Hotels Experiment With A La Carte Pricing - WSJ Your Money Briefing

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Podcast Summary

WSJ Your Money Briefing

Episode: Hotels Experiment With A La Carte Pricing
Date: August 18, 2021
Host: Charlie Turner (for The Wall Street Journal)
Guest: Craig Karmin, WSJ Real Estate Bureau Chief

Overview

This episode explores the emergence of a new pricing model in the hotel industry—a la carte pricing—where guests pay lower base room rates but incur extra fees for amenities and services that were traditionally included. Host Charlie Turner and WSJ Real Estate Bureau Chief Craig Karmin discuss how this system works, its potential impact on consumers and hotel revenues, and the broader challenges facing the industry post-pandemic.

Key Discussion Points & Insights

1. How A La Carte Pricing Works

Model in Action: Guests book rooms at lower base rates, but most amenities (pool access, breakfast, gym, early/late check-out, etc.) are separately charged.
- “You would book a hotel... through the company’s website or through an online travel agent. And the idea is that you would be getting a lower price than the hotel would have charged otherwise... Then when you get to the hotel, most of the amenities and services would be charged to you individually.” (Craig Karmin, 02:26)
Example Fees: Early/late check-ins can be about $25; breakfast is not complimentary but billed separately; access to pool and gym is a fee.
- “If you went out to the pool, you would have to pay an admission fee... If you want an early check in... it'll cost you about $25. Same for a late checkout.” (Craig Karmin, 02:26–03:23)

2. Variation Based on Hotel Type

This pricing is typically tried at mid to upper-mid tier hotels, not luxury hotels.
- “The big luxury hotels are still going to charge you a very hefty room rate and still basically comp you on all these services and amenities as they always have.” (Craig Karmin, 03:30)

3. Customer Response and Education

Customer acceptance hinges on clear communication and perceived fairness.
- “A lot of the burden is on the hotel owners to convince the guests that they are in fact seeing a reduction in their daily room rate... No one wants to pay extra for things... On the other hand, people also don’t like paying for things they have no intention of using.” (Craig Karmin, 03:59)
Some fees could be as low as $5; others, such as pool use on a busy day, might reach $25.

4. Industry Status and Early Feedback

Still in early stages; little documented consumer backlash so far.
- "It's very hard to say. I think it's still early stages. I went through TripAdvisor... didn't see anything related to this pricing." (Craig Karmin, 05:17)
MCR reports no significant guest pushback and sees the model as potentially fair and profitable.

5. Hotel Industry's Reaction

Owners are interested, brands hesitant.
- “Hotel owners themselves, I think, are watching this closely and like the idea... The big brands themselves, however, have been pretty cool to the idea so far... They’re sort of like, ‘Well, if someone else tries this first, I’m going to market my brand against my competitors.’” (Craig Karmin, 05:56–07:01)
Possibility that if some major brands try it, others might follow suit.

6. Pandemic Effects & Financial Pressures

COVID-19’s devastation to lodging revenues and ongoing labor shortages are driving experimentation.
- “2020 was one of the worst years for hotels... right when 2021 looked like things were getting better again... this new Delta variant is cooling things off again. Add to that the labor shortage... [and] additional fees to make sure their hotels are sanitized and clean... So you have all this revenue going away, you have these new costs on top... charging a la carte prices is one potential way to do it.” (Craig Karmin, 07:12–08:32)

7. A La Carte Pricing’s Precedent in Hospitality

Past efforts: Hotels often charged for WiFi or offered tiered speeds; flexible room rates exist; daily housekeeping shifted to optional with the pandemic.
- “When Wi-Fi first was introduced... most of the hotels were charging for it. There was blowback... Now Wi-Fi is free, but if you want extra fast Wi-Fi, there's an additional charge...”
- “Hotels... trying to tell people, ‘Don’t ask for clean sheets and clean towels every day’... Now hotels are experimenting with making that a more complete policy, saying, ‘We will not offer housekeeping daily unless you request it. And... there will be a small fee for it.’” (Craig Karmin, 08:39–10:10)

8. Comparison with Airlines

Airlines pioneered unbundled, fee-heavy pricing—customers eventually resigned to it, albeit with resentment.
- “The airlines really pioneered this model... started off with charging for baggage fee... There was a huge uproar... Lawmakers wrote bills... I don’t think there’s anyone these days who particularly likes paying additional fees for all these things. But... most flyers by now are resigned to it... The downside is that people don’t love their airline brand so much.” (Craig Karmin, 10:15–11:27)

Notable Quotes & Memorable Moments

On educating guests:

“A lot of this will depend on how well hotel owners can educate the guests, saying, ‘hey, look, we’re cutting your room rate by X percent... and then anything you want is yours for the taking. We’re just going to charge you for it.’”
(Craig Karmin, 03:59)
On hotel owner caution:

“The big brands themselves, however, have been pretty cool to the idea so far... if someone else tries this first, I’m gonna market my brand against my competitors, saying, ‘hey, you gotta pay for the pool and the gym there. Mine, swim all the laps you want. Work out all day if you want. It’s absolutely free.’”
(Craig Karmin, 05:56)
On the peril of excessive fees:

