U.S. Hotel Industry Faces Challenges Amid Government Layoffs and Travel Decline

Hotel revenue managers adjust expectations due to decreased government and international travel.

In early 2025, the hotel industry anticipated strong performance compared to the previous year. Initial months showed promise, but a downturn soon followed. Mark George, senior vice president of commercial strategy at Island Hospitality Management, highlighted this shift during a revenue management roundtable at the 2025 Hotel Data Conference. He noted that forecasts initially appeared positive but required frequent adjustments due to changing conditions.

Concerns Over Demand

Leah McFarland, senior vice president of revenue strategy at Crestline Hotels & Resorts, reported ongoing discussions with hotel owners and brands about the declining momentum. A significant concern is the insufficient average daily rate (ADR) due to reduced demand. Kristen Weaver, vice president of revenue and ecommerce at GF Hotels & Resorts, identified underperforming spring break travel and a decrease in international guests as early indicators of this trend.

Impact of Government Layoffs

A major factor affecting hotel performance is the decline in government-related travel, which is linked to federal employee layoffs. George mentioned a significant cancellation in Springfield, Virginia, which marked the beginning of a broader decline. McFarland added that the absence of government and nonprofit-funded travel has created a deficit in group travel segments. The impact is particularly pronounced in markets such as Washington, D.C., and San Diego, where government travel has traditionally supported hotel demand.

Shifts in Travel Patterns

Revenue managers are adjusting strategies to focus on one-night stays at discounted rates. Business travel remains below 2019 levels, with no expectation of a full recovery. George noted that in the Bay Area, business travel is unlikely to return to previous levels, suggesting a new baseline of 80% compared to 2019. Paul Wood, regional vice president of revenue management at Pyramid Hotel Group, observed that while medical travel remains strong, technology and sales travel have declined.

Changes in Leisure Travel

Leisure travel is evolving, with reduced airlift to major cities due to increased travel costs. Wood mentioned that rising expenses for airfare, hotel rates, and food are leading to shorter stays. This shift affects overall hotel occupancy and revenue, as travelers adjust their plans in response to higher costs.

Revenue managers must adapt their strategies to focus on shorter stays and adjust expectations for business travel recovery.

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