Phocuswright White Paper Hotel Ancillaries: An Unexplored Opportunity June 2017 Written and researched by In cooperation with Peter O’Connor & Mark Blutstein Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 An Introduction from iSeatz Founded in 1999, iSeatz is a leading provider of ancillary product booking engines for the premier brands in the travel industry. Our first project was to enable hotel concierges to help their guests find and reserve seats at the great culinary establishments in our hometown of New Orleans. As we spoke at length with hoteliers about their technology limitations and witnessed the growth of online purchase confidence, we set out to expand our technology offering to go beyond restaurant reservations and to include access to local activities, live event tickets, air, car rental companies and trip insurance. The travel industry respond- ed positively and, for over 15 years, premier travel brands have chosen iSeatz for our beautifully designed and highly engaging user interfaces, reliable on-time and in-budget delivery, and deep travel industry expertise. The travel life cycle is now undergoing a phase of rapid evolution. Travel brands are looking to differenti- ate and decommoditize at every point. The travel journey includes platforms and devices from beginning to end, and consumers expect intuitive, uncluttered digital experiences. As a travel technology partner, iSeatz knows what travelers want. We help our partners build the technology to deliver it, and we create beautiful front-end experiences that enable travelers to get started on their remarkable journeys. Our goals are to help automate and simplify the search, booking and management of myriad travel and relat- ed goods and services; to suggest innovative paths to purchase; to capture responses; and to optimize users’ experiences. iSeatz partnered with Phocuswright to conduct this research with the objective of level-setting the state of play in the consumer hotel reservation experience. We wanted to determine if cross-selling is welcome, learn which products are truly seen as complementary to travel, and discover at what point prospective travelers want to purchase complementary travel products that enhance their trip. Enjoy the results of the research. Kenneth Purcell, Founder / CEO iSeatz Inc. ©2017 Phocuswright Inc. All Rights Reserved. Page 2 Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 About Phocuswright Phocuswright is the travel industry research authority on how travelers, suppliers and intermediaries connect. Independent, rigorous and unbiased, Phocuswright fosters smart strategic planning, tactical decision-making and organizational effectiveness. Phocuswright delivers qualitative and quantitative research on the evolving dynamics that influence travel, tourism and hospitality distribution. Our marketplace intelligence is the industry standard for segmentation, sizing, forecasting, trends, analysis and consumer travel planning behavior. Every day around the world, senior executives, marketers, strategists and research professionals from all segments of the industry value chain use Phocuswright research for competitive advantage. To complement its primary research in North and Latin America, Europe and Asia, Phocuswright produces several high-profile conferences in the United States, Europe and Asia Pacific, and partners with conferences in China, Singapore and the United Arab Emirates. Industry leaders and company analysts bring this intelligence to life by debating issues, sharing ideas and defining the ever-evolving reality of travel commerce. The company is headquartered in the United States with Asia Pacific operations based in India and local analysts on five continents. Phocuswright is a wholly owned subsidiary of Northstar Travel Media, LLC. www.phocuswright.com ©2017 Phocuswright Inc. All Rights Reserved. Page 3 Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 JANUARY 2013 Contents Table of Contents Table of Charts Overview 5 Figure 1 7 Supplemental Travel Research Methodology 6 Products Willing To Purchase or Book The Consumer Perspective 6 From Their Hotels Figure 2 7 The Hotelier Perspective 10 Last Trip In-Destination Activities Key Challenges 12 Figure 3 8 So Where Do We Go Last Trip In-Destination From Here? 13 Activities Booking Window About iSeatz 15 Figure 4 9 Last Trip In-Destination Activities Booking Window Figure 5 9 Traveler Opinions on Receiving Supplemental Travel Product Offers Figure 6 10 Preference on Where to Receive Offers For Additional Travel Service ©2017 Phocuswright Inc. All Rights Reserved. Page 4 Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 Hotel Ancillaries: An Unexplored Opportunity Written and researched by Peter O’Connor & Mark Blutstein Overview With both RevPAR and occupancy growth slowing