After a strong start to 2025, the US hotel industry is showing clear signs of strain. Revenue growth is slowing, occupancy is slipping, and profit margins are tightening — especially for unionized properties where labor rigidity is weighing heavily on performance.
Across the first eight months of the year, total revenue per available room (TRevPAR) has barely kept pace with labor cost increases. While total revenue per occupied room (TRevPOR) remains positive, the gains are offset by a steady erosion in occupancy — the true indicator that demand is cooling.
Volume Weakens, but Spend Holds Up
Occupancy in the US has fallen consistently since Q2, dragging TRevPAR growth down to nearly flat by August. Guests are spending more per stay, but there are fewer stays overall. The result: a muted top line that can no longer mask the impact of persistent cost inflation.
Hotels have maintained rate discipline and on-property spending remains healthy, suggesting pricing strength is not the issue. Rather, the market is entering a phase where demand, not cost control, is the key determinant of profitability.
Labor Costs Steady — but Stubborn
Labor expenses have stabilized but at elevated levels. PayPAR (payroll cost per available room) continues to grow around 4.0–5.0% year-on-year, outpacing revenue in most months. Even as wages stop accelerating, they remain high enough to compress GOPPAR (gross operating profit per available room).
For operators, this means cost discipline alone is no longer enough. As revenues plateau, the challenge shifts from containing labor costs to extracting more productivity from each labor dollar.
Margins Squeezed as Costs Prove Sticky
Since April, hotel profit margins have slipped each month as payroll costs take up a larger share of total revenue. The data shows a widening gap between payroll and profit — a clear sign that hotels are carrying more fixed labor than demand currently justifies. This “cost creep” has been most pronounced through the summer months, when occupancy softened and labor intensity rose. Even as properties maintained service levels, revenue shortfalls meant each labor hour generated less profit.
Union vs. Non-Union: The New Profit Divide
Nowhere is the impact more visible than in the union–non-union split. Unionized hotels are carrying an average labor cost ratio of 43.0%, compared to 33.5% for non-union properties — a 9.5-point gap that has widened steadily over the last five years.
That gap extends to profitability: GOP margins for union properties have fallen to 30.3%, compared to 36.5% for non-union hotels. The difference is not marginal — it’s structural. Union properties face contractual wage escalations and limited staffing flexibility, while non-union operators have a greater ability to align labor with revenue fluctuations.
The result is stark: for every dollar of incremental revenue, non-union hotels retain 25 cents in profit, while union hotels lose 1 cent. This data, drawn from the HotStats slide “Incremental revenue flows at different rates,” illustrates how higher payroll share — 69.0% for union hotels versus 49.0% for non-union — has eroded flow-through.
Profitability Requires Flexibility
The data paints a clear picture: labor flexibility has become a defining factor in hotel profitability. With volume weakening and costs remaining sticky, the most successful operators are those who can adapt staffing models dynamically to demand.
This doesn’t mean cutting heads — it means re-thinking productivity. Automation, task bundling, and cross-training can all help offset the rigidity of fixed labor costs. Meanwhile, advanced benchmarking tools such as HotStats allow operators to pinpoint which departments deliver the highest flow-through and where profit is leaking.
Global Context: The Americas Lose Ground
Globally, revenue and profit are stabilizing. The Middle East continues to outperform every other region, while China faces headwinds from macroeconomic volatility and inflexible cost structures. In the Americas, however, the recovery is losing traction, with the US seeing falling group demand and declining profit conversion since Q2.
The widening labor and profitability gap between union and non-union hotels shows the need for renewed operational innovation. As costs continue to rise, achieving even a modest boost in profit margins now requires at least a 5.0% increase in total revenue.
The Bottom Line
US hotel profitability is being reshaped by labor dynamics. The battle ahead isn’t just about driving revenue — it’s about turning revenue into profit more efficiently.
In a slowing market, flexibility is the new currency of success.
That’s where HotStats helps. HotStats gives operators the profitability intelligence they need to respond faster, staff smarter, and convert more revenue into profit.
Email [email protected] to explore how your property or portfolio compares — and where you can unlock more margin.
Union labor costs have continued to climb, widening the gap with non-union hotels to 9.5 points in 2025. The divide has steadily increased since 2019.
Union hotels are converting far less profit, maintaining a multi-year GOP gap of roughly five to six points. The divide is still wider today than it was pre-pandemic.
Incremental revenue flows very differently: non-union hotels convert 25%, but union hotels drop to -1%. The gap is driven largely by much higher incremental payroll costs.
Union PayPAR rises faster in every department, with the steepest increases in F&B and Rooms. This broad acceleration is driving the labor cost gap higher.
US volume has weakened sharply since April, with occupancy turning negative and dragging TRevPAR down. Despite modest gains in TRevPOR, overall revenue momentum has clearly stalled.