“I think a lot of the hotel owners and the hotel brands themselves are a little worried that if they start charging too many fees, they could turn off their customer, and they're reluctant to see if that’s what might happen.”
(Craig Karmin, 11:10)

Timestamps for Key Segments

01:48 – Introduction to the a la carte pricing trend
02:26 – Step-by-step breakdown of the new model
03:23–03:59 – Example fees and fee variability
05:17 – Early feedback from customers and MCR
05:56 – Broader industry response (owners vs. brands)
07:12 – Impact of pandemic and labor shortage
08:39 – A la carte elements in hotel history (WiFi, housekeeping)
10:15 – Airline industry comparison and customer adaptation
11:27 – Concerns about customer alienation

Summary Takeaway

The hotel industry is cautiously testing a shift to a la carte pricing—lower room rates offset by charges for amenities—to cope with pandemic-era revenue pressures and evolving traveler expectations. While owners see potential in profitability and fairness, brand managers worry about customer alienation, drawing cautionary comparisons to the much-maligned airline fee model. The success of this approach will largely hinge on guest education, transparent pricing, and industry-wide adoption.

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Transcript32 lines

[00:00]
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Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.
[00:37]
A
Here's your money briefing for Wednesday, August 18th. I'm Charlie Turner for the Wall Street Journal, filling in for JR Whalen. Some hotels are trying out a new pricing strategy where guests pay fees for individual services and amenities. But what will customers think?
[00:53]
B
A lot of this will depend on how well hotel owners can educate the guests, saying, we're cutting your room rate by X percent and then anything you want is yours for the taking. We're just going to charge you for it.
[01:06]
A
Coming up, our real estate bureau chief, Craig Carman will check in to talk about hotel a la carte pricing. That's after the break.
[01:16]
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This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen@schwab.com WashingtonWise.
[01:49]
A
Before too long, hotel guests may find themselves paying extra fees for services and amenities that used to be free. One of the largest US Hotel owners, mcr, is experimenting with a new business strategy, charging extra for things like online access and gym usage in exchange for a lower nightly room rate. The big question is, will customers go for it? Here to talk about a la carte hotel pricing is our real estate bureau chief, Craig Carman. Craig, thanks for joining us.
[02:18]
B
Thanks for having me, Charlie.
[02:19]
A
As mentioned, at least one hotel owner is doing this. Mcr. Could you walk us through how this pricing would work?
[02:27]
B
Yeah. So you would book a hotel like you would book any other hotel through the company's website or through an online travel agent. And the idea is that you would be getting a lower price than the hotel would have charged otherwise. Now, it's not very clear how much lower because hotel prices are constantly moving up and down depending on the day of the week, the time of the year, how many guests have booked, and so on. But you would get a lower rate. Then when you get to the hotel, most of the amenities and services would be charged to you individually. So if you went out to the pool, you would have to pay an admission fee. You'd probably get some sort of green band or something. When you went for breakfast, there wouldn't be an all you can eat buffet. You would sit down and you would get a bill at the end. If you want an early check in, sometimes you can, sometimes you can't. At most hotels under this price of mile, you can get an early checker whenever you want, but it'll cost you about $25. Same for a late checkout.
[03:24]
A
Okay, so you mentioned $25. Does that give us an idea of what the fees might be like or do they vary widely?
[03:30]
B
I think they vary a lot depending on the hotel owner as well as the type of property. And I should note that this is done primarily at sort of mid level to slightly upper level hotels. The big luxury hotels are still going to charge you a very hefty room rate and still basically comp you on all these services and amenities as they always have.
[03:51]
A
This sounds like a big change. And customers can be reluctant when it comes to change. Are they likely to go along with this? Would a reduced room rate be enough of an inducement?
[04:00]
B
I think that's an excellent question. I think a lot of the burden is on the hotel owners to convince the guests that they are in fact seeing a reduction in their daily room rate, meaning no one wants to pay extra for things. And when the airlines initially started charging extra, there was, there was a big pushback on that. On the other hand, as the CEO of MCR pointed out, people also don't like paying for things they have no intention of using. If you're always going to be sleeping in, why should you be including a breakfast in your room rate if you didn't bring your gym clothes? Why do you want, why do you care if you're paying more for access to a gym? If you're planning to check out early, why, why would you want to pay anything extra for the right to check out late? So I think a lot of this will depend on how well hotel owners can educate the guests, saying, hey, look, we're cutting your room rate by X percent, whatever that percent may be. And then anything you want is yours for the taking. We're just going to charge you for it. And I think, yeah, I think, you know, some of the fees could be de minimis, could be $5. And I think, you know, like I said, charge for a pool on a really hot Saturday afternoon when everyone wants to go swimming, maybe set you back 25.
[05:12]
A
Are there any early indications as to how this is working, whether from MCR or anybody else?
[05:18]
B
It's very hard to say. I think it's still early stages. I went through Trip Advisor to see if I could find any complaints about it. Didn't see anything related to this pricing. The folks at MCR say that they are not getting pushback from the guests on this, and so therefore they're encouraged and they want to continue using it. They think that most hotel owners think that this is a good policy, one that's fair for both the guests and potentially profitable for the owners. And the profits will come at the people who use the services and not at the expense of the guests who aren't using the services.
