Hotels continue to search for innovative ways to rebuild their revenue streams after emerging from the pandemic. The first has been an increase in room rates starting in 2022, with double-digit increases in many cases. However, hotel consultant Pablo Torres warns that "there is beginning to be a feeling among part of the population that vacations in certain destinations are prohibitively expensive, so they either choose a new destination or, considering the slowdown that seems to be looming, stay home. All this while hoteliers continue to suffer a constant increase in their costs (raw materials, supplies, labor, etc.) that jeopardizes their margins." However, he encourages, "those establishments that diversify their product and service offerings have before them—almost—a blue ocean through the dynamic management of ancillary revenue."
Ancillary revenue, as Pablo Torres explains, “is not a new concept, but its importance has never been more evident. Defined as revenue derived from non-room-related sources, such as food and beverage, spa, and other services, it has the potential to not only increase profitability but also create memorable experiences for guests and customers.”
"The idea is to diversify revenue streams so that hotels don't rely solely on room sales to thrive. And now, maximizing ancillary revenue seems like a strategic move to prepare the business for the future," says Pablo Torres.
Why now is the time: The perfect storm
What makes this a perfect time to focus on ancillary revenue? Several factors point to this being a perfect storm of opportunity, as the expert explains: “First, there is the recovery in travel demand. According to UN Tourism (formerly UNWTO), international tourist arrivals are expected to return to 80-95% of pre-pandemic levels by the end of the year. As occupancy rates increase, there is an opportunity to optimize every stay by offering personalized services and experiences.”
Furthermore, he adds, “Technological advancements have made it easier than ever to offer and promote complementary services. Today's digitally savvy traveler expects seamless, mobile-centric experiences. Hoteliers can now leverage data and artificial intelligence to recommend personalized add-ons during the booking process. Integrating upselling tools directly into hotel websites or apps—offering room upgrades, spa treatments, dining experiences, or even unique local tours—has become simple and effective.”
“Airlines globally will earn more than $109.5 billion in ancillary revenue in 2022, up from just $22.6 billion in 2010, according to IdeaWorksCompany. This growth demonstrates their significant potential if companies strategically identify additional services that complement their core offerings. If hotels adopt a similar mindset, the revenue potential is immense,” said Pablo Torres.
Key areas for ancillary revenue growth
The data included in the book “Mastering Hospitality Ancillary Revenue,” published by Pablo Torres, reveals some particularly lucrative key areas:
“Food and beverage: Implementing dynamic pricing on digital menus with personalized offerings is just the tip of the iceberg of what can be done in this area, where the goal is to provide a culinary experience.
Health and wellness, a segment that is growing at a rapid pace. The Global Wellness Institute forecasts it will reach $1.3 trillion by 2025. Spa treatments, wellness retreats, and fitness programs can attract guests willing to spend more, as well as people concerned about their nutrition and mental well-being.
Local Experiences: Today's travelers crave authentic local experiences. Offering exclusive tours, local food tastings, or cultural workshops can turn a stay into an immersive experience, which also fulfills one of the key pillars of sustainability: the social component. Partnering with local businesses for these experiences not only increases revenue but also strengthens the local economy.
Technology-enhanced services: Making the customer journey a loop depends on the ability to build customer loyalty through the integration of technology-driven services. Mobile check-in, keyless room entry, and personalized digital concierge services meet guest expectations and can also be a pathway for additional charges.
The role of data and personalization
For Pablo Torres, “one of the most powerful tools for driving ancillary revenue is the effective use of data. Hotels have a gold mine of information about their guests: from booking preferences to past spending behaviors. By leveraging this data, hoteliers can create hyper-personalized offers tailored to each guest.”
Furthermore, he adds, “Automated systems can now predict which services will appeal most to guests based on their profiles. This dynamic pricing approach, already used successfully in room rate management, can be extended to ancillary services, maximizing revenue without overwhelming guests with offers that don't match their preferences.”
Conclusion: the future is ancillary
The hospitality industry, the consultant concludes, “is at an inflection point. As the sector moves beyond recovery and seeks future growth, ancillary revenue presents a clear opportunity for hoteliers to capitalize.”
“By leveraging changing guest preferences and the power of data and technology, hotels can unlock new revenue streams that improve both the guest experience and property profitability, ensuring guests leave the property happier and have spent more money,” Torres emphasizes.
This research on ancillary revenue highlights the importance of diversification and innovation in the current landscape. In his book, "Mastering Hospitality Ancillary Revenue," he delves into practical steps, with over 100 case studies, on how hotels can take advantage of this shift. Because "the time for ancillary revenue is now."
