How do you turn sour grapes into a rare and expensive vintage? Ask your favorite airline; for over a decade they’ve been fermenting profits ever since the fuel surcharges were no longer needed to cover oil price spikes.
The number of enforcement actions are up at the department’s Aviation Enforcement Office. Did you go down there and light a fire under them?
I think that people in the department understood when I came on board that safety was number one and we were going to look out for consumers. People knew I was a member of Congress and that I was co-sponsor of the Passenger Bill of Rights. Once we put out the tarmac rule, that sent a message out all over these two buildings and all over the FAA buildings who we care about.
How did unbundling and a la carte pricing get started in travel?
It’s easy to view this as the big bad airline taking advantage of the travelers.
This is an extension of revenue management. I should define revenue management for you: Travel companies have high fixed asset costs. You’re trying to use those assets as much as possible. For example, a hotel room is a time-perishable product. If it doesn’t get rented this evening, it will never be able to get rented again. So any revenue is better than none. That’s revenue management, and that that originated with American Airlines 30 years ago.
When it comes to fees, never underestimate the car rental industry’s creativity. If you do, you might miss the six percent surcharge that Avis slipped on Monica Huchro’s bill last week.
Most car rental companies charge what’s called a “concession recovery fee” when you pick up a car at the airport. The fee used to be included in the price of a car rental, but companies figured out they could break out this surcharge, which covered their lease and cost of van service, and then add it to their price after the initial price quote, making their rental rates seem lower. But the fees were limited to airports.
Not any more.
In Chico, Calif., they are charging customers for airport location percentage fees out of a non-airport lot. I was incorrectly charged $35 once and then $40 the next time. Each time they credited my account after I complained to corporate.
I can’t imagine how many other customers aren’t paying attention to their invoices after they drop their cars off.
I checked the Avis site for an off-airport rental in Chico. The quote doesn’t appear to charge a concession fee, at least not for this rental, but leaves open the possibility of one.
I asked Huchro about her experience renting from Avis. She said the concession fee was added recently.
I rented there before and there weren’t airport fees. Then I noticed the charges on my invoice and questioned it.
They weren’t able to explain it, they just told me to contact the corporate office. So I did, and corporate credited back my card along with telling me that shouldn’t have happened.
A month later when I rented again, the same thing happened. I brought it to their attention again. This time, on the invoice, the charges read “airport fee” but then they printed a separate invoice from that office and the charges state “concession recovery fee.” When I asked the manager what that meant, once again, he could not explain it and told me to call the corporate office and write a letter.
I did call and again, they credited my card. I’ve never heard anything back regarding the complaint letter I sent months ago. I just think they’re getting away with something they aren’t supposed to be doing.
It odd — and a little ironic — that car rental companies like Avis are imposing these unwarranted fees on their customers. The car rental industry lobbying hard to keep extra taxes off its bills.
If only it felt the same way about fees.
If this isn’t a bait-and-switch, I don’t know what is. Jonathan Yarmis thought he was getting a $375 a night room rate at the Hotel Bauer in Venice, marked down from $537.
But the Web site offering the deal, Cheapostay.com, wasn’t telling the whole story. It waited until the end — the final booking screen — to reveal the true price.
Yarmis isn’t happy.
Talk about hidden fees! The fees are more than the cost of the room.
I thought I’d call Cheapo just to see what’s going on. After over 45 minutes on hold, they dropped the call.
Shouldn’t this kind of pricing be illegal?
Scott Booker is the chief hotel expert and guest advocate for Hotels.com. I asked him about this summer’s unprecedented crop of hotel bargains and how to take advantage of them in a recessionary economy, plus the outlook for new hotel fees.
Q: Can you give me a sense of how inexpensive hotels are this summer, compared with summers past?
Booker: This is absolutely the summer of the deal, and bargain pricing is just about everywhere. For instance, we have a three-star Ramada near Universal Studios in Southern California starting at $76 that typically runs for $109. It’s $50 lower than other three-stars in the area, and includes breakfast.
The Walt Disney World Swan, which typically has rates in the $250 range, has rooms starting at $180. The Hotel Valencia Riverwalk in San Antonio has rooms at $142 that typically go for more than $250. They’re offering a third night free over the 4th of July, and 30 percent off a three-night stay for the remainder of June, July and August.
