How small hotels are staying profitable in an unpredictable market

Guests are booking later, staying shorter and thinking twice when spending money. That last-minute one-night booking that barely covers your costs? You're seeing more of them. And when bookings are unpredictable, planning staff schedules, ordering supplies and managing cash flow become a guessing game.

Geopolitical instability, inflation, currency fluctuations, shifting regulations … We’re entering uncertain times on more than one level, and that’s felt by hoteliers and travelers alike. Meanwhile, hotel owners face growing competition: from new hotel supply, but also from alternative lodging options and big travel platforms.

Lighthouse recently connected directly with independent hoteliers to hear what’s on their mind – their everyday struggles, concerns and observations. Through those conversations, three main challenges stuck out:

• How do we move away from over-reliance on high-commission OTAs and increase our direct bookings?

• How can we simplify and integrate our hotel tech stack to improve efficiency?

• How do we market our hotel business successfully when budgets are tighter and in-house expertise is limited?

When asking independent hoteliers what shifts they’re experiencing, one thing is clear: The hotel industry has become more unpredictable and the hotel market is changing fast. In this article, we’ll cover how smart hotel owners adapt, become more competitive and guarantee profitability in this new reality.

Key takeaways

1. Guests book later, stay shorter and spend less per trip.

   With shorter booking windows, higher price sensitivity and more last-minute behavior, static prices no longer cut it. Instead, you need to move with the market. Dynamic pricing and smarter distribution help you capture every opportunity and protect your margins by driving more direct bookings.

2. Relying on disconnected tools and manual processes is no longer viable.

   Implementing a fully-integrated or all-in-one solution will not only increase operational efficiency, but also reduce costly errors, and free up critical time to personalize stays and build guest loyalty. Technology is advancing fast, and with Online Travel Agencies (OTAs) and hotel chains spearheading the chains, keeping up is key to success for independent hoteliers.

3. Now that travel preferences have shifted, your marketing efforts should focus on local demand, loyalty and value.

   With guests increasingly opting for shorter, closer-to-home stays and spending less per trip, independent hotels should lean into local marketing, tailored offers and repeat-guest incentives. Smart segmentation, authentic storytelling and targeted packages help fill gaps and grow ancillary revenue even with tighter budgets.

Global uncertainty is changing how guests book their stays

As a small hotel owner, one of your main objectives is to secure future occupancy and revenue. Not only does it give you certainty, but you’re able to schedule staffing and predict costs more effectively. However, hoteliers are noticing that guests book closer to stay dates, they are staying shorter, and are more price-sensitive than before. These changed booking habits directly impact your revenue streams and way of working.

It’s clear that inflation, currency fluctuations, tariffs and political uncertainty are changing the way guests travel and book. Even increasingly unpredictable weather is mentioned as a contributing factor. Guests are less willing to commit early, more likely to shop around for good deals, and more focused on value and flexibility.

Every late, short-stay, budget-conscious booking increases guest turnover, erodes profit margins and hinders advance planning. And when you can’t plan staffing, orders and inventory because bookings come in last-minute, your cost efficiency suffers.

This shift in booking behavior means hospitality professionals need to react faster to real-time demand, rather than relying on seasonality that no longer hold. We hear hoteliers are responding by adjusting rates more dynamically and prioritizing flexibility to maintain a healthy occupancy rate. Hotels that optimize their distribution strategy and pricing decisions, backed by live data, are in a stronger position to face this unpredictability.

Here are some of the best ways you can adapt:

• React faster with dynamic pricing. Seasonal assumptions or static pricing no longer serve. Maximize revenue per available room (RevPAR) by updating rates in real time based on booking patterns, competitors, demand and local events.

• Incentivize early bookings. Offer early-bird rates and encourage repeat bookings through consistent post-stay guest communication to secure occupancy well in advance.

• Avoid heavy discounting. Use last-minute offers sparingly to fill remaining inventory when really needed. Build prices gradually to incite guests to book earlier.

• Stimulate direct bookings. Many guests nowadays are looking for “best value for money” deals, so use that to your advantage by ensuring that your hotel’s website is the most attractive place to book. When your occupancy is already strong, you can close OTAs to guide demand towards your own website to maximize earnings.

• Apply smarter segmentation. Recent market analyses show that certain demographics are still planning to extend their travel budgets and willing to pay more for richer experiences. Cater to both wealthy and price-sensitive guests by diversifying your offer, pricing and channel mix, for example through targeted packages and niche booking sites.

