While some hotels respond reactively, adjusting tactics to short-term dips in government transient bookings, the savviest teams are taking a different approach. These commercial teams are leveraging the disruptions as a starting point for more agile, resilient commercial strategies that not only weather the current turbulence but set the stage for stronger, more profitable positioning through 2025 and beyond.

The Shift Goes Deeper Than Numbers

At first glance, the impact of federal policy changes might seem isolated to a narrow slice of demand. Government transient bookings, after all, represent only a small percentage of total U.S. hotel room nights. However, this perspective fails to account for the cascading economic impact of these changes.

Government business demand ripples outward. It includes contractors booked under corporate rate codes, extended stays tied to infrastructure or defense training or projects, nonprofit and academic events reliant on grants, and even leisure travel linked to government workers and military families.

For hotels near bases, federal agencies, or government contractors, this can represent 30–40% of total demand.

And the effects aren’t evenly distributed. While the Washington, D.C., metro area remains the bellwether for federal activity, exposure runs deep in places like Huntsville, Ala.; El Paso, Texas; Santa Fe, N.M.; and research-heavy college towns. In these markets, understanding and managing risk isn’t optional— it’s critical.

Commercial Strategy: The New Compass

Where legacy revenue management focused on optimizing available demand, modern commercial strategy reimagines how hotels define, attract and convert their most profitable business. It integrates sales, marketing, revenue management, and digital distribution around shared goals that center profitability.

Here’s what that looks like in practice:

Unified market intelligence: Hotels need to go beyond generic segment analysis and conduct true exposure mapping to determine:

• What percentage of the business is directly or indirectly influenced by government travel?
• How do booking patterns change during government travel lulls?
• What nongovernment segments share similar characteristics (e.g., booking windows, length of stay, related ancillary spend)?

Hotels leading the way are following the most profitable mix of businesses that tie performance back to demand drivers, federal or otherwise. This unlocks smarter decision-making when reallocating resources or shifting marketing efforts.

Strategic business mix diversification: Kalibri’s market insights show that while government and corporate segments have declined, other channels (particularly online travel agencies or OTAs - and promotions/loyalty member rates) have grown.

But replacing one source with another isn’t a one-to-one equation. It isn’t just about volume; it’s about profitability. A future-focused business mix strategy:

• Maps customer acquisition cost by segment
• Identifies segments with stay patterns that fit operational strengths (e.g., project-based business or regional leisure)
• Builds targeted value propositions, not broad-brush discounts
• Focuses on profit contribution to track segment performance

This isn’t just filling the gap; it’s a proactive realignment toward a more profitable mix of business.

Channel optimization with profit in mind: Shifting to new segments means shifting the channel strategy too. Each channel (direct, OTA, global distribution system — or GDSl — brand.com) has different costs, which can vary seasonally. In an environment where all costs are rising, understanding the true price of acquisition is necessary.

A forward-looking channel strategy includes:

• A dynamic mix of targets that flexes with demand shifts, based on profitability
• Tailored content and rate strategies by segment
• Strategic, not reactive, OTA engagement

Extended stay properties, for instance, are outperforming other classes in some markets. Hotels that develop specialized packages and booking flows for these audiences (e.g., medical or infrastructure workers) will be better positioned for future demand curves.

Flexible resource allocation: The old model of fixed annual budgets and siloed teams is quickly becoming obsolete. Commercial success now hinges on agility. The most successful hotels are:

• Pooling commercial budgets with quarterly reallocation triggers
• Cross-training team members across functions
• Implementing scenario-based planning that links tactics to leading performance indicators
• Reviewing shared profitability metrics across sales, marketing, and revenue teams

The result? Faster pivots, better communication, and fewer missed opportunities when the market shifts again — and it will shift again.

Case in Point: A Midscale Success Story

Consider a midscale hotel adjacent to a major military area. In early 2025, it faced a 30% drop in government-related bookings. Rather than wait out the storm or slash rates, the commercial team took a proactive approach and pivoted.

Knowing government and government-related corporate guests wouldn’t likely be returning soon, they redeployed the sales team to target regional healthcare and advanced manufacturing accounts — segments with similar stay lengths but higher average daily rate (ADR) potential. The results:

• Marketing shifted from broad seasonal pushes to hyper-local weekend getaway promotions.
• Revenue management recalibrated stay controls and offered extended-stay packages to fill midweek gaps.

Within six weeks, government demand dropped, but overall occupancy held steady while revenue per available room (RevPAR) increased slightly. However, the hotel was able to capture higher-rated business through lower cost channels, resulting in an accretive shift in profitable mix.

Metrics That Matter

In an ever-evolving market, legacy metrics aren’t enough. Instead of focusing solely on RevPAR, RevPAR index, or occupancy, future-proof strategies prioritize profitability by:

• Rate category and channel combination vs. historical performance of super-segments (e.g., Transient, Group)
• What hotels keep of what guests pay (profit contribution)
• Commercial agility, which we can define as speed of resource reallocation in response to market changes.

These KPIs don’t just track performance, they build accountability across the commercial team.

Looking Ahead: Beyond the Current Policy Cycle

While federal policies may stabilize or even rebound in late 2025, the lessons of the past several months remain vital:

• Dependence on one or two segments is risky, regardless of market demand
• Siloed commercial disciplines slow response time
• Profitability, not just volume of room nights or ADR increases, must guide commercial decisions
• Agility is a competitive advantage

The most resilient hotels will be those that view current challenges not as temporary disruption but as a prompt to evolve how they operate. Because the next disruption, whether it’s geopolitical, domestic policy, economic, or behavioral, is always just around the corner.

Reset, Rethink, Rebuild

This moment calls for more than tactical adjustments. It calls for strategic reinvention. By embedding commercial strategy into the core of hotel operations, today’s strongest commercial teams set themselves up for strength and flexibility through 2025 and beyond. The turbulence may persist, but with the right commercial compass, hotels can chart a smarter, more sustainable path forward.