We’re seeing big interest from properties to participate in our promotions – more than 900 are participating in our 4th of July sale, for instance. It’s not just about an inexpensive nightly rate, but the value travelers are getting for their money. Properties are making the trip more affordable overall with promotional offers like gift cards, dining and spa credits, and free nights with a multiple night stay — these are quite common right now.
Q: Where are the best deals to be found? And which destinations are still pricey?
Booker: Deals are literally everywhere — I think it’s harder to find a city that’s not on sale. We’re seeing amazing values in places like Boston, Chicago, Las Vegas, Los Angeles, Myrtle Beach, Orlando, Phoenix, and San Antonio. New York has a sale now with more than 60 deals in the market.
In Los Angeles, we have a brand new five-star property, Terranea Resort, at 50 percent off, with rates from $145. This is more than $300 below other five-stars in L.A. In Vegas, the Trump International Hotel has the lowest rates among the five-star set at $99 a night, plus a $50 spa credit. New York has the Park Central with rooms from $137, and the St. James at Times Square from $109.
If you want a rock-bottom deal, try the Tropicana Express in Laughlin, Nev. Stay two nights, get 50 percent off, with $10 rates from Sunday through Thursday through July. It’s about 100 miles from Las Vegas.
Q: Other than booking a hotel through your site, how do you land a deal this summer?
Booker: Even though that’s the best way to find a deal, I’d recommend two additional points: Read as much as you can about the destinations you want to visit. And, look at package deals that can bring the overall cost of the vacation.
Q: What advantages does someone have booking through a site like Hotels.com, versus a travel agent or directly through a hotel?
Booker: There are some great advantages. I’ll point out three.
Welcomerewards, our Hotels.com loyalty program, is the best advantage. Once you accumulate 10 nights, you get a night free. There are 53,000 property choices available and you can build credits by staying anywhere — chain hotels, independent properties, condos, resorts, B&Bs. Travelers can build up to ten however they’d like — as long they spend $40 a night, they get a free night up to $400. No one else offers a program like this, and we’re getting great response from our guests who have joined – they love the fact that it’s simple, generous and flexible.
Another advantage is our reviews. We have more than one million authentic reviews on the site. People must book and complete a stay with us in order to post a review. This feedback from recent guests is critical in helping travelers make the right property choice.
Also, our call center. We don’t charge to book by phone and our call center is critical in helping us stick with our customers before, during and after the trip. Talking with a live person and asking questions helps many travelers make the decision — we don’t own properties so we’re not trying to push people in one vs. another. If there’s a problem during the trip, we want the customer to call us. We have relationships with our properties and we’ll advocate on their behalf. If for some reason it can’t be fixed, we’ll relocate the traveler to another property nearby. Whereas a chain might need to relocate a traveler to another chain property across town, we don’t have that restriction. It’s likely we have another partner property of the same or higher quality within a few blocks.
Q: I understand you’re in the process of relocating to London with your family. I hope you can answer this question from both a professional and a personal perspective. Just about every hotel says it’s family-friendly or child-friendly, but beyond that claim, is there any way of telling that you’ll be welcome there with young kids? Are there any signs that you shouldn’t go with kids?
Booker: Look beyond the “family friendly” statement to see what’s actually offered. For example, can kids stay free? Is breakfast complimentary? Does the property have attached rooms or suites and kitchenettes? What about children’s activities, a pool and babysitting onsite? If you’re not sure if the space or amenities will work for your family, call to clarify your questions – don’t risk making a mistake and being disappointed once you arrive.
Also, this question really hammers home the importance of guest reviews. On Hotels.com, you can sort reviews by trip type — business, romance, family, with friends, etc. If I’m traveling with my family, I look at the family average guest rating and family reviews to see what these guests just experienced. The property might have great family friendly options, but if reviews say the pool area is dirty, the free breakfast options were paltry and the road noise or downstairs bar kept kids awake for the night, I’m going to look elsewhere.
Q: There’s some talk that hotels may move to an a-la-carte model, like airlines — charging extra for things like housekeeping and fresh towels. Given that the hotel industry is in such a slump, do you think these fees are in our future?
