Ancillary Revenues: Investing in the Future of Hotel Distribution

Rhett Hirko, Senior Vice President, Revenue Optimization & Distribution, Preferred Hotels & Resorts

A recent meeting withfellow members of the HSMAI board included a survey onthe “hot topics of 2022.” Among the many submissions was ancillary revenues. As the meeting host opened this up for discussion, groans were heard across the room, coming from everyone in Revenue Management. One particularly established and well-respected leader both visibly and vocally shared her frustration with the topic, summed in a similar phrase well received by all: hotels are not airlines.

Let’s recognize that this is a hot topic across the discipline, which is continuing to gain traction in recent years as airlines have this well entrenched – and, for good reason. Hotels are replete with opportunities to turn their predominantly room and F&B-based products into something more akin to the retail space. Whether selling room-related policies or attributes such as “early arrival” or “high floor” to more stand alone products such as beer from the on-premise brewery or tickets to a high-demand concert, every property has an opportunity to drive more revenuebeyond just maximizing accommodations.

The challenge is not in the awareness of the opportunity, but rather the required technological investment. This can be summed multifold, as follows:

• Hotel systems were built primarily to sell rooms. While dynamic packages broadly exist to attach ancillary offerings to an accommodation, this requirement limits stand-alone offerings that a hotel may wish to offer without reserving a room.

• Many reservations systems require a one-night stay. The advent of the COVID-19 pandemic brought attention to the value of day-use rooms to attract local customers, but the lag in technology has hindered the ability to achieve this. This further limits the ability to sell ancillary offerings that may require only daytime inventory (i.e. “Pool Cabana and Guest Room from 11am-4pm”).

• Not all hotels are created equal. From the roadside motel outside Topeka to the luxury resort in Tahiti, ancillary needs are widely varied. In this example, perhaps the roadside motel’s offerings would be limited to early arrival and fresh morning coffee, whereas the Tahitian resort would include anything from recreational and cultural activities to keepsake souvenirs and a romantic dinner cantilevered over a lagoon. The hotel rates expectedly fall in line with the hotel class and offerings, hence the investment in the technology would be limited.

• In the minds of many a general manager, products and services go hand-in-hand with technology. A necessary means to an end. When budget season comes, decision making for that $20,000 investment between the latest system upgrade or a new oven invariably leads to the oven, not to the technology. This leads to less opportunities for the needed investment at the ground level and harder to aggregate funds to the higher level for an unproven technology.

When working together, passionate hospitality industry professionals can solve the challenging problem that ancillary revenues present

• Airlines have rightly brought this to the fold. But unlike with airlinesthat have a limited and, therefore, defined area of ancillary opportunity that can be replicated from planetoplane, hotels are vastly different for the reasons shared above and with very different ownership arrangements. This makes the topic of ancillary standardization difficult for the industry without the influence and investment from a technology leader that impacts multiple hotel brands and types.

Which leads us to the all-important search for a solution. Who will lead in this technology? How do we get the investment?For the likes of economy brands that rely on cost containment as a core to profitability, aggregating funds to explore limited ancillary revenue streams will be difficult for a short-to-medium term solution. Alternatively, if such R&D will lend itself to transaction fee-based funding, it will be hard to arrange significant funding at what would be expected to be a low price point. Alternatively, luxury brands would have to be willing to direct funds to explore a more complicated need, given their breadth of offerings. Exploring this would be costly, and leaving this to be transaction fee-based would be further complicated given the varied profitability of products (i.e. high profit for an early arrival vs. zero profit for a concert ticket resale). And, again, across these hotel types standardization to enable an easy to use approach for the booker – be it through a booking engine or agency booking tool – is a must that would require much consultation.

In my opinion, the best solution would be for organizations such as HSMAI and HEDNAto team together with technology providers such as Sabre, Oracle, or Amadeus to identify a broad approach, initiate investment, and consult with hotels and their management, ownership, and representation companies, and, from there,work through standardization and development to the result of an industry-based solution. In this way, we can adapt to the needs of our customers and properties while using the resources these large technology providers offer, flattening the investment to the benefit of the industry as a whole.

When working together, passionate hospitality industry professionals can solve the challenging problem that ancillary revenues present. I look forward to the day hoteliers are able to offer wide-ranging items at their properties to customers in a similar way that, today, airlines offer exit row seats and reserved luggage. Hotels are not airlines, true. But, also true is the reality that hotels can certainly match them with collective energy, focus, and passion. Change creates opportunity, and the future is now. Let's join together to spark the impactful action that will fuel indefinitely greater success for us all.