Why the K-Shaped Market is a Distribution Problem for Hotels (and How to Fix It)

Luxury hotels are pulling away from the rest of the market. The hotels in the middle still have the most important lever left, and it is not their rate.

Picture two hotels on the same avenue in the same city. One is an ultraluxury property where the suites have been selling out for months, often at rates that looked unthinkable a few years ago. The other is a well-run upper midscale hotel a block away, with clean rooms, a loyal following, and a rate that has barely moved since last spring. Same street. Same weather. Two completely different years.

I have spent most of my career in hotel distribution, at Hilton, at Sabre, and now at DerbySoft, and I have watched a lot of cycles come and go. What we are living through now is not a cycle. It is a split, and it is changing how hotels in the middle of the market need to think about where their next booking actually comes from.

The Numbers Behind the Split

Economists call it a K-Shaped Economy: higher-income households keep spending while middle and lower-income households pull back. In lodging, that split is now plain in the data. Travel Weekly reports that RevPAR growth at the high end is far outpacing the rest of the market heading into 2026, and the trend shows no sign of slowing.

The segment numbers make it concrete. Through late 2025, luxury hotels grew RevPAR by 2.9%, while upper upscale managed 0.4%, upscale slipped 1.5%, upper midscale fell 1.9%, midscale dropped 2.6%, and economy declined 4.1%. Read that top to bottom and you can see the K. And it is starting to look less like a downturn and more like the new normal.

Why the Rate War is the Wrong Fight for Mid-Market Hotels

Luxury demand is strong enough right now that some properties are converting standard rooms into suites and pulling lower-priced inventory off the shelf, because the high-end product is what sells. A mid-market hotel does not have that option. Its guests are precisely the travelers who are watching their spending, comparing rates more carefully, and in some cases trading down to short-term rentals.

When demand softens, the reflex is to chase the booking with the lowest rate. I understand the pull of it. But cutting the price to win a price-sensitive guest trains the whole base to expect a discount, and it quietly lowers what the brand is worth. It also does not solve the real problem, because the issue in a K-shaped market is rarely that a hotel is priced too high. It is that the right guests are not finding the property in the first place.

Aspirational perks or cost efficiency? Choose with Data

There is a genuine strategic decision in front of mid-market operators. Some will lean into aspirational touches, the upgrades and small experiences that let a guest feel they are getting a taste of something more premium. Others will sharpen cost efficiency and protect profitability. In my view this is not an either-or. Both work when they are aimed at the right guest, and the only way to know who that guest is comes from understanding how the hotel distributes and sells its rooms.

That is the through-line. Distribution data tells an operator which channels bring the guests worth investing in, which rate plans hold their value, and where an aspirational perk earns its keep instead of eroding margin. Strategy without that visibility is guesswork. With it, the choice between premium experience and lean efficiency becomes a question a hotel can actually answer.

The K-shaped market is a real challenge, and I do not want to wave it away. But for hotels in the middle, it is also an invitation to get sharper about something they already control. The properties that come through this period strongest will not be the ones that cut the rates the deepest. They will be the ones that knew exactly who was booking, through which channel, and at what value, and built their strategy around that. No matter which arm of the K a hotel starts on, that is how it climbs.

Your rate is not your only lever. Your distribution is. See what DerbySoft can show you about the guests you are winning, the ones you are missing, and the channels worth investing in.

About the Author

Duane Overgaard is the Divisional CEO, Hospitality, of DerbySoft. With over 30 years of experience in the hospitality industry, he has a diverse skill set that includes account management, business development, and contract negotiation.

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