Booker: I don’t think we’ll see this in the near term. Properties want to keep it simple for guests to book, and they want to add value for them wherever possible. Nickel-and-diming guests for the basics they expect in the stay would be a tricky thing to pull off right now.
Q: I’ve been hearing a lot about “total” pricing lately, but when I go to a site like Hotels.com and search for a hotel, I get a lower “average nightly rate” but I’m not offered a total price, including taxes, until I book. Can you help me understand how this helps your customers?
Booker: We don’t really get that many complaints in the U.S on this. Given many retailers offer the total price in the last stages of the booking process, I think people expect to see that format on our site as well.
Q: There are two common complaints about booking a hotel online. First, my hotel never got my reservation. Second, they charged me more than they said they would. Can you tell me what Hotels.com has done to minimize these types of problems? What advice would you give hotel guests who want to avoid these problems?
Booker: On the first issue, we’ve been working over the last several months to improve our process and ensure properties receive, confirm and enter into their system all of the bookings we send them. All three steps are critical. If one of these slips, a room may not be waiting for the guest, and that’s a terrible way to start any trip. As a Hotels.com guest, we will be there for you and we will fix the problem, so please call us directly. We will work with that property to find you a room, or rebook you somewhere else nearby.
On the second issue, we disclose on our site the total cost of the stay, and note in the property description which additional fees may apply (parking, Internet, etc.). We reach out to every guest post-stay to ask them to complete a review — and when they do — they often make mention of these fees. So, customers have two spots (property descriptions and reviews) they can check for added fees before they book.
Clarify again at check in that you will incur no additional fees, scan your statement carefully before you check out, and if anything strange appears, ask that it be removed. This is easier to do when you’re still at the property vs. after you’ve returned home. If you can’t resolve it with the property, again, call us and we’ll advocate for you.
Q: Resort fees, which are really little more than hidden price increases, have been around for more than a decade. Although most chain hotels have stopped imposing mandatory resort fees after being hit with lawsuits, there are lots of independent hotels that continue this questionable practice. What is Hotels.com’s position on resort fees?
Booker: This is a tough one – we see many “hidden fees” for things like parking and Internet, but for the most part, those charges are tacked on when people use the service. Even if you stay at a resort-style property, you might not play golf or visit the spa, so why should you be subject to the added charge?
This hits on transparency and honesty — if the property discloses the fee clearly, I as a customer can decide to accept it and book there, or find another property. I think problems tend to happen when hotels don’t provide this detail upfront. Customers don’t like surprises on trips — and one of the worst to get is a laundry list of added fees at checkout you had no idea you would get. I’ll reiterate my advice from the previous question — check before you book, clarify again at check out, and try to resolve any problems before you leave the property. And, write a review when you get home so you can help inform future travelers.
At Hotels.com, if a property gets complaints consistently because of hidden fees, we will delist them or move them down the sort.
Q: If a site like Hotels.com and Expedia and Hotwire — all owned by the same company — simply stopped selling hotels that forced customers to pay resort fees, it just might be enough to stop them. Would you ever consider that?
Booker: It’s an interesting question. Given we want to provide the most variety and number of choices to consumers, I don’t think we’d stop selling a particular type of property. But, we will provide as much detail about properties so that everyone can make an informed decision. We detail these fees in the description, and guests often comment on them in their reviews.
Times are hard for car rental companies. No one knows that better than Robert Barton, chief operating officer for U-Save Car & Truck Rental and president of the American Car Rental Association, a trade group. Times are also hard for car rental customers, who are encountering new fees, surcharges and higher prices. I asked Barton to explain what’s happening, and what the industry plans to do.
Q: What’s wrong with the car rental business?
Barton: Credit is non-existent. Many companies want to buy new cars this year but do not have the financing to do so. The three main sources of lending — asset-backed securities, commercial paper market, and traditional lease and bank funding — have all dried up.
One company had 76,000 cars on order in February 2008. In February 2009 the number of cars on order dropped to 7,000. The money the federal government has given to help the Big Three has not helped the car rental industry, the dealers, or the consumers buy cars.
Q: How is the fate of the rental business tied to that of the car manufacturers?
