Profitability in Egyptian hotels: business model and sustainability impact

Abstract

The goals of this research are: first, to identify factors impacting hotel profitability; second, to explore the profitability ratios most commonly used by Egyptian hotel managers; third, to examine whether the hotel profitability is considered an issue of control or not. Questionnaires were collected from a convenience sample of hotels at different locations in Egypt. Two-stage analysis was performed, involving the hotel profitability estimation in the first stage using a sophisticated frontier analysis technique (LIMDEP), and the determination of hotel profitability determinants during the second stage using regression analysis. Results showed that hotels’ ability to succeed is not only determined by their business model attributes of size or location, but by their type, brand, and some controlled factors such as sustainability practices. The importance/performance analysis (IPA) showed that occupancy rate as a profitability indicator was situated in the second IPA quadrant, meaning similarity between importance and performance perceptions. Furthermore, measuring efficiency is a useful tool to identify factors impacting profitability. This research found that hotels located in the capital city do not show higher profitability values than hotels locating in remote areas. Hotels’ size, capacity, star rating, type, managers’ experience and sustainability factors were found to be the main profitability determinants. To date, this study is one of the first attempts to identify hotel profitability determinants in Egyptian hotels.

Keywords: business model, Egyptian hotels, frontier technique, profitability, sustainability