① Hike in 5-Star Hotel Room Rates
It has been confirmed that the room rates of major 5-star hotels have risen by 50% in just four years.
The principles of supply and demand typically determine room rates. During the COVID-19 period, luxury hotels have been thriving due to the possibility of private stays.
Signiel Seoul of Lotte Hotel has seen a steady increase in room rates since 2019. The rates have risen by 46% compared to the same period and have increased by 3% compared to last year. The weekend room rate for a Premier Twin City View at Signiel Seoul’s website is 945,000 won (approximately $800), and with the addition of taxes and service charges of 198,450 won (approximately $168), the total charge comes to 1,143,450 won (approximately $968).
The average room rate for Banyan Tree Club & Spa Seoul, a subsidiary of Hyundai Group, has increased by 19% compared to 2019. It has risen by 5.5% compared to last year. In addition, the room rates of other major 5-star hotels have also increased compared to last year. With the transition to the endemic phase and the arrival of the hotel’s peak season, room rate increases are expected to continue.
② Imposing Service Charges Without Legal Basis
You may have noticed that the total fee becomes more expensive when taxes and service charges are added to the amount you initially confirmed at the payment window when booking a room. Most hotels are charging service fees to guests. Despite the government’s promise to gradually abolish the ‘service charge’ 17 years ago, many hotels are still passing it onto guests.
According to a survey conducted by the Ministry of Culture, Sports and Tourism, out of 72 5-star accommodations nationwide, 24 are charging a 10% service fee on top of the accommodation fee. This is the first survey on the status of service charge imposition in domestic hotels since 2006.
In 1979, the government issued guidelines allowing employees to receive a service charge at a set rate when they demanded excessive tips from guests. A 10% service charge was set to reduce customer inconvenience, standardize services, and improve employee treatment. Hotels that started operating at that time are still charging a separate service fee. However, some hotels that opened recently do not charge a service fee.
However, since 2006, the government has encouraged the gradual abolition of service charges, citing the lack of legal basis for them. It recommended voluntary abolition. Some hotels that abolished the service charge increased their room rates accordingly. The Ministry of Culture, Sports, and Tourism has announced that it will review policy directions in consultation with related departments such as the Ministry of Planning and Finance.
Hotels are charging a 10% tax on the amount combined with the room rate and service charge. When a 10% service charge and a 10% tax are added, the room rate increases significantly. In a hotel where the nightly rate is 400,000 won (approximately $338), an additional 40,000 won (approximately $34) service charge is added. When the value-added tax is included, the accommodation fee reaches 500,000 won (approximately $423).
Domestic netizens have responded to the issue of service charges, saying, “The problem is that the 10% service charge increases if the family stays together”, “5-star hotels are now in the 500,000 to 600,000 won range from the 300,000 won range,”, “Even if it’s abolished, the price seems to remain the same.”
③ Shilla, which Abolished Service Charges
Shilla Hotel abolished its service charge in 2021. It is the first luxury hotel in Korea to announce the abolition of service charges. A representative said, “This is to allow customers using the hotel to check prices more intuitively,” and “There will be no change in the final announced price, and there will be no changes such as the introduction of a tip system.”
Westin Chosun, The Plaza, Walkerhill, Grand Hyatt Seoul, Millennium Hilton Seoul, Banyan Tree, JW Marriott, and Parnas are still charging service charges along with VAT. Most hotels under the Accor brand and Four Seasons Hotel do not charge guests a service fee.
So, can hotel guests refuse to pay the hotel’s service charge?
In 2019, ‘CSI: Consumer Investigation Team’ refused to pay the service charge at a luxury hotel.
The receipt received after ordering food at a 5-star restaurant included a 10% VAT and a 10% service charge. When they told the hotel that they would not pay the service charge and asked for a legal basis, the hotel removed the service charge. In other places, when they said they did not want to pay the service charge, they were given a discount. A hotel representative said, “It won’t be removed from the bill, but we’ll give you a 10% discount.”
There were also places where the hotel said they could not remove the service charge and explained that they were receiving the service charge as a concept of a tip. There is no legal basis for hotels to demand service charges from guests, but service charges are still being maintained.
By. Kim Min Jae
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