Barton: When the manufacturers face the challenges they currently face, and discounting of pricing takes place, used vehicles lose their value.
If a car rental company has been depreciating a vehicle for a year — based upon a set schedule — and then the manufacturers discount the value of the product, the used vehicle values take a hit, and the rental company is upside down. That means they have the vehicle on their books for less than what it is worth.
Demand for used vehicles has fallen as dealers don’t have the credit to buy. This means rental companies are over-fleeted – there are more cars available than the demand for cars, and pricing drops. In other words, a perfect storm.
Q: Given all that, what is the industry doing right?
Barton: We’re right-sizing our fleets. We are buying vehicles based upon our own abilities and needs, and not necessarily on what Detroit incentivizes us to purchase.
Fleets are shrinking which will allow us to better manage the acquisition and disposal process, as well as manage capacity and pricing to demand. We are also not relying on Detroit, and are mixing our fleets with vehicles from foreign manufacturers. We’re adding, more fuel-efficient cars to our fleets, eliminated millions of dollars of overhead, and also going through a period of consolidation.
Q: When I talk with car rental company representatives, I’m told time and again that a rental car is a great bargain when compared with the company’s actual costs. Can you give me an idea — and maybe a few specific numbers — that illustrate how affordable a rental car is today, when compared with another travel product?
Barton: The best comparison is probably to the hotel industry. Whereas recent economic downturns have created reduced pricing in the hotel industry, pricing has been steadily going up for the last 20 years.
You can still rent a car today in many cities for the same rates you did 30 years ago. By comparison, I just did a little searching for mid-April online. A three-star hotel on the strip in Vegas, on the weekend, starts at $149 and goes to over $250. A car for that same time period is $33 a day which, by the way, is up from last month.
In San Diego cars are renting for as low as $23 a day — and this is for a less than one-year-old car. Last week in Orlando cars were renting for $9 a day — for late April.
Q: What about your costs?
Barton: To give you a basic understanding, a risk vehicle that is almost a year old, will cost a car rental company in excess of $400 a month. More likely, closer to $500 a month.
If you are doing a great job, you will run 83 percent utilization, meaning you will rent the car for 26 days, at even $25 a day.
Do the math.
But before you do, recognize that between commissions and reservation fees, the car rental company only gets about $19.50 per day. Now do the math, and remember this does not include rent, payroll, information technology, busing, and vehicle maintenance.
In the old days — 30 years ago — you could also rent a car for about $10 a day, but you paid for every mile you drove. Now they are free.
Q: I’ve heard from many car renters lately who have been surprised by new fees, such as fees for canceling their rental or energy surcharges. Why are we seeing more of these surcharges?
Barton: There was this big tea party in Boston a very long time ago. To this day the same slogan that was shouted then is on every license plate in Washington DC: “Taxation Without Representation.”
Bottom line, hit the tourists, not the constituents who vote the local official into office. Need a new football stadium? Rental car tax. A new baseball stadium for Spring Training.? Rental car tax. Drop in revenues will cause the city to miss its debt obligations? Rental car tax.
That’s three taxes, and I only used Phoenix as the example.
Q: But what about the new fees that don’t really have anything to do with the local taxes?
Barton: OK, let’s talk about cancellation and no-show fees. Why shouldn’t we charge them?
When is the last time you booked an airline ticket and did not have to pay for it at the time of reservation? If you changed that reservation, you were assessed a fee; if you canceled and re-booked, they kept your money “for future use.”
When you reserve a hotel room, you have to give them your credit card information. If you do not cancel by 6 p.m. — or whatever time they specify — you are charged for the first night. If you want to take advantage of their really low Internet rates, you pre-pay, and these are non-cancellable. What happens if you don’t show? You forfeit the first night.
So again I ask, why not?
Q: You bring up an interesting point about no-shows, which is a real problem in the car rental business.
Barton: Our industry runs about a 30 percent no-show factor. That means 30 percent of the customers on any given day do not show up. In other words, to get to that 83 percent utilization you need to take reservations to 113 percent, or oversell yourself.
