Investopedia defined Ancillary Revenue as revenue generated from goods or services that differ from or enhance a company's main services or product lines. Popularised by budget airlines, ancillary strategies have since been adopted in many industries. For hotels, ancillary revenue can come from providing ancillary services such as spa, room service, room upgrades, late check-out etc. According to iSeatz, a hotel ancillary refers to a supplemental product or service that a hospitality brand might sell in addition to its “core” hotel experience - staying in a room. Some hotels may also park it under miscellaneous income.
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More Important Than Ever?
Ancillary revenue is more important than ever, especially now and partakes a bigger role in a hotel business revenue model than what most hoteliers would like. In this CBRE report where over 1,800 US hotels were analysed, it was found that on a RevPAR basis, total operating revenues were down 63.3% compared to 2019. However, when measured on a per-occupied-room basis, the revenue decline was reported to be just 31.7%. The large reduction from Per Available Room to Per Occupied Room can be attributed to strong ancillary strategies which brought in ancillary revenue for the hotels surveyed.
This means hotels were able to succeed in earning additional revenue from guests who have checked in. This held true across all property types, with resorts benefitting the most. We can also argue that resorts were also more popular during the pandemic because of the spacious land it offers - providing a natural way of safe distancing. Click here to read more about the popularity of resorts during the pandemic.
Future Trends
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According to Statista, the occupancy rate of the U.S. lodging industry is predicted to reach 59.2 percent in Q4 2022. In 2019, the US occupancy rate was 66 percent - the peak occupancy rate of the decade. Zooming out to a global level, Hotel Management gave the latest global occupancy rate which stood at 46% only, while the global occupancy rate in 2019 was 67.85%, as recorded by Statista. In other words, there will be a continued expectation of seeing fewer travellers make journeys in the next 12 months across the globe, before the anticipation of a full recovery.
It is also expected that we will see a boom in travel - both domestic and international flights due to a pent-up demand over the past 2 years. However, this can be likened to a coffee boost, which is merely temporary. Ideally, hotels have to look further and invest in a long-term solution, positioning and adapting your hotels to future ancillary strategies is more sustainable and its effects are long-lasting.
This drives us back to the point - Ancillary Revenue is more important than ever. Right now, as hotels are continuing their road to recovery, simply relying on traditional revenue strategies may incur more operational costs as seen in the CBRE report. The recovery journey is long and arduous, and while we're seeing the end of the pandemic, it also signals the time for recovery to take place. Prime your hotels for a quicker shot at recovery with ancillary strategies. Speak with us to learn more!
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