Ancillary Revenues in the Hospitality Industry An analysis of strategies for maximizing ancillary revenue for hotels and resorts REPORT EXTRACT Best practice insights Analysis and insight to help maximize every available revenue source. Discover best practice for all aspects of managing ancillary revenues from data gathering to marketing. Competitor analysis Understand the market and competitive landscape through our global industry survey, in-depth research, and opinions from industry leaders Industry intelligence Interviews and case studies with top hotel groups, technology providers, consultancies, and airlines.
INDUSTRY OVERVIEW Industry overview This report provides a comprehensive overview of today s ancillary market so your hotel or resort can gain the most out of this currently underused, multi-billion dollar resource. Although the hotel industry has largely adopted revenue management principles and processes, thus far this effort has almost entirely been directed at maximizing occupancy and room rates. However, EyeforTravel s exclusive research suggests that ancillaries now make up a considerable portion of the average hotel s revenue, with the total global hospitality market for ancillaries likely worth more than USD100 billion per year. This is set to increase as the travel market exceeds its pre-recession levels, but are your properties properly benefitting? The report offers business intelligence on trends, peer performance, and technology capabilities, alongside best practice in the fields of marketing, revenue management, distribution, and data management. With this you can achieve above market average revenue growth and gain a crucial competitive advantage. Leading research from EyeforTravel In this report you will discover: How to maximize all of your revenue streams to their fullest potential The latest developments from the leading technology providers Insights from top industry players, including Amadeus, IDeaS, JDA Software, Las Vegas Sands Corporation, Onyx Hospitality, Red Lion Hotels Corporation and Sabre Hospitality Solutions An exclusive eyefortravel global executive survey, contacting 3,841 revenue professionals from our database, resulting in 218 respondents Key performance indicators for major ancillary revenue streams How to distribute and market ancillaries in a changing physical and online market place How to incorporate and sell across platforms Specific advice for spas, food and beverage, and events and meeting spaces How to best utilize data that is likely to already be at your fingertips, but has yet to be fully exploited For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 2
KEY QUESTIONS Key questions addressed Benchmark yourself against your industry peers: What are the strategies of top revenue managers in leading brands? What is the market penetration of ancillaries and what are your peers providing on a region-by-region basis? Breakdown and analysis of hotel RMS capabilities What is the investment climate for ancillaries? What are the latest trends in revenue management technology with regard to ancillaries? What are the capabilities of the latest revenue management systems? What are the primary trends in this market space? What revenue streams are most profitable? What is the future of ancillary revenue management? What is the best practice in: Managing ancillaries both when with and without a capable RMS? Monitoring, managing, and exploiting data? Meeting customer expectations? Selling ancillaries throughout the entire customer s buying process, from first booking to their stay at the hotel? Using key performance indicators to measure success? Pricing, positioning, and bundling ancillary offers? Who needs to buy this report Revenue managers this report is a must read for revenue managers, whether you are looking to grow from a small base or you are an established player looking for the next step in maximizing revenues. Distribution and marketing managers often the amenities and experiences a property offers are its competitive advantage. Discover how best to position, display and market these vital value-add services to maximize customer conversion. Technology providers find out what the cutting edge is in this field, what the market space looks like, and how your competitors are approaching it. C-Level execs given the potential size and growth of this area to the hotel industry, ancillaries should be on the radar of all hotel management teams as the next major area to apply revenue management principles to. Catering, conference and hospitality managers intelligent strategies and best practice can help make your business area more profitable and efficient, as well as raise its profile. For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 3
ACKOWLEDGEMENTS Acknowledgements EyeforTravel would like to acknowledge, with great thanks, the contributions of our advisory panel of thought leaders and industry experts. Each named individual below provided insights and analysis to ensure the focus and quality of this report reflect the highest industry standards. Patrick Bosworth Co-Founder and Chief Executive Officer, Duetto Jason Bryant Founder and Chief Executive Officer, Nor1 Angie Dobney Vice President of Pricing and Revenue Management Services, The Rainmaker Group Kate Keisling Lead Consultant, IDeaS Toby March Vice President of Hospitality Practice, Discover the World Anand Medepalli Vice President of Industry Strategy, JDA Software Mark Molinari Vice President of Revenue Management and Distribution, Las Vegas Sands Corporation Sanjay Nagalia Chief Operating Officer and Co-Founder IDeaS Ron Ramanan Chief Executive Officer, GoQuo Trevor Stuart-Hill Founder and President, Revenue Matters Jason Thielbahr Vice President of Distribution and Revenue Management, Red Lion Hotels Corporation Catherine Tremeau Manager of Revenue and System Optimization, Sabre Hospitality Solutions Peter Waters Director of Hotel Distribution, Amadeus Wizz Air Airline Spokesperson Special thanks to our peer reviewer Stefan Wolf Senior Vice President of Revenue and Distribution Strategy at Onyx Hospitality For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 4
