As the hospitality industry continues to navigate the current economic pressures, inflated operational costs, and evolving guest expectations, preparing a strategic and resilient 2026 hotel budget is more important than ever.
Whilst for many operations revenues remain strong, the challenge for many operational teams is how to maintain the conversion or flow through to gross operating profit (GOP). According to a recent article from industry benchmarking experts, HOTSTATS, labour costs in key European markets are showing increases of 4–6% year-on-year which are outpacing revenue growth. This is eroding the GOP per available room (GOPPAR) and putting pressure on operators to rethink what drives performance.
“We are going into a much more difficult time where labour costs are growing more than the revenues in the UK,” said Michael Grove, Chief Operating Officer at HotStats, during a recent HOSPA webinar.
This comes at a time when material costs such as the cost of food, are also continuing to increase, impacting catering operations where the remaining gross profit (revenue less cost of sales) needs to be sufficient to cover all the operational costs, both direct and indirect.
In order to be successful, the hotel sector must approach this forthcoming budgeting cycle with precision, foresight, and flexibility to remain competitive and profitable. This means reviewing the profitability of each revenue stream and planning for the optimal sales mix to make the best use of the hotel assets as well as maximising flow through to GOP to satisfy investors whilst meeting and exceeding customer expectations.
Meaningful budgeting for 2026 requires anticipating the upcoming challenges, managing risk, and aligning resources carefully with strategic goals.
But what does this mean in practice?
The budget process is the ideal time to realign the business strategy to meet the anticipated opportunities and threats expected from 2026. For all hospitality businesses this means reviewing the current strengths and weaknesses and developing strategies to capitalise on opportunities and identify the risks. This is the time to review capital investment projects in the right innovations—such as contactless services, AI-driven personalisation, or energy-efficient upgrades to maximise the resources of the business.
There is no doubt that labour shortages and rising wage expectations are likely to continue to pressure hotel margins in the profit and loss account. A well-structured 2026 budget can help to support workforce planning, investments in automation, and competitive remuneration strategies to attract talent and reduce staff turnover.
A useful practice is to work with your multifunctional team to develop a number of budget scenarios for both predicted revenue and cost—best-case, worst-case, and most-likely case. Where possible, these should be based on projected external factors such as regional economic growth forecasts, inflation rates, interest rates, currency fluctuations, and revenue trends. Hotels have fixed capacity for rooms and other revenue generating spaces and these income streams need to be carefully managed to optimise profitability.
This collegiate scenario planning process not only enhances your businesses agility and preparedness but also enables the whole team to understand the implications when the business environment changes. Multiple budget scenarios offer the opportunity to discuss different options and their possible impacts on the business.
Good budgeting practice also needs to be accompanied by adaptive forecasting. The budget provides the opportunity to develop the business strategy, but updating the forecast (ideally at least on a monthly basis) is essential in order to adapt to the changing economic environment and the impact on demand.
Our forthcoming course – Get Behind the Numbers: Hotel Budgeting Unlocked provides operational teams with a great opportunity to sharpen both their budgeting and forecasting skills in preparation for the challenges to come in 2026.
This five-week course starting on the 15th September and then again on the 15th October for a second intake, combines weekly live one-hour sessions with financial expert, Debra Adams and online content from the finance4hospitality academy.
Designed to fit in with busy working patterns this course is ideal for managers and operational teams who may not possess a financial background but who are required to contribute to the budgeting and forecasting process.
Contact us for more information at debra.adams@arena4fiannce.co.uk or to book visit Behind The Numbers: Hotel Budgeting Unlocked Book before 31st August with discount code a4f50 to enjoy an early bird 50% discount on the standard fee.
Photo by krakenimages on Unsplash
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