Hotels turn to AI and automation to drive profitability amid economic uncertainty

Amid macroeconomic pressures, rising costs and a decline in international travel, the hotel management sector is cutting spending in some areas, but technology investment is viewed as a crucial strategy to maximize profitability in the years to come. In fact, hotel operators and investors see technology as a potential solution to current economic challenges.

Hoteliers are investing in a range of artificial intelligence (AI) applications, including revenue management, personalization and automation of everything from guest services to tax compliance. According to a recent Phocuswright survey of hotel management companies and hotel investors with U.S. holdings, AI is key to helping hoteliers survive and thrive via unprecedented operational efficiency.

Macroeconomic pressures reshape hotel strategies

While U.S. economic indicators have been mixed in 2025, ongoing inflation, high interest rates and a sluggish economy are taking their toll. Hotel management companies and investors indicate a range of macroeconomic trends are impacting hotel cost structure. More than half (55%) include labor costs and staffing shortages among the highest-impact trends, and roughly four in 10 (41%), cite inflation and insurance premiums/risk management costs, respectively.

The hotel sector is also being impacted by a decline in international visitation. Inbound international visits to the U.S. are projected to decrease 6.3% in 2025. More than half of survey respondents indicate business from international travel has decreased in 2025, while only 12% report an increase.

These mounting pressures have forced hoteliers to adjust their operational strategies in a variety of ways. Most commonly, hotels are reducing staffing levels and delaying new hires, stretching existing resources. Notably, however, economic uncertainty is also fueling technology investment. Technology is viewed as a key way to improve operational efficiency, and these tech investments are more likely to be prioritized over other strategies.

A multifaceted technology playbook

Hotel managers and investors often consider multiple factors when evaluating the ROI of a new operational technology tool. Improved guest satisfaction is the most commonly cited goal influencing tech investment, but hoteliers also consider how seamlessly the tool will integrate with existing systems, the ability to reallocate staff or reduce headcount and cost and/or time savings.

In the current environment where hotels are already operating with limited staff, technology that automates processes and maximizes efficiency becomes even more important.

When asked to describe the operational change or technology investment with the greatest potential to improve hotel profitability over the next three years, respondents were most likely to cite AI/automation and data and platform integration. Other key investment objectives include improving the guest experience, revenue management and workflow optimization.

“At the core, AI enables us to shift from reactive to predictive and prescriptive decision-making, driving efficiencies, enhancing guest experience and unlocking entirely new revenue streams,” said one hotel management leader in a survey response. “Ultimately, AI is not just a technology investment for us, it’s a profitability engine, a cultural shift and a long-term competitive advantage.”

While AI is the top strategy for driving profit overall, the technology is also powering many of the other profit-driving efforts hotels are focusing on, including revenue management, personalization, marketing and operational efficiency. Hoteliers see the highest potential ROI in AI applications focused on guest service automation (56%), revenue forecasting and dynamic pricing (50%) and marketing and personalization (46%). However, hotel managers and investors are investing in AI across many areas other of hotel operations.

Hotels’ multi-faceted approach to AI encompasses several different objectives. Among them:

• Improving the customer experience (e.g., guest service automation)
• Optimizing decision-making (e.g., prediction and analytics tools to drive pricing and marketing decisions)
• Optimizing operational efficiency (e.g., automation)

Some of these technologies are flashier and more visible than others but all play a role in boosting hotel profitability. AI robots, for example, may garner the most headlines, but the technology tools that drive behind-the-scenes insights and efficiencies are essential for hotels to remain competitive in the years to come.

Optimizing efficiency across all areas of operations

AI is creating huge opportunities for automation across hotel operations. Some AI efficiency tools enable capabilities that simply were not possible previously, such as intelligent scheduling, optimized energy management, inventory control, predictive maintenance and supply chain optimization. Other AI tools and complementary approaches, such as robotic process automation (RPA), make it possible to automate tasks that have traditionally been done manually, freeing up crucial human resources at a time when staffing levels are strained.

One hotel management executive said, “I believe that introducing end-to-end automated workflows (RPA/workflow engine) in the hotel management side can significantly reduce the burden on the operation team, allowing human resources to focus more on high-value activities.”

Another respondent said, “We are investing in AI tools that streamline guest communication and overall experience to mitigate the downside of the labor shortage (and high overhead in general). We believe this will help increase our NPS [net promoter score] and therefore RevPAR [revenue per available room].” 

Agentic AI for compliance workflows

One opportunity for automation that is sometimes overlooked is tax compliance. Compliance is an operational necessity in hotel management and much of the process can now be automated, saving time and resources. Lodging tax compliance can be a burden on organizations, particularly at times when organizational change is underway. Only four in 10 respondents (42%) are confident in their organization’s ability to maintain lodging tax compliance while scaling or restructuring operations.

Among the aspects of lodging compliance hotel managers find to be most difficult and/or time-consuming are understanding local tax rates and rules (42%), filing monthly and quarterly returns (30%) and understanding marketplace and channel-specific rules (28%). Time spent navigating various regulations to ensure compliance could be better used on projects that generate revenue. In the current economic environment, automating low-ROI tasks like compliance is essential.

Avalara, a leader in tax and compliance automation, is applying agentic AI to streamline the compliance lifecycle for hotels. The Avalara Agentic Tax and Compliance Platform automates end-to-end occupancy tax workflows, from rate calculation and reporting to filing and remittance, while integrating seamlessly with existing hotel and accounting systems.

By transforming compliance from a manual process into an intelligent, automated function, Avalara helps hotel operators reduce errors, lower costs and free staff to focus on growth and guest experience. In a period of economic pressure and lean staffing, automation in compliance isn’t just a convenience; it’s a competitive advantage.

Looking ahead

The hotel sector is at an inflection point. Economic pressures are unlikely to ease soon, and operators will continue navigating staffing shortages, cost inflation and shifting demand patterns. Yet the path forward is clear: Leaders increasingly are betting on technology, led by AI and automation, as both a buffer against disruption and a catalyst for long-term competitive advantage.