Not Done Weekly - The Margin Crunch In Hotels Continues

Last week I introduced you to AI-Native Services (AINS) and laid out seven reasons today's hotel operators can't get there. It was the most-read issue since I started this newsletter, and the replies had a common thread: fine, the current operators can't. So why hasn't anyone fixed it?

Follow the fees and you'll see why. The OTAs take 12 to 25% of the booking. The brand takes a franchise fee, a marketing fee, a loyalty fee, and a reservation fee, roughly 11 to 12% of gross revenue combined. The operator takes a base fee of 2.5 to 3.5% of gross. Every one of them is paid off the top line, before a single expense is paid. The owner is paid last, after the OTA, after the brand, after the operator, after payroll, utilities, insurance, property taxes, and debt service. The owner is the only party in the entire chain whose check depends on what's left over.

That's the value leakage model of the US hotel industry. When RevPAR grows 8% like it did in June and July, the OTA, the brand, and the operator all get their 8% raise on day one. So does the software. The PMS, the RMS, the CRS, the CRM, the accounting stack, all licensed per room, per month, or as a percentage of bookings, and all going up every renewal regardless of whether the hotel made money. If margin erodes at the same time, that's the owner's problem alone. The parties with the power to take cost out are paid on revenue or on a subscription. The only party paid on profit has no control over the cost, unless they are an owner-operator. Misaligned isn't a strong enough word for the relationship between hotel owners and their operators, brands, distribution channels, and software vendors. It's structural, and it's been that way for decades.

Tomorrow's episode puts numbers on all of this. STR has been inside the P&L for the first time at scale, and what Isaac found tells you precisely where the leak is. It's the same layer AINS was built to fix.

Making Hospitality Leaders Smarter On Where the Margin Went

Here's the data behind the value leakage model.

Isaac spent most of 2026 inside STR's P&L data set, which they've only recently had at scale. Here is what June YTD looks like according to STR, with a few outside numbers layered in:

Departmental profit margins are improving. Rooms, F&B, all of it. The part of the hotel guests actually touch is getting more efficient. The labor data backs this up: across roughly 5,000 hotels on Actabl's Hotel Effectiveness platform, labor cost per occupied room rose 1.8% in Q1 2026 while hours per occupied room fell 2.3% (HotelData.com). Room attendants and front desk agents are doing the job in fewer minutes.

Labor per occupied room has reset permanently. That Q1 discipline came after a brutal 2025. Average labor CPOR rose 12.8% for the year, from $42.82 to $48.32, and Q4 alone saw wages per occupied room jump 21.1%, compressing GOP margin 3.3 points to 36.0% (HotelData.com). Wages now sit 15.3% above 2019 against operating revenue up only 12.8% (HotStats). A hotel can post a great RevPAR number and a bad year.

GOP margin is shrinking anyway. GOP dollars are up because revenue is up. Both are true at the same time. U.S. GOPPAR in 2025 was still 10% below 2019 (HotStats). Revenue recovered years ago. Hotel profitability has yet to recover to pre-covid levels.

The entire gap is in undistributed expenses. Not the departments. The overhead layer.

• Utilities are up ‘substantially.’

• A&G is up 7.8% year over year for YTD 2026 among comparable hotels and accounts for a quarter of the total undistributed increase.

• Everything in A&G is growing faster than revenue.

• Franchise-related fees, charged as a percent of revenue, grew 3.9% in 2024, with loyalty program charges the fastest-rising line inside that bucket (CBRE).

• CBRE has been flagging the same structural problem: undistributed expenses are mostly fixed, so when they grow faster than revenue the hit to margin is severe (CBRE).

STR forecasts GOP per available room up 1% in 2027. Against inflation at 3.4% and diesel over $6 a gallon for the first time ever. Isaac's one-sentence 2027 prediction: "Nothing changes and we have downside risks."

Owner playbook for budget season. 

1. Show me undistributed expenses as a percentage of revenue for each of the last four years. Which direction is it moving, and what are the specific cost drivers? "Inflation" is not an answer. Name the line items.

2. What is A&G per available room this year versus 2019, in dollars? Don't accept a percentage. Percentages hide behind revenue growth. Dollars don't.

3. How much of the accounting fee and corporate allocation pays for work a machine can do today? And what is the plan to bring shared-service costs down as AI gets better? If the allocation is the same number it was in 2023, nobody's tried.

4. What is total software cost as a percentage of revenue, and how many points of GOP is that? PMS, RMS, CRS, CRM, accounting, labor, procurement, all of it in one number. Then ask which of those line items goes down if the models improve next year. SaaS is part of the value leakage model, and it adds up faster than anyone tracks it.

5. What is revenue per employee, at the hotel and at the operator's corporate office? Include the shared-services headcount allocated to your asset. Every software company reports this number. Almost no hotel operator does. If it hasn't moved in five years, the operating model hasn't either.

6. What is EBITDA per key? Nate Terrell at Host Hotels & Resorts told me on the show it's the single metric the largest lodging REIT in the world runs on.