Growing ancillary revenues is a top priority for both airlines and hotels. Airlines are a bit further ahead in the game and when it comes to hotels, there are more challenges - guests seem to have higher expectations than flyers! In this exclusive interview, we hear some of the strategies being used by the Minor Hotel Group to boost the bottom line.

Ancillary revenue generation is considered to be a relatively more complex task for hotel companies vis-a-vis airlines. This is down the high expectations that guests have of services provided by hotels. Against this backdrop, there are three major challenges to address:

·          Team work: Since ancillary revenue generation transcends departmental boundaries, it requires close cooperation of the various teams working together to achieve a common goal. The roles and responsibilities of the people involved have potential overlaps and this presents challenges for ownership, control and resource allocation.

·          Metrics: It is acknowledged that even though the industry is equipped with a strategy toolkit for optimising RevPASM, RevPASH and RevPATH, there is still a lack of a clear definition and understanding of how will the hotel team go about implementing these strategies. Clearly there is more work to be done in this regard.

·          Systems: As for those who expect ancillary revenue generation to make steady progress, certain developments are expected. For one, forecasting for ancillary revenue is set to become more automated with advanced RM software. As the practice of total RM gains prominence, metrics linked with ancillary RM would become routine, too. Finally hotel companies would get to grips with meeting guests’ expectations for ancillary offerings and customer experience would be at the heart of ancillary RM.

Here EyeforTravel’s Ritesh Gupta talks to Freya Duncker, Director of Revenue, Minor Hotel Group about what hotel companies should focus on to overcome challenges.

EFT: In your view, what is the most important thing to focus on while working on ancillary revenue generation?

FD: Key to ancillary revenue generation is education of all involved stakeholders and their departments – this is a wide range of people from the executive housekeeper, FOM (front office manager), F&B manager, to the executive Chef and spa or C&B (Conference & Banquet) manager. We have to ensure a revenue management culture is in the minds of all our associates before we can start at all to develop ancillary revenues.

Every team member can contribute great ideas of how to enhance sales through ancillary services and they need to be aware that each department has the potential to increase revenues through the sale of ancillary services. Nowadays guests do not expect everything free anymore and are willing to pay eg. even for fruit baskets upon arrival.

It's very important here to estimate the proportion of value and price. Whereas airlines are again a few steps ahead of hotels we need to identify first what ancillary services can be bought and what are guests willing to pay for.

EFT: And what should firms do to optimise ancillary revenue generation on an ongoing basis?  

FD: There are two aspects in optimising ancillary revenue generation:

·          The focus in the hospitality industry is still to satisfy the customers needs and keep the guest satisfaction high. Good value for money is the key requirement for the majority of guests.

·          We need to ensure that we price and sell intelligently and that we maximise on items and services that enhance the profitability.

As the sale of ancillary revenues is still relatively new to hotels, a lot of testing is required. We have to try different price points and products for ancillary sales to find out the customer needs and the profit drivers.

EFT: What are the major challenges that RM teams face when implementing their ancillary revenue strategy? 

FD: The key challenge remains education – there is a need to understand that hotels are not only providing rooms and restaurants but an experience. We have to find new ways and be creative in developing ancillary revenue streams, keeping in mind the overall guest experience. I believe that all associates in hotels can contribute to that – eg. a housekeeping attendant may have a great idea of what to sell as he or she is much closer to the guest than Revenue Leaders and we need to find ways to listen to our employees and their ideas as well.

EFT: What sort of progress is being made in improvising existing automated systems to incorporate models for ancillary demand?

FD: So far there is not much progress on incorporating models of ancillary sales into automated systems. The most common property management systems consider F&B revenues but all other ancillary items would be grouped under ‘miscellaneous’ which is difficult to manage from a revenue perspective.

Some revenue management system providers have started to incorporate this into their existing systems but I believe we will see some development over the next two to three years.

EFT: When it comes to working on tactics for RevPASM, RevPASH and RevPATH, is there anything that stands out?

FD: Our industry has not completed milestones yet in terms of KPIs for ancillary services – the reason is partly that we need to get revenue management in our core streams (Rooms and F&B) right first and then work on spa, C&B space etc.

Another reason is lack of benchmarking information – even if one hotel in a certain market starts with ancillary sales it is difficult to benchmark against a certain market or comp set if we do not have this information.

Some companies like STR or PWC have started benchmarking Spa and F&B and hotels need this information as a foundation to build on.

EFT: What are your recommendations when it comes to optimising RevPASM, RevPASH and RevPATH?

FD: I recommend that revenue leaders start building a strong RM culture as a base at least among the executive committee and department heads. Then they should start looking at key metrics for ancillary services, such as RevPASM, RevPASH and RevPATH and analyse the profitability of each of those streams. The next step would be to formulate and implement new strategies related to other departments and of course finally observe and monitor the results.

EFT: How do you expect the arena of ancillary revenue management and associated metrics to shape up? Can you list some future trends?

FD: I believe the next two to three years are essential for the development of ancillary revenue management. Again we have to use the airline industry as an example and follow. A trend I guess will also be to consider the occupancy per room and the available spent per room. Eventually we may have a key metric in the future called RevPAW (Revenue per available Wallet), eg. children nowadays influence the parents on where to stay or what to spend on.