CONTENTS Contents Contents Contents... x Contents... Welcome........................................................................................................ 3 x About EyeforTravel.............................................................................................. 4 Acknowledgements............................................................................................. 5 List of Figures.................................................................................................... 8 List of Tables..................................................................................................... 8 Executive Summary.............................................................................................. 9 Key findings................................................................................................. 9 Chapter One................................................................................................. 9 Chapter Two................................................................................................. 10 Chapter Three............................................................................................... 10 Chapter Four................................................................................................ 10 Conclusion/Report recommendations....................................................................... 10 1. Selling ancillaries through Revenue Management Systems.................................................... 12 1.1. Revenue Management Systems (RMSs)................................................................. 12 1.1.1. The case for ancillaries............................................................................ 12 1.1.2. Case Study: Wizz Air.............................................................................. 13 1.2. Capabilities of RMSs.................................................................................... 15 1.2.1. Incorporating ancillaries.......................................................................... 15 1.2.2. Integrating RMSs with ecrms..................................................................... 16 1.2.3. Segmentation.................................................................................... 17 1.2.4. Selling ancillaries via GDS......................................................................... 17 1.3. Latest developments................................................................................... 17 1.3.1. Casino Resorts are the leaders in managing ancillary revenues.................................... 17 1.3.2. Real time offers through mobile phones.......................................................... 18 1.3.3. Leveraging ancillaries through mobile phones to generate TRevPAR directly...................... 18 1.4. The future of ancillaries and RMSs...................................................................... 19 1.4.1. Collaboration with other technology providers................................................... 19 1.4.2. Pooling and analyzing guest data................................................................. 19 2. Trends in hotel ancillary revenue stream sales.................................................................. 20 2.1. Identifying ancillary revenue streams................................................................... 20 2.1.1. Global comparison of ancillary items and services................................................ 22 2.2. Margins of ancillary revenue streams................................................................... 22 2.3. Trends in ancillary revenue............................................................................. 22 2.3.1. Resorts vs. urban hotels............................................................................ 23 2.3.2. Case Study: Onyx Hospitality Group................................................................ 23 2.3.3. Budget vs. luxury................................................................................... 23 2.3.4. Regional differences................................................................................ 24 3. Maximizing ancillary revenue.................................................................................. 25 For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 5
METHODOLOGY CONTENTS 3.1. Working without an RMS................................................................................. 25 3.1.1. Monitoring ancillary patterns....................................................................... 25 3.1.2. Staffing............................................................................................. 25 3.2. Working with an RMS.................................................................................. 25 3.2.1. Case Study: Red Lion Hotels Corporation................................................................. 26 3.3. Learning and Data..................................................................................... 27 3.3.1 Charging ancillaries to the room.................................................................... 27 3.3.2. Obtaining data through loyalty program memberships........................................... 27 3.3.3. Case Study: Las Vegas Sands Corporation........................................................ 28 3.4. Strategies and best practice for different revenue streams.............................................. 28 3.4.1. Deciding on pricing for ancillaries................................................................ 28 3.4.2. How airlines price ancillaries...................................................................... 29 3.4.3. Best practice for maximizing function and event space........................................... 29 3.4.4. Best practice for maximizing food and beverage revenue......................................... 30 3.4.5. Best practice for maximizing spa revenue......................................................... 31 3.5. Best practice when offering packages.................................................................. 32 3.5.1. Bundling......................................................................................... 32 3.5.2. Case Study: GoQuo.............................................................................. 32 3.5.3. Pricing - Opacity versus transparency............................................................. 32 3.5.4. Co-operating with external tour companies...................................................... 33 4. From system to customer getting ancillary inventory out there............................................... 34 4.1. Distribution of ancillaries............................................................................... 