Tourism can be booming while hotel cash flow stalls. The missing measure is conversion: how much visitor activity survives distribution, labour, operating costs and capital needs — and becomes durable asset value.
United States | By Marty McDaniel, CHA — There is a familiar moment in tourism. The airport is busy. Hotel occupancy is up. Average daily rate is climbing. Restaurants have a wait. The destination authority has a chart showing record visitor activity, and everybody has a perfectly good reason to celebrate.
Then the hotel owner opens the operating statement.
That is usually where the confetti stops.
The numbers are not necessarily bad. They are simply telling a different story.
That gap matters because global travel demand remains enormous. The World Travel & Tourism Council expects Travel & Tourism to contribute about $12 trillion to the global economy in 2026, equivalent to 9.9% of global GDP, while supporting roughly 376 million jobs.
In the United States, CoStar reported July 2026 hotel occupancy of 69.7%, an average daily rate (ADR) of $171.74 and RevPAR of $119.77, with RevPAR up 8.2% from a year earlier.
Those are strong headlines. They look great in a presentation, too.
But hotel profitability is not created by headlines. It is created by conversion.
In hotel terms, the real question is not simply how much demand entered the market. It is how efficiently that demand moved through the property-level business model and became sustainable cash flow after the cost of acquiring the guest, serving the guest, maintaining the asset and reinvesting in the building.
A full parking lot is satisfying. I still enjoy seeing one. It photographs well, too.
It does not, by itself, pay the insurance bill.
The headline and the hotel are not the same thing
Destination data and hotel operating data answer different questions. Tourism organisations understandably focus on arrivals, airlift, visitor spending, event attendance, length of stay and market-wide occupancy. Hotel revenue managers focus on occupancy, ADR and RevPAR. Owners and investors eventually care about another set of numbers: total revenue, gross operating profit, owner-level cash flow, capital requirements and asset value.
The danger comes when those layers are treated as interchangeable.
A destination can add visitors while hotels take on a less profitable demand mix. A hotel can raise ADR while acquisition costs rise faster. RevPAR can improve while payroll, credit-card costs, loyalty charges, utilities, insurance, repairs or franchise costs absorb the gain. An asset can produce respectable gross operating profit and still require so much deferred capital that its economic value is slipping underneath the P&L.
CBRE Hotels Research found that, in its 2024 sample of roughly 2,600 U.S. hotels, total hotel revenue increased 2.3% while expenses above gross operating profit rose 4.1%. Labour costs increased 4.8%. Information and telecommunications expense rose 5.1%, maintenance costs 5.0%, franchise-related fees 3.9% and insurance premiums 17.4%.
Nothing about those figures means demand was weak.
It means demand had to run through a more expensive machine — and hotels are expensive machines with a remarkable ability to keep finding new ways to send the owner a bill.
The cost of the guest matters
One of the biggest mistakes in reading hotel demand is assuming every occupied room has equal economic value. It does not.
A guest arriving through a high-cost channel can produce the same published room rate as a direct guest and leave a very different contribution behind. The same is true across transient, group, contract, wholesale and loyalty demand.
Length of stay changes housekeeping economics. Cancellation behaviour changes forecasting. Parking, breakfast, resort fees, meetings and other ancillary spending can materially change the value of two guests paying the same room rate.
This is why net ADR matters alongside ADR, and why total revenue per available room and gross operating profit per available room deserve more attention in market conversations.
HotStats’ September 2026 EMEA budget analysis found credit-card commissions growing 7.9% and loyalty-programme costs 5.1%, both faster than revenue in the markets studied. It also identified major cities including London, Paris and Rome where revenue was growing while margins were declining.
From the outside, that can look like growth. From the owner’s desk, it can feel like running faster and discovering the treadmill has raised its monthly fee.
Labour is a productivity equation
Labour remains the largest controllable hotel expense, but treating it only as a wage-rate problem misses the operating issue. The better question is what each labour dollar produces.
CBRE’s U.S. data showed total salaries, wages and benefits rising 4.8% in 2024. At the same time, hours worked at the typical hotel in its sample were estimated to be 7.4% below 2019 levels while compensation dollars were 22.1% higher. Operators were paying more for fewer hours, reflecting wage pressure, staffing shortages and changes in service delivery.
