Frontline fortitude: balancing premium standards with margin pressures

Owners and operators have already raised prices and cut costs. The next gains will come from smarter demand, better use of capacity and decisions taken at the right altitude, without diluting the experience guests pay a premium for.

October 2026

Most hotel owners have now pulled the two levers that are easiest to reach. Rates were pushed hard through the post-Covid rebound, and operating costs were taken out during the pandemic itself. Both levers are close to their limits. Guests paying more expect flawless value, and service teams that have been thinned once cannot be thinned again without guests noticing.

Meanwhile the cost base keeps climbing. Supply chain, energy and labour costs are all rising. At the same time, new hotel and alternative accommodation supply, together with a ceiling on what guests will tolerate after a period of historically high price inflation, is softening rate and revenue growth.

So the question facing owner operators is a practical one: what can they do now to improve performance without eroding brand equity or the guest experience? It is the question at the heart of the panel I am joining at [CONFERENCE NAME AND DATE], and this article sets out how we see it, building on the commercial themes we have explored through our 2026 series, from Strategic Imperatives and Winning Ways for 2026 to The Next-Generation Commercial Engine.

The shock absorbers: where the squeeze is coming from

The post-Covid recovery gave hotels three successive waves of demand. Leisure came back first, and with a vengeance. Corporate travel followed, and more recently meetings and events have grown. Each wave allowed rates to rise year after year, and for a while price did most of the heavy lifting on revenue and profit.

That momentum began to soften in 2025 and has continued into 2026, albeit slightly better than many forecast. Supply has grown: PwC expected around 6,300 new rooms to open in London between 2026 and 2028, adding roughly 4% to supply, and warned that this would constrain operators’ ability to lift rates.[5] Geopolitical risk has also made consumers and businesses more cautious about committing spend.

The result is a widening gap between top-line resilience and bottom-line performance. In August 2026, UK RevPAR rose from £125.79 to £129.48 year on year, yet the gross operating profit margin fell from 37.2% to 36.3%.[1] HotStats reported total revenue per available room growth of 2% in the first quarter, with labour costs rising at nearly double that rate.[2] Knight Frank found payroll costs across regional UK hotels rising 5.1% per available room in the first half of the year, ahead of inflation.[3]

There is very little slack left to absorb this. The pandemic already removed the obvious operating costs, and labour and energy have since pushed back up. As we set out in The Global Hotel Industry in 2026: Discipline, Data and Differentiation, this is a year in which growth has to be earned through yield and discipline rather than priced in.

Hard realities: smarter demand, not just more of it

Once price and cost have done what they can, the next source of margin is the quality of the demand a hotel attracts, and how efficiently it wins and serves that demand. Eight commercial levers matter most.

Demand mix. Replace business that makes a low net contribution with higher-value demand. The test is contribution after the cost of winning and serving the guest, not the room rate, and it depends on the date: on a compression night low-value business displaces better business, while on a quiet night it may help cover fixed costs.
Channel mix. Put more effort into driving direct demand than into high-cost distribution, while judging every channel, direct included, on what it contributes after commission, media, loyalty and technology costs. We explored where direct relationships are won and lost in The Battle for the Consumer.
Forecast-led targeting. Match changes in forecast demand to the consumer segments with the strongest propensity to buy for those dates and facilities.
Marketing maturity. Segment by demand state (profile, relationship with the brand and stage in the customer journey), personalise the offer, automate execution end to end, then scale what works.
Retention. Shift the focus to repeatable demand. Recognising and serving valuable returning guests well costs far less than winning them back from an intermediary.
Resource allocation. Point sales and marketing resource at where demand is strongest today, not where it has historically been deployed, a theme we first set out in Growth Strategies for Navigating a Softening Market.
Capacity orchestration. Match, package and cross-sell rooms, food and beverage, meeting space, spa and amenities, so that offers are built around capacity the whole hotel can profitably deliver rather than department by department.
Economies of scale with growth. Standardise, centralise, automate and outsource wherever it does not touch what guests value, and revisit the pricing model.

The evidence on channels calls for judgement rather than a slogan. Industry benchmarks cited in Hospitality Net’s review of the first half of 2026 put the all-in cost of a direct booking at roughly 5% to 12% of its value, against 15% to 25% for OTA commission. Yet the same review reports SiteMinder research showing that 18% of travellers who start their search on an OTA go on to book direct.[8] The OTA is often the shop window that sends guests to the hotel’s own door, so its value cannot be read from the commission line alone.

Two disciplines make these levers work. The first is treating capacity as a set of perishable stocks that expire on different clocks: a bedroom by the night, a table by the sitting, a treatment room by the hour, a meeting room by the half day. Managed department by department, one stock sells out while another sits idle. Managed together, a quiet Sunday restaurant and an empty Monday spa become the raw material for an offer. The second is measuring incrementality. Campaign bookings include guests who would have booked anyway, so the true return is the difference against a comparable group that was not contacted.