34 4.1.1. Driving bookings to the brand site................................................................ 34 4.1.2. Optimizing ancillaries to reclaim traffic from OTAs................................................. 34 4.1.3. Tracking ancillary sales and clickstream data...................................................... 35 4.1.4. Selling ancillaries via mobile devices.............................................................. 35 4.1.5. Selling ancillaries via social media................................................................. 36 4.1.6. Best practice with ancillaries and social media.................................................... 36 4.2. The right offer at the right time........................................................................ 36 4.2.1. Before booking................................................................................... 36 4.2.2. From booking to check-in........................................................................ 37 4.2.3. Arrival at the hotel................................................................................ 37 4.3. Promotion of ancillaries through review sites.......................................................... 38 4.4. Ancillaries and consumer sentiment................................................................... 38 Methodology.................................................................................................... 39 Acronyms....................................................................................................... 40 References...................................................................................................... 41 For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 6
LIST OF FIGURES AND TABLES List of Figures Figure 1: Ancillary revenue as a proportion of total revenue for hotels............................................ 13 Figure 2: Future investment in ancillary revenue management by hotels......................................... 14 Figure 3: Ancillary revenue streams accounted for by RMSs....................................................... 15 Figure 4: Percentage of hotels in different regions that provide various ancillaries................................. 22 Figure 5: Red Lion Hotels Corporation s RevPAK platform......................................................... 26 List of Tables Table 1: Ancillary revenue as a proportion of total revenue for hotels............................................. 14 Table 2: Future investment in ancillary revenue management by hotels.......................................... 14 Table 3: Ancillary revenue streams accounted for by RMSs........................................................ 16 Table 4: Potential ancillary revenue streams for hotels and resorts................................................ 20 Table 5: Internet access is among top 5 things most guests note about hotels.................................... 23 For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 7
REPORT EXTRACT X X The following extract is taken from the beginning of Chapter 3, which lays out the best revenue management practices to boost ancillary revenues and thus overall profitability. 3 Maximizing ancillary revenue 3.1. Working without an RMS 3.1.1. Monitoring ancillary patterns Hotel revenue managers working without an RMS are at a disadvantage when it comes to making calculations and interpreting raw data. Crunching the numbers becomes significantly more time consuming, as does the management of the property s inventory. Eventually the RMS providers will catch up and surpass the ability of an individual working with an Excel spreadsheet to see the data in a way that allows them to make good decisions [about ancillary revenue], says Trevor Stuart-Hill, president of Revenue Matters. However, given that the most common systems are generally not optimized for processing ancillaries at present, managers often find themselves continuing to use these older methods. Nonetheless, if hoteliers continue to demand better functions from their providers, it is only a matter of time before it becomes incorporated into the solutions they offer. In the mean time, revenue managers can begin to track at least on a manual basis some of the key elements related to ancillary spend. They should begin to collect the same kind of data for ancillaries that they do for rooms. The type of product that s being consumed, the way it is being consumed and the frequency, pace and price at which it s being consumed just as they do with rooms and occupancy rates. Stuart-Hill uses the spa as an example, and suggests collating data to answer the following questions: How many treatment rooms are occupied throughout the day? What is the lead in time in terms of booking, and what cancellation rates are we getting? What type of value add-ons are we offering during certain times of the year to get those occupancy levels higher? These types of questions can also be applied to other ancillaries. Only when a systematic process for collecting data about a property s ancillary revenue is achieved can revenue managers begin to assess performance and set targets in the same way that they do for room rates. 3.1.2. Staffing One consideration for properties when it comes to ancillary revenue, whether they use an RMS or not, is having the operations in place to be able to deliver the offers they are upselling. If you are pushing ancillary offers and this results in, say, more footfall into your restaurants, then you need to make sure that you are aligning your staff requirements accordingly, which means you have to forecast your staff schedule accordingly, and this, of course, has a cost implication, says Anand Medepalli, vice president of solution strategy at JDA Software. Once you start managing these, you need to put metrics and incentives in place, to measure and reward good behavior from staff when it comes to ancillary sales, just as you would with any other sales activity. Whether it s commissions or other incentives, they need to be there for staff, whether it s the sales manager of the function space or the check-in staff. REPORT EXTRACT How many are available? What is the revenue associated with that? Does it change by season? 3.2. Working with an RMS For hotel revenue managers aiming to incorporate ancillaries into their RMS, the first step is to communicate with the provider and understand what is possible. For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 8
