A Contrarian View on Resort Fees

In some hotel markets, particularly in hypercompetitive resort areas such as Las Vegas, hotels impose mandatory "resort fees" on customers.  I used to use terms like "diabolical" and other pejoratives to describe resort fees and the hotels that imposed them.  However, I recently have turned the corner on this issue and boldly go where no blogger has been before - to say that they can actually lower the price you will pay for your hotel.

WTF?

I'll get to it, but first some background.

We first noticed additional "energy surcharges" around the time of the 2001 California energy crisis, even in hotels outside California, notably in Reno and in Las Vegas.  Like many other people, I found it irritating that a hotel that probably had little change in its true energy cost would tack on an extra fee of several dollars for this, and even if it did reflect the true cost of energy, I felt it really should have been incorporated into the retail price so I could easily compare prices on web-based travel sites such as hotels.com or travelocity.com.

By the mid-2000s, the energy crisis was long over - I can tell you this because it was actually my job to measure electricity costs in California -  but these surcharges persisted.  Presumably in response to this complaint, hotels began replacing the term "energy surcharge" with "resort fee" or a similar ambiguous term.  Most such surcharges were in the $5 to $10 range, and I just began to live with them.

Resort fees were particularly offensive when booking through an "opaque" website such as Hotwire or Priceline.  When a hotel is advertised at $50 a night, and you book it, but find out when you get there that there is an additional $25 fee, it seems utterly deceptive and misleading.  I, for one, complained to Hotwire multiple times about this, as I'm sure many other people did.  As a result, Hotwire began to include notice of resort fees for opaque listings on the hotel detail page, and an approximation of the fee (so as not to perfectly identify the hotel).  This helped to provide full disclosure.

By the late 2000s and into the 2010s, most regular visitors to Las Vegas had probably caught on to the ruse.  Once you get hit with a resort fee for the first time, you learn from the experience and are likely to be more wary of them in the future.  As a result, some hotels began to advertise that they do not charge resort fees.  These disproportionately(although not exclusively) were casinos that cater to repeat customers: the Harrahs/Caesars chain, the South Point, etc.

Most web agencies (hotels.com, travelocity, etc) usually don't show the resort fee on their search pages, but do show it on the click-through detail pages.  This means that if you sort hotels by price, as I often do, some hotels will show up at the beginning due to their low price, even though the resort fee effectively makes them more expensive.  It means that as a savvy consumer, you have to do more clicking, and some arithmetic, to compare prices.  But then, you somehow have already wasted 10 minutes reading this blog, so presumably you can handle that.

So why should I like resort fees?

Well, I wouldn't quite go so far as to say you should like them, but consider the following:

The important fact is that a resort fee is a way for a hotel to charge you directly above and beyond your room rate.  When casinos sell rooms through agencies such as hotels.com, they need to pay a large commission, I've heard up to 30% of the price of the room.  With priceline or Hotwire it may be even higher.  

However, the hotel does not have to pay any commission on the resort fee.  Basically, any resort fee is a way to collect payment while circumventing commission to the booking website.  As a consumer, we can save on the commission on this portion of the total cost of the room.

For example, if hotels.com advertises a room rate of $50, the hotel may only receive $35, while $15 goes to hotels.com.  (plus there are taxes, which I am not considering here).

So if the same hotel has a $10 resort fee, the hotel's income is $45.  (= $35 + $10)

The total cost to the guest is $50 + $10 = $60.

Suppose the hotel needs at least $45 to cover the costs of renting the hotel room (cleaning, registration costs, etc).  If it were to sell through Hotels.com, but had to pay Hotels.com a commission of 30% of the rate, the rate would need to be $64.29 (since 70% of $64.29 is $45), which is more than the total cost to the guest of $60.  In a fiercely competitive business such as hotel rooms in Las Vegas, a $4.29 price difference can be significant for some people who are otherwise indifferent among several hotels.

Hotels.com and similar sites promise a "Price Match Guarantee" meaning that they will match a lower price found elsewhere.  This can only be accomplished through a contract with a hotel that prevents the hotel from selling its rooms at a lower price through another channel.  For this reason, the hotel cannot simply sell its room directly to the customer at $45, the amount it effectively earns when using Hotels.com.  Even if you book directly with the hotel, they must charge the same price as they charge through Hotels.com, and must add the fee.

So what to do?

The market for hotel rooms in Nevada is brutally competitive these days, and we are seeing hotel room rates that are probably about as low as you can find anywhere in the developed world.  Some hotels have either shut down or cut costs to the bone, contributing to Nevada's 11.7% unemployment rate.  Thanks to the overbuilding of the late 2000s, we are in a golden age of low room rates that should last for the foreseeable future.

The competiton is especially evident when traveling during low periods, such as summer weekdays.  In Las Vegas, you can often get a Hilton-level room for less than you would pay for a Motel 6 in most other places, or a 5-star hotel room for what you would pay for a 3-star in almost any other city.  In Reno, I've literally stayed for free -on a weekend, actually - and not because the casinos think of me as someone who is going to splash big money around their casino.  Because I won't.  The casino was simply reduced to that level of desperation.

For this reason,  I am willing to cut these businesses a little slack if they need to use resort fees to avoid paying a portion of their commissions to web-based booking services.

In this kind of market environment, we have a wide selection of hotels to choose from.  Some people absolutely avoid any hotel with a resort fee.  Personally, I consider hotels with resort fees, as long as I know what they are so I can incorporate the cost of the resort fee into my decision.  Some of my favorite hotels (Orleans, Tuscany) do charge resort fees, and some of them are quite substantial.  The Orleans' resort fees are $5/day, and the Tuscany's are $14/day.  Another of my favorites doesn't (the South Point).  However, the South Point's advertised room rates are usually comparable to others plus their resort fees, so it may be a wash on some days.

Also, a lot of hotels these days are including extras if you book directly with the hotel that you won't get using a booking agency, in order to get you to book directly so they don't have to pay commission.  This may be the only way around the contractual requirement that the hotels keep rates consistent.  For this reason it can pay to sign up for emails, become friends on Facebook, join slot clubs, etc.

As long as I am aware of the resort fee, it is nothing to fear.  

What do you think?  Let me know in the comments!