Hotel phone charges wilt with competition

March 06, 1995|By Bloomberg Business News

Ivan Schaeffer recently sent a nine-page fax from a Novotel hotel in Amsterdam to his office in Bethesda. The hotel charged him $140.

On a recent trip to London, Mr. Schaeffer found that his hotel assessed an extra three British pounds (around $4.88) for every call -- including those to "toll-free" 800 numbers.

"That's an obscenity," Mr. Schaeffer said. "I went to the pay phone and did it for free."

Mr. Schaeffer isn't an ordinary traveler. He's president and chief executive of Woodside Travel Trust, a worldwide network of travel agencies.

But he's hardly alone in his anger at the way hotels routinely assess stiff surcharges and "access fees" on guests who use the phones in their rooms.

"I don't know of any businessman or woman who is happy about this," Mr. Schaeffer said. "Hotels are going to face a revolution, and corporations are going to say 'no more.' "

The revolution, in fact, has begun. And it's being led by some hotels themselves, who realize people really are fed up with what they widely regard as one of the biggest rip-offs in the travel business. These hotels not only are cutting phone charges but trying to use the cuts as a marketing tool to attract guests.

"We don't charge an access fee for credit card calls," ITT Sheraton Hotels proclaims in a recent magazine ad illustrated DTC with snapshots of a traveler's kids on a hotel room desk. ITT Sheraton, a unit of ITT Corp., also did away with charges for calls to 800 numbers.

For an extra $15 to $20 a night, Radisson Hotels International's new "Business Class" service offers phone calls and fax transmissions free of any surcharges -- plus a continental breakfast, free in-room movies and newspapers. The program, first tested in 1993, is now available in 165 of Radisson's 305 hotels.

Hilton Hotels Corp., Hyatt Hotels Corp. and Marriott International Inc. are among other hoteliers that have introduced similar price cuts and offers.

Hotels are cutting their charges grudgingly, however, because phone services have been a lucrative profit center for many lodging companies.

A typical U.S. hotel generates about 2.5 percent of its revenue from phone services, estimated Ed Watkins, editor of Lodging Hospitality magazine. That's above the 1.5 percent of revenue he estimates it costs to provide the services -- and amounts to $1.88 billion of the $75.4 billion in revenue accounting firm Kenneth Leventhal & Co. estimates the U.S. hotel industry generated last year.

"There isn't a major chain that isn't taking some profit out of long-distance calls," said Larry Chervenak, a hotel technology consultant.

And there probably isn't a frequent traveler who hasn't felt exploited by the practice, said Ed Perkins, editor of Consumer Reports Travel Letter. Of all the complaints public advocacy group Consumers Union, publisher of the newsletter, receives about hotels, "phone gouging is probably No. 1," he said.

Lowering phone fees likely will help the hotels, said John Muldoon, manager of hotel marketing for AT&T Corp., the biggest U.S. provider of long-distance phone service. In a 1993 AT&T survey, one of every three people polled said they considered phone charges carefully when selecting a hotel, he said.

AT&T also stands to gain from reduced phone surcharges at lodging chains. "When rates have been lowered, calling volume has increased," Mr. Muldoon said. "I can't see why that wouldn't be true in hotels," he said.

Lodging Hospitality's Mr. Watkins estimates that five years ago almost all hotels assessed surcharges and access fees on credit card, collect and 800 number calls. Today roughly 50 percent of lodging chains offer some kind of price reduction, and that number will grow as customers shop around for better deals, he said.

Mr. Chervenak, the consultant, however, thinks it's unlikely hotels will eliminate phone surcharges and access fees altogether. Although hotels may be willing to cut the profits earned from the charges, they still want to cover the expense of equipping and running their phone systems. "They want to at least break even," he said.

Hampton Inn, a unit of Memphis-based Promus Co., hasn't imposed fees for local, credit card, collect or 800 number calls from the day it opened its first hotel 10 years ago. But some of the chain's franchises are "struggling" to cover costs from the 30 percent surcharge they do assess on long-distance calls charged to the room, said Phil Cordell, director of franchise operations. "In many of our hotels, it's a loss center," he said.

Some have suggested hotels simply include the cost of phone services in the room price, as is done with linens, electricity and the like. The hotels argue that's not fair. "By charging, those who use it the most pay more, " said Tom Polski, a spokesman for Radisson Hotels.

Others object that business travelers are getting all the breaks. The majority of hotels cutting surcharges have done so on credit-card calls, which are made most frequently by corporate employees.

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