Rising costs, tariff-related pressures, and uneven demand patterns have put hoteliers in a challenging position as they build budgets for 2026. While inflation has moderated from recent peaks, hotel performance data shows that the industry is still navigating revenue pressure alongside stubborn cost growth. The key to protecting profitability is not simply increasing rates, but inflation proofing your budget with a smarter understanding of demand, channel costs, and contribution to profit.
Demand Recovery Is Uneven
Kalibri’s most recent industry analysis shows that while overall U.S. demand has stabilized, performance varies significantly by segment. Corporate and Group business continue to lag, with both room nights and average daily rate (ADR) softening compared to last year. By contrast, extended stay demand has grown 2% year-to-date, and transient leisure continues to account for about 70% of occupancy. This imbalance means hotels must scrutinize their business mix carefully when forecasting for 2026.
Location types also play a role. Mid-size and small cities, along with rural and interstate markets, are showing modest growth (+1–3%), while large metro markets remain below 2019 occupancy levels. For hoteliers building budgets, it is important to benchmark against the right competitive set and market type rather than relying on national averages that may mask local volatility.
Rate Growth Without Profit Growth
On the surface, rates appear healthy. ADR across most categories remains above 2019 levels, with loyalty member and promotional rates leading the mix. Yet topline rate growth does not always translate into profitability. A critical factor is revenue capture, which refers to the portion of guest-paid revenue retained after distribution costs. Kalibri’s data shows a 1.5 billion dollar decline in revenue capture in 2024, resulting in an 18.6 billion dollar reduction in U.S. hotel asset value.
In other words, even as RevPAR grows, profitability is being eroded by rising channel costs, particularly from OTAs and GDS, which can be three to four times more expensive than direct channels. Budgeting for inflation means accounting not only for expenses like wages and utilities but also for the hidden drag of third-party commissions.
Shifts in Stay Patterns
Length of stay dynamics also have implications for budgeting. Nearly two-thirds of stays in the U.S. are still one night, but the share of multi-night stays has grown in economy and midscale chain scales. Extended stay hotels, which rely on 7+ night bookings for 70% or more of demand, continue to outperform in stability and profitability. Hotels that can flex inventory toward longer-stay segments can reduce turnover costs and improve contribution margins.
How to Inflation Proof Your Budget
1. Focus on Contribution, Not Just Rate
Track net ADR and COPE (Contribution to Operating Profit and Expenses) revenue to understand the true value of each booking. Rate growth through high-cost channels may look strong but can undermine your bottom line.
2. Balance Segment Mix
With group and corporate demand under pressure, consider strategies to capture more extended stay and loyalty-driven transient demand. Loyalty business on Brand.com consistently outperforms OTA bookings in profit contribution.
3. Invest in Direct Channels
While OTAs remain necessary for visibility and a robust mix of business, a strong Brand.com and loyalty strategy can offset distribution costs. Even a modest shift toward direct bookings can materially impact profit margins.
4. Scenario Planning
Inflation impacts everything from labor to utilities to insurance. Use data-driven models to test budget assumptions under different cost scenarios, ensuring you are not over-reliant on optimistic demand projections.
5. Leverage Market-Level Data
Understand not only your comp set but also how your market type (large metro, mid-size, or rural) is performing. Target marketing and pricing strategies accordingly to capture resilient demand pockets.
Turning Insight into Action
Inflation proofing is about moving beyond traditional RevPAR-focused budgeting and adopting a holistic profit strategy. Kalibri’s Hummingbird Commercial platform equips hotel leaders with the market-level demand, segment mix, and profit contribution insights they need to build resilient budgets. By integrating cost of acquisition and length-of-stay analysis, Hummingbird helps operators identify which business is truly worth pursuing in an inflationary environment.
Conclusion
Inflation is unlikely to disappear as a challenge, but it does not have to dictate hotel profitability. By focusing on contribution over volume, aligning mix to resilient segments, and using data to anticipate market shifts, hoteliers can build budgets that withstand cost pressures and protect asset value.
Ready to see how your hotel can inflation proof its budget? Request a demo of Hummingbird Commercial today.