Then, if the weather changes, and there are a bunch of flight cancellations and people do not want to return their cars, or want to drive somewhere on a one-way unplanned rental, guess what? You will not have a 30 percent no-show, and then everyone is at your counter screaming, “I had a reservation — find me a car!” It’s a no-win situation for us.
Q: How much are no-shows costing car rental companies?
Barton: If you run a fleet of 250,000 cars, and you run a 30 percent no-show, and you have actual hard costs of about $3 a reservation received — regardless if they show or not — and your typical rental is three days in length, that’s $2.25 million per month in hard costs. Not lost revenue. Hard costs for the no-shows.
Q: What’s the solution?
Barton: I would suggest we should be exactly like the hotel industry. You make a reservation, you provide your credit card, you do not show up within three hours of the reservation, you are charged one day. You cancel? No fee. It is fair, it is equitable, it makes good common sense, and it is more responsible for us and our customers.
Q: How about energy surcharges?
Barton: Energy surcharges relate to the transportation industry and delivery trucks having fuel surcharges, the airlines having fuel surcharges, and the car rental companies having surcharges for busing.
Personally, I don’t like it, but some members do charge it. I say simply charge a fair price for the product. If your costs are going up dramatically, so should your rates. Keep it simple.
Q: I think there are a lot of people reading this who will say, “It’s certainly your right to charge a fee, but they need to tell me about them.” What is a car rental company’s responsibility when it comes to disclosure?
Barton: Full disclosure is critical. Before the customer leaves the rental counter he should have a clear and concise understanding of the exact cost of the rental and any and all fees. If he does not, he should not sign the rental agreement and should not take the car.
The car rental company also has an obligation to clearly and concisely explain all fees and charges at the time of rental. Some may suggest this should be done at the time of reservation, and in some cases it can be. However, in some cases, it is simply not possible to disclose fees the airport authorities decide to charge one day to the next.
A simple solution, in my mind? Have pre-paid reservations, with a guaranteed fare. Most of the online travel agencies and company Web sites already show the total anticipated rental charges in their current pricing models.
Q: If a fee hasn’t been adequately disclosed, should a customer be expected to pay it?
Barton: Personally, I believe there is a joint responsibility here. It is the car rental companies’ responsibility to clearly explain all of the charges to the consumer, but it is also the responsibility of the consumer to read and understand what they are signing and what they are responsible for.
Q: A lot of your customers have drawn a distinction between reasonable fees and unreasonable ones. For example, many drivers feel that “energy” surcharges for an oil change are excessive, and should be included in the cost of a rental. Can you help us understand the car rental company’s perspective on these types of fees?
Barton: The position of the American Car Rental Association on this issue is that members set their own policies. My personal view is to charge a fair price for the product. If petroleum price increases affect your cost structure, raise your rates.
That being said, as I am sure you can imagine, I am adamantly opposed to the airlines’ à la carte method of pricing. What’s next from them, an overhead bin charge if your bag is longer than 19 inches and has to go in the bin horizontally as opposed to vertically?
Q: There’s been a lot of talk in the airline industry about ancillary revenues — money derived from the sale of optional extras like snacks or confirmed seat assignments. Is the car rental industry going that way, or are these new fees just a temporary way of ensuring these companies’ survival?
Barton: It goes both ways. If you wish to rent a GPS unit, that is an ancillary product that will always have an extra fee. Same with baby seats. When you get to things like supplemental liability insurance and collision damage waiver, these are services that, frankly, 90 percent of our renting customers do not understand, nor do they afford the car rental company the opportunity to explain.
In very simple terms, the renting customer needs to remember that the rental company will only provide the renter with the minimum statutory coverage as required by the state in which the vehicle is rented.
Q: I think the bottom line for customers — at least the ones I talk with — is that the price they’re quoted for a rental car is the price they should pay. Do you think that’s a fair expectation?
Barton: Communication is key. The best way to explain this is through an analogy. If you sign a lease for an apartment for 30 days, you will want a very clear understanding of what your responsibilities are, what the ramifications of your actions will be, and what is expected of you and the landlord.
It is the landlord’s job to clearly explain all of this to you, and by signing the lease you agree to all of those terms and conditions as documented. Renting a car is exactly the same thing.
