Industry Groups Urge FTC Action on Hotel Pricing

Charging deceptive pricing by hotels, motels and resorts, three industry leaders urged Federal Trade Commission (FTC) action to ensure honesty in displaying rates and an end to "drip pricing," a practice described as widespread.

In a letter to FTC  Chairman Jon Leibowitz consumer advocate Ed Perkins, Consumer Travel Alliance (CTA) Executive Director Charlie Leocha, and Business Travel Coalition (BTC) Chairman Kevin Mitchell  said the practice of drip pricing harms  agencies, governments and competitors that display rates honestly.

"Drip pricing is a deception scheme whereby a supplier carves out a portion of its true price; labels that portion as a mandatory extra fee or charge; deducts it from the true price; and features the artificially reduced remainder of the true price in advertising, online postings and price information supplied to global distributions systems and travel agencies, " the groups said.

Typical carve-outs include resort, housekeeping, and Internet access fees, notes BTC's Mitchell,  with  travelers never finding out  about the amount of the fees until they arrive at the hotel or resort.

Mandatory artificial “fees” and hidden Value Added Tax (VAT) can make a hotel’s posted rate appear to be below the true price by as much as $30 a night – more than enough to drive consumer choices in the travel marketplace, the groups noted.

Drip pricing damages several important stakeholders in the marketplace for overnight accommodations, the groups said in the FTC letter, including:

• Consumers and corporate travel managers find it difficult to determine the
true cost of a stay in advance and to make accurate price comparisons among competitive hotel/resort options.

• Over time drip pricing can reduce the intensity of competition resulting in
higher average prices paid.

• "Online Travel Agencies (OTA's) are unable to provide accurate side-by-side price comparisons  and they are therefore often unable to present true final prices, even at the time of consumer purchase commitment. Instead, they are reduced to issuing vague
“you may be subject to additional fees and charges” disclaimers."

• State and local taxing authorities are deprived of revenue because they
collect taxes on only the carved-out partial price rather than the true full price.

• OTA's and other travel agencies are deprived of a portion of earned
commissions for the same reason.

• "Hotels that display rates in an honest manner suffer in supposedly side-by-side
price displays when competitors display artificially low rates. As a result,
some suppliers feel pressure and reluctantly adopt the drip-pricing model in
order to appear competitive. In fact, it’s hard to see how drip-pricing deception benefits anybody other than the suppliers that practice it."

"Theres no question that the practice is deceptive," says Perkins. "The Florida Attorney General described it as inherently deceptive in a comparable action against cruise lines in 1997. The US Department of Transportation agrees: It quickly quashed the practice some airlines adopted when they started carving fuel surcharges out of their base fares."

"Anytime consumers are faced with hidden fees the practice is deceptive. When travel providers are planning to add extra charges, they must clearly disclose any such fees," said CTA's Leocha.

"Were not trying to force hotels to abandon the services they claim the fees cover," said Mitchell." Were just trying to make sure they price them honestly and accurately."

Perkins added: "What were asking for is quite simple: If you have to pay it, it has to go into the posted price."

The groups said they are not seeking to impede the workings of the travel marketplace but asking for action that will make the marketplace "more transparent and honest for all the stakeholders."

" Unfortunately, the hotel/resort industry has embraced unfair and deceptive drip pricing to such a pervasive degree that the only recourse is for FTC intervention," the groups said in their letter to the FTC.