The U.S. hotel industry is navigating significant challenges stemming from President Trump’s tariff war, according to a leading hotel asset manager whose team runs a $12.5 billion portfolio of properties on behalf of owners.
Michelle Russo, founder and CEO of HotelAVE, reports that trade disputes are disrupting supply chains and tourism forecasts. She has downwardly revised the firm’s outlook for the year.
“I basically told my team that they should assume RevPAR [revenue per available room] is going to be down 5% year-over-year,” Russo explained.
“That’s not me giving a forecast to the industry, and hopefully, things won’t be that bad,” she clarified. “But I want cost containment plans that assume that scenario.”
Trade Tensions Impact Travel Confidence
Economic uncertainty has already led to a noticeable slowdown in bookings across many of the hotels that hire HotelAVE for strategy across North America, Latin America, and Europe.
“We’ve seen leads [for potential hotel reservations] sitting there and not converting [such as for group bookings],” Russo said. “It’s uncertainty that’s delaying booking decisions.”
Since Trump’s tariff announcements last week, Russo has been considering advising client hotels to pause online advertising entirely, given that people’s intent to book and make plans may have plummeted.
“We’re asking ourselves, ‘Does it make any sense to be spending e-commerce money now in this period of economic uncertainty?'” Russo said.
She can imagine some corporations postponing the approval of some business travel until there’s more clarity on the tariff war.
“Think of the impact on companies,” she said. “If you were going to have all these people traveling on an extended stay for some big project, are you still going to approve that travel now? Questions like that are what my team and I have been talking about.”
For domestic travel, Russo is encouraging client hotels to create special offers to compensate for potential shortfalls, such as promoting non-refundable deals.
“Our big theme on revenue management is ‘Lock it in,'” Russo said. “Make compelling advance purchase offers that they can’t cancel or at least have to pay a penalty for.”
She lamented that, unlike airlines, hotels typically allow cancellations without penalties. The cancellations result in costly rebooking cycles for hotels, which typically incur charges from either hotel groups or distribution tech providers for managing the cancellations.
Cost Containment and Supply Chains
HotelAVE is focusing on cost-saving measures “with minimal impact on guests and employees,” Russo said.
One example she gave was better management of overtime through more efficient management. She also wants teams to audit recurring expenses that may not be essential to driving profits.
“Why not distribute only one key card instead of two by default?” Russo asked. “Key cards cost 10 or 15 cents apiece. That adds up.”
The company is advising its hotel properties to address potential supply chain disruptions by stocking up on critical imports and revising food and beverage menus.
“If certain products are going to go up very much, we need to quickly recalculate the impact and adjust our menu pricing,” Russo explained.
Take coffee as an example. There’s not enough land in Hawaii to meet the U.S. demand for coffee, and so most beans are imported. So some hotels may need to raise coffee prices to absorb the 10% tariff hike if it’s sustained.
Labor Inflation
While not tariff related, a stealth form of inflation may be how Trump’s border crackdown may reduce the labor pool in ways that drive wage inflation, Russo said. Labor costs often account for a majority of the running costs at the typical hotel.
“A lot of hotels rely on contract labor, especially seasonally,” Russo said.
Russo expressed concern about the future of special visas that many hotels depend on for seasonal staffing. H-2B visas offer temporary, non-agricultural work programs, while J-1 educational exchange visas offer temporary stays for foreign students.
“J-1 and H-2B visa programs are the lifeblood of seasonal staffing at the country’s resort destinations,” Russo said. “Ski resorts in the mountains need them in the winter. Beach and lake resorts need them in the summer. But there’s so much uncertainty, and that could lead to a labor shortfall.”
Uncertainty about the number of visas that will be made available is complicating industry plans to line up contract workers for upcoming peak seasons.
The math is brutally simple, Russo said. A labor shortage equals higher wages equals higher room rates equals fewer bookings equals hotels seeking more cost containment.
Adjusting International Visitor Expectations
Russo has been talking to her teams about reviewing the marketing campaigns run by hotels they advise.
“We’re talking about refocusing marketing dollars towards other countries or more domestic [markets],” she said.
She’s especially concerned about those markets that are heavily reliant on Canada and Mexico.
While Canada and Mexico accounted for over half of U.S. visitors last year, recent geopolitical tensions may reduce inflows this year.
Every year, Russo presents an economic outlook for her team. This year’s outlook had predicted that the strength of the U.S. dollar versus other major currencies might weaken for several financial factors. A weaker U.S. dollar might make the U.S. more attractive to foreigners to visit, boosting domestic hotels.
“We had forecast that the dollar’s strength was supposed to come down through the end of the year, which would have been great for summer international travel to the U.S.,” she said. “I worry that’s out the window now.”
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