An insight into hotels' characteristics and determinants of profitability in the Algarve: does an extra star really matter?

Abstract

This paper analyses profitability of four and five-star hotels in the Algarve.It providesevidence of hotel classification as a predictor of profitability, being four-star hotels more profitable, driven by higher assets turnover. Size isnegatively correlated with profitability. An OLS model explains how and to what extent hotel characteristics and Return on Assets’driversaffect profitability. The research is of particular interest to managers, who can take in accounthow an extra star and how and to what extent changes in profitability drivers, with fixed costsand the number of rooms available remaining constant, impact profitability and its drivers.