Federal travel cuts are leaving many hotels in a revenue bind. Alongside rising inbound international uncertainty, U.S. hoteliers are also witnessing a significant pullback in government-based travel due to changes in federal policies and funding cuts. The disruption of federal travel remains one of the unsung stories of hoteliers’ struggles in 2025, as while corporate bookings experienced a range of market-based success throughout Q1 and Q2 2025, government travel was down 11 percent year over year.
The source? Per diem rates for government travelers are distressingly low compared to average daily rates across the U.S. In 2025, standard per diem rates are set at approximately $178 per day, or roughly $110 for lodging and $68 for meals and incidentals. According to STR, the U.S. average daily rate was $158.93 in July 2025, indicating that many properties are out of reach for government travelers, despite suboptimal occupancy across various markets. Additionally, layoffs have swept through the federal government, with up to an estimated 300,000 employees exiting the federal workforce on the horizon.
If fully realized, a retraction in bookings of this scale disproportionately impacts the economy, midscale and upper-midscale segments. These hotels are now forced into closer competition with each other, placing significant downward pressure on room rates while the guest experience bears the burden. The reduction in government travel is also quietly expanding the pool of available properties for group bookings, thereby reducing the value of these reliable booking pools, which many properties rely on for consistent revenue throughout the year. How can hoteliers adapt to such a pullback from an entire segment?
Market by Market
Not all markets are equally impacted by these trends, and the path to hotel profitability today is lined with opportunities as guests adjust their booking behavior in response to room availability. Gateway cities and locations with a high federal presence are seeing the highest decline in group demand. This gap between forecast expectations and results are leaving many operators in a scramble to close the gap as best they can. Thanks to emerging technology, opportunities continue to emerge.
Traditional group sales strategies have been disrupted thanks to consumers’ increasing awareness of deals and opportunities for lower rates amid a low-occupancy market. Furthermore, the prevalence of generative search has led to fewer interactions with a hotel’s website or sales team. These elements have combined to reduce the window of opportunity to reach your ideal guests.
Price remains the ultimate motivating factor behind bookings, and hoteliers are finding ways to punch above their property’s earning potential by timing offerings using advanced marketing capabilities interlinked with revenue management technology. Integrations with automated upselling and booking systems help operators act on guest decision-making within a moment’s notice, allowing hotels to remain agile in the face of the unknown while giving consumers confidence that they secured a favorable deal.
Certain About Uncertainty
The impact of reduced government travel came as an unwelcome surprise to many operators, as not all had a clear view into what was bringing guests in—or when to adapt. This underscores the importance of well-defined guest segment data; when an RMS detects fluctuations in demand for key segments like government travelers, automated tweaks to pricing and inventory controls can help hoteliers better capitalize on the demand that does materialize. This is effective, in part, because of an advanced RMS’ ability to independently forecast demand for individual segments and account for the network effects these segments have on one another (e.g., understanding how a drop in group demand impacts leisure or business segments as well) in order to find the optimal mix of pricing and controls for the market overall. Other capabilities, such as scenario modeling, can help operators prepare for the unexpected and mitigate the impact of uncertainty.
Advanced RMS technology can also help ensure commercial teams take a level-headed approach when pursuing the group business that is available. Instead of immediately scrambling to secure group business at (nearly) any cost via price cuts and incentives, profit-based evaluation tools can help them weigh whether it’s likely better for their bottom line to fill these room blocks with transient demand during a specific date.
Just as valuable as agility is precision, as hoteliers cannot afford to make mistakes and offer unnecessary chargebacks during periods of such high competition. Operators need access to reliable, trustworthy technology that can enhance their commercial strategy amid policy-driven volatility, and that starts with having a clear understanding of the markets and guests that drive your hotel’s success. After all, group travel has yet to fully settle from the disruptions of 2020, and hotels are still shaping the landscape for their complete return.
Government travel may be on a downward trend for the foreseeable future, but that doesn’t mean your hotel is without options. With the right technology and a strong commercial strategy, hotels can remain competitive in their marketplace and effectively court the group travel they are truly after.
Maricarmen Cardenas is regional solutions engineer at IDeaS Revenue Solutions.