Evaluating economic viability of the lodging industry. Independent vs chain hotels

Abstract

The purpose of this paper is to evaluate the economic results of the independent hotels in comparison with the chain hotels as well as report good practices for the viability of the lodging industry. Methodology: an empirical survey took place in Greece and it concerns the period 2008-2011. The study was conducted via on-line questionnaires and the sample consists of 165 hotel units. Thirty five of them are independent hotels and the rest (130 units) belong to 35 hotel chains. The hotel classification varies from 2 to 5 stars and most properties are resort and city hotels. Findings: the main findings of the survey show that for the period 2008-2011 the independent hotels are more profitable compared to the chain hotels. The sector’s best practices include conducting a market and financial feasibility study before developing any property; purchase of assets in different cities and regions so that a drop in one market will not affect the others; developing mixed-use enterprises; balancing the needs and expectations of the hotel chains’ various stakeholders; environmental certification and commitment; continuous investments and sufficient working capital to support the penetration in new markets; carefully planned and effectively implemented strategies contributing in the success, profitability and viability of the enterprise. Research limitations: this research was limited to the Greek hotel sector. Another limitation was the reluctance of some hotel managers to share the financial data of their property. Despite this fact, the sample is enough for reliable findings and conclusions, since the sample’s size (bed capacity equal to 76.777 that accounts for the 10,85% of Greece’s total 2*-5*capacity) is considered representative. Originality/value: a financial analysis, the application of both benchmarking and empirical analysis for the hotel economic assessment, as well as the identification of good practices for the hospitality properties’ viability are among the main contributions of this study. Based on the findings of the survey, investors and hotel operators may have a clearer picture of whether it is preferable to invest their funds in the development of an independent hotel or they should turn to chain ownership.