Navigating the Uncertain Terrain of the US Hotel Market in 2025

• Despite revenue growth in the U.S. hotel industry, increased costs, particularly labor, have led to declining profitability.
• Margins are under pressure across all industry segments, emphasizing the need for efficient operations, cost control, and strategic planning.

The U.S. hotel industry is characterized by a single word as we advance into 2025 – uncertainty. Hoteliers are grappling with key questions about the resilience of demand, the permanence of rising costs, and strategies to maintain profitability in an unpredictable market.

Laura Resco of HotStats, a leading provider of hotel data and analytics, delved into insights from their annual review, Profit Matters, and early performance trends of 2025, to help navigate this uncertain landscape.

While 2024 witnessed modest top-line growth for U.S. hotels, with an increase in occupancy and guest expenditure, profitability did not follow suit. Despite an increase in revenue, all key departmental margins and the Gross Operating Profit per Available Room (GOPPAR) experienced a decline. The primary factor behind this trend is rising costs, particularly labor.

In 2024, for every $1 increase in top-line revenue, U.S. hotels incurred a $1.04 increase in total costs, with labor expenses accounting for $0.75 of this increase. The figures clearly indicate that rising labor costs are significantly impacting margins, leaving little room for error or growth.

The current operational norm is battling margin erosion. Over the past 14 months, margin contraction has become a recurring trend, with only two months showing positive year-on-year growth. Revenue growth alone, therefore, is insufficient. Hoteliers must shift their focus to generating revenue profitably by optimizing operations, controlling costs, and rethinking efficiency strategies.

The impact of these trends varies across different hotel categories. Luxury and upper-upscale segments benefit from resilient demand, the return of group travel, and an increasing preference for high-end experiences. On the other hand, midscale and economy properties are under strain as inflation-weary travelers curtail their spending. Profit margins are under pressure regardless of the segment, making cost control and strategic planning indispensable.

In times of uncertainty, benchmarking serves as a valuable tool for navigation. It aids in understanding how top performers are adapting and succeeding. Operational benchmarking offers clarity by helping identify areas of underperformance and overperformance, analyze all revenue streams, plan for profit, and build stronger business cases backed by data.

The old mindset of “grow revenue and profits will follow” in today’s market no longer applies. Profit must be planned for, and benchmarking offers the most effective way.

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