Coworking, Staycations, Drag Shows: How Hotels Are Drumming Up New Revenue Streams

With the coronavirus pandemic freezing international, business and convention travel, many hotels are turning to a group of consumers they’ve never before relied upon for revenue: local residents.

That has led many hotels to come up with new ways to appeal to consumers who live nearby, from marketing wellness staycation packages and hosting online seminars to establishing coworking operations for freelancers and small businesses.

The motive for such moves is clear: Hoteliers are looking to create alternative revenue streams to survive long enough for convention and business travel to return to pre-pandemic levels.

“We know that corporate travel is way down or pretty much nonexistent,” Dream Hotel Group Chief Development Officer David Kuperberg said. “So at the end of the day, we’re going to need the leisure travel, the people stuck in their house.”

The hospitality industry is in a fight for survival. Hotels are still less than 50% occupied across the country on average, and 31.5% below 2019 levels at 48.7%, according to STR data for the last week of September. Only in Norfolk, Virginia, San Diego, Los Angeles and Detroit did average hotel occupancy exceed 50% last week.

Average daily rates were down 29.6%, and revenues per available room, the industry’s chief performance metric, has fallen 51.7% year-over-year, according to STR.

Travel spending has fallen apace: Consumers spent $12.1B on U.S. travel the week of Sept. 19, a $10B drop from the same period in 2019, according to the U.S. Travel Association.

“A lot of the sales and marketing teams are just looking forward to 2021,” said Erin MacNeil, a spa and wellness center consultant for the hotel industry.

MacNeil, the founder of The Spa Business Coach in Toronto, said many hotels have focused their efforts early on in the pandemic attempting to rebook events postponed or canceled by COVID-19.

But a 2021 recovery is likely an optimistic prediction. With revenues falling by 60% this year, McKinsey & Co. recently concluded that the hospitality industry could face “a sustained, systemic shock,” with a return to 2019 operating levels not coming until 2023 or beyond. American Hotel and Lodging Association President and CEO Chip Rogers told an industry group in July that as many as 8,000 hotels could shutter by the fall.

Confidence for people to travel is going to take more than a turn of the calendar to 2021, Kuperberg said.

“I think it’s going to take people wanting to jump on planes, and I don’t think we’re there yet,” he said.

McKinsey predicts local and regional hotel consumers will lead the recovery for the hospitality sector, especially given the uncertainty about when companies will begin allowing longer-distance travel or when consumers will have confidence with the security of their jobs and income for more elaborate trips.

“Day trips and self-drive travel are likely to return earlier since physical-distancing measures, exposure, and risk will be more manageable,” McKinsey officials said in the report.

To attract local business, hotels have begun offering services and packages that were a rarity prior to the pandemic.

The historic Hotel Figueroa in Downtown Los Angeles has started a coworking operation that allows individuals and small businesses to rent out rooms. Those packages include a personal desk, access to WiFi, free coffee and printing paper.

Coworking giant Industrious has partnered with hotels to convert a host of guest rooms into coworking offices, including with the Wythe Hotel in Brooklyn, and Proper Hotels locations in Santa Monica, San Francisco and Austin, Texas. It plans to expand to more Proper Hotels this year.

The program offers WiFi, printing services, private in-suite restrooms, and coffee, snacks and water, as well as room service.

“With remote work continuing for the foreseeable future, there’s an urgent need for safe, accessible workspace where and when it’s needed — even for employees who are only going to the office once or twice a week," Industrious CEO Jamie Hodari said in a press release. "People are craving an escape from [working from home], but that doesn’t mean they’re ready to get back to the traditional open office."

Dream Hotel Group has established its own coworking offering, but it is going even further. The hotel operator has also hosted events that lure people into staying at the hotel for a day or so, including a drag brunch at the rooftop pool at its hotel in Durham, North Carolina, and a poker party package with BBQ service for $650 per night, Kuperberg said.

For a chain of luxury boutique brands, these packages are important, given 50% of Dream’s revenues come from food and beverage, he said.

“The plan of attack is you got to be quick on your feet," Kuperberg said. "We’re learning from our hotels, and things are changing drastically."

Hyatt also has established a work-from-hotel program, with access to meeting rooms and other amenities. Since launching the remote office offering during the pandemic, 20% of the customers for that offer have been families, a Hyatt spokesperson said, especially those with school-aged children who are going to class over Zoom.

For many destination and convention hotels, that means marketing locally, a departure from their traditional target audience, Joe Veneto, a hotel industry consultant, said during a Sept. 30 webinar focused on alternative hotel revenue streams.

“I don't have to tell anybody, but the travel industry is in turmoil and all of us are being forced to do things that we're not as comfortable with,” said Veneto, the chief experience officer for Boston-based hospitality consulting firm The Veneto Collaboratory.

Veneto said hotels should resist the temptation to pull back on services as a cost-cutting measure during the recession. Instead, he said some hotels are finding that those services can be used to lure local customers for more lucrative, multi-day stays.

“I don't want to sell one night. I want to sell two nights or three nights, so they have to build these other components in to generate longer stays and build these other revenues,” he said.

“Food and beverage elements, wellness elements … all of those things need to be pulled together and quickly. There's been this real pullback regarding services on property. And I understand where we are. Financially, we're in a tough spot. If I'm going to check into a hotel and it's just going to be a room, I can go to the YMCA.”

Before the pandemic, the Edgewater Beach Hotel, a beachfront resort in Naples, Florida, was spending 5% of its marketing budget on locals, General Manager Laura Radler said. Since the pandemic, that budget is now 85% geared toward local and regional customers.

The Edgewater transitioned its popular, in-person Wellness Wednesday seminars into a Zoom format — one of the hotel’s chefs hosted a cooking class and a sommelier discussed pairing wine with Thai food. Originally the in-person event charged $75. The online version now charges $45.

The seminars penetrate the local market much more efficiently, Radler said, and improve the hotel prospect list for when times return to normal.

“Local and regional travel is going to come back a lot quicker,” Radler said. “We're doing just a bit over our cost because we want them to keep them on top of mind.”

For big convention and leisure destination hotels, especially, alternative revenue streams are never going to replace the dollars they lost from postponed and canceled events, Georgia State University Cecil B. Day School of Hospitality Director Debby Cannon said.

“For some hotels, it's a lifeline,” Cannon said. “It’s not meant to be a permanent replacement. They're just trying to stay afloat, keep people employed.”

Hotels are feeling another pressure point that is forcing them to go after a local audience: Airbnb, University of Denver Fritz Knoebel School of Hospitality Management Associate Professor Karen Xie said.

While also initially slammed by the pandemic and widespread shelter-in-place orders, Airbnb's overall business has bounced back stronger than ever, Edison Trends recently reported, up 75% the week of Aug. 17 compared to the same period last year.

Airbnb offerings tend to be better situated for a social distancing environment, Xie said. That has some hoteliers concerned the upstart competitor will emerge stronger from this pandemic, Xie said.

“That's because Airbnbs are isolated, like one-family properties,” she said. “Now [hotels are] looking at the long-term rental [market].”

National restaurant consultant Chuck Wolf recently used the Hotel del Coronado in San Diego as a coworking location while out on assignment. Wolf said his experience there might make him more likely to use a hotel to work when he returns to New York City, instead of a coworking facility or even his own apartment.

“When I get back there, most likely, I'll start if I can with a hotel because there's some service there,” he said. “You can't get food in an Airbnb.”