The two of us work more towards the luxury, full service and experiential end, so of course we often laud the miracles and exceptional craftsmanship of hotels in these categories. But an equally important story is unfolding at the other end of the market. Limited-service, select-service and economy hotels are facing immense operational pressure that may soon spill over into a squeezing of free cash flow. This megatrend may fundamentally reshape what travelers come to expect from affordable lodging over the next few years.
Recently, in conversations touching on the K-shaped economy, we joked that one day economy hotels may stop making beds before arrival. Instead, guests would enter the room to find neatly folded linens placed atop the mattress with instructions to ‘Do Your Own Sheets’ or DYOS for short.
Hyperbole perhaps, but beneath the joke lies a serious point about the economics of modern hotel operations. DYOS could even become its own structured amenity checkbox on the OTAs!
Owners across the limited-service segment are being squeezed from every angle. Labor costs continue to rise as hotels struggle to recruit and retain housekeeping staff, maintenance teams and front desk associates. Inflationary pressure on supplies has compounded the issue, particularly for food products, linens, cleaning chemicals and disposable goods. At the same time, fuel costs and transportation disruptions have increased procurement expenses while making supply chains less predictable.
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Then there are the fees. Brand fees, loyalty fees, reservation charges and third-party commissions are often tied directly to gross room revenues (GRR) and ancillary topline rather than profitability. Many management contracts also prioritize topline performance over GOP participation via tiered incentives. The result is that owners can experience respectable occupancy and ADR growth while still watching margins deteriorate.
This dynamic becomes especially problematic in economy and select-service segments where there is limited pricing power. Luxury hotels can often pass rising costs forward through rate increases because affluent travelers are still willing to pay for experiences, exclusivity and wellness-oriented amenities. Economy travelers are different. They are increasingly price sensitive (read: price elasticity) and equipped with more tools than ever to compare rates across brands in real time, now including AI travel search.
The internet has made consumers extraordinarily efficient shoppers. Metasearch platforms, OTAs and mobile booking apps have created an environment where travelers can instantly locate the cheapest acceptable option within a market. Loyalty programs still matter, but their power is often overstated. Many travelers now belong to multiple programs simultaneously, a phenomenon better described as ‘multihoming’. A guest may earn points with Hilton, Marriott, Wyndham and IHG while ultimately booking whichever property offers the best combination of location, convenience and price.
For owners, this creates a dangerous race toward accelerated commoditization. If guests are increasingly loyalty agnostic and booking decisions are driven primarily by price, then operators are incentivized to ruthlessly scrutinize every line item on the income statement. Naturally, service reductions become one of the first levers to pull.
We are already seeing evidence of this trend. Daily housekeeping has largely disappeared from many select-service and extended-stay properties. Grab-and-go breakfasts have replaced more robust buffets. Front desks are becoming leaner through mobile check-in and digital key adoption. Some hotels are experimenting with reduced staffing during overnight hours while others are limiting amenities altogether in an effort to lower CPOR.
The challenge is that hospitality cannot endlessly subtract without consequences. There is a point where limited-service risks becoming ‘minimal-service’. If guests begin perceiving hotels as little more than commoditized sleeping boxes, brand differentiation weakens further and pricing pressure intensifies. That creates a vicious cycle where hotels cut more services to preserve margins which then erodes guest perception even more.
This does not mean economy and select-service brands are doomed. Far from it! Travel demand remains incredibly resilient and there will always be enormous global demand for affordable accommodations. But operators must become more strategic about what they remove and what they preserve.
The winning brands will likely focus on operational simplification without sacrificing the core pillars of comfort, cleanliness and reliability. Guests may tolerate fewer amenities or reduced staffing interactions so long as the essentials are consistent. Technology will play a central role here, particularly through automation, energy management systems and labor-saving operational workflows.
Still, the broader takeaway here is that the K-shaped economy is reshaping both ends of the chain-scale, not just the ultraluxury and lifestyle categories. While luxury brands chase wellness suites, longevity programming and immersive experiences, economy and select-service operators are fighting an entirely different battle centered on margin preservation, rising debt service obligations and cost discipline.
And yes, perhaps one day that folded stack of linens on the mattress may not seem so far-fetched after all. Be on the lookout for DYOS at a hotel near you!
