New York Hospitality by Vijay Dandapani

Recession fees?

MSNBC recently ran a story on an oft-reported yet totally unacceptable practice of hotels charging "hidden fees" in hotels and resorts.

With a recession looming if not already under way and costs skyrocketing, hotels and airlines "are struggling to squeeze every last cent out of their customers". Many argue that there is nothing wrong with that except that, all too often, hostelries tend to wrest that money surreptitiously in a number of creative (and crafty) ways. The most obvious and blatant are resort fees, "service" fees, telephone fee, safe fees (irrespective of whether the safe is used or not) valet-parking fees (whether or not a guest parks a car) and a fuel surcharge. More recent additions include towel fees (!), mini-bar stocking fee (once again whether used or not), bellman fee and an improbably named "hospitality" fee. The last arguably epitomizes audacity and chutzpah and does nothing for either the hostelry or the hospitality industry. Presumably, it won't be long before some establishments slap on a "recession fee" to make a quick buck during the economic downturn.

MSNBC's report notes that "These days, lawyers are looking at that fine print. In Maulding v. Hilton Hotels, Hilton was forced to settle a class-action suit relating to hidden resort fees at 11 of its resort properties. Wyndham Hotels paid $2.3 million to settle with the state of Florida in 2006 after a five-year investigation showed that it had not adequately disclosed hidden fees. Today, Wyndham discloses all fees nationwide and requires online resellers do the same. Still pending is a lawsuit by James Shulevitz against Arizona’s Phoenician resort. Shulevitz was forced to pay undisclosed housekeeper and bellman gratuities that, the hotel claims, were appropriate to the guest's group rate". The article also says that "hotels are (belatedly) getting better at disclosing fees upfront".

For most travelers, the solution lies in closely scrutinizing their reservation confirmation for all fees and taxes (some jurisdictions like New York and Houston have very high taxes) and their folios while checking out of their hotel rooms.

Bottom in sight?

A mere month ago economists were still debating whether the US is in recession or not but given the unprecedented turmoil on wall street most view a classical definition of recession as put out by the NBER as mere semantics.

Now, PKF has come out with a forecast that calls for two years of declining lodging demand based on a new study by their hospitality research division released today. The study notes that "compounding the negative impact of declining
demand is a projected concurrent increase in supply". The difference between the forthcoming downturn and prior ones is that "the U.S. lodging industry was in good financial shape entering the current trough in the business cycle. Unlike other forms of real estate, lodging was not experiencing any material amounts of foreclosures". Further "This implies that most U.S. hotels can withstand a fairly substantial decline in
NOI and still have the ability to meet their debt service obligations". That should give pause to some of the vulture funds that are being bandied about as a reflexive reaction to an economic crisis.

Predictably, the financial crisis has already threatened development in some markets as the study notes "the current credit crisis may be unfairly punishing developers with sound market and financially justified projects.". The silver lining, of course, is that "the lodging industry will eventually benefit from the near-term development difficulties" as the, presumably, the constriction in supply caused by the credit squeeze will (eventually) likely result in strong ADR and Occupancy growth as the economy picks up.

Turning service failure into success

The Wall Street Journal (subscription required) has an excellent article on CRM (customer relationship management) written by academics from the Thunderbird School of Global Management, AZ and the Warwick Business School, England entitled "Making the most of customer complaints".

While noting that customer dissatisfaction is a near certain factor of any service business the authors suggest that what sets apart is the response of businesses to what they term as "service failures". In their view "customers are constantly judging companies for service failures large and small. They judge the company first on how it handles the problem, then on its willingness to make sure similar problems don't happen in the future. And they are far less forgiving when it comes to the latter" Fixing the problem is referred to by them as "service recovery" and that "has (an) enormous impact on customer satisfaction, repeat business, and, ultimately, profits and growth".

Unfortunately, the authors found that in most firms "customer service sort(s) out the immediate problem, offer(s) an apology or some compensation, and then assume all is well". Unfortunately, that merely is a palliative according to the article and does nothing to cure the problem. What they would rather see is businesses do is to look "at service recovery as a mission that involves three stakeholders: customers who want their complaints resolved; managers in charge of the process of addressing those concerns; and the frontline employees who deal with the customers. All three need to be integrated into addressing and fixing service problems". And according to them fewer than "8% of 60 organizations in their study did this well".

The study notes that customers who lodge a complaint view "fairness" as their biggest concern and they have greater tolerance for service failures than for poor service recovery particularly if the company fails them twice.

With regard to managers, the chief aim should be to ensure service failures don't recur. "Learning from failures is more important than simply fixing problems". Somewhat unsurprisingly the authors found that "many customers don't want a payoff. They simply want to have their problem fixed and to be reassured that it won't happen to other people in the future".

