The award-winning associate professor from Penn State's School of Hospitality Management talks about the possible (?) demise of those dreaded resort fees, how local economies depend on NCAA football weekends, and gives us the state of the union for the hotel industry heading into 2024.
https://hhd.psu.edu/contact/breffni-noone
https://www.investopedia.com/college-football-provides-an-economic-boost-7964994
The award-winning associate professor from Penn State's School of Hospitality Management talks about the possible (?) demise of those dreaded resort fees, how local economies depend on NCAA football weekends, and gives us the state of the union for the hotel industry heading into 2024.
https://hhd.psu.edu/contact/breffni-noone
https://www.investopedia.com/college-football-provides-an-economic-boost-7964994
Here we go. This is season three of no Show. They said we couldn't make it. When I say they we. We said we couldn't make it, but Jeff and I made it to season three and I can't think of a better person to start off this new season than our guests today.
Matt Brown:Like few others, brefne noon understands how and why hotels make money, as well as how and why people decide which hotel they want to spend money on. Brefne is an associate professor at the Pennsylvania State University School of Hospitality Management, where she teaches revenue and profit optimization and data analytics. She holds a PhD in revenue management from Cornell. She focuses on revenue optimization in the restaurant, hotel and leisure industries and she has published over 40 research articles in academic journals and several book chapters. She is deeply involved with hospitality sales and marketing association international and basically every time you turn around she's winning awards as an educator and speaking as a thought leader at conferences. She is a singer of choral music, an ardent booster of the swimming diving team for state college area school district and an all around delightful person. Breffni, welcome to no show.
Breffni Noone:Thank you for that lovely introduction and it's lovely to be here.
Matt Brown:Let's go big. Let's start big. First question Can't think of a better person to answer this what's the state of the union for the hotel industry as we start 2024?
Breffni Noone:I'll talk about it through a consumer lens, I think, and I think that the biggest opportunity lies for companies that can truly deliver value to consumers. You know we were lucky, coming out of the pandemic, that we saw that, even though discretionary spending was getting cut, there was resilience in terms of spending on travel and leisure. But we also saw, from various studies that were done, that there is, while people are still willing to spend, they are much more cost conscious than they were before. So you know, when I view it through a consumer lens or a consumer paradigm, what I really think is they're looking for the right value, so they're willing to spend.
Breffni Noone:But you've got to give the experience back and I think, as an observer of how the industry has recovered since the pandemic and we've had such great fortune with ADRs and so on and so forth you know we've had struggles with things like from an operations point, so staffing and so on. So I think what concerns me moving forward is you've got this conflict where you're trying to either maintain or increase ADRs, but you've got to deliver the value, which means from an operations perspective, you've got to get it together. So I think that's where both the opportunity and the challenge lies, you know. Can you deliver the value? And if you can, I think that's where the real opportunity is.
Matt Brown:Do you think hotels get that, or do you think they're still playing catch up?
Breffni Noone:I think there's a challenge to catch up because even when individuals realize that you're still relying on operations to be able to deliver the staffing levels and so on to create the experience for the guests. So I think there is great awareness. It's just how do we make sure that we staff up and train in such a way that we can actually deliver those memorable experiences for people?
Jeff Borman:In the teens and probably began a little bit prior to that. Luxury was becoming diluted and the difference between a luxury hotel and a full service hotel was hard to tell. And then you saw in COVID, the price and luxury just doubled and tripled in some cases, and I think what you just described. I agree that if there's a theme coming into 24 for luxury hotels to keep the pricing elevated at the levels that are profitable now, that service standard is going to have to match the expectation, no doubt so Brefne, one of the hottest topics of 23 resort fees. I think we have reached kind of the end of the line here, yeah, and I can share why I think so. But who cares what I think? What do you think?
Breffni Noone:Okay, so this is an interesting one. I had the good fortune to speak at a New York chapter HSMAI luncheon event. I actually close spoke. Str was presenting, amanda Height was presenting from STR and she was talking about the numbers and how we're doing and the great ADO's and so on, and then my job was to talk about it from a again kind of given my bench sometimes the consumer end and value. And one of the hot topics at that luncheon was resort fees. And one of the things that I shared with the participants at that luncheon was when I put on my revenue management hat.
