Thursday, February 14, 2008

Gotcha Capitalism and the Travel Industry (Updated)

I recommend you take the time to listen to Terry Gross interview on NPR last month with Bob Sullivan the author of Gotcha Capitlism. Interview is here. Sullivan's book is about the proliferation of hidden charges that hit consumers every day and undermine advertised prices. These include areas such as ATM withdrawal fees, credit card usage charges, airline fuel surcharges etc. All the stuff you don't know about from the advertised price.

He says the main cause - unfortunately - is the hyper price competitiveness and sensitivity of consumers brought on by transparency of the Internet. Consumers can now see the price from an almost limitless number of retailers all at once, driving down prices which is forcing retailers and suppliers to find new revenues streams. Unfortunately many have responded by applying new and small charges here, there and everywhere in the hope that consumers wont notice or wont complain.

There travel industry is not as bad as the banks and telecoms providers but is still a guilty party in this new form of revenue generation. There is the annoying but nonetheless sneaky approach of sticking taxes, fees, surcharges, levies etc at the back of the purchase path. This is something that intermediaries are guilty of and have been forced to do to follow the actions of the major suppliers. For consumers this is frustrating and a bad experience but at least the consumer has a moment before clicking "buy" to see the full cost.

The real Gotcha Capitalism that hits travel consumers is the emergence of post booking fees and charges. Fees and charges not disclosed at the time of booking. Hotels that now charge for room to room calls and mini bars that charge you for touching or moving an item are low level examples. The worst examples are those fees that are nowhere to be seen at the time of booking and almost unavoidable for the standard, innocent consumer such as resort fees, hire care company excess waiver insurance premiums and gas/petrol surcharges.

Resort fees (for those that dont know) are where a hotel charges an extra per person daily charge to use the pool, gym etc. This can be around US$15 per person or $30-$60 per day for a leisure couple/family. The Gotcha is they they are charged regardless of whether or not you use the pool/facilities. Outrageous that a compulsory charge would not form part of the room rate.

Rental car excess waiver insurance is basically a tax on consumer ignorance. On my recent hire car experience in New Zealand, Budget offered me $22 per day insurance to drop the excess on my car hire from a whopping $2200 to only $200. That is $144 per week on a $500 rental or an increase of almost 30%. This is pure profit for Budget. The consumer ignorance part of course is that my $78 a week travel insurance policy covers this already as does the limited travel insurance being offered by my credit card. Budget is trying to gouge me on something I already have (twice).

But it is in hire car gas charges where Gotcha Capitalism is most alive and gouging in the travel industry. There is so much hard work you have to do as a consumer to calculate whether or not to buy a tank upfront at the time of rental and if you don't to find the closest petrol/gas station to drop off, overfill the tank and do all you can to avoid paying the huge penalties involved. In the case of Dollar Rent a Car, no matter how hard you try you are still going to get slugged with a $2 "top off fee" (thanks as always to the Consumerist).

Cheating your consumer is nowhere to be found in my copy of "Customer Retention For Dummies".

Do you know of any other egregious examples in the travel industry?

UPDATE 2 - I consider myself a well experienced travel buyer and despite all of my efforts in my car rental with Budget (see above in the story) I have found it unavoidable to be hit with A$90 in charges on my card after returning the car (25% of the rental cost). This is despite prepaid, despite filling up the tank, despite denying the top up insurance premiums and despite reading all of the terms and conditions. I spoke with Budget customer service and they immediately sent me on the local office. I spoke with the local office and they simply say "that is the way we do it here, it is the computer, if you have a problem call your travel agent". In response to being told by me "this is a terrible customer experience. Why do you constantly do this - charge customers money for pre-paid booking after they have consumed the service and after they have left the country", the Budget agent in Nelson said "I have to go now and service another customer". In other words, "Gotcha!"

UPDATE - Consumerist has posted about Fodor's list of 14 hidden hotel fees (Consumerist here, Fodors here). They are (some of my comments in brackets):

# Groundskeeping
# Towels (other than room—e.g., pool or fitness center)
# Business center, fitness room
# Safe
# Housekeeping, bellman gratuity fees
# Water and newspapers (hate this one)
# Energy surcharge (should be included in taxes but never is)
# Early check in or out/extended cancellation
# Shuttle service
# Baggage-holding
# Bartenders (not heard of this before)
# Room block fees (not heard of this either)
# Mini-Bar
# Random incorrect charges (hmm not sure about how helpful this is)


samdaams said...

I hate Rates to Go's add on fee which isn't clear until really late in the booking. That said, I use the service regularly and still recommend it on Travellerspoint.

Tim Hughes said...

This is the greatest challenge I have in writing the blog. How to deal with comments and news stories that point back to my day job.

I think the right approach is to not talk about the company I work for in the positive, negative, in defence or offence. Cant stop the comments coming in (in fact always welcome non-spam comments)but is best that I dont respond.

Anonymous said...

The "Mandatory Christmas (and/or) Gala Dinner". Pay for it regardless of if you eat it or not. More often than not it's glorified dinner buffet slop, yet you'll see hotels (particularly in Thailand) charging anything up to $US100 (or more in the flasher digs) per person -- the cost is often well in excess of the room...

Anonymous said...

and do you think the Romantic angle of 14th February is any better ?

Don said...

These "gotcha" charges are everywhere. Just this afternoon I was talking to a co-worker who shared with me how his own bank charged him $15 USD to have money wired INTO his bank account.

The company wiring the money into his account, however, had offered to do so for free.

Anonymous said...

How is it that a passenger under 2 years of age, who travels "free" on airlines, and does not enjoy the comfort of a seat or food, still gets to pay around $600 to get to the US?

Tim Hughes said...

Another bank favourite is that my mortgage provider charges me $10 a month account maintenance fee ontop of my interest bill. That is just $10 is pure Gotcha.

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