Cost and Profit Efficiencies in the Spanish Hotel Industry

Abstract

This article focuses on estimating and discussing cost and profit efficiencies related with the Spanish hotel sector. Managers have a special interest in controlling costs as a source of competitive advantage, which may enable companies to improve their results in a continuous manner. However, they usually do not attribute much importance to the improvement of profit efficiency, which is generally much lower than cost efficiency and as a result vital for achieving competitive advantage. In this article, cost and profit efficiencies are estimated in the Spanish hotel sector using a data panel for the years 2007 to 2011 and using distribution free approach methodology. The results show profit efficiency levels significantly lower than levels of cost efficiency, thereby confirming our working hypothesis.

Operating Profit Drivers for Large Companies in the Spanish Hotel Sector: A Temporal Analysis (2004-2017)

“…For the overall period, the results of the analysis show that income efficiency is the variable with the greatest positive impact on profit efficiency. This result is consistent with Arbelo et al (2015), who note that income efficiency is the path with the greatest potential to improve profit efficiency for Spanish hotels. Moreover, the result is also consistent with the notoriety achieved by revenue management systems and their effects on hotel profitability (Queenan et al, 2011).…”

“…Therefore, improvements in income efficiency have had a greater impact on profit efficiency than improvements in cost efficiency. These results are consistent with Arbelo et al (2015). These authors confirm that the greatest margin for improvement in profit efficiency by the Spanish hotel industry in the years 2007 to 2011 was precisely in revenue efficiency.…”

“…The efficiency of a hotel is measured by the distance of the observed data from the benchmark frontier. These methods have been extended to directly analyze the profit efficiency in the hotel industry (Arbelo et al, 2015; Arbelo-Pérez et al, 2017). Two types of frontier methodologies are usually distinguished: parametric and nonparametric (Assaf & Josiasson, 2015).…”

“…Considering profit as the main management objective, profit efficiency has been proposed as an indicator that best reflects the management performance of a hotel company (Arbelo et al, 2015). In this line, profit efficiency is defined as the ratio of the current profit to a hypothetical maximum profit that a company could obtain, where the hypothetical maximum profit is calculated using the best performance of hotel companies as a benchmark.…”

Heterogeneity of Resources and Performance in the Hotel Industry

“…Due to the tourist industry’s growing importance to the economic development of many countries, there is abundant literature on efficiency measurement and its determinants, especially regarding the hotel industry (Aissa & Goaied, 2016; Arbelo et al, 2017; Arbelo et al, 2018; Assaf & Barros, 2013; Assaf et al, 2010; Bernini & Guizzardi, 2010; De Jorge & Suárez, 2014; Oliveira et al, 2013; Wang et al, 2006, among others). From a strategic perspective, evaluating the efficiency of hotels is important because it enables comparisons of performance between competing hotels, control over organizational results, and comparisons of the profits obtained using different inputs (C.…”