Shaky Economy, Travel Slowdown Hit Hospitality Companies

Major hotel operators are feeling the strain of consumer-level economic anxiety paired with a decrease in international tourism as a government-mandated reduction in air traffic comes for the country’s largest airports.

Midtier chains patronized by a broad swath of the American middle class are seeing flat or declining revenue per available room, adding pressure as distressed loans mount and development slows.

“Everything is softer except the very high end. Government travel is softer, international inbound is softer, there’s a little bit of business hesitancy, and a broader consumer who is much more price-aware,” Baird senior research analyst Michael Bellisario said. “The middle of the market feels that the most.”

This year was expected to be a long-awaited return to something resembling prepandemic norms, but that resurgence has failed to appear. 

For the first nine months of the year, RevPAR was essentially flat, with room rates increasing only 0.9%, according to Jan Freitag, national director of hospitality analytics at CoStar.

“From an industry perspective, that is worrisome, because you want to grow room rates over the level of inflation. Because as everything gets more expensive, you want to drive your top line more than your cost,” Freitag said. 

Wyndham Hotels & Resorts reported a 5% annual drop in RevPAR for its economy and midscale properties in the third quarter, and Choice Hotels, with a portfolio largely concentrated in those segments, reported a 3.2% drop. 

Marriott International reported a 0.4% drop in RevPAR in the U.S. and Canada, while Hyatt Hotels Corp.’s was basically flat, increasing by 0.3% year-over-year.

Chief Financial Officer Scott Oaksmith, speaking on his company’s earnings call, attributed Choice Hotels’ decline primarily to reductions in government and international travel. 

The decrease in government travel was only exacerbated right after the close of the third quarter by the government shutdown, dragging down RevPAR.

“Government employees typically stay on a per diem, and they're staying in select-service hotels, not Four Seasons and Ritz-Carlton,” Bellisario said. “That is more impactful to the middle and lower-end tiers.”

Marriott reported a 15% annual drop in government-related bookings, Ashford Hospitality Trust said its annual decrease was 19%, and Choice Hotels saw a 20% drop. 

The travel impact of the shutdown goes beyond government workers’ business trips. The Federal Aviation Administration on Wednesday announced a 10% reduction in traffic at 40 airports across the country as unpaid air traffic controllers stay home, adding to an acute labor shortage in that profession.

Domestic travelers were already canceling trips and avoiding airports when the shutdown began in October.

Economic anxiety is weighing on a broad swath of Americans, as the Consumer Confidence Index fell for a third straight month in October. 

“‘Leisure trip’ is the definition of discretionary spend,” Freitag said. “And so we're seeing that people have to make choices. When the car insurance gets more expensive, or eggs or their rent, they have less money left over for hotel stays.”

The U.S. economy has continued growing, with the Bureau of Economic Analysis reporting a GDP increase of 3.8% in Q2. Traditionally, GDP growth has directly correlated with hotel room demand: As the economy grows, more people travel for business and leisure. 

“This connection that has held for almost 30 years, where the American economy grows room demand growth — that connection has been severed,” Freitag said.

The U.S. Travel Association reported the cost of travel is up 20% since 2019, with September airfare up 3.2% over last year and other travel-related costs reflecting higher year-over-year inflation. That has put the squeeze on travelers.  

The U.S. dollar has weakened this year, making travel to the States a relative bargain, Freitag said. 

But inbound international travel is projected to decrease this year for the first time since 2020, according to the U.S. Travel Association. It projects international travel will decrease 6.3% from 2024. Inbound spending is expected to fall 3.2% this year, with significantly fewer visits from Canada being the main driver. 

Choice Hotels reported a 30% drop in inbound Canadian bookings, a trend expected to continue into 2026, continuing the drag on RevPAR.

All of these headwinds for hotels come as a wave of debt attached to lodging properties is set to mature. The Mortgage Bankers Association reports that 35% of hotel and motel loans will come due this year, and another $48B in CMBS loans are slated to mature over the next 24 months, according to Cred iQ.

Some operators are trying to deleverage. Ashford is offloading assets, with proceeds mostly going toward paying off mortgage debt. It recently sold three properties for a combined $50M, and it is marketing eight more for sale. The company is taking a wait-and-see approach on interest rates, with borrowing costs outpacing earnings.

Park Hotels & Resorts is also focused on selling property, with a goal this year of offloading $300M to $400M of noncore assets. Service Properties Trust this week announced three asset sales, with proceeds targeted for debt repayment. 

Thirty-two percent of companies surveyed in August by the American Hotel & Lodging Association are also pulling back from expansion plans as they try to ride out the sluggishness in the market. 

Pressing pause on those plans will help contribute to one of the small bright spots present for hotel operators today.

“The good news for the hotel industry is that we are not overbuilding. So the room supply is not growing very much, and that is helping the industry overall,” Freitag said.

Hotel executives are looking forward to further reductions in the cost of capital to relieve debt pressure.

“Each 25-basis-point cut in interest rates would save the company over $6M in annual interest expense, or approximately $1 per fully diluted share,” Ashford CEO Stephen Zsigray said on his company's earnings call.