Hotels are Looking for New Revenue Streams

The Shift from Occupancy to Opportunity in Hotel Profitability

Traditional revenue models centered solely on room occupancy are no longer sufficient in today's hospitality landscape. Rising operational costs and evolving guest expectations are prompting hotels to explore diversified revenue streams. This shift is not just a trend but a necessary evolution to maintain profitability and meet the modern traveler's needs.

Key Points

• Rising Costs Outpace Revenue: In 2024, U.S. hotels experienced a 4.1% increase in operating expenses, compared to a 2.3% growth in total revenue, with labor costs rising 4.8% (CBRE).

• Profit Margins Are Under Pressure: Hotels are being compelled to look beyond room occupancy to safeguard their profitability.

• Ancillary Revenue Is Gaining Traction: Services such as co-working spaces, day-use rooms, luggage storage, bike rentals, parking, and gym access convert underutilized assets into valuable revenue streams.

• Guests Expect Convenience: 71–73% of travelers prefer self-service technology, creating opportunities for tech-enabled revenue solutions (Oracle, Operto).

• Luggage Storage Offers Strategic Value: Once a complimentary service, luggage storage can now be monetized to reduce operational friction and generate passive income.

• Hotels Must Diversify: Embracing new revenue streams isn’t just smart, it’s essential for long-term sustainability in a rapidly evolving hospitality landscape.

Rising Costs, Squeezed Margins

The hospitality industry is facing growing financial pressure as operating costs continue to rise faster than revenue. In 2024, U.S. hotels saw a 4.1% year-over-year increase in operating expenses, outpacing a 2.3% growth in total hotel revenue.*

Labor costs have been especially impactful, with wages and benefits rising by 4.8%, driven by labor shortages and inflation. These widening gaps between cost and income are forcing hotels to rethink traditional revenue models.

With profit margins under strain, many operators are shifting focus from room occupancy alone to unlocking new income streams within existing operations.

Embracing Ancillary Revenue Streams

To counter rising costs and shrinking margins, hotels are turning to ancillary revenue, which is generated from services beyond traditional room bookings. These additional offerings help maximize existing space, meet evolving guest needs, and create new income streams. Examples include:

• Co-working Spaces: Transforming underutilized areas into co-working hubs caters to the growing remote workforce and generates additional income.

• Day-Use Rooms: Offering rooms for short stays during the day meets the needs of travelers seeking flexibility and boosts occupancy rates.

• Luggage Storage Services: Implementing efficient luggage storage solutions enhances guest experience and opens a new revenue channel.

• Bike Rentals: Particularly popular in European cities, offering on-site bike rentals adds value for urban travelers while creating a low-maintenance income stream.

• Parking Lot Rentals: Monetizing unused parking spaces, either to non-guests or via platforms, helps convert idle space into consistent revenue.

• Gym or Wellness Day-Use: Providing non-staying guests with access to gym or spa facilities during off-peak hours converts amenities into active revenue earners.

By diversifying services, hotels can enhance guest satisfaction while building multiple touchpoints for profitability, all without expanding their footprint.

Adapting to Evolving Guest Expectations

Modern travelers prioritize convenience and flexibility. They expect seamless experiences, from contactless check-ins to personalized services. A study reveals that 71% of guests prefer self-service technology, underscoring the need for hotels to integrate digital solutions. By aligning services with these expectations, hotels can enhance guest loyalty and create opportunities for additional revenue.

The statistic indicating that 71% of guests favor self-service technology is supported by multiple industry studies:

• A 2022 report by Oracle Hospitality and Skift found that 73% of travelers are more likely to stay at a hotel offering self-service technology, such as mobile check-in and check-out, and contactless payments, to minimize contact with staff and other guests.*

• Additionally, a study highlighted by Operto notes that 71% of guests prefer self-service technology, which helps free up staff to provide face-to-face service to those who need it.*

These findings underscore the growing expectation among modern travelers for convenient, flexible, and technology-driven experiences during their hotel stays.

The Strategic Advantage of Luggage Storage

Luggage storage, often overlooked, presents a strategic opportunity. Traditionally offered as a complimentary service, it can be monetized to enhance profitability. Implementing a managed luggage storage system addresses operational challenges, reduces front desk congestion, and meets guest demands for secure storage solutions. This service improves operational efficiency and contributes to the hotel's bottom line.

The hospitality industry's landscape is shifting, with a clear shift from relying solely on room occupancy to embracing a diverse range of revenue streams. By understanding and adapting to these changes, such as rising operational costs, the increasing importance of ancillary services, and evolving guest expectations, hotels can position themselves for sustained profitability and enhanced guest satisfaction.

Sources: CBRE, Hotel Technology News, Operto