Efficiency evaluation of Spanish hotel chains

The tourism industry and in particular the hotel sector, is a highly competitive market. In this context, it is important that an hotel chain operates efficiently if it wants to maintain its market position. The objective of this work is to compare the relative efficiency of some of the largest hotel chains operating in Spain. To do this, we have designed a stochastic frontier model to measure revenue efficiency as a function of various different inputs such as total staff or number of rooms. Given that some chains are much bigger than others, both inputs and outputs are normalized by a measure of size. In contrast to previous works, we account for heterogeneity in hotel chains by introducing relevant inputs, such as the proportion of hotels in the chain with three stars or fewer, into the efficiency term of the stochastic frontier model. Our results suggest that in the Spanish case, in the period of the economic crisis, it was better in terms of revenue efficiency, for hotel chains to invest in hotels of three or fewer stars than in higher star rated hotels. Finally, we could find no clear evidence of a relationship between size and efficiency.