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Travel law: The Federal Trade Commission’s report on hotel resort fees

Travel law: The Federal Trade Commission’s report on hotel resort fees

In this week’s article, we examine the U.S. Federal Trade Commission’s (FTC) January 5, 2017 Report, Economic Analysis Of Hotel Resort Fees available at ftc.gov/reports/economic-analysis-hotel-resort-fees. As noted in the Consumerist [Kieler, Hotels Harm Consumers By Not Including ‘Resort Fees’ In Room Rates, consumerist.com (1/5/2017) “Staying in a hotel comes at a price-there’s the room rate, service charges, taxes and hotels are increasingly taking on ‘resort fees’ to cover amenities like interest access, parking, gym, spa and pool-even if you never use them. These fees, which can significantly increase the total cost of a room, are almost never included in the advertised price and are often minimized or omitted until it comes time to actually book your stay”, See also Luca v. Wyndham Worldwide Corp., 2017 U.S. Dist, LEXIS 21433 (W.D. Pa. 2017)(a class action brought on behalf of guests allegedly subjected to undisclosed resort fees and taxes; “Plaintiff alleges that he purchased a hotel room that he would not have purchased absent Defendants’ deception. Plaintiff’s Complaint identifies the advertised cost of the room, allegedly undisclosed or misrepresented costs and taxes and the final cost stated on the invoice presented after his hotel stay”; motion to dismiss granted in part and denied in part).

Terror Targets Update

Tunisia: Look Homeward Young Jihadists

In Gall, Tunisia Fears the Return of Thousands of Young Jihadists, www.nytimes.com (2/25/2017) it was noted that “Tunisia has sent more fighters abroad to join the ranks of the Islamic State than any other country. And now, as the Islamic State takes a battering on the battlefields of Syria and Iraq, the country is at odds over what to do if and when they come home. Tunisians have been dealing with a frenzied polemic in recent weeks, as secularists have raised fears that a returning wave will bring further mayhem to this fragile state and Islamists have been forced to condemn the jihadists”.

Legit Travelers Should Be Welcome

In US Travel: Revised executive order should welcome legit travelers, etn.travel (3/2/2017) it was noted that “The American travel community is urging the Trump administration to include in its revised executive order on visas and immigration-expected in the coming days-language making clear that the US welcomes and values legitimate international business and leisure travelers. The plea comes amid mounting signs that President Trump’s initial order, which imposed restrictions on visitors from certain high-risk countries and pledged a security review of overall visa procedures, has had a broad chilling effect on demand for international travel to the United States”.

Belgium Train Derailment

In Belgium passenger train derailment leaves one dead, dozens injured, etn.travel (2/18/2017) it was noted that “A passenger train has derailed on the way from Leuven to Brussels in Belgium, killing at least one person and leaving up to 25 people injured…The Leuven fire department has confirmed to local media that two people are in critical condition and 23 others have been injured. 14 people have already been transferred to local hospitals for treatment”.

Replacement For WorldMate

In Biersdorfer, Searching for a New Travel Companion, nytimes.com (2/27/2017) it was noted that “Q. I have been tied to WorldMate, an iPhone app that tracks and centralizes travel reservations, for years. It’s great and I love it, but the app is being discontinued and I need a replacement. Any ideas? A…TripIt has many of the same basic features as WorldMate and has mobile apps for Android, Blackberry, IOS ad Windows Phone (along with many positive reviews). The free version syncs and shares your travel information in one centralized place, but the TripIt Pro edition…adds real-time flight alerts, seat-upgrade notifications and other perks. TripCase is another well-received free itinerary manager with similar tools for Android and IOS devices; it also has integration with the Alexa assistant on the Amazon Echo line of speakers. And for those immersed in the Google ecosystem, the free Google Trips travel planner for Android and IOS automatically creates itineraries by pulling in confirmations sent to Gmail accounts”.