Breffni Noone:It makes sense. Resorts. These are wonderful because they bring in all that incremental revenue with very little cost going out the other side. So there's a lot of upside to it. But the other side of it is research, marketing. Research has shown two things. It's shown that people don't like resort fees because they're just averse to what we call partition pricing. So that's where a price is divided, like into several components, but the components can't be bought separately. So when they can be bought separately and they've no choice but to pay all of the component pieces, they would rather pay a bundle price than pay separately. So they're already averse to partition pricing. And the other thing they're averse to is choice. They don't like not having choice.
Breffni Noone:Autonomy is really important to people. So my take on that is, if you are going to go ahead and you're going to stick with resort fees, you've got to think about it from the perspective of how do we overcome those barriers? Well, you can't in terms of the partition rates, but you can with the autonomy. How do you make fees more palatable? Well, can you give anybody any choice? And how do you provide the value? So it often strikes me when I come across destination or resort fees and I kind of think, okay, this package of amenities was being put together. First of all, are they actually amenities that people value? And if they are amenities that people actually value, like is it particular market segments? Is there a particular persona that the amenities hold value for different individuals? So I would kind of I would challenge hotel operators, if they're going to stick with these resort or destination fees, to really have a hard look at them and say, okay, who exactly values the amenities that we're putting on this list? Is there any reason why you can't give people a choice? Like, all you give us is a list of amenities. Very often we don't have the time. We've got an inflexible schedule. There are things that we don't like.
Breffni Noone:I'll give you an anecdotal example. I actually laughed when this experience happened to me. I was down in Arizona and it was the height of the summer. I was down there for a conference, so it wouldn't be my time of the year, given my Irish skin, to go to Arizona.
Breffni Noone:So a check-in at the check-in desk, and this was last summer. So super hot and heat warnings. Please don't be outside. All over the news, we had, you know, however, many days of heat warnings at this stage. I get to the check-in desk and the person says to me now you're going to be paying this destination fee. Now this was a luxury property. You're going to be paying a destination fee and now you can use pickleball courts for two hours a day and you can use the tennis courts and you'll be able to go out and play at X number of holes of golf. And I turned to the person that's the idea. Did you know that we're not meant to be going outside because it's a heat advisory? It's nothing else on offer?
Breffni Noone:No, so I think there's a few things if they're not going away, which was your question, jeff. Are they going to be like? Are they going to disappear? If they don't, you got to make them more palatable. Do they make sense? Are you giving them any choice at all? Why can't you give people a choice? Give them 10 things, let them pick five. And then the other thing is coming back to operations, and again this is from personal experience and looking at people's reviews of properties. You give us a food and beverage credit. You've got restricted hours on F&B because you don't have the staffing for it, and then when your F&B facilities are open, the quality isn't always there. Yet you force me to use those facilities. So if you don't have the operations to support the amenities, and people don't care about them, you're going to continue to get the degree of resistance I think that we've had so far.
Matt Brown:There are a lot of consumers who feel like the resort fees are just an amalgamation of things that you're already throwing in the hotel just to juice your rates. Hey, let's put some workout machines in a room, let's throw some bagels out in the morning, open the pool up for two hours. Here you go, here are all your amenities, and it's stuff that the property was probably already going to do anyway. But now it's an excuse for them to throw it on a list and say see, here you go, give us an extra $30, versus just be more transparent about it.
Jeff Borman:I think we're at the end of this, though, because what's happening in California, or happened in California?
Breffni Noone:Yeah.
Matt Brown:First up, jeff. What exactly is going on in California?
Jeff Borman:California legislators passed a bill that all fees non-government fees must be included in the presented price for any shopping to a California consumer. So it's not just hotels in California. It's a pretty aggressive approach. So essentially what Marriott and Hyatt did last year, which was include those fees in the price, it's insisting that anybody selling to a California already do what those two are already doing. So this means essentially OTAs are going to have to join unless they decide that they can do a good enough job and it would be worth serving different prices to California IP addresses, which the complexity of doing it, yeah.