modestly from 10% to 8% in the otherwise robust U.S. hospitality sector, hotels are increasingly turning toward the sale of ancillary goods and services to help drive additional revenue. For hotels, the phrase ‘ancillaries’ typically refers to optional guest add-on products and services outside of the core accommodation product. These may take the form of in-hotel ancillaries, such as room upgrades, food and beverage services, additional in-room amenities or spa/well- ness/entertainment products offered by the property itself. Alternatively, ancillaries may also include in-destination ancillaries such as sightseeing tours, car rental, transfers or event tickets, typically provided by third parties. The travel industry has witnessed the success of the major airlines in growing ancillary offerings to contribute 10% of gross revenue by monetizing components of their product offerings through decoupling or bundling. It is logical that hotels should follow suit and attempt to increase revenue by offering a more comprehensive range of products and services to customers during the accommodation booking process; prior to arrival; and during their on-property stay. Doing so would have two results: It would provide in- creased flexibility and better service to the guest, as well as generate additional revenue and an increased share of customer wallet for the hotel. Airlines amassed an additional $25 billion in revenue from selling add-ons in 2015, according to IdeaWorksCompany estimates. Hotels, on the other hand, have not been nearly as aggressive in exploiting the ancillary opportunity. Through their online and mobile presences, most hotels have focused primarily on selling just rooms. However, there is increasing evidence in the marketplace that this is beginning to change, and that hotels are starting to propose a more sophisticated product offering to their customers through online channels. Web booking engines, both chain and third-party, have begun to incorporate a broader range of products to both enhance customer service as well as capture a larger share of the customer wallet through upselling and cross-selling. This change is being led by the major chains, with Marriott’s Virtual Concierge in particular demonstrating thought leadership as to the direction that non-accommodation digital services could take for the hotel industry. While many hotels are experimenting, smaller chains and independents have been slower to react, with perhaps the best assessment of many efforts to date being “unimaginative.” To develop a more comprehensive picture of the hotel ancillary market, Phocuswright and iSeatz embarked on a multi-part research effort combining both the consumer ©2017 Phocuswright Inc. All Rights Reserved. Page 5 Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 (guest) and supplier (hotel) point of view. The objectives were to: 1) develop a com- prehensive picture of the state of play with regard to the sale of ancillary goods and services by hotels, and 2) understand current ancillary strategies and offerings, as well as hotels’ plans for the future. This resulting white paper examines both demand for and supply of ancillary goods and services in the U.S. hotel sector. Research Methodology This research study was approached from two complementary angles, in collabora- tion with iSeatz. Initially, to understand the demand side, Phocuswright fielded an online consumer survey between March 8 and March 15, 2017 through Lightspeed, targeting the general U.S. adult population that has Internet access and travels for leisure. To qualify for participation in the study, respondents had to indicate that they had taken at least one leisure trip at least 75 miles from home in the past 12 months that included paid lodging and/or air travel. An additional screener required consum- ers to have played an active role in planning their leisure trips. Phocuswright received 1,724 qualified responses, and the weighted respondent pool can be projected with confidence to the U.S. adult population with Internet access. To understand the supply side of the issue, Phocuswright conducted a series of in- depth, 30- to 40-minute telephone interviews with key personnel within U.S. hotels. Respondents comprised representatives of both chains and independent properties, and included a mix of e-commerce, sales & marketing and operations functions. The Consumer Perspective A substantial potential market currently exists for both in-hotel and especially for in-destination ancillary products and services. Two types of on-property offerings – dining at the hotel and early check-in/late checkout – are the most popular services that consumers would be willing to pre-book from hotels (see Figure 1). However, guests are also open to purchasing a diverse range of alternative, externally