REPORT EXTRACT If there are limitations, it is important to identify where the issue is, and whether it lies with the technology itself, or on the hotel s ability to collect and share ancillary spend data in an automated way. If a Property Management System (PMS) is not providing data dictionaries or information that allows an RMS provider to get the data they need, then that s one thing, says Stuart-Hill. The second is the level of data required. If it s transactional data, then many RMSs aren t set up to extract transactional data, and if they are, they probably aren t set up to extract and categorize and 3.2.1. Case Study: Red Lion Hotels Corporation Figure 5: Red Lion Hotels Corporation s RevPAK platform work with the ancillary transaction data. So part of the puzzle is, where is the road block? In order to create a foundation for automated ancillary revenue management, with the aim of eventually finding a way to market ancillary offers to transient guests, hotels need to facilitate the integration of their systems with the RMS, so that data can effectively be extracted and used to inform dynamic pricing. Properties that are able to do this are in a stronger position to work towards Total Revenue Management than those who do not. REPORT EXTRACT Source: Red Lion Hotels Corporation, 2014 For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 9
ABOUT About EyeforTravel EyeforTravel is a community where the world s online travel brands from hotels to airlines, online travel agents, cruise, car hire firms and more come to meet. Established in 1997, by Tim Gunstone, we offer a diverse product portfolio including industry analysis, insights, research, webinars, reports and conferences to suit the needs of our clients. No other online travel intelligence provider has been around for as long as us. We were here at the inception of online travel and we know the industry inside out. What s more, we re a small, friendly team. Forget impersonal hierarchies, we like to get to know our customers and work towards their exact needs. Interested in learning more about what we can do for you? Get in touch! EyeforTravel Ltd, FC Business Intelligence, 7-9 Fashion Street, London - E1 6PX, United Kingdom ORDER YOUR REPORT IN LESS THAN 60 SECONDS FIND OUT MORE ABOUT THE REPORTS AND OUR SUBSCRIPTION SERVICES Pages: 42 Premium license - 95 /month (1,140 /year, access for up to 3 people) Educational institution s premium license - 45 /month (540 /year, access for up to 3 people) Type of card: Expiry date: First name: Security Code: Need access for more than 3 people? No problem! custom licenses can be put together so please get in touch directly with Simi at simi@eyefortravel.com Four ways to order: www.eyefortravel.com/reports Scan and email this form back to: simi@eyefortravel.com Or fax: +44 (0)20 1234 5678 Simi Ramabhadran, Global Account Manager- Eye For Travel Research Library Subscription +44 (0) 207 422 4338 US toll free: 1800 814 3459 ex: 4338 Payment details: Last name: Company: Telephone: Email: Address: City: Zip/Postcode: Name (as it appears on card): Report Name: Card Number: Quantity: ORDER YOUR COPY TODAY AT: WWW.EYEFORTRAVEL.COM/REPORTS For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 10
Travel Research Library TRAVEL RESEARCH LIBRARY Recent reports by EyeforTravel: Ancillary Revenues in the Hospitality Industry Smart Analytics: Identify, Track and Target the Modern Digital Consumer Effectively 2015 Ancillary Revenues in the Hospitality Industry An analysis of strategies for maximizing ancillary revenue for hotels and resorts Smart Analytics: Identify, Track and Target the Modern Digital Consumer Effectively Research and analysis into online consumer behaviors and best practice for using analytics to boost conversion and retention Best practice insights Competitor analysis Analysis and insight to help maximize Understand the market and every available revenue source. competitive landscape through Discover best practice for all aspects our global industry survey, of managing ancillary revenues from in-depth research, and opinions data gathering to marketing. from industry leaders Industry intelligence Interviews and case studies with top hotel groups, technology providers, consultancies, and airlines. Consumer profiling Strategic insight Marketing analysis A global EyeforTravel Consumer Increase market share, profitability Use the intelligence in this report to Survey of 3,500+ respondents that and customer retention rates improve your marketing capabilities reveals preferences, behaviors and through case studies and interviews and reduce customer acquisition the most successful marketing and with leading hotel and OTA brands costs booking channels alongside an Executive Survey Mobile in Hospitality Industry 2014 Mobile in the Online Travel Agent and Travel Metasearch Industry 2014 Mobile in the Airtravel Industry Report 2014 Social Media and Mobile in Travel Distribution Report 2013: Online strategies, consumer and industry trends Mobile in Travel Report Series 2014 Mobile in the Hospitality Industry 2014 In-depth analysis of mobile and best practices to build a stronger user experience and drive revenue Mobile in Travel Report Series 2014 Mobile in the Online Travel Agent and Travel Metasearch Industry 2014 In-depth analysis on mobile strategies to build a stronger user experience and improved brand experience Mobile in Travel Report Series 2014 Mobile in the Airtravel Industry 2014 A complete review of mobile strategies in the airline and airport business to drive success for your brand Market Analysis Latest Industry insights Case studies Market Analysis Latest Industry insights Case studies Market Analysis Latest Industry insights Case studies Understand the growth direction in Unique data insights from detailed Mobile and adjust your mobile consumer and industry surveys to strategy to succeed in a rapidly help you refine your solution expanding market Exclusive interviews and insights from pioneering travel brands and thought leaders Understand the growth direction in Unique data insights from detailed Mobile and adjust your mobile consumer and industry surveys to strategy to succeed in a rapidly help you refine your solution expanding market Exclusive interviews and insights from pioneering travel brands and thought leaders Understand the growth direction in Unique data insights from detailed Mobile and adjust your mobile consumer and industry surveys to strategy to succeed in a rapidly help you refine your solution expanding market Exclusive interviews and insights from pioneering travel brands and thought leaders Join the conversation! facebook.com/eyefortravel linkedin/eyefortravel @EyeforTravel For more information visit www.eyefortravel.com/reports ANCILLARY REVENUES IN THE HOSPITALITY INDUSTRY 11