The Illusion Of Basic Airline Economy Fares

In Creswell, Fewer Niceties, Similar Price: Airlines Turn to ‘Basic Economy’ Fares, www.nytimes.com (2/23/2017) it was noted that “When is a new, budget offering actually a hidden increase in overall cost? When the airline industry introduces new economy fares. Over the last week, United Airlines and American Airlines joined Delta Air Lines in starting or announcing plans for a ‘basic economy’ fare option geared toward bargain travelers. For these major airlines, a ‘basic economy’ ticket means the airline will transport travelers where they want to go. Most everything else, though, costs extra, ending many of the remaining niceties provided by large commercial carriers. Gone is the ability to choose a seat free. (Hello, middle seat1) Upgrade or refund under the new fare? Forget it. And, under some airline rules, do not even think about putting suitcases into an overhead bin without paying. Something else travelers do not always get with the basic economy fare: an actual price discount. While airlines are loath to discuss pricing, the new basic economy class seats are expected to be in many cases the same price as the standard economy fare, meaning travelers will get less for the same price”.

Breaching TSA Checkpoints

In 11 passengers breach TSA checkpoint at JFK and board flights without being stopped, etn.travel (2/21/2017) it was noted that “Eleven airline passengers walked through an unmanned security checkpoint at (JFK) and even though 3 of them set off the metal detector, they were able to continue on to their gates of departure. TSA officials’ response to this incident is that they are confident there was no threat from the unscreened individuals who were able to board their flights without incident. This all occurred in the morning at around 6:00 am yesterday at Terminal 5…Only after 2 hours had passed without being able to locate the passengers, did a supervisor report the incident to the Port Authority Police Department-another major security breach, as protocol dictates that the Department should have been notified immediately”.

Tanzania Hotels & Drug Deals

In Tourist hotels in Tanzania in the spotlight over illicit drug deals, etn.travel (2/21/2017) it was noted that “Tourist hotels and several tourist recreational facilities in Tanzania’s commercial city of Dar es Salaam are in the spotlight, accused of working closely and in connection with illicit drugs and narcotics dealers…Dar es Salaam’s Regional Commissioner …said he had a list of 67 hotels and 20 recreational clubs which are well connected with illicit drugs and narcotics dealings”.

Subway Ridership Decline & Uber

In Fitzsimmons, Subway Ridership Declines in New York, Is Uber to Blame?, nytimes.com (2/23/2017) it was noted that “After a period of soaring subway demand in New York City, ridership dropped last week and transit officials say the rise of Uber and other car service apps may be partly to blame. Annual subway ridership fell slightly in 2016 for the first time since 2009…Weekday ridership was at its highest level since 1948, but weekend ridership fell about 3 percent, suggesting that New Yorkers and tourists were finding other ways to get around. The authority’s acting chairman (Mr. X) said on Thursday that several factors could be contributing to the decline: rising subway delays, the popularity of Uber and other apps and weekend maintenance work that disrupts service”.

Airbnb Back In The Ring

In Stashenko, Airbnb and its Critics in New York City Are Back in the Ring, www.newyorklawjurnal.com (2/22/2017) it was noted that “The anti-Airbnb group Share Better launched a new digital as campaign this week urging New York City residents who ‘see something’ to ‘say something’ about neighbors they suspect of renting units through Airbnb in violation of city dwelling laws. A related website established by the group Tuesday (illegalhotels.org) has instructions on how people can report ‘Airbnb commercial operators’ to the city. It also provides information about a law established by the state Legislature and Gov. Andrew Cuomo last year that subjects violators to fines of $7,500 for each time they advertise units that would be illegal to rent under city law on home-sharing platforms. Airbnb spokesman (Mr. X) said in a statement Wednesday that the digital ads are ‘cyber bullying’ designed to discourage blacks and Hispanics from making units available through Airbnb. Airbnb allies fired back (branding) Share Better as little more than a front group for the hotel industry”).

Airlines Phasing Out Screens

In Mele, Airlines Phasing Out Screens Because You Are All on Your Devices, nytimes.com (2/16/2017) it was noted that “Those seat-back screens that have long been part of in-flight entertainment systems are preparing to depart from many airplanes, experts say, and will gradually be replaced by content streamed to passengers’ electronic devices through improved wireless service…For airlines, the switch would save money and cater to customers’ changing viewing habits, which rely increasingly on tablets and smartphones…(Mr. X), the chief commercial officer at Gogo, which provides Wi-Fi service on more than 2,900 commercial planes, said in an email that ‘virtually everyone is connected at all times on the ground today’”).