provided products and services, including museum/attraction tickets, sightseeing or other tours, event tickets and transportation. It is interesting to note that in each case it is younger travelers, aged 18 to 34, who are more willing to pre-book in-destination services from the hotel. The situation is inversed for in-hotel ancillaries, where older consumers, aged 55 and up, express a stronger preference to pre-book such activities as dining and early check-in/late checkout. Facilitating the pre-booking of in-destination ancillary products and services clearly rep- resents an interesting opportunity for U.S. hotels. Eighty-one percent of respondents indicated that they had participated in a bookable in-destination activity during their last trip. The most popular of these activities were day trips, excursions and sightsee- ing tours (42%); visiting museums, galleries or cultural attractions (30%); and outdoor activities (28%) (see Figure 2). Those aged 18-34 represent the greatest potential for the sale of in-destination ancillary products, as they are the heaviest consumers of these products across all segments. This is particularly the case for day trips/excursions as ©2017 Phocuswright Inc. All Rights Reserved. Page 6 Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 FIGURE 1: Supplemental Travel Products Willing To Purchase or Book From Their Hotels Dining at the hotel Early check-in/late checkout Museum and attraction tickets Sightseeing or other tours Room upgrade Recommendations/reservations for dining outside hotel Transportation options Live events Activities Fitness/spa Art/culture events Concierge-level or club lounge access Child care Overall 18-34 Volunteering for charitable events 35-54 55+ Other None of the above 0% 10% 20% 30% 40% Question: Which of the following supplemental travel products and services are you likely to consider purchasing from a hotel? Select up to 4 options. Base: U.S. travelers (N=1,724) Source: Phocuswright’s U.S. Consumer Travel Report Ninth Edition © 2017 Phocuswright Inc. All Rights Reserved. FIGURE 2: Last Trip In-Destination Activities Day trip, excursion, sightseeing tour Museum, gallery or cultural attraction Outdoor activity (e.g., watersports, hiking) Ticketed event (e.g., concert, sporting event, show) Overall Theme park or amusement park 18-34 35-54 55+ Other 0% 10% 20% 30% 40% 50% Question: What types of activities did you do in while in-destination during this trip? Select all that apply. Base: U.S. travelers (N=1,724) Source: Phocuswright’s U.S. Consumer Travel Report Ninth Edition © 2017 Phocuswright Inc. All Rights Reserved. ©2017 Phocuswright Inc. All Rights Reserved. Page 7 Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 well as theme or amusement park admission, where younger consumers are far more likely to engage in such activities than the general population. The stage at which these in-destination activities are booked varies significantly (see Figure 3). For both tours/activities (e.g., snorkeling, sightseeing tour, yoga class, etc.) and general admission (e.g., museum, zoo, theme park, monument, etc.), the majority of such activities tend to be booked while the consumer is within the destination and, for the most part, on the day of the activity itself. In contrast, ticketed events such as concerts, sporting events and theater tend to be booked prior to traveling; just over one third booked the day before or the day of the event, and nearly one third secured FIGURE 3: Last Trip In-Destination Activities Booking Window Tour or activity (e.g., snorkeling, 8% 14% 20% 18% 41% sightseeing tour, yoga class, etc.) Ticketed event (e.g., concert, 31% 22% 18% 13% 16% sporting event, theater) General admission attraction (e.g., museum, zoo, theme park, 15% 18% 17% 14% 37% monument, etc.) Before booking flights or hotels At the same time as booking flights or hotels After booking flights or hotels, but before traveling While in-destination, but at least a day before The day of the activity Question: When did you purchase your destination activities (e.g., tours, excursions, live ticketed events) for this trip? Choose one for each of the following in-destination activities. Source: Phocuswright’s U.S. Consumer Travel Report Ninth Edition © 2017 Phocuswright Inc. All Rights Reserved. tickets before booking the flight or hotel. Such a pattern makes sense, since in many cases the event in question may be the motivation for the trip, making the pre-booking of event tickets essential. Significant differences in booking patterns can also be observed across age groups. Irrespective of the category, pre-booking activity decreases with age. In all cases, those aged 18-34, followed by those aged 35-54, were far more likely to pre-book their in-destination activities (see Figure 4). Older consumers showed a