[05:51]
A
Craig, how is the rest of the hotel industry viewing this, especially the major chains?
[05:56]
B
Yeah, I think the owners are watching very closely. Just to step back for a minute, the way most hotels operate these days is you have a hotel owner, which could be a big investment firm. You have a hotel brand like a Marriott or a Hilton or one of their brands, and then you have a management group. And the management group could be a third party or could also be the hotel owner. It could be managed by Hilton or Marriott. So the hotel owners themselves, I think, are watching this closely and like the idea of this succeeding. They see this as a way to boost revenue. The big brands themselves, however, have been pretty cool to the idea so far. And I think a lot of that is because they're sort of like, well, you know, if someone else tries this first, I'm gonna market my brand against my competitors, saying, hey, you gotta pay for the pool and the gym there. Mine, swim all the laps you want. Work out all day if you want. It's. It's absolutely free. So I think there. There is a little bit of a. I'm not gonna go first on this. However, I think if you see a couple of the brands go in, you would probably see the other ones eventually follow.
[07:01]
A
This comes at a rocky time for the hospitality industry after it was decimated by the pandemic, and now it's dealing with a worker shortage. Is that playing into this new pricing arrangement at all?
[07:12]
B
I think it is, and I think that's one reason why you're seeing it getting a more receptive audience among the owners. And it might have been, say, in 2019, when the hotel industry had a very strong year when revenue was right around its record high. But as you note, in 2020 was one of the wor years for hotels in the history of lodging that we've been keeping track of. And right when 2021 looked like things were getting better again and leisure travel was coming back much stronger than anticipated, this new Delta variant is cooling things off again. Add to that the labor shortage you mentioned. They're having a hard time finding people to deliver room service, to do housekeeping to man the restaurants and bars, which is making it harder for them to do business and sometimes getting nasty reviews on online message boards. And on top of that, they're having to spend additional fees to make sure their hotels are sanitized and clean and reassuring people that they'll be safe when they come back to the hotels. So you have all this revenue going away, you have these new costs on top of that, and they have to find some way to make up for that lost money. And charging a la carte prices is one potential way to do it. And so I think that's why it's going to get at least something of an honest hearing from a number of these hotel owners now.
[08:33]
A
Hasn't a la carte pricing been done before in the hotel industry? To some extent, that's right, it has.
[08:40]
B
I think you saw when WI fi first was introduced in hotels, most of the hotels were charging for it. There was blowback by guests against that. And I think the model you'll see at most hotels now is WI fi is free, but if you want extra fast WI fi, there's an additional charge for that. Most guests seem to find that checking email works just fine on the free WI fi. There's also some tiering of room rates based on this. At some hotels, you can pay a little bit more for a flexible room rate, which means you can cancel at the last minute without paying an additional fee where you can get a lower room rate. But if you do cancel, then you have to pay a penalty for that, something closer to what the airlines do. So to some degree, it does exist. And one area you're seeing it exist even more so in the past is in housekeeping. You know, hotels for years have been trying to tell people, oh, you know, let's save the environment. Don't ask for clean sheets and clean towels every day. And that, that didn't really work in terms of getting people to, to tell room service to stay away. But during the pandemic when a lot of hotel guests didn't want a stranger in their room every day, they were perfectly happy to forego housekeeping during the duration stay. So now hotels are experimenting with making that a more complete policy, saying, we will not offer housekeeping daily unless you request it. And some hotel owners are saying, we will not offer it unless you request it and there will be a small fee for it.
[10:10]
A
Okay, you've mentioned airlines. That's a part of the travel industry where there are loads of fees, right?
[10:16]
B
That's right. The airlines really pioneered this model in the hospitality industry, and it started off with charging for baggage fee, and there was a huge uproar among passengers. And Congress got involved. They held hearings. Lawmakers wrote bills to push this back or limit it or control it somehow. And I don't think there's anyone these days who particularly likes paying additional fees for all these things. But I would say that most fires by now are resigned to it. And people will bring their own food on the plane rather than pay for food, or people will make an effort to bring only one bag and bring it on flight rather than check it. And people will get credit card deals so they can board early rather than pay for early boarding privileges. Now, the downside is that, you know, people don't love their airline brand so much. They fly because you have to fly. If you have to go long distance in a short time, you don't have much choice. So you've got to fly one of the major airlines. I think a lot of the hotel owners and the hotel brands themselves are a little worried that if they start charging too many fees, they could turn off their customer, and they're reluctant to see if that's what might happen.
[11:27]
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Wall Street Journal Real Estate Bureau Chief Craig Carman. Craig, thanks for joining us.
[11:32]
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Thanks for having me, Charlie.
[11:33]
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And that's your money briefing. I'm Charlie Turner, filling in for J.R. whalen for the Wall Street Journal.
[11:41]
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This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen@schwab.com WashingtonWise.