Not every lever deserves equal attention at once. We prioritise initiatives that combine high impact, low complexity, fast speed to returns and low risk. In practice the likely candidates are marketing, packaging, resource allocation, price structure, cross-selling, recognition and service for high-value repeat guests, and the KPIs management chooses to focus on. Few of these need major capital, and most can begin with the systems a hotel already has.

Improving returns: raising the altitude of focus

Too often operators manage at the wrong altitude. Departmental costs, occupancy, average rate and RevPAR are the familiar dials, yet squeezing them does not necessarily produce anything an owner can bank. The variables are connected. Reduce cost and service may slip, with guest sentiment and demand following it down. Increase price and the hotel becomes less competitive, and demand falls away. The August figures above make the point: RevPAR up, margin down.

Wellness hotels illustrate the trap. HotStats and RLA Global data for the first half of 2025 showed hotels with major wellness operations earning total revenue per occupied room 67.5% higher than those with minor wellness offers. Yet in the luxury and upper upscale tiers, the minor wellness hotels grew profit per available room faster, by 5% against 2.9%.[9] More revenue did not mean better profit conversion.

A better approach starts with the outcomes that matter to owners: profitability, cash and return on capital. Beneath those sit measures of net contribution from each channel, from sales and marketing, from the departments that deliver service and from each unit of asset capacity. Each is then examined through four lenses:

Productivity: the value created for every labour hour and every unit of constrained capacity
Efficiency: the cost of producing that value
Economies of scale with growth: whether unit costs fall as the business grows
Profit conversion: how much of each additional pound of revenue reaches the bottom line

Definitions matter at this altitude. Contribution before fixed costs is not operating profit, and operating profit is not the cash available to the owner once financing, tax and capital expenditure are met. Each layer has to reconcile to the one above it.

Productivity here means value, not speed. A shorter guest interaction is no improvement if the problem returns as a second call, a compensation payment and a lost repeat stay. Before cutting frontline hours, it pays to examine what consumes them. Duplicate data entry, poor handovers, inaccurate reservations and recurring maintenance faults all create work without improving the stay.

The final step is to build the leading indicators that drive these outcomes. This is what we mean by decision-grade intelligence: not a thicker pack of absolute metrics, but a clear view of where performance can improve and what the next best action is. Management reporting then works across four connected layers: outcome, demand, guest and capacity.

It also needs shared accountability. If marketing is rewarded for bookings, revenue management for rate and operations for labour savings, every team can hit its target while the owner’s result deteriorates. Shared contribution and service outcomes make those trade-offs visible.

The friction point: keeping change moving through good times and bad

In tough conditions, businesses tend to lose imagination and ambition. They cut costs, push price or start micro-billing for services guests used to regard as part of the stay. All three have limits, and each carries secondary consequences for demand and profit conversion that surface months later. Capital is frozen and initiatives are paused mid-flight. That wastes the work already done, strands the investment already made and damages the morale of teams who were told change was coming.

The economic realities have to be faced, but they do not require improvement to stop. Taking a portfolio approach to change allows innovation to continue through good times and hard ones.

Diagnose. Identify the opportunities to exploit and the issues to fix, and turn them into initiatives that can be executed.
Assess. Judge each initiative on size of prize, complexity to execute, speed to returns and risk, and map the dependencies between them. A portfolio is more than a list: one initiative often amplifies another, and a shared foundation such as accurate guest and inventory data can unlock several at once.
Stage. Break each initiative into now, next and later stages of development: crawl, walk, run, jump, leap.
Sequence. Phase the stages to follow the logical evolution of change, minimise wastage and rework, and create multiplier benefits. Every stage should unlock a tangible benefit, and each later stage should add to it and amplify what came before.
Throttle. Set the level of ambition to match economic conditions and what the business can afford, translated into start, stop, slow down, speed up and refine decisions across the portfolio. Keep the portfolio itself intact and review it regularly, so the business stays on track.

Take a bounded opportunity such as turning weak Sundays into extended weekend stays. Crawl: test a package with existing systems and confirm that housekeeping, the restaurant and the spa can fulfil it. Walk: connect the guest and inventory data needed to target the right returning guests reliably. Run: automate the offer and extend it to other soft dates and properties. Each stage pays back on its own and makes the next cheaper and more valuable. If conditions tighten, the business can pause at walk without wasting what crawl has built.

Where to prioritise technology investment now

Five areas stand out for hotel companies in current market conditions.