Europe shows the same need for market-by-market analysis. HotStats reported labour cost growth of 6.0% in Germany and 5.1% in Spain in its 2026 EMEA budgeting data, compared with a 3.9% European average. In Northern Europe, total revenue per available room and GOPPAR were both up 2.7%, but the gross operating margin improved only 0.1 percentage point.
That is the distinction between revenue growth and flow-through.
If the next dollar of revenue requires nearly the same dollar of incremental cost, the property may be busier without becoming materially healthier.
Good operators do not solve that by cutting service indiscriminately. They work the schedule, supervisory structure, cross-utilisation, operating hours, service design, technology and demand forecasting.
Labour productivity is a management system, not a percentage scribbled into a budget — preferably not with a red pen at 4:45 on a Friday afternoon.
Food and beverage can help — or hide the problem
Food and beverage deserves special attention because destinations often value it as part of the visitor experience, while hotels experience it as a separate operating business with its own labour, purchasing, waste, equipment and occupancy costs.
CBRE reported that hotel F&B department profit margins in its sample improved to 29.1% in the first half of 2025, from 28.7% a year earlier. That is encouraging. But labour represented 59.4% of F&B department expenses, far more than cost of goods sold.
A busy restaurant, therefore, is not automatically a profitable restaurant.
Banquet mix, breakfast inclusion, outlet hours, beverage mix, staffing model and kitchen utilisation all matter. So does the less visible cost of the space itself: utilities, repairs, equipment and capital replacement.
For full-service hotels and resorts, the gap between ‘popular’ and ‘profitable’ can be surprisingly wide. I have seen outlets guests loved and owners quietly subsidised for years. Sometimes that is a deliberate brand or rate strategy. Sometimes nobody has asked the question recently enough — usually because a busy bar on Saturday night can make almost any spreadsheet feel less urgent.
Capital does not disappear because the P&L looks good
Hotel operating statements are imperfect at showing the future bill. Carpet wears out. Roofs age. Elevators and chillers fail. Guestrooms date faster than owners would like — and almost always faster than the depreciation schedule would suggest.
Brand standards change. Technology stacks become obsolete. A deferred renovation may help today’s cash flow while weakening tomorrow’s rate position, guest scores and valuation.
The building keeps its own set of books, and sooner or later it reconciles them.
HVS’s 2026 U.S. Hotel Development Cost Survey illustrates the capital environment surrounding the sector. Based on projects proposed or under construction in 2025, HVS reported a median development cost of about $467,000 per room for full-service hotels and more than $1.6 million per room for luxury hotels.
Those are development figures, not renovation budgets, but they are a useful reminder of how capital-intensive the hotel business has become.
If a hotel is using current cash flow to catch up on years of deferred maintenance, fund a property improvement plan or reposition tired product, the destination may be thriving while the owner is still rebuilding the asset’s economic foundation.
The room night happened. The revenue was real. The amount that became durable value may be much smaller.
The same demand can convert very differently by market
HotStats’ first-half 2026 Asia-Pacific benchmarking showed positive revenue and profit growth across Japan, Singapore, Australia and Southeast Asia, but the relationship between the two varied.
Australia posted 4.3% growth in total revenue per available room and 5.8% growth in GOPPAR. Japan’s comparable figures were 2.3% and 2.3%. Singapore generated 2.3% revenue growth and 3.2% GOPPAR growth.
Those are not just different growth rates. They are different conversion stories.
The same applies in Europe. Southern Europe has produced strong 2026 revenue and profit momentum, while specific cities elsewhere have added revenue and lost margin.
In the Middle East, HotStats has shown the reverse operating leverage of demand shocks: in several markets, a 1% decline in total revenue has translated into roughly a 1.5% to 1.7% decline in GOPPAR because fixed and semi-fixed costs cannot fall at the same speed as demand.
Regional averages should therefore be handled carefully.
An upscale convention hotel, a coastal resort, an airport hotel and a limited-service roadside property can all sit inside the same destination statistics and have completely different economics.