Mexico City Parched & Sinking

In Kimmelman, Mexico City, Parched and Sinking, Faces a Water Crisis, www.nytimes.com (2/17/2017) it was noted that “On bad days you can smell the stench from a mile away, drifting over a nowhere sprawl of highways and office parks. When the Grand Canal was completed, at the end of the 1800s, it was Mexico City’s Brooklyn Bridge, a major feat of engineering and symbol of civic pride: 29 miles long, with the ability to move tens of thousands of gallons of wastewater per second. It promised to solve the flooding and sewage problems that had plagued the city for centuries. Only it didn’t, pretty much from the start. The canal was based on gravity. And Mexico City, a mile and half above sea level, was sinking, collapsing in on itself. It still is, faster and faster, and the canal is just one victim of what has become a vicious cycle. Always short of water, Mexico City keeps drilling deeper for more weakening the ancient clay lake beds on which the Aztecs first built much of the city, causing it to crumble even further”.

Travel Law Article: The FTC Resort Fees Report 

Executive Summary

“Resort fees are per-room, per-night, mandatory fees charged by some hotels. According to the hotel industry, the purpose of the fees is to provide hotel customers with certain hotel services, such as Internet access, parking and use of the hotel’s health club. However, these services could be provided without charging separately-disclosed resort fees by making them optional to customers for additional fees or, alternatively, bundling them with the room and including the cost of the services in the room rate. By charging a mandatory resort fee, a hotel is bundling the services with the room, but is disclosing the fee for the services separately from the room rate”.

The Positions

“Consumers and advocacy groups argue that the fees are misleading because they are not included in the room rate. Hotels defend the fees, claiming that they provide resort services to their guests at discount relative to the cost of purchasing the services individually. Hotels also claim that resort fees allow hotels to reduce the commissions paid to online travel agents”.

Disclosing Resort Fees

“This paper examines the likely costs and benefits of disclosing resort fees separately from the room rate by reviewing the economics and consumer behavior literatures on drip pricing and partitioned pricing, two pricing practices used by online travel agents and hotels to disclose resort fees to consumers. Partitioned pricing entails dividing the price into multiple components without disclosing the total. Drip pricing is the practice of advertising only part of a product’s price upfront and revealing additional charges later as consumers go through the buying process”.

The Costs Of Incomplete Disclosure

“This analysis finds that separating mandatory resort fees from posted rates without first disclosing the total price is likely to harm consumers by increasing the search costs and cognitive costs of finding and choosing hotel accommodations. In this situation, a consumer’s choice is either to incur higher total search and cognitive costs or to make an incomplete, less informed decision that may result in a more costly room, or both. The analysis finds that separating resort fees from the room rate without first disclosing the total price is unlikely to result in benefits that offset the likely harm to consumers”.

Include Resort Fee In Advertised Price

“Hotels could eliminate these costs to consumers by including the resort fee in the advertised price. They could still bundle the same resort services with the room and charge the same total price. They could also list the component of the total price separately, as long as the total price is the most prominently disclosed price. Hotels would also have the option, as they do now, of changing to unbundled, optional resort services, which would not be included in the advertised price”.

Introduction

The FTC Report also notes that “Resort fees existed as early as 1997. After hotels begun charging resort fees, consumers complained that they were surprised by the fees and often did not learn about them until arriving at the hotel”.

“Nickeled-And-Dimed”

“In November 2012, the FTC warned 22 hotels that resort fees were not adequately disclosed on their hotel reservation websites, and that such practices may violate the law by misrepresenting the price consumers expected to pay for their hotel rooms. In response to these warning letters, many hotels modified their resort fee disclosures. Despite improvements in resort fee disclosures since 2012, complaints about the fees persist. Consumers and advocacy groups, including Travelers’ United, argue that not including resort fees in the room rate makes it more difficult for consumers to comparison shop. There are also reports that consumers feel ‘nickeled-and-dimed’ from the fees, and that the fees mislead consumers about how much a hotel room costs”.