• Use cancellation and length-of-stay policies strategically. Set minimum length-of-stay (MinLOS) restrictions in high-demand periods, so your rooms aren’t filled by one-night stays that leave gaps and limit your revenue potential. Close to stay dates, offer non-refundable rates at a slight discount to attract price-sensitive guests, lock in revenue and reduce cancellation risk.

• Get strategic about where you're listed and optimize distribution channels. Evaluate the costs versus benefits of each channel to finetune your mix. When demand is strong, focus on the ones that bring in the highest-value bookings or charge the least in commission. Smart Distribution is designed to do exactly that, automatically, so your pricing and distribution strategy delivers maximum profit.

Guests are favoring shorter, cheaper trips closer to home

You may have noticed it too at your property: fewer international travelers, more domestic guests who spend less and opt for shorter stays. This results in lower revenue per booking, higher turnover and lower cost efficiency – in other words, more work for your team and less profit.

The good news is, demand isn’t disappearing. It just manifests itself in new ways. Guests aren’t necessarily traveling less or shrinking their budgets, but they’re traveling differently. They’re looking to get the most out of their tight budget and want to enjoy more short getaways rather than one long vacation per year. The popularity of shorter trips can be driven by the workation and ‘hotel hopping’ trends, with people reserving multiple accommodations in one destination for maximum experience.

Behaviorally, travelers are prioritizing simplicity, comfort, convenience and value over adventure or distance. They’re increasingly opting for destinations in their own countries or within driving distance. This was already a trend following the pandemic, but more recent developments have contributed to its resurgence this year. For one, cost-of-living pressures have made guests more cautious about travel budgets. Additionally, geopolitical tension is eroding the appeal of long-haul or cross-border trips.

Tying into that, the travel and hospitality industry sees a growing interest in off-the-beaten-path destinations. Travelers are trading expensive, overly crowded places for more unique experiences that offer local authenticity.

For independent hoteliers, these shifts in travel preferences bring both challenges and opportunities:

• Craft local experiences and partnerships. Position your property as the ideal home base for local discovery and immersion. Distribute your own branded ‘local guide’ and partner with restaurants, wineries or guided tours to create value-rich packages. This increases your revenue, while guests feel like they’re getting a richer experience without traveling far.

• Cater to local guests. Meet staycation travelers where they are, for example on local booking websites (OTAs) or tourism board websites that focus on your specific market. Next, adapt your communication, visuals and content across channels to resonate with local audiences.

• Double down on guest loyalty. Repeat guests, especially regional ones, are your most reliable source of occupancy. Encourage returning customers by rewarding them with points, exclusive perks, deals or room upgrades.

• Diversify room types and experiences. Introduce packages or room themes that appeal to budget-conscious guests as well as higher-spending travelers to attract both. For instance, curate “essential comfort” rooms for quick, affordable stays and “experience suites” with service or product add-ons. This helps you appeal to different segments and entice existing clients to return for a new experience.

• Tap into local SEO and GEO (Generative Engine Optimization). Make sure your property appears when guests search for “hotels near [local event or attraction]”. You can also blog about hidden spots, upcoming festivals or seasonal activities in your region. Use social media to highlight your local expertise and stand out from chains.

Booking volume and ancillary spend have just become more important than ever. In order to grow your business and stay profitable, your hotel marketing should be carefully crafted to contribute to those main goals. You don’t need to match chains’ marketing budgets – smart segmentation, local targeting and authentic storytelling can deliver better ROI than broad, expensive campaigns.

Your local expertise, authenticity and agility are what set you apart, so use these unique strengths to compete more effectively with large hotel chains.

Hotels are facing stronger direct competition

Are you also feeling increased pressure from local competitors? You’re not alone. Hoteliers we contacted have reported that intensifying local competition is impacting their business, stating “A hotel opened right next to mine” and “Airbnb-style rentals are now listed on Booking.com”.

New hotel openings nearby, rising room supply and a growing presence of alternative accommodation options (short-term rentals) on major booking platforms like Booking.com are reshaping the competitive landscape within local markets. These shifts are directly affecting demand and occupancy, heightening pricing pressure and making it more difficult – yet more critical – than ever to stand out from competitors.

For independent hoteliers, the main pitfall to avoid is competing on rate alone. It’s an unsustainable strategy that only erodes your profit margins and your brand’s perceived value in the long run. Instead, the key to differentiation is now to highlight what independents do best: your hotel’s unique personality, services and guest connection.

