There is a phrase in the latest IATA outlook report that should give any hotelier pause for thought.
He talks about airlines, but he could just as easily be talking about hotels.
According to IATA, global airline profitability is expected to halve by 2026, primarily due to disruptions in the Middle East and a sharp rise in fuel prices. Net profit is projected to fall from $45 billion in 2025 to $23 billion in 2026. Net margin is expected to decline from 4.2% to just 2.0%.
That's the real headline.
The airline industry continues to fill planes. Passenger numbers are expected to grow. Load factors are projected to reach record levels. Revenues are also expected to increase.
And yet, profitability is shrinking. This is the lesson for hospitality.
A full hotel is not necessarily a profitable hotel. A hotel with high occupancy is not automatically a healthy business. A strong ADR does not always mean the hotel is making a profit.
The question isn't just "how much revenue are we generating?". The better question is "how much profit are we retaining?".
When revenue grows but profit falls
In its outlook, IATA expects total industry revenue to rise by 9.4% by 2026. That sounds positive. But operating expenses are expected to rise even faster, by 13%.
That's where the profit disappears. Hotels know this story all too well.
Labor costs are rising. Energy costs are rising. Distribution costs are rising. Insurance, maintenance, technology, laundry, amenities, and financing costs are all moving upward. At the same time, guests are becoming more price-sensitive, and competition remains aggressive.
So the hotel may raise the ADR, but the extra revenue doesn't always make it to the bottom line.
This is where many hotels continue to make a mistake. They celebrate top-line growth without understanding the cost of producing that growth. But not all revenue is created equal.
A room sold through a high-commission channel is not the same as a direct booking. A low-margin package is not the same as a profitable upgrade. A crowded restaurant with poor menu engineering is not the same as a solid F&B operation. A spa treatment sold at the wrong time, with an unsuitable staffing model, may look good in terms of revenue and still disappoint in terms of profit.
The airline industry has been dealing with this reality for years. Hotels are now facing similar pressure.
Airlines are increasingly relying on ancillary revenue
One of the most interesting aspects of IATA's outlook is the growth in ancillary revenue and other income. IATA expects this category to grow by 12.6% by 2026, reaching $165 billion.
That's no longer a small side business.
Ancillary revenue has become part of an airline's survival kit. It helps them improve revenue per customer when their main product is under pressure and when external costs are difficult to control.
Hotels should pay attention.
For too long, many hotels have treated ancillary revenue as a nice bonus. An upgrade at reception. A late check-out. A bottle of wine. A parking fee. Maybe a spa offer.
But in a low-margin environment, ancillary revenue can't be an afterthought. It needs to become a structured part of the business strategy. That doesn't mean charging guests for everything. It means understanding what guests value, when they're most likely to buy, how to present the offer naturally, and how to ensure the extra revenue is operationally realistic.
The best ancillary revenue isn't forced. It's relevant. A family arriving early might appreciate early check-in. A couple on a weekend getaway might value a room upgrade, breakfast in bed, or late check-out. A business traveler might value parking, laundry facilities, a meeting space, express services, or flexibility. A guest staying five nights might value convenience more than a discount.
The opportunity isn't just about selling more. The opportunity is about serving better, while improving profits.
Occupation is not enough
Airlines use load factor as one of their key indicators. Hotels use occupancy. Both metrics matter. But neither tells the whole story.
An aircraft with a high load factor can remain under financial pressure if fuel costs rise sharply. A hotel with high occupancy rates can continue to underperform if acquisition costs, payroll, energy, and operational complexity are too high.
This is especially relevant for hotels that still manage too much around room revenue alone.
RevPAR matters. But it's not enough.
Hotels need to move towards a more comprehensive view of performance, including TRevPAR, profit per available room, contribution by segment, revenue per guest, acquisition cost, and ancillary spending by journey stage.
A hotel cannot manage total profit with a mindset focused solely on rooms.
The same guest who books a room can also purchase breakfast, parking, spa access, food and beverage, meeting space, destination experiences, transportation, room upgrades, or flexibility. But if these opportunities aren't designed, measured, and staff trained on, they remain invisible.
And invisible income is often lost income.
Price increases have a limit
IATA's outlook also reveals another important reality: airlines are raising fares to recoup some of the fuel shock, but are still absorbing some of the impact.
Hotels face the same limitation.
Yes, pricing power matters. During periods of high demand, hotels shouldn't be afraid to raise rates. But there's a limit. At some point, the market resists. Guests compare. Corporate buyers negotiate. OTAs present alternatives. Domestic demand weakens. International demand shifts.
So the answer can't just be "increase the ADR." Sometimes the best answer is to improve the revenue mix.
Can we convert more direct demand? Can we reduce our reliance on expensive channels? Can we improve upselling at check-in? Can we package better? Can we monetize flexibility? Can we improve F&B attachment? Can we use pre-arrival communication more intelligently? Can we create payment experiences that guests actually want?
This is where the hospitality industry can learn from airlines. Airlines have become very disciplined in separating the core product from optional value. Hotels don't need to copy all of the airlines' practices, and they should be careful not to damage the guest experience. But they can learn the business logic.
Give the guest a choice. Price that choice correctly. Make the value clear. Measure the outcome.
The real change: from revenue management to margin management
The next stage for hotels isn't just better revenue management. It's margin management.
That means looking at demand, price, ancillary revenue, channel mix, and operating costs together. Not in separate departments. Not in separate reports. Not once a month.
Hotels need business conversations where revenue, operations, finance, front office, F&B, and marketing all see the same picture. Because the problem is rarely isolated.
A revenue manager can increase the ADR. But if the hotel is filled with the wrong segment, at the wrong cost, with high operational pressure and low ancillary spending, the result may not be as good as it seems.
A front-office team can have upselling potential. But if it's not trained, incentivized, and supported by the right availability policies, the opportunity disappears.
A marketing team can launch campaigns. But if those campaigns attract low-value guests or fail to promote profitable extras, the hotel is leaving money on the table.
A CEO may see occupancy and ADR moving in the right direction. But if payroll, fees, and energy costs rise faster, profitability may continue to deteriorate.
That's why total revenue management needs to become much more practical. A weekly operational discipline.
The conclusion for hospitality
The airline industry is showing us a very clear warning: even when demand is strong, profit can be fragile.
External shocks can arrive quickly. Fuel for airlines. Energy for hotels. Labor pressure. Distribution costs. Regulation. Inflation. Geopolitical uncertainty. Financing costs. Supply constraints.
Hotels can't control all these factors. But they can control how prepared they are.
They can build a stronger direct channel. They can train their teams to identify guest needs. They can design better ancillary products. They can measure total guest value. They can review profitability by channel. They can connect business decisions with operational reality.
A full hotel is good. A profitable hotel is better.
And in the next cycle, the winners won't simply be the hotels that sell the most rooms. They will be the hotels that understand where profit is created, where it's lost, and how every guest interaction can contribute to a stronger, more resilient business.
Let's talk about how your hotel can grow revenue by serving guests who truly value what you do. Visittorreshospitalityconsulting.com or connect directly on LinkedIn.