If you’re tired of being nickeled and dimed to death when you fly, you might want to be in Miami on May 12 and 13. That’s when hundreds of executives will gather at an industry conference to figure out how to grow the $3.5 billion in so-called “ancillary” revenues they expect to collect from us this year.
The Airline Sales Channel and À La Carte Pricing Conference appears to be there for one reason alone, at least from a customer’s perspective: To help companies find new ways of separating you from your money.
Makes you wonder if any of these folks have heard of the Sherman Antitrust Act.
Among the highlights:
• Vik Raman, Spirit Airlines’ senior manager for ancillary revenue, will answer the provocative question of “What can airlines really sell?: How, when and where?” (Based on feedback from Spirit’s customers, the answer is “anything” and “anywhere.”)
• John Guidon, co-founder and chief executive of in-flight wireless provider Row 44, will talk about “the state of in-flight connectivity and its ancillary revenue potential.” Well, so much for free Wi-Fi on planes.
• Travelport’s vice president for product programs and services, Paul Hesser, will discuss “A-La-Carte Fee Transparency: How can you effectively display your fees with Online Travel Agencies and relay them clearly to your Customers?” Again, based on reviews from customers, I can’t imagine anyone attending this seminar. Why tell your customers about fees when you can surprise them?
• Alan Wyley, Eurocommerce Payments’ chief executive, will answer the question of whether payments are a cost or a “touch point” for ancillary revenue. In other words, should you pay to pay. Betcha I know the answer to that. Spirit Airlines does.
• There’s a forum on social networking and loyalty supporting new business initiatives. I would expect to see my friends from Royal Caribbean and Cruise Critic at that one.
• Don’t miss the closing panel, “New Airline Business Model: are commission-based sales & a-la-carte really ‘ancillary revenue’ or they simply revenue in the 21st Century airline business?” It’s moderated by Paddy Murphy, the former chairman of Ryanair, so you can don’t have to be a rocket scientist to guess the answer.
If you want to know which companies are interested in adding more fees, here’s a handy list of attendees.
Let me be clear about this. Industry executives have a constitutional right to gather and discuss these customer-hostile ideas. But their customers also have a constitutional right to express their opinions about “ancillary” revenues, deceptive practices such as “unbundling” and the overall lack of price transparency in the travel industry.
Are the car rental companies taking a page from the airlines’ playbook, when it comes to fees and surcharges? Charles Locher thinks so. First, Hertz billed him an extra $26 for gas and fuel service, even though he had prepaid for both. Then another car rental company socked his friend with a $120 “interior cleaning” charge, even though the vehicle was returned in good shape.
“Is this a new trend by rental companies to make a few extra bucks?” he asked.
In a word, yes. And … no.
Car rental companies are in deep trouble, as I pointed out over the weekend.
A close look at the latest round of quarterly earnings reports (here’s Hertz’ and Avis’ — warning, SEC server is slow this morning) suggests that one important strategy the car rental companies are leaning on, in order to generate more revenues, is applying surcharges more aggressively.
For example, here a snippet of Avis’ earnings:
During the nine months ended September 30, 2008, our net revenues increased $123 million principally due to a $112 million (11%) increase in ancillary revenues such as counter sales of insurance products, GPS navigation unit rentals, and fees charged to customers.
Car rental companies have always relied on fees for generating earnings. If you don’t believe me, just have a look at the legal proceedings in their earnings reports, which describe the car rental company’s efforts to extract more money from their customers.
So what’s different this time?
I believe car rental companies are getting more aggressive — much more aggressive — in finding every last cent of “ancillary” revenue.
Locher’s story had a happy ending. Hertz eventually refunded the fuel surcharge. But his friend didn’t get the $120 back, even though the car was spotless when he returned it. “Only his 78-year-old mother and he were inside the car,” he says.
Bottom line: be on the lookout for fees — now more than ever.
They make us pay for our first checked bag. They invent new fees. They slap outrageous fuel “surcharges” on to the price of our ticket.
Why? Airlines say it’s because fuel costs are out of control.
What nonsense. The price of jet fuel is actually coming down, according to the Energy Information Administration (see chart, above).
I told you that this was never about fuel costs, and it looks as if I’m right. It’s just a money grab.