Impact of quality on estimations of hotel efficiency

• Published in: Tourism management (1982) Vol. 61; pp. 200 - 208
• Main Authors: Arbelo-Pérez, Marta, Arbelo, Antonio, Pérez-Gómez, Pilar
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01-08-2017
• Subjects: Cost efficiency; Hotel industry; Output quality; Profit efficiency; Stochastic frontier; Output quality; Stochastic frontier; Profit efficiency; Hotel industry; Cost efficiency
• ISSN: 0261-5177; 1879-3193
• DOI: 10.1016/j.tourman.2017.02.011

This paper provides empirical evidence on the impact of output quality on hotel efficiency. It demonstrates how ignoring quality can lead to erroneous efficiency estimates. The study uses stochastic frontier methodology and the model proposed by Battese and Coelli (1995) to estimate the efficiency of 838 hotels in Spain in the period 2009–2013. The key advantage of this methodology is its ability to estimate efficiency and identify factors that explain differences in efficiency in a single-stage sampling procedure. Estimates of cost efficiency, which only include the costs of higher quality, are compared to those of profit efficiency, which not only consider costs but also the revenues generated by higher quality. Results show that quality has a negative impact on cost efficiency and a positive one on profit efficiency. Thus, hotel management should implement strategies that increase the value of their services as a way to achieve sustainable competitive advantages.
•The hotel industry is operating with substantial profit inefficiencies.•The quality of hotel services has a significant impact on overall efficiency.•Profit efficiency is more relevant than cost efficiency when output quality differs.