OTAs Tap Into Resort Fees To Create New Revenue Streams

A little over a month ago, Booking.com sent ripples of surprise throughout the travel vertical with the announcement that it would begin collection commissions on the fees resorts charge to customers who book through the platform.

Those fees will be applied to the much-maligned daily resort charges that consumers pay — usually at higher end hotels or those located in particularly popular tourist destinations — as well as on things like Wi-Fi upcharges or parking fees that hotels in recent years have been known to layer in on top of the base rate. The new commission charges have reportedly begun rolling out this month.

Hotel fees are a contentious issue in the travel industry — both between consumers and hotel chains, and between hotel chains and digital travel agencies like Booking.com or the entire family of Expedia-owned properties. Those charges are not factored into a room’s base rate when a customer searches, because they are not included in the base rate consumers are quoted — and in some locations they can be quite a steep upcharge. According to recent reports in Skift, for example, some Las Vegas destinations, particularly on the strip, customers will often end up paying daily resort fees that are higher than the base price for the room itself.

In the past that has caused some controversy among travelers, who’ve complained that the add-on fees were often buried so that guests aren’t aware what full price really means until seeing the final bill at checkout. After that wave of complaints about gauging, the Federal Trade Commission (FTC) began warning hotels and online booking sites against opacity in pricing — so the problem was rectified to the extent that most online booking platform at this point list both the base price and the total price with fees.

Hoteliers defend the extra fees as necessary to provide the full experience and upkeep guests expect when they check in — including pools, fitness areas and other “extra” amenities. The more widely believed explanation for extra fees, however, is simply to hold back some revenue from the digital travel platforms like Booking.com and Expedia. The platform until now only charged a 15 percent commission fees on the room’s base price — the add-on fees were hotel’s alone. Booking.com has, in essence, declared that that era is at an end. If a customer books a night at $150 hotel with a $25 daily fee, Booking will charge a commission on $175 from here on out. Booking platforms, on average, charge a 12 percent to 15 percent booking fee.

“As an extension of our overarching aim to provide our customers with transparent information about the total price they will need to pay at a property when they make a booking and to create a level playing field for all of our accommodation partners, we are updating our process when it comes to charging commission on mandatory extra fees that customers are asked to pay at the property,” Booking Holdings spokeswoman Leslie Cafferty told Skift.

Cafferty went on to tell The Wall Street Journal that the platform’s explicit aim in this move was to persuade hotel chains to abandon the practice of add-on fees entirely, saying they are a “bad consumer experience across the board.”

The hotel industry, for its part, is vowing to fight the new commission policy. According to Vijay Dandapani, CEO of the Hotel Association of New York, large brands are currently in tight negotiations with Booking on this new policy.

If a compromise can’t be reached, he told the WSJ, those brands could quite likely “minimize their exposure” to online travel sites.

But can those brands really afford to do that? Even Dandapani was obliged to concede that the answer to that question is far from a clear yes. Booking Holdings Group — which runs Booking.com, Auro and Priceline most notably — and Expedia represent what he called “duopoly” in the online travel space, which collectively gives them an awful lot of power. No individual hotel chain wants to soak the loss of bookings that pulling the plug on Booking.com and all its associated properties has associated with it.

A masse pullout might do the trick, but the incentive for one at this point is how, because as of now only Booking.com is moving on bigger commissions — the rest of the booking sites aren’t. At least not yet. Expedia group, for its part, has confirmed it have no immediate plans to move on add-on fees as a source of extra commission. And hotels, even in highly desirably destinations are, statistically speaking, running on thin enough margins that taking chances with a big stream of customers — like the ones that come from Booking.com — could be a very big risk. According to NYU economist Bjorn Hanson, about 70 percent of full service hotels in New York City aren’t generating enough revenue to manage debt service, fund capital replacement or provide a return on investment.

The recent spike in fees seen in hotels, Hanson said, is a result of that underlying problem.

“This resort fee looks like the only way hotels can deal with this challenge,” Hanson said.

Hoteliers, it seems, find themselves facing something of a rock and a hard place decision, in regards to Booking.com’s latest move. Many hotels both can’t afford to take a loss from their fee revenue, and also can’t afford not to submit to whatever stipulations Booking.com has. And while some hoteliers have argued that Booking is being greedy — as it doesn’t have to run, staff, clean and update hotels but still wants a larger share of the funds to do all of those things — the consensus seems to be that brands will negotiate with Booking rather than balk because they have to.

As restauranteurs learned earlier, Booking.com may not do any of the things a hotel does — but it is a platform that has very successfully won the loyalty and trust of consumers. They might like your room, in the same way they might like a local place’s dim sum. But when it is time to reserve it or order it up online, they aren’t calling direct, they are logging into their favored platform to do the booking. It is not surprising that the agent in the driver’s seat for filling the rooms now wants a larger share for the room fee.

Whether hotels will pay up, pass the costs along to customers or just find a new method — remains to be seen.