marked resis- tance to pre-booking, and for the most part made their bookings only once they had arrived in the destination, and usually on the day of the activity itself. Given the tendency to book activities later in the trip process, it is not surprising that consumers are also open to receiving offers for supplemental travel products during their interactions with the hotel (see Figure 5). For both in-destination and in-hotel ancillary goods and services, near half of consumers stated that it was helpful to receive offers from the hotel for supplemental travel products during the online booking pro- cess (47%), as well as during hotel check-in (48%). Younger consumers in particular were ©2017 Phocuswright Inc. All Rights Reserved. Page 8 Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 more open toward receiving offers of this type, with nearly a third of both 18-24 and 25-34-year-olds rating such offers as very helpful. Consumers in general prefer to receive ancillary offers during the online booking process. Nearly one third (31%) of consumers noted that they preferred to receive ancillary offers FIGURE 4: Last Trip In-Destination Activities Booking Window 25% 18-34 18% 35-54 Before booking flights or hotels 8% 55+ 19% Overall 26% At the same time as booking 20% flights or hotels 12% 20% 17% While in-destination, but at least 20% a day before 23% 20% 31% 41% The day of the activity 60% 41% Question: When did you purchase your destination activities (e.g., tours, excursions, live ticketed events) for this trip? Choose one for each of the following in-destination activities. Base: In-destination bookers (N=1,287); Tour or activity bookers (N=912); Ticket event bookers (N=366); General admission attraction bookers (N=727) Source: Phocuswright’s U.S. Consumer Travel Report Ninth Edition © 2017 Phocuswright Inc. All Rights Reserved. FIGURE 5: Traveler Opinions on Receiving Supplemental Travel Product Offers Receiving offers for supplemental travel products (e.g., tours, excursions, live events, restaurant recommendations, 8% 9% 34% 27% 21% trip insurance) when I am checking in at my hotel Receiving offers for supplemental travel products (e.g., tours, excursions, live events, restaurant recommendations, 9% 9% 35% 26% 21% trip insurance) when I am booking my hotel online 1 - Very unhelpful 2 3 4 5 - Very helpful Question: Rate the following statements on a scale of 1 to 5, where 1 is very unhelpful and 5 is very helpful, on how it would affect your trip planning. Base: U.S. travelers (N=1,724) Source: Phocuswright’s U.S. Consumer Travel Report Ninth Edition © 2017 Phocuswright Inc. All Rights Reserved. ©2017 Phocuswright Inc. All Rights Reserved. Page 9 Phocuswright White Paper: Hotel Ancillaries: An Unexplored Opportunity June 2017 on the hotel or travel website during the primary booking process (see Figure 6). A sub- stantial number were also open to receiving such offers in the hotel booking confirmation email (23%) or in a pre-arrival email from the hotel (19%). Despite the prominence of mobile devices, and perhaps because of their intrusiveness, fewer consumers expressed a desire to receive such offers through their mobile phone, irrespective of whether it was delivered as a text message (13%), within the hotel app (12%) or as a push notification FIGURE 6: Preference on Where to Receive Offers For Additional Travel Services On the hotel or travel website when I am booking my hotel Search on Google Ask the hotel concierge Links in the hotel booking confirmation email Links in the hotel reservation reminder email Text message to my phone In-room through a smart TV, tablet or other provided device In the hotel app At the self-check-in kiosk Push notifications on my phone Overall 18-34 Other 35-54 55+ I do not want to receive offers for supplemental travel products 0% 10% 20% 30% 40% Question: How would you prefer to receive offers for additional travel services or experiences for your trip (e.g., tours, excursions, live events, restaurant recommendations, etc.)? Select up to 3 options. Base: U.S. travelers (N=1,724) Source: Phocuswright’s U.S. Consumer Travel Report Ninth Edition © 2017 Phocuswright Inc. All Rights Reserved. (7%). And while in the destination, most consumers preferred to use the traditional con- cierge service to make bookings (25%), with fewer expressing a preference for automated options such as self-service kiosks (12%) or in-room technology such as smart TVs, tablets or other provided devices (13%). The Hotelier Perspective Given consumer enthusiasm for pre-booking ancillary products and services, one might expect hotels to be eager to offer them, both to better serve their customers and to leverage the opportunity to generate additional revenue. However, hoteliers agree that ©2017 Phocuswright Inc. All Rights Reserved. Page 10