In Brief: Hotels are increasingly shifting their performance focus from maximizing room revenue to optimizing booking profitability, reflecting a broader industry move to address rising distribution costs and evolving channel management strategies.
Hotel operators are moving beyond traditional measures such as occupancy and average daily rate as they assess the profit generated by each booking. Executives at the 2026 Hotel Data Conference said labor expenses, distribution costs, online travel agency commissions, guest fees and spending patterns are increasingly influencing decisions about pricing, sales channels and hotel inventory.
From Revenue Management to Profit Management
Hotel companies have long used occupancy levels and average daily rates to measure revenue performance. Industry executives said those measures do not always show whether a hotel is making the most profit from a reservation.
Allison Frazier, vice president of revenue management for Peachtree Group, described the change as a shift from revenue management to profit management. Hotels must account for the full cost and value of a booking, including how the guest booked, the cost of servicing the stay and additional spending on the property.
A guest who books directly at a retail rate and stays for several nights may be more profitable than a guest booked through a third-party channel, depending on commissions and operating costs. Repeat guests and travelers loyal to a brand or individual property can also provide value that is not immediately reflected in the room rate.
Frazier said hotels need coordination between revenue management and sales teams. Group contracts, for example, may include food-and-beverage spending or longer stays that change the overall value of the reservation.
Labor Expenses Affect Pricing and Occupancy Decisions
Nadia Panasyuk, vice president of revenue strategy for First Hospitality, said labor cost increases have made the calculation more difficult, particularly in markets with substantial union labor. First Hospitality manages about 10 hotels in Chicago, where labor expenses have risen sharply, she said.
Hotels cannot necessarily raise room rates by the same percentage as labor costs. Instead, operators may reconsider the lowest-rated business they accept and adjust their mix of customer segments.
Panasyuk said some hotels are prioritizing higher rates even if that results in lower occupancy. Selling fewer rooms can reduce certain labor and service costs, allowing a hotel to preserve or improve profit margins.
She said several properties have maintained or increased share while accepting some occupancy declines and offsetting them through higher average daily rates. The approach requires hotel teams to test strategies that may differ from past practices centered primarily on filling rooms.
Fees and Distribution Channels Remain Part of the Calculation
Destination and resort fees can also support hotel profitability, according to Panasyuk. She said hotels should provide guests with identifiable value in return, such as food-and-beverage credits.
Such fees can prompt guest complaints, but the revenue can be significant when assessed across many stays. The issue illustrates the broader challenge of balancing guest response with the financial impact of a booking.
Online travel agencies, or OTAs, have traditionally been viewed as less profitable because they charge commissions and may require hotels to spend on placement or promotional programs. Frazier said those channels can still be useful when hotels understand demand periods and use them selectively.
Kathleen Cullen, executive vice president of PTG Consulting, said operators must assess the combined effect of commissions, discounts and promotional expenses. Missing even one cost can lead a hotel to overestimate the net revenue it receives from an OTA reservation.
Direct Bookings and OTAs Face New Questions
Frazier said franchise and marketing fees charged by hotel brands further complicate comparisons between direct bookings and OTA reservations. Hotels may not have complete transparency into all costs associated with every channel, making it difficult to determine which booking source produces the best net result.
Cullen said OTAs are also seeking more business-to-business bookings after focusing heavily on consumer travel for many years. At the same time, AI-based travel search tools could make customers less concerned with whether a reservation is made through a hotel website or an intermediary.
She said AI tools are likely to identify the lowest publicly available rate regardless of where it is found. That could create challenges for hotels if lower third-party rates undercut their own direct channels.
Independent hotels may have more flexibility in how they manage online listings and inventory, Cullen said. However, hotels need a clear strategy rather than placing room inventory across channels without understanding the associated costs.
AI Could Help Combine Fragmented Hotel Data
Hotel executives said AI could help operators assemble data from disconnected systems and reports, making profitability analysis easier.
Panasyuk said AI may help hotels combine data sources and assess information more broadly.
The central issue for hotel operators is increasingly not only how much revenue a room generates, but how much profit remains after the costs of acquiring and serving the guest are included.
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