The Two-Speed Economy: What It Means for Hotels in 2026

Hotels are in a 2 Speed Economy

Introduction

The U.S. hotel industry is moving at two different speeds in 2026.CoStar and Tourism Economics project only modest overall growth this year, with U.S. RevPAR expected to increase just 0.6%, ADR up 1.0%, and occupancy slightly lower at 62.1%. At the same time, upper-end demand continues to show more strength: Marriott International reported that U.S. and Canada luxury RevPAR rose nearly 7% in Q1 2026, while select-service RevPAR improved about 3.5%, a rebound from prior softness. The story is not a broad collapse it is a more selective market where higher-end travelers remain more resilient while economy and value-oriented segments must fight harder for share.

Luxury is somewhat thriving

Luxury Hotels Are Still Finding Demand

Higher-end hotels continue to benefit from travelers who:• Are less impacted by inflation• Continue prioritizing experiences• Are still spending on premium leisure travel Luxury travelers are still booking: • Resorts• Wellness-focused travel• International vacations• Experience-driven stays. Many upper-tier hotels continue to push rate because their customer base remains more financially insulated. That is why luxury and upper-upscale hotels continue outperforming many midscale and economy segments.

Economy Hotels Are Facing a Different Consumer

Economy and limited-service hotels are dealing with a much more cautious traveler. Their guests are feeling: • Higher food costs• Fuel price pressure• Elevated credit card balances• Higher borrowing costs• Less flexibility in discretionary spending. As a result: • Trips are shorter• Booking windows are tighter• Travelers are comparing rates more aggressively• Value matters more than ever. This pressure tends to hit economy and select-service hotels first because their customer base is more price sensitive.

RevPAR Isn’t Telling the Full Story

Flat industry growth hides what is really happening underneath. Some hotels are still growing aggressively. Others are simply holding occupancy. And some are slowly losing share because they are waiting for business instead of actively pursuing it. A slower market exposes weak sales discipline faster than a strong one. The hotels still gaining share are usually the ones: • Prospecting consistently• Protecting service standards• Staying close to local demand trends• Building relationships instead of relying solely on inbound business

Labor Costs Continue to Pressure Margins

One of the biggest operational challenges remains labor. Hotels continue to face:• Wage increases• Staffing shortages• Higher insurance costs• Greater reliance on contract labor Luxury hotels can often absorb those costs more easily because:• Their ADR is stronger• Their guests are less rate sensitive• Their occupancy tends to be more consistent, allowing operators to forecast staffing needs with greater accuracy and efficiency. Economy hotels do not have the same flexibility. That means operators have to become more disciplined with how labor is managed.

Managing Labor Costs Without Damaging Service

Blind labor cuts rarely solve the problem. The better operators are focusing on:• Smarter scheduling• Cross-training employees• Removing unnecessary administrative work• Using technology to improve efficiency. But there is an important balance. Technology should improve hospitality—not replace it. Guests still remember and appreciate the fundamentals: • Friendly front desk interactions• Clean, well-maintained rooms• Fast issue resolution• Consistency from stay to stay, especially in the economy segment, service differentiation still matters. In many cases, it is the deciding factor between a one-time stay and a repeat guest.

Economy Hotels Cannot Compete on Price Alone

This is where many hotels get trapped. When demand softens, operators often react by:• Lowering rates• Chasing occupancy• Hoping volume offsets margin pressure But competing only on price usually creates long-term damage. The stronger economy hotels are instead focusing on:• Reliability• Consistency• Cleanliness• Convenience• Friendly service Guests in this segment are not necessarily looking for luxury. They are looking for:• Predictability• Value• Simplicity• Comfort Hotels that execute those fundamentals well continue gaining share.

The Biggest Opportunity: Proactive Sales

This may be the biggest separator in today’s environment. Too many economy and select-service hotels still operate reactively: • Waiting for OTA bookings• Waiting for inbound leads• Waiting for the phone to ring. That becomes dangerous in a slower-growth market. The goal is simple: Be first to the business before competitors even realize it exists.

A Different Kind of Discipline

The “two-speed economy” does not mean economy hotels cannot succeed. It simply means they must operate with more precision. That includes: • Managing labor intelligently• Protecting service standards• Differentiating the guest experience• Building proactive sales cultures The days of relying on broad market growth are fading. Today’s environment rewards: • Discipline• Speed• Market awareness• Relationship building• Consistency

My Final Thoughts

The market hasn’t stopped moving, it has however become more selective. Yes, luxury hotels currently have a stronger momentum, but economy and select-service hotels still have significant opportunity, especially those willing to adapt faster than the market around them. In this environment, success is no longer just about location or brand. Execution will be the key to success!