Frontline employees have the "greatest job satisfaction when they believe they can give customers what they expect". These employees "have the difficult task of dealing with customers who hold them responsible even when the failures in question are completely out of their control. The attitudes of customer-service workers, positive and negative, spill over onto customers. Yet companies do surprisingly little to support them". That could be said to be particularly true of almost all airlines but also some hotel companies. One suggestion the authors have is to "Give customer-service staff as much freedom as your business strategy allows". As an example, the study cites the Ritz-Carlton hotel company's policy that "authorizes personnel at the front desks of its hotels to credit unhappy customers up to $2,000 without asking a supervisor's approval".

Another suggestion is to "Collect as much data as you can, and share it widely". They urge companies to "gather more feedback about poor service, record it and make it accessible". The study does not mention it but, perhaps, making the data available to potential customers could also be a signal to them that the company takes these concerns seriously and is on the "mend continually".

Internet insecurity?

A newly released study conducted by two faculty members and an alumnus from Cornell University's hotel school shows that a "a substantial majority of hotels are not using all the possible tools to maintain their network's security". The study was the result of a direct analysis of the networks available to guests in 46 hotels and was supplemented by a survey of 147 U.S. hotels. The study is available free of charge at the website of Cornell's Center for Hospitality Research.

The executive summary for the study notes that "many business travelers connect remotely to continue working while on the road, the potential for theft of corporate information exists. Some hotels still rely on relatively rudimentary hub technology for their networks, and these are particularly subject to hacking. Others have upgraded to more secure switches or routers. Even better is encryption for Wi-Fi connections, but that still does not prevent malicious users from intercepting guests’ transmissions".

The study notes that some hotels are more active than others in securing their guests' internet connections and cites a "best practice" example of a hotel in Dallas where the property "set up each node on its network as a virtual local area network, or VLAN. By using these VLANs, the hotel had separated each guest's computer in a way that should protect against stolen data. It also gives the hotel greater control over the guest side of the network".

Some internet security measures hotel operators can take with relative ease and low costs were highlighted in earlier posts on this site and are reproduced below:

- Urge guests to ask the correct name of the hotspot connection to help ensure a false connection is not logged into.
- Disabling a laptop's automatic feature that conencts to the "nearest" hotspot ensures the lazy way out does not result in loss of data.
- Having a personal firewall outside of corporate firewall (which typically does nothing in a hotel) helps.
-Corporate guests who have a corporate VPN (virtual private network) have an advantage over general consumers as they can "tunnel" into their corporate network and thwart hackers.

Internet security of guests should be given just as much care as for personal valuables and that process could be helped along if more data on the extent of actual breaking into of guests' computers is made available if only to enable operators to be a step ahead of the hackers and thieves.

Two for one rewards

The Calgary Herald reports on hotel loyalty programs increasingly are offering its members more than one way of rewarding themselves for frequent stays.

The article inaptly titled "Hotel guests double-up" notes that "double-dipping is the way to go for guests enrolled in a number of hotel loyalty programs". The Hilton 2onors guest reward program, for example, offers guests enrolled in the Air Miles reward program a mile for every $10 spent at any Hilton Family hotel worldwide while, at the same time, they can also collect points on the hotel rewards program for the same stay. Others doing variations of the same include Fairmont Hotels & Resorts where its President's Club members offers double benefits in the form of airline miles and Starwood's Preferred Guest program which allows its "Starpoints" members to "bid on tickets to world-class entertainment and sports events"

Offering more for less via frequent stay programs, as some hotel companies are doing is one way of addressing issues arising from a roiling economy without having to cut room rates but with airlines increasingly cutting back on the benefits to be derived from accumulating miles, hotel guests may well question whether the two-for-one's premise.

Flat screens that fall flat

The New York Times reports on how hotels at virtually all ends of the lodging industry's continuum are replacing the old bulbous TVs with flat screen TVs. But what they are not doing fast enough is replacing regular TV service with HDTV. As a result "the old-style squarish images are stretched, resulting in wider-than-normal heads and bodies". One reason, per the Times article, some hotels have failed to take the next step is the high cost of updating the servers that provide video-on-demand service, changing the device that switches channels and updating in-room hardware.

The NYT also notes that "Hotels often do not buy TV programming and equipment directly but do so through a third party. Hilton, Hyatt and Ritz-Carlton all use LodgeNet Interactive, which provides TV service to 1.8 million hotel rooms in the United States, about 40 percent of the nation’s total number of rooms. LodgeNet, which began offering high-definition service in 2005, has now placed it in 130,000 hotel rooms, and expects to add it to 500,000 rooms this year". But one constraint as noted by Lodgenet President is capital who suggested as an option that "hotel(s) would pay for the new equipment and LodgeNet would take a reduced fee to manage and support the service".

