The travel industry is on Recession Watch — but so far at least, hotel operators aren’t seeing a big pullback, according to the nearly dozen sources Skift has been tracking.

There are signs of softening, however, and we’ll be watching closely for any shifts in the coming weeks.

Concerns grew after Delta and several other airlines warned earlier this month of a shift in consumer and business sentiment. The fear is that trade wars and U.S. government spending cuts could slow economic growth, and a declining stock market could cause wealthy households to pull back on traveling.

On Friday, analysts at Truist Securities lowered their expectations for U.S. midscale and upper-end hotels for the year to a range of 0% to 2% year-over-year growth in revenue per available room, down from 1% to 3%.

“Based upon our analysis of millions of future reservations for U.S. hotels from multiple ‘big data’ sources and conversations with hotel owner/manager contacts and executives at very large travel agencies, beginning in mid-February, we have observed a weakening in demand fundamentals,” said Patrick Scholes and Gregory Miller in a report.

CoStar’s STR reported that U.S. hotel revenue per available room for the week ended March 15 was down 4.2% year-over-year, with occupancy down 3.5%.

But there are also plenty of signs that business is holding up. The CEO of Bank of America said on CNBC Wednesday that its data showed that consumers have actually been spending at a faster rate than at the end of last year or a year ago.

Cautiously Optimistic

Marriott CEO Anthony Capuano said at the Skift India Forum this week that current trends are “really encouraging” with just weeks left in the quarter. The world’s largest hotel group was experiencing positive momentum globally in both occupancy rates and average rate growth.

Capuano will watch U.S. corporate profitability levels as corporations report their first-quarter earnings in the coming weeks.

“If we get through that season and we see strong corporate profits, we continue to see strong employment numbers, then I will feel much more bullish about the economy,” said the Marriott CEO.

Sonesta International, the eighth-largest U.S. hotel operator by property count, reported a similar cautious optimism.

Sonesta CEO John Murray told Skift the company’s March booking pace “isn’t reversing” and that “things are still strong.” He said Sonesta continued to see strong and growing group bookings, a continued good pace in business transient bookings, and steady or growing leisure demand, depending on the market.

Hyatt has seen a “bit of a dip” in its mass-market brands, but its luxury brands still see strong demand, Katie Johnson, vice president and global brand leader of its luxury and collection brands, told Barron’s.

Watching Federal Spending Impacts

The federal government is cutting its budget but spending on hotels for employees is only a small single-digit percentage of the annual revenues of the major U.S. hotel groups.

Exhibit A: Choice Hotels‘ chief financial officer, Scott Oaksmith, has discussed with analysts that government travel (including both federal and state) is about 2% of the group’s total gross room revenues, a spokesperson said.

Oaksmith has also discussed how if states pick up long-term services previously provided by the federal government, Choice could see demand increase from state government employees.

Some hotel companies are already seeing impacts from federal uncertainty.

“Markets with lots of government and military travel spendings, like DC, Hawaii, and Key West, have plummeted,” said a C-suite executive at a third-party management company for hundreds of hotels.

This executive believed that, once the job cuts were mostly finalized, federal spending on travel would resume, albeit at a lower level.

“Because the approvers of travel are afraid they’ll get in trouble, they haven’t been approving travel,” the executive said. “Mass federal layoffs hurt but could also serve as a bottom and enable approvers of travel to start approving again.”

Hotel Sector Resilience

For its part, the extended-stay sector believes it’s fairly resilient in times of recession.

“While, like the rest of the travel industry, we have experienced some softness in recent weeks, our fiscal year 2025 outlook still calls for steady occupancy — well above the industry average and our competitive set again this year,” said Greg Juceam, Extended Stay America’s president and CEO.

Juceam said that Extended Stay America’s economy and midscale segments tend to benefit from a “trade-down effect” as travelers opt for more economical lodging options and seek alternative places to live when hesitating about housing choices.

Trump’s goal of reshoring manufacturing to the U.S. could benefit the extended-stay segment over time, Juceam said.

“Future deregulation, if enacted, should bring about additional project demand,” Juceam said, referring to construction projects that require construction workers to stay in hotels.

Regional Impacts

The impacts of Trump’s policies on hotels may vary by region. Texas, for example, might benefit if the support of oil and related industries leads to more regional travel by companies in that industry.

In the Midwest, an executive at a company that both franchises some hotels and runs others as a third-party operator told Skift they saw few signs of a pullback yet. However, their one area of worry was visitation from Canada. Many Canadians might informally boycott travel to the U.S. if the tariff war and Trump’s talk of annexation continues.

“Canadian businesses and tourists are a meaningful contributor to the demand mix in the Chicagoland area, Minnesota, and the region,” the executive said, asking to speak anonymously because of the sensitivity of the political issues.

In Florida, the owner of a company that manages over 80 hotels said that spring break demand was “about the same as last year” and “still better than in 2019.” They are monitoring the cost of operations most because the company faces a shortfall in labor.

In central California, the owner of a small, third-party management company said business was steady in both urban and suburban markets. They said they have been watching for any “trade-down” behavior by consumers opting for more downscale brands that charge less but have less costly amenities.

Hotels as ‘Lagging Indicator’

Why do the outlooks from airlines seem more cautious than from hotels?

Hotels are more of a “lagging indicator.” Hotel reservations are much more likely to be refundable than plane tickets, and that reality enables last-minute decision-making. Cancellations are more likely to show up in airline data first.

A case in point: RLJ Lodging Trust, a real-estate investment trust that runs 96 U.S. hotels under various global brands said that 58% of its guests booked in the zero to seven days range in the second quarter last year. Roughly 40% of its business is leisure. It hasn’t reported a material change in demand.

Mixed Signals

CoStar’s STR has released February hotel performance data for Europe, Asia Pacific (excluding China), and the Caribbean, showing continued gains in hotel revenue per daily room. The pace was roughly one percentage point lower year-over-year compared to January and recent prior months.

On Wednesday, the Federal Reserve lowered its forecast for GDP growth this year to 1.7%, modestly down from its December projections of 2.1%. Consumer confidence has been wobbling. The University of Michigan’s consumer sentiment index dropped about six points to 57.9 in mid-March (from 64.7 a month earlier).

However, U.S. forecasts for economic performance remain at a level that would represent an above-average performance for the year compared with the past two decades.

Accommodations Sector Stock Index Performance Year-to-Date

What am I looking at? The performance of hotels and short-term rental sector stocks within the ST200. The index includes companies publicly traded across global markets, including international and regional hotel brands, hotel REITs, hotel management companies, alternative accommodations, and timeshares.

The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more hotels and short-term rental financial sector performance.

Read the full methodology behind the Skift Travel 200.

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