Whether you like it or not, airlines are the masters of ancillary revenue, and it’s important to highlight that, in some cases, ancillary revenue has become a pivotal aspect of financial strategy.
Airlines have long mastered this art, leveraging everything from seat upgrades to extra baggage fees to significantly boost their bottom lines. Hotels, seeking to emulate this success, can adopt similar strategies to diversify their revenue streams beyond room sales. Let’s review a few of these options:
Understanding ancillary revenue
Ancillary revenue in the airline industry is a multi-billion-dollar sector. According to the CarTrawler Yearbook of Ancillary Revenue by IdeaWorks, airlines globally generated $109.5 billion in ancillary revenue in 2019 (last pre-pandemic year). This revenue comes from a variety of sources such as baggage fees, seat selection, priority boarding, and in-flight sales.
Personalized Offerings
Airlines have excelled in personalizing offers based on customer data. By analyzing past behavior, customer demographics, and purchasing patterns, airlines tailor their additional services to each passenger. Hotels can implement similar tactics by using guest data to personalize room upgrades, spa services, or dining options. For instance, if a guest frequently orders room service, offering a special dining package at check-in could be very effective.
Tiered pricing models
Airlines often use dynamic and tiered pricing strategies to maximize revenue from ancillary services. The same that is applied to different seats applies to different location of rooms -even if they have the same category on your system. Similarly, tiered options can be provided for late check-outs and early check-ins, adjusting prices based on demand and occupancy.
Bundled packages
Bundling services can also drive ancillary revenue. Airlines bundle priority boarding with extra legroom seats and baggage allowances. At your property, you can create packages that include transportation, meals, room upgrades, and event tickets, tailored to the nature of the visit—business or leisure. Offering these as a single purchase can simplify the customer experience and increase uptake.
Leveraging technology
Airlines leverage mobile technology to push notifications about ancillary services at strategic times, such as during online check-in or flight delays. Hotels can adopt similar technology to notify guests about special offers directly through their app, like exclusive deals on spa services or last-minute availability at popular dining venues.
Measurable economic results
Implementing these strategies can lead to measurable increases in revenue. For example, a study by Cornell University’s School of Hotel Administration showed that a 1% increase in revenue from room-related ancillary services could lead to a 1.5% increase in a hotel’s profit margin. Additionally, a report by Amadeus noted that implementing ancillary services through digital platforms could increase hotel revenue by up to 35%.
Hotels looking to enhance their bottom line in the increasingly competitive tourism sector can learn much from how airlines effectively generate ancillary revenue. By personalizing offers, implementing tiered pricing, offering bundled packages, and leveraging technology, hotels can not only increase their revenue but also improve overall guest satisfaction. As the industry evolves, those who innovate in their revenue strategies will likely lead the pack, turning every guest interaction into an opportunity for growth.
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