Jeff Borman:So it's a pretty foolish thing to think anybody's really going to go out and try to do that. So in a lot of ways we see California do these things where you legislate it in California, like they did with pork or something, and it becomes national law effectively if you want access to the California market. And then on top of that, matt, you have the FTC is basically running the same bill through US Congress now. So what already happened in California is probably going to be national law at some point. As the Biden administration tries to get a little easy win going into election season to say something in favor of being consumer advocates. I think there's some low hanging fruit. You'll probably see that. Basically, put resort fees to rest. I would anticipate by the middle of the year.
Breffni Noone:Even with something, though, like Marriott. So when you say they have to take care of this part of the price, you mean that instead of the rate being 250 plus 35, they're now advertising it as 285.
Jeff Borman:That's correct. So Marriott's made that move high. It's made that move. Hilton's in process of making that move, but OTAs and independent hotels a few other smaller brands really had resisted.
Breffni Noone:Don't you wonder then? So the way people look at prices online now, so let's say for those, all those properties, that it's listed separately, right? So you do your search and you see that Marriott's 250. Then it's really 285. So what happens when the legislation comes in in terms of people's reference prices? So does that mean if Marriott goes to 285? Now everybody's reference prices? Oh my God. Well, they're way much more expensive than they were X number of months ago.
Breffni Noone:I mean obviously there's a transition period, but isn't that going to be one of the challenges then?
Jeff Borman:You're spot on and I think one of the challenges currently is that you've got Marriott and Hyatt that are already doing that 285 in your example whereas the exact same hotel on Expedia is doing the 250 with the 35 hidden. So it's going to bring the rest of that market in line. Does it not end up being better for the consumer? They'll pay the same the amount coming out of their wall. It's going to be 285 in Brefne's example. Regardless, what's going to be better is transparently upfront. I think that'll improve relations a lot, reduce frustration both on the operator and the consumer side of things. But I think what you'll see, brefne, is that the 285 will stand, but the pickleball court and the breakfast and the muffins that are laid out those will go away.
Matt Brown:We want to talk a little about surge pricing in a minute, but first it's Penn State. You work at Penn State, so we have to talk about sports. It's mandatory, it's the law, and Jeff and I have been talking a lot recently about the NCAA's impact on local communities, especially in relation to surge pricing strategies. Money News Flash dominates college football, but there's not a ton of research on college football's overall effect on tourism, which I think is strange. Every weekend, every fall, football plans, travel and tailgate, stay in hotels and eat at local restaurants and all that money comes into these local economies and I think, because it's so local, it's quite hard to see it in the aggregate and see it countrywide.
Matt Brown:On top of that, you've got the regionalism of collegiate sports, which is still one of the great drivers of brand loyalty, and it's the closest thing I think America has really to a European soccer model where big and small teams have deeply emotional rivalries with competitors who essentially live just down the road, according to a 2022 study for the awesomely named Happy Valley Adventure Bureau.
Matt Brown:According to a 2022 study for the frankly awesomely named Happy Valley Adventure Bureau, penn State home football games alone generate $87 million in revenue and support 4,500 jobs and bring in about 1.7 million people to the area each fall. However, penn State, of course, is in the Big Ten, which will soon see a major tectonic shift. When University of Southern California, ucla, university of Washington, university of Oregon all join the conference, those teams will be playing way past their old geographic borders and I guess we're wondering are UCLA fans going to show up and spend money the same way that Ohio State fans are in Happy Valley? First up this is a lot of long preamble here, but first up have you ever seen an economic measurement of the impact college football has on college towns?
Breffni Noone:Not beyond the type of data that Happy Valley Adventure Bureau put out last year and just to add to that. So that was direct spend and multipliers. But there is also $267 million from Penn State Intercollegiate Athletics payroll and spending that goes into the community, while there's not been any study that I know of beyond that most recent one done by Happy Valley Adventure Bureau. The impact is extremely significant.
Jeff Borman:I saw one that Notre Dame brings 600,000-plus visitors just for the football weekends in South Bend. $130 million or something in local sales are directly tied to those weekends at Notre Dame. But you're right, I haven't seen a comprehensive study on this no, and STO has put out data as well.