Customer insight. Understand each customer’s history, relationship and affinity with the brand, sentiment and behaviour, and use it to judge their propensity to buy what the business needs to sell: who to target, and with what offer.
Personalisation at scale. Automate the choice of offer, content, communication, channel and timing, so relevance and appeal improve for each guest without adding headcount.
Machine-readable data. Create granular, accurate, attribute-based data for customers, inventory, pricing and content, structured so the growing range of AI tools and channels can read and use it. We explained why this now shapes visibility in Who Owns the Guest in the Age of AI?
An abstracted architecture. Separate customers, channels and hotel operating systems to create a single view of truth for customers, inventory, availability, pricing and revenue, so guests are consistently recognised and engaged whatever channel, brand touchpoint or journey stage they are at. The Next-Generation Commercial Engine sets out what this means for inventory, pricing and selling.
Decision-grade reporting. Go beyond results against forecast and budget to answer three questions. How good or bad are my results compared with the market and competition? Where are my best opportunities to improve? What should my next best actions be?

AI can accelerate all five, provided the business defines the task and the outcome it wants. In a published study of 5,172 customer support agents, generative AI assistance raised issues resolved per hour by 15% on average, with the largest gains among less experienced staff.[7] That is evidence of potential in a well-defined task, not a hotel savings forecast. Time released only becomes a financial benefit when it removes avoidable cost, supports additional demand or measurably improves service, a point we develop further in Where and How Can the Hospitality Industry Best Exploit AI?

The post-mortem: what has surprised us over the last 12 months

Two things stand out.

The first is how polarised winners and losers have become. The winners leverage economies of scale with growth, and their profits are closely linked to transactions, price and revenue: when demand and rate move, profit follows. The losers have limited flexibility on demand and price, and their profits are driven by supply costs that keep rising. The divergence shows in the data. In the United States, luxury hotels grew RevPAR by 15.9% in the first half of 2026 while economy hotels saw RevPAR fall by 2.7%.[6] In the UK, GOP margins slipped in both London and the regions during 2025, even where profit per room held steady.[4]

Converting a loser into a winner rarely starts with another round of cost cuts. It starts with demand and channel mix, valuable repeat customers, capacity orchestration, productivity and efficiency, and improving economies of scale with growth: the levers set out above.

The second is the resilience of demand. Despite geopolitical risk and difficult macroeconomic conditions, guests have kept travelling. UK hotel occupancy edged up to 82.8% in August 2026, and RSM’s chief economist described households as having proved surprisingly resilient.[1] Innovators and entrepreneurs with the agility to act on that resilience are already generating above-market performance. We expect them to emerge as stronger businesses, taking demand and growth from those who focus on price and cost alone.

Frontline fortitude, in the end, is not about asking teams to absorb more. It is about the decisions taken before the work reaches the frontline: attracting demand the hotel can serve profitably, removing work that adds nothing for the guest and investing steadily in the capabilities that make every stay better.

About the author

Tim Davis MBE is Founder and Managing Director of PACE Dimensions, a research and management consulting firm specialising in travel and hospitality. He hosts the Setting the PACE podcast, available on Spotify and Apple Podcasts.

Further reading from PACE Dimensions

Sources

RSM UK, Hoteliers end summer on a high but tourist tax risks stifling demand. RSM UK Hotels Tracker, August 2026 data compiled by HotStats. UK RevPAR £129.48 versus £125.79; GOP margin 36.3% versus 37.2%; occupancy 82.8% versus 82.3%. One month of sample data.
HotStats via Duetto, UK hotels: Q1 revenue growth isn’t outpacing costs. Q1 2026: TRevPAR up 2%, labour costs rising at nearly double that rate.
Knight Frank, UK Hotel Dashboard Q2 2026. Regional UK payroll costs up 5.1% per available room year on year in H1 2026.
Knight Frank, UK Hotel Trading Performance Review and Outlook 2026. 2025: London GOP margin down 1.1 points to 41.1%; regional GOPPAR flat at £37 with margin down 0.5 points to 30.3%.
PwC UK Hotels Forecast 2025–2026 (November 2025), reported by TOPHOTELNEWS. Around 6,300 new London rooms expected 2026 to 2028, roughly 4% of supply. A forecast, not outturn.
HotelData.com, H1 2026 Hotel Profitability Report. Around 5,000 US hotels: luxury RevPAR up 15.9%, economy RevPAR down 2.7%. US data, not UK.
Erik Brynjolfsson, Danielle Li and Lindsey Raymond, Generative AI at Work, The Quarterly Journal of Economics 140(2), 889–942, 2025. 5,172 customer support agents; 15% more issues resolved per hour on average. Not a hotel study.
Anton Aristov for Hospitality Net, Global Hospitality Industry Review: First Half of 2026, Part 3, 3 September 2026. Direct acquisition cost of roughly 5% to 12% versus 15% to 25% OTA commission, attributed to unnamed industry benchmarks; 18% OTA-to-direct figure from SiteMinder’s 2026 Changing Traveller Report (almost 12,000 travellers, 14 countries).
RLA Global and HotStats, Wellness Hotels Demonstrate How Diversified Revenue Drives Profit Stability, 17 November 2025. H1 2025 global data: major wellness TRevPOR $561 versus $335 for minor wellness; GOPPAR growth 5% for minor versus 2.9%

Frontline fortitude: balancing premium standards with margin pressures

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