U.S. Hotels Rely on Domestic Demand as International Travel Recovery Lags

Domestic demand supports hotel performance

Terence Baker of CoStar reports that U.S. hotel demand is being supported by relatively strong household finances, returning group travel and corporate transient bookings, according to speakers at the Hotel Data Conference. However, analysts said the outlook remains dependent on economic conditions and hotels’ ability to meet changing guest expectations.

Jan Freitag, national director of hospitality market analytics at CoStar Group, said U.S. hotel revenue per available room, or RevPAR, fell 0.2% last year. He characterized the result as an exception rather than a broader trend, citing improving group demand and continued consumer interest in travel experiences.

Aran Ryan, director of industry studies at Tourism Economics, said higher-income households remain a significant source of lodging spending. Households earning at least $200,000 account for 36% of U.S. lodging expenditures, he said. The number of such households is 2.3 times higher than in 2018 and now represents about 11% of all U.S. households.

Speakers said consumers are increasingly directing discretionary spending toward travel and experiences rather than goods. The trend is supporting demand, but hotel revenue growth is expected to remain below inflation, pressuring operating margins.

Inflation and investment create cost pressures

Ryan identified energy costs, tariffs and investment related to artificial intelligence as factors contributing to higher inflation. He said AI-related investment is raising costs across parts of the economy, while inflation is slowing real growth.

The 2027 economic outlook could improve, Ryan said, pointing to non-AI business investment during the second quarter as a potentially positive sign for future group travel. Corporate transient demand has also remained relatively resilient despite broader economic concerns, according to panel participants.

Brian Allen, vice president of operational performance at Atrium Hospitality, said the company’s focus includes managing expenses throughout its profit-and-loss statements. Atrium operates 74 hotels, about 70% of which are in the upper-upscale segment. Allen said between 20% and 30% of the company’s owned hotels are undergoing renovations.

He said the company has seen stronger results than initially anticipated this year, helping profitability and margins. Still, he said it remains difficult to increase rates while balancing occupancy and affordability.

Hotels focus on local markets and guest experience

Speakers said hotel owners and operators should not apply national trends uniformly across all properties. Sonny Kerstiens, vice president of sales at Aspen Hospitality, said broader economic developments can affect individual markets differently.

Kerstiens said operators should focus on the experience they can provide rather than solely comparing themselves with competing hotels. He also said sales strategies should reflect expected demand rather than past performance.

Allen said Atrium’s secondary and tertiary markets benefit from limited new supply in certain categories. He cited the relative lack of new large upper-upscale hotels in those markets, which can help existing properties retain demand. He said occupancy has been a particular strength for the company, especially in its upper-upscale portfolio.

Panelists said guest expectations apply across hotel categories, not only luxury properties.

Labor remains a concern despite limited evidence of a shortage

Labor availability remains a concern for hotel operators, particularly as net immigration has declined under current U.S. policy. Ryan said available data does not yet show a major labor gap across the economy, but recruitment and retention remain important at the property level.

Kerstiens said rising living costs are a frequent concern among prospective workers. He said hotel companies need to retain staff by improving the employee experience and competing effectively for workers.

Allen said Atrium reviewed and changed its labor-related processes after the pandemic. The company has focused on training and employee experience from the start of employment, he said, contributing to lower turnover and improved productivity. In some markets, however, hotels still rely on contract labor because of hiring difficulties.

International arrivals remain below expectations

Freitag questioned whether the 2026 World Cup, which the United States co-hosted, would generate lasting international demand beyond the tournament period.

Ryan said the United States has not yet experienced the stronger overseas arrivals that some hotel operators expected. Meanwhile, U.S. travelers have continued to visit Europe in large numbers.

Global international travel spending is growing by an estimated 8% to 10% annually, Ryan said. European outbound spending is also forecast to rise by about 10% next year. He said that growth could eventually support U.S. travel demand even if the country’s share of international trips declines.

Speakers also noted potential opportunities to attract travelers whose trips to destinations such as Dubai may be affected by reduced flight availability.

Weather and insurance costs add uncertainty

Freitag said insurance costs have moderated following a relatively limited 2025 hurricane season. However, climate-related risks remain uneven across regions. Higher temperatures in Europe could offset insurance-cost reductions in other markets.

Kerstiens said resort operators need flexibility in forecasting, programming and guest activities as weather patterns change. Allen said hotels do not assume favorable weather conditions in their budgets but must respond when weather-related opportunities arise.

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