It’s budget season, and if you were among the leaders at The Lodging Conference in Phoenix last month, you heard the same sobering message: revenues are flatlining while expenses continue climbing. The squeeze is real, and it’s forcing a fundamental shift in how the industry thinks about operational performance.
The path forward from that sobering message was a unified call for a new operational discipline. We are witnessing a seismic shift in strategy, as the industry pivots from growth-at-all-costs to a relentless focus on margin defense. This means embracing resiliency practices and integrated systems that can be practically implemented to reduce cost spikes and streamline hotel operations. The underlying principle is clear: when you can’t count on rate growth, you must build a shock-proof business by defending your margins through operational efficiency.
The hard truth is that ADR has lagged inflation in 23 of the last 36 months, and GOP per available room declined 3.6 percent year-to-date, according to CBRE. When you can’t raise rates, and costs keep climbing, every operational inefficiency threatens profitability.
The Utility Triple Threat
Let’s talk about the utility costs nobody addresses during budget meetings. While teams debate lobby refreshes, here’s what’s happening to your operating expenses:
Water: In drought-prone regions, water isn’t just expensive—it’s a supply chain risk. According to EPA WaterSense and the Alliance for Water Efficiency, smart irrigation, leak detection, and optimized laundry operations can reduce consumption by 25 percent to 40 percent, while protecting against supply disruptions.
Natural Gas: Heating costs for hot water, laundry, and HVAC represent 15 percent to 25 percent of total utility spend. Demand-based scheduling and optimized boiler operations can reduce consumption by 15 percent to 25 percent, according to ENERGY STAR, with minimal guest impact.
Electricity: The biggest lever in your utility budget. From unoccupied guestrooms making energy “ghosts” comfortable running full HVAC to poorly scheduled back-of-house operations, typical properties waste 40 percent to 60 percent of electricity. Modern guest-room automation systems responding to real-time occupancy consistently deliver 20 percent to 30 percent reductions, according to studies by the Department of Energy and Lawrence Berkeley National Laboratory.
Race to Streamline
A critical takeaway from The Lodging Conference was the clear push toward “unified technology platforms.” Imagine one data stream powering multiple departments: real-time occupancy data that doesn’t just control HVAC, but also optimizes housekeeping schedules, triggers maintenance, and adjusts water heating. This is the power of a unified platform—turning a single data point into multiple operational wins with compounding ROI.
Waste Management
Food waste represents a $15,000-$40,000 annual cost leak for a 200-room property, a calculation derived from studies by the World Wildlife Fund and the Hotel Kitchen. Properties implementing waste tracking and diversion programs are reducing hauling fees while creating marketable operational excellence stories for group RFPs.
Rebates and Tax Deductions
There’s a complex web of utility rebates and federal tax deductions designed to subsidize operational upgrades. The following are currently available:
• Utility rebates ranging from hundreds per room. A prime example is the SoCalGas Hotel Program, which offers rebates of $250 per guestroom for installing energy-efficient equipment.
• 179D federal tax deduction: up to $5 per square foot for comprehensive energy efficiency improvements.
Combined, these can offset up to 50 percent or more of implementation costs. Note that federal incentive programs expire or reset in mid-2026—this budget cycle is your window.
The Strategic Playbook
Owners want operations executives who can “do more with less.” Here’s the framework:
- Step 1: Audit for ROI, not compliance. Treat utility audits as profit recovery roadmaps, identifying operational leaks ranked by payback potential.
- Step 2: Prioritize high-ROI, low-disruption upgrades. Focus on improvements with 12- to 24-month paybacks or embrace OpEx solutions for immediate impact, such as intelligent energy management, automated controls, kitchen equipment/public space HVAC optimization, and laundry
- Step 3: Leverage available capital. Navigate the rebate and incentive ecosystem to cut payback periods in half.
- Step 4: Frame as margin defense. Position these investments as strategic capital deployment, defending margins against volatile utility markets and rising operational costs.
The Budget Season Reality
The industry consensus is aligning with reality: we’re in a margin defense environment. Revenue growth isn’t bailing us out. Expenses aren’t declining.
The modern approach to hotel operations isn’t about greenwashing or awards. It’s about operational discipline for a more shock-proof business that shows up in your P&L, protects you against volatile utility markets, and builds margin advantages competitors can’t easily replicate.
The question is whether you’re treating this budget season as a strategic priority or letting another budget cycle pass and continuing down the path of shrinking margins.
