How will higher gas prices impact US hotel results?
Jan Freitag, national director for Hospitality Market Analytics at CoStar, said they have never been able to establish a relationship between gas price increases and hotel demand decline. “We even looked at hotels near interstate locations,” he said.
The way he thinks about it: “Your car has a 20-gallon tank. Gas goes from $3.50 to $4.50. So, you need to pay $20 more per tank. Let’s assume it takes you four tanks to drive your family to Disney and back on spring break. Are you really not going to see Mickey Mouse because of $80? Probably not. You may make different choices, booking a limited-service hotel versus a full-service hotel, or get one more fast-food lunch versus a sit-down restaurant.”
Freitag reiterated that only economy segment hotels have the expected (but weak) relationship to gas prices. “Even in drive-to markets, no relationship between gas prices and demand,” he said.
Michelle Russo from asset management firm hotelAVE said it’s too early to tell what impact higher gas prices will have on the hotel business.
“Generally, there has been little impact to hotel occupancy; instead, there is an occupancy shift – shorter driving trips and more regional vacations,” Russo said. “Lower-tier hotels are more sensitive to gas prices (but not luxury).”
David McCaslin from CapStar Advisors added, “In the near term, negative impacts for our industry will be felt primarily by summer drive to leisure markets in the mid to lower tier price points. These have the most price sensitive consumers and the calculation of the cost impact to their vacation is the most direct and most discretionary.”
Analysis from analyst R.W. Baird does not indicate a strong relationship has existed between higher gas prices and hotel demand. What is more likely to have an impact: changes in employment, consumer confidence, and corporate profitability.
Baird’s Michael Bellisario wrote that gasoline represents ~3% of household expenditures, and total energy expenditures, including electricity and natural gas, are about 6%, adding that these percentages are at/near relative lows over the last 20-plus years. Also, he said, income tax refunds are higher YTD (+11% y/y), which should cushion some of the near-term impact from higher prices at the pump.
For owners, Bellisario said electricity costs were on the rise prior to the recent spike in gas and oil prices. As a result, higher energy costs could be a slight incremental headwind to owners’ profitability in 2026E. For select-service and full-service portfolios, utility costs represent ~3.5%-4% and ~3% of total revenues, respectively.
But what Baird did not touch on, according to hotelAVE Chief Investment Officer Loren Balsam, is the inflationary effect on food and beverage costs and guest supplies. “An extended period of higher oil prices will ripple through cost of distribution of goods hotels (and consumers) typically purchase,” Balsam said. “It will be interesting to see how it hits the items in the CPI basket.”
The team at Aimbridge Hospitality told Hotel Investment Today that historically, fuel spikes push airfare higher quickly through fuel surcharges, but demand destruction is typically limited unless paired with a broader economic downturn. “We are seeing that pattern again as airlines are raising fares, yet overall travel demand remains resilient,” said Aimbridge Chief Global Growth Officer Eric Jacobs.
Aimbridge said as gas prices rise, discretionary trips, weekend travel, and shoulder demand are most likely to soften. “This is where the impact becomes meaningful for our portfolio, particularly in secondary markets and hotels reliant on drive‑to leisure and price‑sensitive demand,” Jacobs added.
Hotel investor Glyn Aeppel of Glencove Capital said she cannot imagine gas prices sliding back down anytime soon but rather continuing to rise. “This will have a significant impact on the cost of travel with a strong likelihood of significant reductions in the volume of travelers,” she said. “Also, potential operating cost increases which will impact profitability margins.”
Ben Rafter, CEO at Hotel Equities said that while they have not seen demand declining, higher gas prices always lead to lower demand via higher airline ticket prices, energy surcharges and lower summer automobile travel. “In this case, domestic travel to places like national parks and Hawaii may uptick as Americans avoid international travel due to global turmoil. Major international inbound markets, conversely, will be impacted negatively, albeit this was already expected due to several other factors,” he said.
Former Remington Hospitality CEO Sloan Dean told Hotel Investment Today that he believes higher gas prices will hurt drive-to leisure markets in the summer, especially economy and midscale, if the higher prices persist. “There’s no-to-little impact to-date YET,” he said. “But let’s see what prices at the pump look like come Memorial Day. Most the drive-to leisure is shorter booking window. So, we are out of the demand window still.”
WASHINGTON, D.C. — Hilton CEO Christopher Nassetta sounded the alarm on America’s declining appeal as a global tourism destination.
During a conversation at the Punchbowl News Conference in Washington, D.C., on March 10, Nassetta told the audience that the U.S. has lost half its share of the inbound international market over the last 30 years.
“We were 10% of inbound global travel 30 years ago,” he said. “Now we’re 5%. I don’t think we should accept that.”
Nassetta pointed to reduced travel from Canada, which has fallen sharply amid ongoing political tensions.
Recovering even half of the lost global market share would mean “massive amounts of incremental economic activity and millions of incremental jobs,” he said.
Nassetta also noted that Brand USA, the public-private organization that promotes the U.S. as a travel destination, has been largely defunded.
“We need to make sure we fund it,” he said. “A lot of people want to come to America. But there are a lot of other options.”
He pushed for making it easier for travelers to enter the U.S.
“We have to make it more frictionless, more welcoming — not add friction by charging incremental fees or asking for incremental information we may not need,” said Nassetta, adding that modern biometric technology makes it possible to be “safer than we’ve ever been” while removing most friction from the system.
Despite the headwinds, Nassetta said he is optimistic, pointing to early signs of improvement in mid-market hotel performance and various macroeconomic tailwinds, such as easing inflation, lower interest rates, and a favorable tax environment.
“All the mid-market stuff, every little Hampton Inn and Hilton Garden Inn and Homewood Suites and all these products that serve that middle class, you’re starting to see them move in a very different direction than we had been seeing them move,” said Nassetta.
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