Hotels are not airlines.
OK, you know that. But, after making lots of noise in recent years about focusing on building additional ancillary fee revenue streams — just as the airlines are charging for bag fees etc — and exhibiting symptoms of a syndrome that Freud might have labeled “fee envy,” many hotels in the U.S. are giving up on ancillary fees as their salvation.
Or at least fees for Wi-Fi, in-room movie rentals, and parking are becoming much less of a focus for many hotels, with resort properties being a notable exception.
Instead, many hotels are putting most of their attention into raising room rates. In 2012, room revenue was about 68% of total revenue, and 10% of profits, says Robert Mandelbaum, director of research information services at PKF Hospitality Research.
“That is what they are focusing on and where they are being more aggressive,” Mandelbaum says, referring to room revenue. “If they have to make concessions, they will concede on the ancillaries.”
Evidence of these trends grows out of PKF Hospitality Research’s just-released 2013 edition of Trends in the Hotel Industry.
In fact, according to the report, revenue from “other operated departments,” including most ancillary fees, but not food and beverage, fell 0.8% in 2012 on a per-occupied room basis compared with 2011. See below:
This slight drop in ancillary revenue occurred as room revenue, and food and beverage revenue increased 4.4% and 0.7%, respectively, on a per-occupied room basis in 2012 versus 2011.
The increase in food and beverage revenue wasn’t exactly a giant leap.
“Food and beverage costs a lot of money,” Mandelbaum says, adding that many hotels are cutting back on these services, as well.
In addition to hotels focusing on raising rates, the drop-off in ancillary revenue for U.S. hotels is also a function of guest behavior and corporate policy.
Mandelbaum says that business travelers are cutting back on outlays for ancillary services because they realize that room rates are rising.
“Everyone has a tighter pocketbook,” Mandelbaum says. “If I have to pay more to rent the room, then I have to look at my other expenditures.”
In addition, corporations’ managed travel programs are tightening up on restrictions to their employees’ ancillary-fee spending.
The moves by hotels such as InterContinental and Accor to implement free Wi-Fi, as other brands have done, is also a contributing factor, Mandelbaum says.
The PKF Hospitality Research report also analyzed U.S. hotel operating performance.
With room revenue rising 6.3% in 2012, Mandelbaum says “that side of the equation has been recovering faster than we’ve seen in past recoveries.”
Many hotels are hitting a groove based on this bump in room revenue and are leaving the hated ancillary fees to the airlines to worry about.