New Expedia white paper finds package bookings drive higher ADR

The latest white paper from Expedia, "The Power of Package Bookings for Hotels," finds that dynamic packages inclusive of accommodations can boost average daily rate and ancillary revenue while abating cancellations as well as procuring longer booking windows and longer lengths of stay for hotels. A review of both package and standalone hotel bookings for the 12 months of 2016 revealed that hotel ADR associated with package travel was higher by an average of 20 percent. “Hotels tend to view the discounted room as revenue lost, but there’s a positive return on the investment and there are a lot of different drivers on that ROI,” said Marco Tagliatti, VP, North America lodging partner services and the author of the white paper.

Value is Key

The top five countries booking packages into the U.S. in 2016 were Canada, the U.K., Germany, Japan and France. Las Vegas accounted for the highest percentage of package bookings by domestic travelers. According to Phocuswright’s 2016 "U.S. Consumer Travel Report," the number of U.S. travelers booking travel packages increased 4 percent between 2014 and 2015, which Tagliatti attributed to travelers’ growing savvier about buying value, a phenomena that the white paper also reports to be trending among luxury travelers.

Regardless of annual household incomes, Americans have come to view their travel spend an as investment, the return on which is likely to be immediately cashed in for a heightened overall experience—and that’s what’s generating higher ADRs for hotels. Typically, these travelers reinvest the package savings into a higher room category before completing the total purchase. “Packages are the perfect tool for addressing the cost-efficient customer and the higher ADR can also drive higher RevPAR for hotels,” Tagliatti said.

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The Effects of Longer Booking Windows

But even package travelers who aren’t receptive to the room category upsell are still contributing to higher ADRs because packages bookings tend to have a booking window that is twice as long as standalone hotel bookings. This is, in part, because these travelers know that rates are better with longer lead times and in part because they’re more strategic throughout the entire trip-planning process.

But as the booking window contracts from six months to 30 days from the date of arrival, the ADR drops: 18 percent for packages and 34 percent for standalone roomnights. “Hotels can build a healthy base occupancy by leveraging the longer booking window to drive occupancy,” Tagliatti pointed out. “Once you have a healthy occupancy base, it’s easier to start building rate on roomnights with shorter windows when rates decline because hotels price them more aggressively.”

With the average booking window for packages at just shy of 50 days, hoteliers also have more upsell opportunity, both before check-in and on-property. Irrespective of an upgraded room category, package travelers also represent additional ancillary revenue because they are also more apt to funnel package savings into on-property spa and food-and-beverage experiences. Since these travelers spend more on property, Tagliatti advised hotels to complement a package strategy with a bundle strategy to offer spa and dining credits to specific customers.

There’s also a better chance that they’ll put those credits to use since package travelers have twice the length of stay of their standalone counterparts, which Tagliatti said has to do with the destination as well as the fact that packaged travel is not usually a short getaway trip, but a planned and committed vacation. The package’s value also incentivizes these travelers to spend more on extending the trip.

Reduced Cancellations

Packages also have half the cancellation rate of a hotel-only booking because they’re often tied to a nonrefundable flight. More than 80 percent of packages booked in 2016 paired air with lodging, with the addition of a car rental accounting for another 15 percent. More than half of the travelers booking a package with air within a 90-day period began by searching flights.

For today’s digitally fluent traveler, dynamic packaging also provides more control over their booking, unlike the static packages that wholesalers deal in. “Flights from anywhere in the world can be paired with hotels through dynamic packaging, so the range of choice for customers is limitless and for hotels, there’s no need to guess at what the customer wants,” Tagliatti said. “There are also some markets where wholesale is stronger, but we always suggest that hotels know their market, know their feeder markets and use all the channels that make sense for their business.” 

Sourcing New Markets

However, there are also benefits to not modifying package products to a particular market's needs and simply testing the value proposition in order to concurrently test potentially new source markets. Tagliatti told of one Mexico resort that didn’t put market controls in place only to discover that the property had a huge following in South Korea where, unbeknownst to the hotel, it was featured on a popular TV series. Once a sufficient number of packages originating in South Korea were sold, the hotel built out that business with more services and amenities geared toward its new Asian guests. “For hotels, that flight customer is an incremental channel that the hotel may not have access to unless they’re playing in the package space,” Tagliatti said.

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