chains are reluctant to be too specific about their extra charges, they can hide behind the fact that much of this detail varies from hotel to hotel. Many independent hoteliers seem even more anxious than the chains to keep potential guests in the dark about new fees, presumably on the basis that once in the hotel you are less likely to argue.

In addition, the nature of the extra charges imposed in 2010 is different.

Hotels seem more interested in additional fees that are hard to spot for example, announcing a booking fee or credit card surcharge at the tail-end of the booking process, a charge that can be either missed or ignored through sheer computer-inspired exhaustion.

Other sneaky extras creeping in include early departure fees (these hotels don't care if you have to get back to the office for a crisis) and a charge for restocking minibars, as if the initial cost wasn't exorbitant enough. Plus, be aware that some of the newer electronic gizmos that control minibars will now charge you for any item that is removed for a few seconds, even if you put it back. The chances are you won't notice this on the bill.

But the most controversial extra charge for many business travellers is undoubtedly that for wi fi access. This has become almost a crusade for those who think free wi fi is now as much of a right in hotels as clean sheets on the bed - an argument some hoteliers counter by saying that since wi fi is not free at home or in the office, why should it be in hotels? Perhaps surprisingly, free wi fi seems more likely to be found in budget hotels than in upscale properties, where the cost of a room is many times greater - arguably because the four- and five-star hotels think their guests can afford it.

The surge in extra fees seems more marked in the US, where hoteliers appear to have been hit harder by the recession than their UK and European counterparts. British business travellers to the US, therefore, should look out for such extra charges (helpfully identified by New York University's Hanson) as a fee for using the in-room safe, a fee for housekeeping and even a charge for printing out airline boarding cards. For conference delegates, in particular, Hanson cites the practice of charging for the use of a resort's facilities, such as the pool. Organisers have also been stuck with higher charges for bar workers, service and other staff for events.

Hanson also notes that some hotels now charge fees "for master folio billing and baggage holding for guests leaving luggage with bell staff after checking out but before departure". This latter charge is even more provocative given that it seems check-out times are not only getting earlier (before noon) but are also more rigorously enforced.

So while most travellers accept that a hotel is in business to make money, how can they avoid playing their part in bumping the profits up even further? Travel managers and buyers already responded during the recession by seeking better deals from hotels in terms of getting established extra charges, such as breakfast and parking, included in the price. Free wi fi is also another popular demand.

The fear, however, is that as the market picks up, so hotels will be less willing to negotiate on such extras - while calculating that companies also enjoying improved trading may be less worried about pushing their demands too far. Yet the feeling is that companies post-recession will retain a greater grip on costs than in previous recoveries simply because the last downturn was so fierce - especially as there remains a niggling worry that the financial mess that caused the slump has not really gone away. But don't expect hotels to give up demanding extra fees - such charges, once imposed, are rarely rescinded.

For the individual traveller, the key is to remain vigilant over the imposition of "stealth" charges during the booking process, or paying for something - such as a newspaper or bottled water in the room - that you thought was free.

Also, keep your eyes peeled for those extras that appear from nowhere on the final bill. These "random incorrect charges" - such as two films watched instead of one, or a late-night club sandwich that was never ordered or didn't arrive - may be genuine mistakes, but if they go unnoticed they represent pure profit for the hotel. Caveat emptor.