The role of expansion strategies and operational attributes on hotel performance: a compositional approach

TL;DR

This paper investigates how different hotel expansion strategies and attributes affect performance metrics like RevPAR, efficiency, occupancy, and asset turnover, using compositional data analysis to provide more accurate insights.

Contribution

It introduces the application of compositional data analysis (CoDA) to evaluate hotel expansion strategies and performance, offering a novel methodological approach in hospitality research.

Findings

Ownership strategies boost operational performance but increase capital costs.

Non-ownership strategies improve economic efficiency and reduce financial risk.

CoDA provides more reliable analysis of hotel performance data.

Abstract

This study aims to explore the impact of expansion strategies and specific attributes of hotel establishments on the performance of international hotel chains, focusing on four key performance indicators: RevPAR, efficiency, occupancy, and asset turnover. Data were collected from 255 hotels across various international hotel chains, providing a comprehensive assessment of how different expansion strategies and hotel attributes influence performance. The research employs compositional data analysis (CoDA) to address the methodological limitations of traditional financial ratios in statistical analysis. The findings indicate that ownership-based expansion strategies result in higher operational performance, as measured by revenue per available room, but yield lower economic performance due to the high capital investment required. Non-ownership strategies, such as management contracts and franchising, show superior economic efficiency, offering more flexibility and reduced financial risk. This study contributes to the hospitality management literature by applying CoDA, a novel methodological approach in this field, to examine the performance of different hotel expansion strategies with a sound and more appropriate method. The insights provided can guide hotel managers and investors in making informed decisions to optimize both operational and economic performance.