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Gaming & Resorts – Resort Wars: In the battle for guests, additional fees come at a price

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October 01, 2011
Gaming & Resorts
Bill Geoghegan - Bill@LGTConsulting.com

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Notwithstanding the notion made popular by the movie “Bugsy,” El Rancho Vegas was the first hotel and casino on the Las Vegas Strip. It opened April of 1941 with 110 rooms. In October 1942, the Last Frontier Hotel began operations on a site that had previously been known as Pair-O-Dice. The land on which the Flamingo now stands was originally owned by one of Las Vegas’ first settlers, Charles “Pops” Squires. He paid $8.75 an acre.

In 1944, Margaret Folsom bought the tract from Squires for $7,500, and in turn sold 33 acres to Billy Wilkerson.  Wilkerson was the owner of some famous and popular nightclubs on the Sunset Strip in Los Angeles (Café Trocadero, Ciro’s and La Rue’s). He planned to build a hotel that was more in line with the European style with luxurious rooms, a spa, health club, showroom, golf course, night club and an upscale restaurant.  Due to the high cost of materials during World War II, Wilkerson quickly ran into financial problems, and the project stalled.  “Bugsy” Siegel and his associates learned that Wilkerson was out of money and offered financing, allowing Wilkerson to keep a one-third ownership stake and operational control.

Billed as the world’s most luxurious hotel, the Strip’s first luxury resort opened seven miles from the downtown center of Las Vegas in the unincorporated suburb of Paradise, Nev.  The concept of the casino or gambling hall had changed. The casino was no longer just a place to gamble, but now part of a resort destination for entertainment and recreation.  The Fabulous Flamingo, as it became known in 1947, has often been credited for creating the complete experience as opposed to merely gambling, making Las Vegas a popular alternative to Palm Springs for the Hollywood crowd.  It became the prototype and target of all the resorts to follow, not just in Las Vegas, but legal gambling destinations around the world.

Today, megaresorts line the Las Vegas Strip that still resides in Paradise, Nev. While the last decade has left numerous hulks of incomplete or unoccupied buildings dotting the landscape, the existing resorts continually attempt to reinvent themselves and the resort experience, and provide a self-contained destination that rivals any resort in the world.  These resorts are constantly battling to lure guests to their destinations.

While there is certainly a small portion of the population to which price is not an object, for the vast majority of us, it becomes an important factor in the selection of a destination.  But as anyone who has ever visited a Disney resort knows, that published nightly hotel rate is only a small portion of the ultimate cost of a visit.

The current electronic distribution environment has made the published nightly rate the most significant factor in attracting guests to a hotel, but every good hotelier will tell you that each additional net dollar in room rate you can get from a guest will go straight to the bottom line. To this end, the challenge is to show the lowest nightly room rate through all the booking channels, while offering the guest many other opportunities to spend their money within the resort.

Since the days of Wilkerson’s vision, the pool has been an important component of the resort experience, but for the most part, it has been a cost center, not revenue producing. While there has always been the food and drink service available to bolster revenue, the cabana has added substantial revenue value.  In many cases, daily rental of a cabana at the pool far exceeds the price of a room.  Cabanas can go for as much as $1,500 or more per day at some of the higher-end properties, and a rate of $200 to $300 is common.  The guest gets a reserved location with personalized service, some with TVs, ceiling fans and refrigerators.  A day bed, simply a reserved lounge chair, can go for $20 to $50.

A recent phenomenon is the pool club.  These are generally adult-only pools, some purpose built by the casinos, and are run similarly to night clubs.  There is generally a cover charge which can run as high as $150 on a weekend, and for an extra charge cabanas are available.  On many weekends and holiday periods big name celebrities and DJs are featured.  Locals or non-hotel guests may attend, frequently at a higher cover charge.  The Hard Rock Hotel’s Rehab is well known as a wild party on Saturdays and Sundays.  The three most recently opened hotels on the Strip (Encore, Aria and the Cosmopolitan) have purpose-built pools that host pool parties on various days of the week.  Bare (Mirage) and TAO Beach (Venetian) both offer European-style bathing options (i.e., topless).  With daily temperatures exceeding 100 degrees for most of the summer, these parties are extremely successful.  In many cases, gaming tables are set up in the pool area, allowing the diehard gamblers to continue playing, while the rest of their group enjoys the music, dancing and bathing.

Perhaps one of the more contentious methods of gaining revenue from the guest is the resort fee. Many of the resorts on the Strip add a compulsory fee to the room charge for amenities, such as in-room wireless Internet, access to the health club, a daily newspaper and outgoing calls. This fee can range from $6 to $25 per night, and is added to the nightly room charge. Although it is not optional, it is not included in the nightly rate that is shown throughout the electronic distribution systems.  There are arguments that, since it is not optional, it should be included in all rates shown, but the hotels maintain that it is not part of the nightly rate, and therefore not commissionable. It is disclosed as an additional charge at the time of booking, but not as part of the rate. Booking a hotel based on rate alone can lead to a surprise when the true rate is disclosed at check-in. 

The resort fee is not a Las Vegas exclusive.   Many resorts add mandatory daily resort fees. Well-known resorts such as Opryland and The Broadmoor include additional nightly charges often identified as an incidental service fee.
Many transient hotels have other methods of gaining additional revenue above the room rate from the guest. Fees for self parking, valet parking, energy surcharge, groundskeeping and early or late checkout can generate additional revenue that does not manifest itself in the published room rate, nor are these charges commissionable, so each dollar gained is a net dollar to the bottom line.

While mandatory charges allow the hotel to add revenue, they also can leave the guest with a sour taste.  This has led to a public relations and advertising war among the major resort companies in Las Vegas.  While MGM Resorts International and  other properties add the resort fee, Caesars Entertainment  (formerly Harrah’s) does not. Advertising for Caesars Las Vegas resorts features the tag “No resort fees” prominently. Billboards leaving Las Vegas invite guests to avoid those fees the next time they come to Las Vegas.

The resort fees and other additional fees represent a challenge in the revenue management arena.  One of the primary criteria for setting rates is the competitive analysis of prices at local hotels.  Hidden fees make a direct comparison difficult. The competitive rates must be monitored and adjusted for the additional fees differential to make a true comparison. 

An unforeseen symptom of lower rates is that the quality of the guest may change. The more affluent guest willing to pay a higher rate is more likely to spend in the resort outlets such as restaurant, shopping mall, spa, pool and night clubs, etc., while the guest gained through a reduced rate may not be able or willing to spend those extra dollars.  

ADR calculations based only on published rates can be misleading. Mandatory fees are truly part of the daily rate, although usually not reflected in ADR. Calculating the value of an occupied room becomes much more complex when the optional fees are considered. If 20 percent of the occupied rooms use the hotel’s valet parking facility at $20 per night, then the value of an occupied room increases by $4. Similar calculations must be done on all revenue-producing amenities and outlets. But if charging those fees drives the guest to a competitor who offers no fees and free parking, then the battle for additional revenue has been lost.

Bill Geoghegan is a consultant in Las Vegas. He can be reached for comment at Bill@LGTConsulting.com.

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