Credit card companies and airlines are competing to launch premium high-end services. Leveraging consumer demand for amenities and providing rationale for "additional fees for certain facilities" through tiered services has proven to be an effective strategy to meet consumers' growing comfort and even luxury needs.

While the luxury goods industry appears to be thriving with high profit margins and impressive performance, the budget service sector is struggling, particularly evident in the travel industry. United Airlines CEO Scott Kirby, when discussing low-cost carriers, stated: "That business model doesn't work." (When asked why he believed Spirit Airlines would fail, he said: "Because I'm good at math.")

The "natural selection" of low-cost airlines seems to have quietly begun. Now, budget options in the hotel industry may also face a "reckoning moment" as the balance between operating costs and revenues becomes increasingly difficult to maintain.

Just as low-cost airlines are constrained by weak leisure travel demand, budget hotels are gradually losing their market footing. Compared to high-end hotels, budget hotels' weak performance highlights a core characteristic of the post-pandemic economy that is increasingly defining the overall U.S. consumption landscape: K-shaped recovery (where one segment of the population experiences economic improvement while another experiences decline, creating divergent trajectories).

Bank of America analysts Shaun Kelly and Dany Asaad wrote in a report released Monday: "We are increasingly concerned about the operating prospects for lower-tier and select-service hotels."

Multiple factors underlie the declining performance of budget hotels, with the primary reason being a significant trend throughout the overall economy: uneven recovery. The economic trajectories of high-income and low-income U.S. consumers continue to diverge, clearly visible across various data points including wealth, wages, and consumer confidence. Bank of America's recent analysis of total credit and debit card spending also shows similar disparities, with "significantly weak accommodation spending among low-income groups."

Limited income growth among low-income households is one reason for weak demand in budget accommodation.

Although the notion that "consumers prioritize travel" was prevalent immediately after the pandemic ended, this trend did not persist in subsequent years, particularly for low-income consumers.

This trend poses higher risks for Choice Hotels (CHH) and Wyndham Hotels & Resorts Inc (WH), as these two companies have the highest proportion of lower-tier hotels in their portfolios, while Hyatt (H), Marriott (MAR), and Hilton (HLT) focus primarily on high-end and luxury categories.

On October 15, 2022, the AmericInn hotel sign under Wyndham can be seen in Streator, Illinois, USA.

Analysts found that while overall consumer card spending shows stable modest year-over-year growth, travel spending performance significantly lags. Since early 2023, accommodation and airline spending has declined an average of 2%, while overall spending grew 1%.

"Spending performance among low-income groups is particularly weak," analysts noted. "When segmented by income, low-income groups' spending performance is not only significantly below the overall level but also below that of high-income groups."

Historically, budget hotel chains benefited from economic growth during upturns and gained favor during downturns as consumers sought value. However, analysts note this correlation is beginning to break down.

In the decades before the COVID-19 pandemic, hotel accommodation revenue rose with corporate profit growth, showing high positive correlation with economic growth. This relationship no longer exists today. This is not only because the hotel industry has failed to keep pace with economic growth, but also because a significant portion of the economic sectors themselves have fallen into growth stagnation.