AI Adoption and Luxury Demand Offset Weak International Travel
Global hotel performance remained largely stagnant over the past year, with modest pricing gains offset by declining occupancy. Year-to-date revenue per available room (RevPAR) rose 0.2% through August 2025, according to STR, as a 1.0% increase in average daily rate was outweighed by a 0.8% drop in occupancy.
According to PwC, structural forces are increasingly shaping the sector’s outlook. Artificial intelligence adoption is accelerating across pricing, marketing, and operations, enabling more granular personalization, dynamic revenue management, and cost efficiencies. AI is also emerging as a new demand-generation channel as travelers increasingly turn to AI platforms for trip planning and hotel recommendations, reducing reliance on traditional search and online travel agencies.
Performance bifurcation across chain scales has widened. Luxury hotels posted 5.3% RevPAR growth year-to-date through August, while the economy segment declined 1.8%. Luxury and upper-upscale properties were the only segments to record positive growth, driven by pricing power and resilient demand from higher-income travelers. Softer consumer sentiment and increased competition from short-term rentals continue to pressure lower-priced segments.
Premiumization remains the industry’s primary growth driver. Luxury operators are capturing demand through higher rates, experiential offerings, and elevated service expectations, reinforcing the segment’s resilience amid broader economic uncertainty.
International travel remains a headwind. The World Travel & Tourism Council projects a $12.5 billion decline in U.S. international visitor spending in 2025, while Tourism Economics forecasts an 8.2% drop in arrivals. Canadian visitation has fallen sharply, down 23.7% year-to-date through June, amid policy and trade tensions.
PwC’s outlook for 2026 is more constructive. Stabilizing geopolitical conditions and the FIFA World Cup, hosted in the U.S., are expected to support a rebound in inbound travel and provide a potential inflection point for hotel demand.