The incredibly shrinking hotel room

The San Francisco Chronicle has a report entitled "European hotels offer cheaper, tiny option". In fact, the operative word for these hotels ought to be tiny.

Somewhat disingenuously classified as "sub-budget" the hotels offer "no window - with a standard size double bed and a washstand, toilet and shower. EasyHotel's "small" rooms run from 70 to 90 square feet; that's about half the size of a low-end cruise cabin". The Chronicle article notes that each "room comes with clean sheets, pillows and a towel, for the entire length of your stay". Rather incredibly, almost anything else has a charge attached to it starting from about $18 for if a guest wants linen changed to $8 per day for use of the TV!

Other sub-budget chains offer appear to offer more both in terms of square footage as well as "amenities" including "free" linen changes and TV usage. These include Accor's Formule 1 and another French chain Premiere Classe.

Easyhotels' model is unlikely to have much appeal in the US even in conurbations such as New York and San Francisco from a consumer standpoint even if they get past regulatory hurdles stemming from a lack of a window but could find expression in other crowded cities such as Tokyo and Bombay with high real estate prices.

Taxing online travel sites

The Associated Press has a report headlined "Cities target travel sites for unpaid hotel taxes".

The article says "Online travel companies are facing a flurry of lawsuits from upset city officials who say they were bilked out of tens of millions of dollars in hotel and occupancy taxes. One of the stiffest challenges was outlined Monday in Georgia Supreme Court. The city of Atlanta claims in a lawsuit that Travelocity, Orbitz, Expedia and 14 other online travel companies owe the city "untold" millions in unpaid taxes".

Not unexpectedly, the online sites say that "the city isn't trying to recover any money that's not theirs" while going on to contend that the "lawsuits are baseless and that the taxes are properly paid". A lawyer for the online sites notes that "We're not hotels. We're not hotel rooms," and that the sites "provide a service".

There is no doubt that the sites provide a service but arguably that is no different to the service provided by brick and mortar travel agents for which the latter gets a "commission" with the room rate quoted by them being what is paid to the hotel. And taxes are paid to jurisdictions based on that rate not net of the commission. Online sites have had a free ride for far too long and jurisdictions such as Atlanta have every right to go after them to collect what truly are unpaid taxes. Ultimately, should the cities prevail it may well cause a shake up among the current players but is unlikely to substantively diminish their role in the travel marketplace.

Towel reuse - herd mentality

Hotel guests are no different to most others when it comes to going with the herd according to a study to be published next month by the Journal of Consumer Research.

The study found that hotel guests paid less heed to signs that pointed to the environmental benefits of reusing towels during their stay in the hotel. However, signs such as "Join Your Fellow Guests in Helping to Save the Environment." proved to be better at stimulating towel reuse with as much as a 9 point increase in guest participation. Interestingly, in a follow up study, the researchers were able to further boost towel re-use by placing a sign in the room that said 75 percent of guests in that specific room re-used their towels.

The study's authors noted that "the results of our studies have clear implications for marketers, managers, and policymakers. It is worth noting that the normative messages, which were messages that we have never seen utilized by hotel chains, fared significantly better at spurring participation in the hotel's environmental conservation program than did the type of message most commonly utilized by hotel chains—messages that focus on the importance of environmental protection."

Assuming the study's findings have validity in other areas, hotels could arguably effect significant cost savings by inducing guest behavior in a direction that maximizes benefits to consumers and producers alike.

Airline crews take-off on hotels

MSNBC's travel columnist has an article entitled "12 strange and confusing things about hotels". The author, James Wysong, is a former airline flight attendant and, expectedly, writes from a crew member's perspective.

The article starts with "useless signs" noting that in "the ceiling (in his room) is an emergency sprinkler system with a sticker on it. I can’t quite read it, so I stand on the bed and jump closer to read this important message. It says, do not hang items from this fixture. Really? Considering that I would need a ladder to reach it, is it that necessary to tell me this?" Fair point but Mr. Wysong probably has not heard of websites such as bedjump.com which has photos posted by hotels guests who take inexplicable pleasure in pounding on their beds with their bodies in gravity defying positions. He also complains about toilet paper rolls being left shaped as a pointed triangle as unnecessary - he fails to realize that it is the hotels' way of conveying that it is a fresh roll.

Other observations include wastefully large sized soaps that are discarded with each guest use, overpriced mini bar items (especially overseas), large gaps under connecting room doors, Bidets (evidently he does not share the European enthusiasm for cleanliness), hidden charges - a particularly valid and outrageous practice among some hotels and suggested room rates on doors - an unfortunate necessity imposed by some local governments.