Rising Costs Are Exposing the Hotels That Were Never Profitable
We keep hearing a version of the same sentence from owners and GMs:
Costs are up. Guests are pickier. And it feels like you’re working harder for less.
That isn’t just mood. The pattern showing up across the industry is simple: revenue growth moderates, while operating costs keep climbing. In one emblematic operating sample, CBRE reported revenues were up 2.3% in 2024 while key cost lines continued to rise, including insurance premiums up 17.4% and property taxes up 4.3%.
That combination squeezes margin in any market. When the cushion shrinks, what used to feel “fine” suddenly isn’t.
Most hotels respond in understandable ways. Service gets trimmed at the edges. Maintenance gets deferred. Hiring slows. Rates rise cautiously. Everyone hopes costs will stabilise and that demand holds.
It’s a natural first move. But in our experience, that approach often makes things worse, because it treats rising costs as the problem to survive, rather than the test that reveals what needs fixing.
Rising costs don’t usually kill good hotels.
They expose the hotels that were never properly profitable in the first place.
Not badly run. Not unloved by guests. Not chaotic behind the scenes. Just quietly leaking margin in ways that were easy to live with when the last few years were more forgiving.
Rising costs are not the problem. They’re the test.
A slow puncture can look fine for months on smooth roads. Then you hit rough terrain and suddenly the tyre fails. The rough road didn’t create the puncture. It just made it impossible to ignore.
Cost pressure does the same thing.
It forces clarity. It shows which parts of the operation are genuinely working, and which parts were being propped up by “good years” and a bit of luck.
We tend to see properties falling into three buckets:
Type 1 hotels have already done the unglamorous work. They know what makes money, what doesn’t, and where they’re giving things away. Rising costs are painful, but not existential.
Type 3 hotels have fundamentals that don’t add up: wrong positioning, wrong economics, wrong demand profile, or a cost base that can’t be supported. Those aren’t “fix it with tweaks” situations.
Most independent hotels we speak to sit in the middle.
They’re Type 2: good hotels with leaky margin.
They’re often well-liked, frequently busy, and usually run with genuine care. But the commercial picture is fuzzy, and now the numbers are shining a light onto gaps that used to be easier to ignore.
If you’re Type 2, rising costs can be brutal.
They’re also useful.
They force the audit you were always going to need, just sooner.
Rising costs didn’t create the problem. They just revealed it.
The five places excellent hotels give away profit
Most margin loss we see isn’t dramatic. It has nothing to do with fraud, chaos, or incompetence. It’s death by a thousand “autopilot” moments, where hospitality instinct quietly overrides commercial clarity.
Here are five of the most common.
1) The freebie that isn’t really free
Late checkout is the classic example. When a guest asks, the front desk is often inclined to say yes. It feels hospitable, and everyone moves on.
But late checkout has a real operational cost. It disrupts housekeeping sequencing, affects room readiness, and sometimes limits your ability to sell inventory when you’re tight. It also has real value, and guests will pay for convenience when the option is clear and the price feels fair.
For a 50-room hotel running 75% occupancy, you’re selling roughly 13,700 room nights a year. If even a modest slice of guests request late checkout, you’re sitting on a line item worth tens of thousands annually. Not because you’re gouging, but because you’re turning an informal favour into a visible option.
The fix doesn’t need to be complicated: introduce tiered late checkout options, communicate them before arrival and at check-in, and keep discretion for edge cases.
Stop treating value as something you should feel awkward about charging for.
2) A profit centre guests can’t see
This one is painfully common. A spa that exists, but the website barely mentions it. A restaurant that’s “there”, but menus are hard to find. Experiences described vaguely, like a brochure, but with no clarity on how to book.
Guests won’t buy what they can’t understand quickly. In most cases the issue isn’t the offering, it’s the visibility.
The fix is boring and effective. Give each revenue asset one dedicated page with clear hours, pricing, a few photos, and a single “book now” link. Then mention it once in the pre-arrival message.
You don’t need a better spa. You need a clearer way to sell it.
3) The menu is too long for the kitchen you have
Long menus can look generous, but operationally they’re often a tax: waste from low-selling ingredients, slower service, inconsistent execution, and higher training burden. They also create a subtle guest problem. Too much choice often leads to safe ordering, and safe ordering is rarely where your best margin lives.
Fewer choices can increase confidence. Confidence increases spend.
The fix is straightforward. Look at the last 90 days of sales, cut the dead weight, and spotlight a smaller set of dishes you can execute consistently. This isn’t about being fancy. It’s about being reliable, and reliability is what protects margin in F&B.
4) Pricing that treats every guest like the same guest
Many independents price in a flat way because it feels “fair”. The same rate regardless of lead time. Soft premiums for best rooms. Weekend demand not properly protected. Weekday demand not actively stimulated.
But guests already accept that prices change based on timing and demand. Flights, trains, concerts and rideshares have normalised this for years.
Hotels are one of the few places owners still feel guilty about it.
The fix is not to become ruthless. It’s to become precise. Protect peak nights properly, reward early bookers, and create clear premiums for rooms with genuine features. You don’t need a complex system to do the basics well, but you do need to stop apologising for pricing like a business.
5) Convenience guests would happily pay for, but you don’t offer
Early check-in. Express laundry. Transfers. Grab-and-go breakfast. Picnic boxes. “Room ready and waiting” packages.
Guests buy convenience all the time.
They just need the option.
Pick three to five add-ons that are easy to deliver, make them bookable before arrival, and communicate them clearly. Not twenty. Not a complicated upsell funnel. Just a handful of obvious wins.
Cost reality check
When costs rise and it suddenly feels existential, it usually points to one of two things. Either margin was already thin and there were no buffers, or profit is leaking in small, normalised ways that nobody has had time to notice.
The second one is the fixable one. And it rarely requires CapEx.
It just requires attention.
Why this feels uncomfortable
Most owners aren’t avoiding this work because they don’t care. They’re avoiding it because it can feel uncomfortable.
Charging for late checkout can feel like nickel-and-diming. Cutting menu items can feel like reducing choice. Protecting weekend rates can feel like gouging.
But guests don’t experience it that way.
Guests experience clear options as helpful. They experience a shorter menu as curated. They experience price variation as normal, because everything else in travel already works like that.
The deeper point is simple: the guest experience depends on a healthy business. When the business is squeezed, service quality becomes harder to sustain, maintenance gets deferred, and good people burn out.
That’s why rising costs are such a useful signal. When costs outpace revenue, the hotel becomes less forgiving. Small margin leaks stop being tolerable. Decisions you could postpone become decisions you have to make.
Closing thought
Efficient hotels don’t fear rising costs. They use them to widen the gap.
If this article rang a bell, the useful next move is a calm diagnostic, not a reinvention. Most owners are too close to the day-to-day to spot which freebies, frictions, and default habits are quietly costing real money.
That’s where we’re useful. We come in as a second set of eyes, usually starting with a short call, then moving into either an on-site audit or a structured remote review, depending on what you need and what’s practical.
A short conversation is often enough to work out whether there’s anything worth pulling on, and what the least disruptive starting point looks like.