Breffni Noone:Like they said, average hotel prices tend to triple on football weekends. In the fall, you might have an average rate of $127 on a regular Saturday and then it would go up to $600, $700. Makes sense, and then you will see. In our town there's always a two-night minimum negative state.
Jeff Borman:There must be a better study, because I just saw that Travel and Leisure Company with Sports Hospitality Ventures was in the news. They announced last fall that they're going to introduce a new concept for a network of sports-themed resorts using sports illustrated as the brand. Not surprisingly, first location is going to be in Tuscaloosa. The business model here. Somebody there did the kind of research that the three of us are talking about, because 150-room hotel in the Dominican seems like an odd place to put one. But they also have sites in Ann Arbor for University of Michigan. Orlando is going to be a big, huge hotel, four to 500 rooms. Under this sports illustrated concept. They're going to get eight hotels in the next five years and 20 over the next 10. So there's got to be a real market for this place, and it reminds me a bit of the graduate hotels.
Breffni Noone:Yes, I was going to say graduate.
Jeff Borman:Excalibur in this marketplace. To do that you have to be great at surge pricing you make all your money for a whole year in that business and Ref. I don't know if you see this in the restaurant side in Happy Valley, but hotels can make their full year's revenue or watch it go sour on the basis of about four or five weekends out of the whole year.
Breffni Noone:Oh, absolutely. They rely on it. Every business does. It's not just hotels, it's restaurants, it's all the merchandising stores.
Matt Brown:Jeff made a cogent point that the Alabama's and the Penn States of the world are beyond time zones, that they're essentially national and some might argue, global. Teams, television money is what's fueling all this change. We see why this is happening, but the actual effect on the towns themselves and the regions, I think that's going to play out in unexpected ways. I think there are certain markets that are going to be sort of change proof. Then I think, as we see UCLA people traveling to Pennsylvania and vice versa, I don't know how that's going to shake out the way that it has, when you could drive seven hours from Columbus, ohio, to be at the game and then drive back the next day.
Breffni Noone:One of the things that drives our biggest games here is you spoke of rivalries at the start of the show and you think of the rivalries Michigan, iowa State, ohio State. They're the big ones, ohio State and Michigan. We've got nearly 107,000 capacity in our stadium. Well, they fill it up to about that's their official capacity, but they fill it up to about 110 on those games. Okay, now we are going to play. I believe we're going to play Ohio State this year, this coming season, in 2024. So that's grand for that big game, but we're not going to play Michigan again. We've played them every year since 2012. And we're not slated to play them again until 2027. So that rivalry that brings not just the Michigan people but it brings a bigger Penn State audience. I would wonder, with that rivalry going away, it's not just looking to see the other team bring supporters, it actually has to do with the amount of supporters from Penn State that come to a game. Just to give you an idea and you were talking about surge pricing, so that kind of ties in here.
Breffni Noone:Without naming the hotel company, this is a brand, it's a select service hotel downtown, okay, on a regular weekend. So let's take I don't know September 21st. No, september 14th, it's a bi week, so there's no game in town. The rate is 317 at that property, select service hotel downtown. The first game opener home game is against Illinois and they're selling at 899 right now. And then the UCLA game is October 5th. The lowest available rate in that property right now is $1,014 per night with a two night minimum.
Breffni Noone:So because I was, I am curious and I was curious and I've spoken to a few hoteliers in town. They're not quite sure. They think there's a huge novelty value with this new team coming in and you know they think that it'll be a lot of Penn State is coming back to see Penn State playing this new team on home turf and but certainly the way they're pricing right now they're pricing at the tippy top like we play Ohio State November 2nd. That same property is selling at 999 for Ohio State. And then the next weekend, which is the 9th of November, washington again is new and they're still selling at 999 for them too. I think there must be a lot of faith in the market that these new teams, at least in the starting years, are going to draw in this novelty. You know the audience from a novelty perspective but I think I'm not sure it'll be people coming from UCLA. I think it'll be a lot of dependence on our. Penn State is coming back.
