Can hotels adopt add-on pricing strategy?

At first glance, the a la carte pricing model favored by airlines—where passengers pay a base fare, then purchase add-ons such as checked luggage or premium seats—looks like an easy revenue strategy for hotels to follow. Guests pay for a room, then pick and choose the services they want during their stay, from housekeeping to pool time to premium Wi-Fi and even room location. Hotels open an added revenue channel while guests get what they want.

Contributed by Juliana Shallcross

But hotels are not airplanes with finite routes and limited schedules. Additionally, what should be included in a room rate and what could be considered an add-on varies widely depending on the property and the brand, making a la carte pricing an initiative that hotel owners and operators will need to deal with very carefully.

Necessity or not?

Before the pandemic, hotels had a subtle à la carte plan in effect by charging guests for amenities such as late check-out or better views. But generally, hotels defaulted to resort fees or urban amenity fees to make up for the cost of operating services beyond guest rooms, like the fitness center or the pool.

“Recreational amenities have really been enhanced a great deal over the past decade or two,” said Sloan Dean III, chief executive officer and president of Remington Hotels. “And while charging use fees is not practical, charging resort or destination fees to help offset the elevated costs associated with these enhanced facilities and services are reasonable.”

Then COVID-19 hit. For some hotels, piecemeal pricing was an immediate necessity to recoup lost revenue.

“With spending on sanitizing to prevent the spread of disease way up, hotels needed to recover those extra costs and losses somehow,” said Jim Petrus, CEO of Lotte Hotels and Resorts Americas, which is not charging a la carte fees. “So, by charging for things such as early check-in or using the business center, there was little to no time to waste.”

For other hotels though, COVID, coupled with rising costs and labor shortages, allowed a deeper look at their overall offerings and gave properties a chance to see where ancillary revenue streams made the most sense.

“COVID, as devastating as it has been, provided opportunities to re-evaluate all amenities—those intended to be inclusive in the room rate and those that should be monetized at 100% of cost up to profit,” Dean said.

Housekeeping service has emerged as the add-on to experiment with, much like airlines did with fees for checking a bag. A few hotels had experimented with housekeeping fees before COVID, but now many hotel brands across all service levels have opted to offer housekeeping only upon request.

With guests accustomed to the absence of daily housekeeping, charging for fresh linens or towel changes during the stay will garner the least protest of all the other considered add-ons, said Philip Maritz, a veteran hotel developer and co-founder of Maritz, Wolff & Co. in California.

Maritz also thinks an à la carte model will be one that budget hotels follow first, starting with housekeeping and moving onto other amenities, but he expects it will quickly roll out to other hotels and become the norm, except in luxury and all-inclusive.

Who should be charging?

While hotels in the limited-service sector will encounter the least resistance to charges, Petrus said these add-ons won’t fly at luxury properties like Lotte Hotels where guests don’t want to be nickel and dimed for luxury experiences that were once free.

Petrus also cautioned that what worked for the airlines is much harder for hotels to achieve, since they have more variables to consider than an airplane. “It is far more difficult to have a similar concept be universally received in the hotel industry due to the fact of how different each hotel is, when airplanes are generally more similar across brands,” he explained.

But for the hotels that do decide to go this route, Petrus said they shouldn’t jump into it lightly. “Brands also need to be very cognizant as to what their peers are doing, as well,” Petrus advised. “Because charging for a service that a competitor provides free of charge will put them at a great disadvantage.”

Hotel brands with comprehensive loyalty programs will also need to be cautious when charging for add-ons like better rooms, according to Dean. “Branded hotels have such a large frequent traveler population, including at the highest tiers, who are offered the best room available at no extra charge,” he said, “which complicates this as it limits the availability of these upsell type of rooms closer to arrival dates.”

Creating buy-in

If there’s any lesson to be learned from resort fees, which have gone through their fair share of controversy and legal challenges, it’s that communication and transparency is paramount—both to the guests and to the hotel employees. “It starts from the top down to breed a culture in which everyone works together in unison,” Petrus said. “Explaining the reasoning behind such a drastic switch and reassuring both hotel workers and guests that this was done with everyone’s best intentions in mind is critical for the adoption of this model to be successful.”

Peter Bates, founder of Strategic Vision, a global marketing communications firm, said the add-ons need to be very clearly outlined to guests from the get-go. “Because people don’t like surprises, and that’s not fair on the staff,” he added. “Once a policy has been created, it has to be clearly visible to the client on the website and everyone else, which will make it easier on the staff.”

As with any new change to operations, measuring its performance is also key. Making general managers understand and support this new revenue stream in conjunction with monitoring, tracking, and soliciting feedback will deliver results. Citing management consultant Peter Drucker, Dean said, “What gets measured, gets improved.”