How hotels and travel companies make money
Owners, operators, and franchisors; the travel value chain from airline to online agency; revenue streams; and an approximate hotel cost breakdown.
Industry brief, with a one-minute summary: Hotels and travelFirm processes and online tests change from year to year and differ by office. Use this to prepare, and confirm the exact current steps on the firm's own careers page.
Key takeaways
- A hotel sells the use of a room for one night. A room left empty tonight can never be sold again, and most hotel costs are fixed.
- Hotels: room nights (the largest part), food and drink, meetings and events, spa, parking.
- Tour operators: sell packages (flight plus hotel) and earn the gap between the package price and their bulk costs.
- Occupancy: rooms sold divided by rooms available, in a period.
- Average daily rate (ADR): rooms revenue divided by rooms sold. It is the average price per sold room night.
Key idea
A hotel sells the use of a room for one night. A room left empty tonight can never be sold again, and most hotel costs are fixed. So hotels live or die by how many rooms they fill and at what price.
One hotel building can involve three different companies. Knowing which one your client is will change the whole case.
| Role | What it does | How it earns money | Main risk |
|---|---|---|---|
| Owner | Owns the land and building, pays to build and refurbish | Keeps the hotel's operating profit after fees; gains if the property rises in value | Carries almost all the cost and the downturn risk |
| Operator (manager) | Runs the hotel day to day under a management contract | Base fee of roughly 2 to 4 percent of revenue (3 percent is most common, according to HVS) plus an incentive fee tied to profit | Loses fees if performance is weak or the contract ends |
| Franchisor (brand) | Lends its brand, booking system, and loyalty programme | Franchise fees of roughly 4 to 6 percent of rooms revenue plus programme fees | Brand damage if franchisees run poor hotels |
So-what
Large hotel groups have become asset light: they collect fees and leave the buildings, and most of the risk, to owners.
An asset-light hotel company owns few buildings. Marriott, for example, reported in its 2025 annual report that it owned or leased less than 1 percent of its rooms; the rest were franchised, licensed, or managed. Owners include families, real estate funds, listed property companies called REITs (real estate investment trusts), and in the Gulf often government-linked developers.
- A trip from search to stay
- Search and inspirationSearch engines, social media, travel apps, AI assistants
- Key: BookingHotel and airline websites (direct), online travel agencies (OTAs), travel agents, tour operators, corporate travel agencies
- TransportAirlines, rail, car rental; see the Airlines module
- StayHotels, serviced apartments, short-term rentals, resorts, cruise ships
- ExperiencesTours, attractions, events, restaurants
How the players earn money
- Hotels: room nights (the largest part), food and drink, meetings and events, spa, parking.
- Online travel agencies (OTAs), such as Booking.com, Expedia, Trip.com, and MakeMyTrip: a commission from the hotel on each booking (agency model), or a margin when they collect the payment and pay the hotel later (merchant model), plus advertising.
- Tour operators: sell packages (flight plus hotel) and earn the gap between the package price and their bulk costs.
- Short-term rental platforms: a fee from the guest and the host.
| Line | Approximate share of revenue | Comment |
|---|---|---|
| Labour (all departments) | 30 to 40 percent | Housekeeping, front desk, kitchen, service, maintenance |
| Food and drink cost of sales | 8 to 12 percent | Only for hotels with restaurants and events |
| Distribution | 4 to 8 percent | OTA commissions, booking systems, card fees |
| Energy and maintenance | 7 to 10 percent | Higher in hot climates and older buildings |
| Sales, marketing, and administration | 10 to 15 percent | Includes loyalty programme costs |
| Gross operating profit (GOP) | 30 to 40 percent | Before management fees, property costs, and financing. Some regions run higher: HotStats reported about 44 percent in the Middle East and 47 percent in India in 2025, against about 37 percent in Europe |
So-what
Below GOP, the owner still pays fees, property tax, insurance, a reserve for refurbishment, and the cost of the building.
Key hotel metrics
- Occupancy: rooms sold divided by rooms available, in a period.
- Average daily rate (ADR): rooms revenue divided by rooms sold. It is the average price per sold room night.
- RevPAR (revenue per available room): rooms revenue divided by rooms available. RevPAR = occupancy x ADR.
- GOP and GOPPAR: gross operating profit, in total and per available room.
- Channel mix: the share of bookings from direct channels, OTAs, groups, and corporate contracts.
A hotel group's client asks for advice. It owns no buildings and earns fees. What role is it?
Sources for this lesson (4)
- Recognized public explanations of case-interview concepts and terms
- HotStats: midscale hotels and experience-focused resorts drive profit gains across Europe, with regional GOP margins, via Hotel Online (August 2025)
- HVS: a new approach to hotel management fees (base fees of 2 to 4 percent of revenue)
- Marriott International Form 10-K for 2025
My notes on this lesson
0 of 5,000 characters. Saves automatically.
Try the 1 remaining check or drill above to complete this lesson (0 of 1 done).
Spotted something wrong or out of date? Report a mistake. We check every report and correct the page.