Neither Luxury nor Budget: The Risk of Getting Stuck in the Middle

The K Splitting the Market

Analysts call it a K-shaped economy: one traveller with high purchasing power who keeps spending, and another who cuts back, compares options or simply does not travel. In hotels, that K translates into a widening performance gap.

In the first half of 2026, RevPAR for luxury hotels in the United States rose 13.3% year on year, while the economy segment was the only one to lose occupancy, average daily rate and RevPAR simultaneously. The midscale segment, according to the same analysis, remains caught between both pressures as it absorbs the new supply that opened in the last cycle.

This is not a new phenomenon. By the end of 2025, luxury was already holding up better in both rate and ancillary spend, while economy and midscale suffered more from the drop in demand.

These are US market figures, but the pattern is recognisable across many Spanish destinations: premium guests do not haggle over the experience, while price-sensitive guests have more alternatives than ever.

Why the Middle Is the Most Uncomfortable Place to Be

Midscale hotels do not lose because they are doing things badly. They lose because nobody chooses them as their first option.

• At the lower end, price-conscious guests compare you with economy hotels, holiday rentals and OTA flash deals.
• At the upper end, higher-spending guests compare you with boutique hotels or upscale four-star properties, looking for an experience you have not defined.
• Internally, labour, energy and maintenance costs rise for everyone, but you have less room to pass them on through your rates.

The result is familiar: greater dependence on intermediary channels, more discounting, and a rate that ends up being your only sales argument. In the middle, you do not compete; you wait for the market to decide for you.

Five Moves to Escape the Middle Without a Major Refurbishment

Repositioning is not about changing category. It is about stopping being a generic option and becoming the best option for someone specific.

1. Choose who you do not want to serve. Positioning means making trade-offs. Define a core segment—families, golfers, cyclists, remote workers or active seniors—and build the proposition around it. Other guests will still come, but they will no longer dictate your product.
2. Turn local into a product. Today’s traveller wants to feel like a local, not a tourist. Local gastronomy, partnerships with producers, routes and experiences that do not appear in any generic ranking. This is differentiation that an economy chain cannot replicate and that a luxury hotel charges dearly for.
3. Design three memorable moments rather than improving everything a little. Arrival, the first morning and departure account for much of the guest’s memory of the stay. Investing there, with intention and a clear script, delivers more than spreading the budget across a hundred details that nobody notices.
4. Repackage instead of discounting. When the market tightens, the instinct is to lower prices. The alternative is to add perceived value at low marginal cost: late breakfast, 2 p.m. check-out, spa access during off-peak hours or an included local experience. You protect your average rate and give guests a reason to book direct.
5. Make your team your competitive advantage. In luxury, service is guaranteed by the brand and the budget. In midscale, it is shaped by the person serving the guest. Hospitality training, the autonomy to resolve issues without asking permission, and genuine recognition are worth more than any amenity.

What Does Not Work

• Lowering prices to compete with economy hotels. It erodes margin and brand, and guests who come for the price leave for the price.
• Imitating luxury with expensive amenities. Without service to match, guests notice the inconsistency before they notice the detail.
• Improving without communicating it. A new experience that does not appear on the website, in OTA listings or in pre-arrival communications does not exist for the person making the booking decision.
• Refurbishing without a commercial strategy. A renovated room for a guest you have not defined is an investment with no clear return.

In Closing

Being neither luxury nor low-cost is not the problem. The problem is not having decided what you are. The hotels best able to withstand this K are not necessarily the biggest or those investing the most, but those that are clear about who they exist for.

Here is a question for your next management meeting: what would you give up to become someone’s first choice?

How are you experiencing this at your hotel? Let me know in the comments.