To play these strengths effectively, hotels need to strengthen their strategies through better use of technology:

• Closely monitor your market and competitors. Use an intuitive tool for competitor and market tracking to stay aware of pricing trends, supply changes and event-driven demand shifts. These insights allow you to make data-backed strategic decisions fast.

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• Improve your hotel website and digital presence. Make your website and booking process fast, mobile-friendly and optimized for search engines – both traditional and AI-powered ones like ChatGPT. It should be easy to find online and successfully convince travelers to pick you over competitors or third-party platforms. Attract and convert more travelers via social media, online advertising and retargeting campaigns.

• Differentiate through experience, not discounts. Showcase what sets you apart from chain hotels and short-term rentals across all channels: personalized service, local authenticity, curated packages and unique amenities or services. Highlighting your local character and experience-oriented offering helps build a strong brand identity and value perception for your hotel business.

• Boost visibility through partnerships. Collaborate with other businesses like tour operators, local attractions, restaurants or event venues to refer clients and create co-marketed packages that give you a broader reach.

• Apply dynamic pricing. Adopt a tool to adjust your rates automatically based on real-time demand, competitor pricing, local events, supply and occupancy to maximize bookings and revenue.

• Optimize channel distribution. Focus on direct commission-free bookings and channels that deliver the highest-value bookings – tech can help here too. With rentals now listed on Booking.com, consider exploring platforms like Airbnb if they align with your brand and target demographic.

• Integrate your hotel tech stack. Stop losing time with disconnected tools or tedious manual processes. Use well-integrated systems or an all-in-one tool for reservation management, channel distribution and dynamic pricing to update rates instantly everywhere, prevent overbookings, and free up time for more meaningful tasks.

Your next steps: How to adapt and stay successful

Today’s hotel market feels highly unpredictable, but what you can control is how you respond to these challenges and how you reinvent your strategy. The hotels that are set up for long-term success are the ones that adapt quickly, rely on real-time data instead of gut feeling and invest in the right tools to work more efficiently. They’re the ones that act with confidence before competitors do, instead of reacting when the opportunity has already passed.

Here are the three practical focus areas that will make the biggest difference for your property:

1. Boost profitability and direct bookings with data-driven pricing and distribution.

   Guest behavior is changing fast, so your revenue management, pricing and distribution need to move with the market. Leverage live market data, forward-looking demand signals, competitor insights and booking patterns to update prices, reduce reliance on high-commission OTAs, and push more profitable direct bookings. Lighthouse’s platform for independent hotels combines accurate data with smart automation to help you achieve this the easy way.

2. Simplify and integrate your tech stack to work faster and more cost-effectively.

   Fragmented systems cost you both time and money. A fully integrated setup or all-in-one solution lets you update rates and availability everywhere in seconds, prevent errors, automate manual front desk tasks, and get an accurate overview of your performance, so you can make decisions with confidence. Less admin means more time for guests.

3. Focus on local marketing, direct relationships and loyalty using achievable tactics.

   Domestic travelers and repeat guests are your most reliable source of occupancy. Tailor your messaging and offers to local audiences, use niche OTAs and partnerships to stand out from the crowd, and build guest loyalty through personalized communication and incentives.

In a challenging market with rising competition, relying on old strategies or gut feeling is no longer enough and even dangerous. Improving your efficiency, pricing, revenue and distribution strategy has become key to outperforming competitors and maximizing profitability.

Accurate market data and modern tech can help independent hotel owners like you stay agile, track market shifts and adjust faster thanks to smart automation.

How Lighthouse helps independent hoteliers thrive

Lighthouse is built to give independent hoteliers the control, clarity and time they need to succeed in today’s fast-moving market. Our all-in-one platform streamlines pricing, distribution and operations in one intuitive, automated system – designed with independent properties’ everyday reality in mind.

With Lighthouse for independents, you can:

• Update prices instantly everywhere based on real-time market changes

• Optimize your channel mix and maximize commission-free direct bookings

• Gain insight into your market and competitors, and react quickly with ease

• Save hours of time every week by automating repetitive front desk tasks

Want to stay competitive and profitable, while making your life easier? See how our client Anna Okma from The Fritz Hotel Amsterdam has optimized pricing, distribution and daily hotel operations, just like thousands of other independent hoteliers using Lighthouse.

Automation isn’t there to replace you or your team. It’s there to guide your strategic decision-making for optimal results, to help you gain a competitive edge and to help you focus on what really matters: offering a memorable guest experience.