The destination can be having a terrific year while one owner quietly wonders who stole the margin.
A better way to measure tourism-to-hotel conversion
For owners, operators, investors and destination leaders, a more useful framework is to follow demand through five layers.
First is market demand: arrivals, air capacity, event calendars, seasonality, occupancy and pricing.
Second is revenue quality: segment mix, net room rate after acquisition cost, length of stay, cancellation behaviour and ancillary capture.
Third is operating conversion: total revenue, departmental profitability, labour productivity, gross operating margin and GOPPAR.
Fourth is owner cash flow: insurance, property taxes, management and franchise costs, loyalty and payment costs, debt service and recurring capital requirements.
Fifth is asset durability: whether the property is reinvesting enough to protect its physical product, competitive position and long-term value.
That chain is where the real economic story lives:
Demand → Revenue → Operating Profit → Owner Cash Flow → Reinvestment → Asset Value
Tourism organisations do not need to manage hotel P&Ls, and hotel owners do not need destination authorities second-guessing staffing schedules. Nobody needs that meeting.
But both sides benefit from understanding the chain.
Should the market pursue more room nights, or higher-spending room nights? More peak-season compression, or stronger shoulder periods? More group demand that can support banquet and meeting economics? Longer stays that reduce turnover cost? More air service from feeder markets whose visitors historically stay longer and spend more?
Those are not merely marketing questions. They are conversion questions.
None of this requires destination organisations to collect private hotel P&Ls. A practical middle ground is to watch aggregated indicators that reveal the quality of demand, not only its quantity: weekday and weekend compression, shoulder-season occupancy, group room-night mix, average length of stay, ancillary-spend proxies, labour availability, new-supply pipelines and the spread between RevPAR growth and available profit benchmarks.
The operating question behind every tourism headline
The hospitality industry has become very good at measuring demand. We know how many people arrived, how many rooms were sold, what rate was achieved and how one market compared with another.
The next level is understanding what survived the journey from the visitor statistic to the owner’s cash flow.
Strong tourism demand is valuable. Strong hotel revenue is valuable. But neither should be confused with sustainable hotel economics.
The most resilient destinations will be those where demand supports healthy hotels that can pay competitive wages, maintain service, reinvest in their buildings and remain financeable through the cycle.
The most resilient hotels will be those that stop treating occupancy and RevPAR as finish lines and start treating them as inputs.
After 38 years in hotels, I have learned that a strong top line can hide an extraordinary number of sins for a while.
Hotels can be very polite about hiding a problem — right up until the day they are not.
Eventually the building, labour model, distribution cost or capital structure sends the bill.
Owners and destination leaders should celebrate demand. I certainly do.
Then ask one more question: how much of it is becoming durable value?
That answer is usually hiding somewhere between the occupancy report and the checkbook.
About the contributor
Marty McDaniel, CHA, is a second-generation hotelier with 38 years of senior leadership experience spanning hotel and resort operations, multi-property management, revenue strategy, development, renovations, turnarounds and advisory work. He has also served in public-sector destination tourism leadership.
Learn more about Marty and his professional experience at martymcdaniel.com.
Sources: This analysis draws on industry data and research from the World Travel & Tourism Council (WTTC), CoStar/STR, CBRE Hotels Research, HotStats and HVS.
- World Travel & Tourism Council (WTTC), Global Travel & Tourism Growth to Outpace Wider Economy by 1.5 Times Over the Next Decade, 12 May 2026.
- CoStar/STR, U.S. hotel performance data, July 2026.
- CBRE Hotels Research, All Eyes on Operating Costs in 2025: Lessons Learned in 2024, 8 May 2025.
- CBRE Hotels Research, Hotel Food and Beverage — A Bright Spot in 2025, 2025.
- HotStats, Hotel Budget Season 2027: EMEA Snapshot, 9 September 2026.
- HotStats, Three Conversations Shaping APAC Hospitality in H1 2026, 2026.
- HVS, HVS U.S. Hotel Development Cost Survey 2026, 13 July 2026.
Spread the Word:
Discover more from Tourism Reporter
Subscribe to get the latest posts sent to your email.