Jeff Borman:Well, I think there's going to have to be some impact just because of the transportation. Once that novelty effect that I think you're right, once that wears off the flights, you know you're going to have Oregon and Penn State in the same conference and flights from University Park Airport to and from Eugene Oregon are not going to make you know that, a sustainable right for both, for either group.
Breffni Noone:No, I tell you what, jeff. The way I see it is that you know the home games and I think about it from a home game perspective because this economy I'm in I think will benefit with that deafening, with that novelty effect. I think we're going to be able to like they're obviously expecting it in 10 if they're selling it over $1000 a night for select service property. But I think you're absolutely right the feasibility of people traveling across the country when they're in a community that is serviced by an airport that does not have direct flights. I'm not sure you're going to see in UCLA and Washington the big attendance that they would. You know that they may have seen playing teams that were more proximate to them. I mean, that being said, we've got an alumni base of over 750,000 people around the US and you can't go anywhere without somebody saying we are. So there'd be plenty of Penn State everywhere, but I'm not sure that you'll get the volume when they travel away games.
Matt Brown:It's almost as if college towns were pioneers in the idea of surge pricing.
Breffni Noone:Going back to when Sherry Kym started doing research on revenue management practices. What we found was what she found back in the day, and this applies to hotels, restaurants and so on. Once people become familiar with the practice, they're much more accepting of it and much more willing to pay. And you see that in our town Everybody knows you could come in on a no-name Saturday in October and pay $300, and then you'll come in on a football weekend and be forced into a two-night minimum with a $1,000 rate per night. And they're filling the hotels because familiarity, once it's there, people are willing to pay the prices.
Breffni Noone:And don't forget as well, the stadiums are also using demand-based pricing and variable pricing in terms of sections within the stadium. You're paying X amount to sit in the zone at the 50-yard line and you're paying something else for the nosebleeds. And then we also do variable pricing and parking here too. Depending on what section you're in around campus, because there's so many parking sections, you're paying something different, so everybody's accustomed to it. So you don't see you know when I say you don't see resistance. You're still filling hotel rooms, you're still filling restaurants, you're still filling Airbnb and VBRO properties and you're still filling the parking lots and the stadium.
Jeff Borman:You mentioned the Airbnb and VBRO. Yeah, the Sports Illustrated Resorts announcement said that they're going to get into, because there is great demand for branded residential units that are not in the luxury class, because that's where most of them.
Jeff Borman:You know the Ritz Carlton residences, the Four Seasons residences, right? You don't see a ton of that product downmarket if you will. But exactly what you're talking about is a main component of this new business model with Sports Illustrated Resorts. You see people in college towns especially who are property owners and they plan to go back to their alma mater three, four, five times a year. But if they can use those weekends with the big games, with parents weekend, with graduation weekend, if they can park that inventory three or four weekends a year on the big surge prices on the market, they can cover the mortgage for an entire year on that vacation yeah.
Matt Brown:Brefney, it's time for the mystery question. That's right. It is scary. Can you enjoy a hotel experience? Or is it the case when you walk in a hotel lobby, your Terminator scanner comes on and you start looking for inefficiencies and optimizations everywhere until checkout?
Breffni Noone:Oh God, I do. I just can't sometimes switch off. I just can't sometimes and I see stuff that just bugs the living daylight out of me. I've gotten better.
Matt Brown:Do you ever have hotel? People talk down to you a little bit.
Breffni Noone:Oh heck, yeah, oh yeah. So I'll go up and I'll just act like my little Joe blog, say my little piece, and then they do the oh my God, you've no clue. And they talk down to you and then I throw in a few little terms to indicate that there's a good chance that I know what I'm talking about. And then they sometimes change their tone. But yeah, it's sometimes like the amount of times now I've run a general manager after I've stayed somewhere, because sometimes I'd be too irritated to say something while I'm there, and I'll leave and I'll ring them and I'll say I'm just letting you know X, y and Z goes on. You know, this is what's happening at your property. I just wanted you to know that I've already paid, not looking for any freebies, not looking for anything. I'm just saying if this is my property, I would not be happy with it.
Matt Brown:Dr Noon, this has been incredible. Thank you so much for joining us today.
Breffni Noone:My pleasure Thanks.