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No Such Thing As Free Breakfast: Hotel Owners Look To Emulate Airlines In Charging Guest Fees

The coronavirus pandemic forced hotels to change the way they provide offerings such as breakfast and room cleaning, and some owners are using the disruption as an opportunity to fundamentally reshape the way they charge guests for staying in their hotels. 

The coffee area in the AC Hotel Washington D.C. Convention Center.

Several hotel owners speaking Oct. 19 at Bisnow's Lodging and Investment Summit in D.C. said they are looking at new ways to debundle the cost of staying in a hotel room, lowering the base rate while charging more add-on fees, and some are looking to the airline industry as a model. 

"The airlines did a very good job of changing how we consume airlines," Choice Hotels International Chief Development Officer David Pepper said. "We never [previously] paid for better seating or for luggage. The airlines have given us some cover to look at some of these opportunities ... we've got to start looking at this as an industry."

MCR CEO Tyler Morse, whose firm owns over 100 hotels across the U.S., said it has been moving toward "à la carte pricing," and charging fees for offerings like breakfast, swimming pool access and late checkout. He said he would like to see more hotel operators move in that direction to change customer expectations, and he also said the hospitality industry should emulate airlines.

"The airline business is now doing 55% of revenue outside of fare revenue," Morse said. "It’s a better business than the actual seat revenue business. The hotel business can get there as well. It’s moving in that direction. Consumers have choice. If they want the hotel with free breakfast, surely there will be someone giving away free breakfast, and they can stay there."

Many guests who compare hotels on online travel agencies gravitate toward the ones with the lowest base rate, and Morse said that debundling fees would give a hotel a lower base rate on those platforms. 

"Stop giving things away for free and instead charge for them," Morse said. "It allows you to lower your base rate, which makes you more competitive if you’re on the OTAs, and it allows people to get what they want ... to the extent you can debundle the services, you make yourself more competitive. You increase occupancy, and then you have incremental ROI."

The trend of debundling guest fees was accelerated by the pandemic, Pepper said, because the crisis changed several aspects of the relationship between hotel owners and their guests. For health safety reasons, many hotels stopped offering free breakfast buffets, and some stopped bringing cleaning staff through rooms when guests stayed for multiple nights.  

Choice Hotels International's David Pepper, Dream Hotel Group's David Kuperberg and MCR's Tyler Morse.

While anyone who is surveyed about whether they want free breakfast would say yes, Pepper said that doesn't mean hotel owners need to give it away. And he said most guests would be fine with a hotel not cleaning rooms during their stay, and those who want cleaning can order it as an on-demand service.

"People don't want you in their hotel room when they're staying multiple days anyway," Pepper said. "They've got their technology, they don't want anyone else in the room. So we're going to keep that going forward."

Donohoe Hospitality Services Chief Financial Officer Dana English said guests changed their expectations during the pandemic to be more accepting of hotels reducing free offerings and services, but she worries that they may start reverting back to their pre-Covid expectations. Still, she said she plans to hold out as long as possible because offering things like free breakfast and cleaning are costly for hotels. 

"In the beginning, grab-and-go was fine, people were OK, but now the expectation is [hot breakfast] comes back," she said. "The world is back open, so I’d like my eggs and toast and bacon and all the good things that come with a cook-to-order breakfast. But they’re a cost, and as we’re recovering, we’re not quite at the rate we need to be to cover these costs, so there’s this pain point of free breakfast that is really not going to feel good for us."

Donohoe Hospitality's Dana English and Woodmont Lodging's Michael Blank.

These costs have been even more painful for hotels as their revenues have remained below pre-pandemic levels. According to STR, U.S. hotels averaged 63.1% occupancy for the week ending Oct. 23, down 9.1% from the same week in 2019. The average revenue per available room, a key metric of hotel performance, was down 9.6% from 2019, according to STR. 

"From a financial perspective, I’m all about giving guests exactly what they want, but I also want to pay the bills at the end of the day," English said. 

The demand that has kept hotels afloat during the pandemic has been leisure travel, and Woodmont Lodging principal Michael Blank said those guests tend to want more free services than business travelers. 

"We gave everything away, and we’re now relying on the leisure traveler to recover," Blank said. "The problem is the leisure traveler is the one who wants all that stuff. Business travelers come in and go, but leisure want all that stuff, so you’re seeing creep of some [costs]. We’re trying to nudge leisure away from that."

CohnReznick's Greg Remeikis, Donohoe Hospitality's Dana English, Woodmont Lodgings Michael Blank, Crestline Hotels' Edward Hoganson and IHG's Julienne Smith.

Another type of guest that kept staying at hotels throughout the pandemic, IHG Hotels & Resorts Senior Vice President Julienne Smith said, was blue-collar workers in industries like construction and trucking.

Smith said those travelers tend to stay in lower-cost hotels like Holiday Inn Express, one of IHG's brands, and they care more about free breakfast than business travelers in expensive hotels. 

"Even in the middle of the pandemic when we were all still washing groceries, those blue-collar workers working on highways were getting upset that there wasn't free buffet breakfast," Smith said. "It was kind of a head-scratcher, because coming from a corporate office in an urban environment, we're thinking, 'Why would you want to eat from a buffet? There's a pandemic going on.'"

This means that owners of the economy-style hotels may be less likely to charge for breakfast and other services than their upper-scale counterparts, Smith added. 

The Buccini/Pollin Group's Dave Pollin, Wyndham Hotels' Chip Ohlsson and Goodman Gable Gould's Harvey Goodman.

The Buccini/Pollin Group co-founder Dave Pollin, whose firm has 36 hotels under management or in development, said hotels saved money during the pandemic by switching from printing menus to using QR codes. This not only saved on printing costs, but having guests order through the menu on their smartphone saves on labor costs because hotels don't need as many servers working at one time, he said.  

Pollin said shifting to online menus has also allowed some hotels to change the prices of offerings depending on the level of demand, such as charging more for drinks on the weekend. 

"It gives you the flexibility to revenue manage," Pollin said. "Why shouldn’t a beer cost more on Saturday night? Why can’t we say on the weekends we can charge $3 more for those nachos at the pool bar? We should be doing that."

Morse said one of his hotels uses this type of dynamic pricing for swimming pool access, charging customers in the summer when demand is high, but offering it for free when demand is lower in the fall. 

"It's about assessing demand for the product," Morse said. 

Pepper said some of Choice's hotels have also used dynamic pricing for pool access, and he said it is also considering charging for the shuttle buses from the airport that have traditionally been free. 

"Usually they're going to take an Uber, so why can't we charge for the shuttle to get to the hotel?" Pepper said. 

Crestline Hotels & Resorts Executive Vice President Edward Hoganson, who also serves as the hotel management firm's chief financial officer and chief investment officer, said that while free WiFi in hotels has become ubiquitous, hotels can charge for a premium WiFi level with faster speeds. He said the same opportunity exists for in-room entertainment. 

"There’s going to be a certain level that will be and should be free and that will be expected, but then brands can have opportunities to [charge additional fees]," he said. "A lot is going to depend on what the brands do."