Resort Fees Increasing

“Moreover, the amount consumers are paying in resort fees is increasing. In 2015 consumers paid resort fees estimated at about $2 billion, 35 percent higher than the previous year. Las Vegas hotels that charge resort fees increased resort fees by seven percent in 2015, and several Las Vegas hotels increased their fees in 2016. The share of U.S. hotels charging resort fees is seven percent. According to ResortFeeChecker.com, hotels charge resort fees in a number of popular tourist destinations, including Las Vegas, Miami, Orlando, Anaheim, Oahu and Maui, but resort fees are increasingly being charged by hotels in urban areas.

Time Consuming Internet Searches

“With the separate disclosure of resort fees, searching for hotel accommodations on hotel websites requires more steps than if resort fees were included in the room rate. If resort fees were included in the room ate, consumers could compare rooms at different hotels by simply viewing the room pages at the hotel websites and remembering the prices. With separately-disclosed resort fees, consumers would need to add the room rate to the resort fee and remember the total for each hotel under consideration or keep track of the room rates and resort fees separately for each hotel. Alternatively, the consumer could click through to the booking page for each hotel to view the total charges for the trip and remember the total. Clicking through to the booking page would increase the amount of time it would take to search each hotel”.

OTA Resort Fee Disclosures

“Online travel agent (OTA) resort fee disclosures also affect how consumers search for hotel accommodations. The first page consumers see in response to a search query on most OTA websites is the hotel comparison page. The hotel comparison page lists hotel room rates exclusive of the resort fee, and does not even mention whether a hotel charges a resort fee. To learn whether a hotel charges a resort fee and see the amount of the fee, a consumer must click on the listed hotel and go to a hotel-specific page. There, OTAs disclose resort fees separately from the room rate. Therefore, after clicking on a hotel to learn the resort fee, consumers would need to add the room rate to the resort fee and remember the total or keep track of the room rate and resort fee separately to compare them with the prices of other hotels under consideration.

Pricing Practices

“The purpose of this paper is to evaluate the costs and benefits of disclosing resort fees separately from hotel room rates. The analysis is based on a review of studies of related pricing practices from the economics and consumer behavior literature. Two pricing practices are relevant for the analysis of resort fees: partitioned pricing and drip pricing Partitioned pricing entails dividing the rice into multiple components and not disclosing the total. Drip pricing is the practice of advertising only part of a product’s price upfront and revealing additional charges later as consumers go through the buying process. A hotel’s decision to disclose the resort fee separately from the room rate is an example of partitioned pricing. Travel agents, including OTAs and aggregator sites, also use partitioned pricing if they disclose the resort fee separately from the room rate”.

Purpose Of The Paper

“In general firms are free to disclose prices as they would like as long as their representations are not deceptive or unfair. This paper does not provide a legal analysis of resort fee disclosures. Rather, it assesses the economic consequences of disclosing resort fees separately from the room rate. Studies of drip pricing and partitioned pricing suggest that separating mandatory resort fees from posted room rates without first disclosing the total price is likely to harm consumers by increasing the search costs and cognitive costs of finding and choosing hotel accommodations. Forcing consumers to click through additional webpages to see a hotel’s resort fee increases the cost of learning the hotel’s price”.

Thomas A. Dickerson is a retired Associate Justice of the Appellate Division, Second Department of the New York State Supreme Court and has been writing about Travel Law for 41 years including his annually updated law books, Travel Law, Law Journal Press (2016), Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2016), Class Actions: The Law of 50 States, Law Journal Press (2016) and over 400 legal articles many of which are available at nycourts.gov/courts/9jd/taxcertatd.shtml. For additional travel law news and developments, especially, in the member states of the EU see IFTTA.org

This article may not be reproduced without the permission of Thomas A. Dickerson.

Read many of Justice Dickerson’s articles here.

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