See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/281401752

Cost and Profit Efficiencies in the Spanish Hotel

Industry

Article  in  Journal of Hospitality and Tourism Research · July 2015

DOI: 10.1177/1096348015587999

CITATIONS READS

15 566

1 author:

Antonio Arbelo Alvarez

Universidad de La Laguna
19 PUBLICATIONS   188 CITATIONS   

SEE PROFILE

All content following this page was uploaded by Antonio Arbelo Alvarez on 01 September 2015.

The user has requested enhancement of the downloaded file.

 COST AND PROFIT EFFICIENCIES IN
THE SPANISH HOTEL INDUSTRY

ANTONIO ARBELO
PILAR PÉREZ-GÓMEZ
ENRIQUE GONZÁLEZ-DÁVILA
FELIPE MANUEL ROSA-GONZÁLEZ
University of La Laguna

This article focuses on estimating and discussing cost and profit efficiencies related with
the Spanish hotel sector. Managers have a special interest in controlling costs as a source
of competitive advantage, which may enable companies to improve their results in a
continuous manner. However, they usually do not attribute much importance to the
improvement of profit efficiency, which is generally much lower than cost efficiency and
as a result vital for achieving competitive advantage. In this article, cost and profit
efficiencies are estimated in the Spanish hotel sector using a data panel for the years
2007 to 2011 and using distribution free approach methodology. The results show profit
efficiency levels significantly lower than levels of cost efficiency, thereby confirming our
working hypothesis.

KEYWORDS: hotel sector; costs efficiency; profit efficiency; competitive

advantage; data panel; distribution free

INTRODUCTION
Over the past decade, there have been numerous articles studying efficiency
in the tourism industry, highlighting its importance in order to improve hotel
performance (e.g., Anderson, Fok, & Scott, 2000; Assaf & Agbola, 2014; Assaf,
Barros, & Josiassen, 2010; Assaf & Magnini, 2012; Barros & Alves, 2004;
Barros, Dieke, & Santos, 2010; Barros & Mascarenhas, 2005; Barros & Santos,
2006; Brown & Ragsdale, 2002; T. H. Chen, 2009; Pulina, Detotto, & Paba,
2010; Reynolds & Biel, 2007; Untong, Kaosa-Ard, Ramos, & Rey-Maquieira,
2011).1 All these articles used a standard methodology and a conceptual
framework, where “managerial efficiency” is the core element that refers to the
ability of a hotel to maximize its profits and minimize its costs under the given
circumstances.
However, most of the literature in this field focuses on investigating
efficiency from the cost side (cost minimization), estimating economies of scale
and scope to quantify the cost inefficiencies of operating at a nonoptimal level
of production and/or with a combination of products (Lin & Liu, 2000; Weng &
Wang, 2006); or estimating X-efficiencies to fix cost inefficiencies of a

Journal of Hospitality & Tourism Research, Vol. XX, No. X, Month, 2015, 1–21
DOI: 10.1177/1096348015587999
© 2015 International Council on Hotel, Restaurant and Institutional Education
nonoptimal management of resources (Anderson, Fish, Xia, & Michello, 1999;
Assaf & Agbola, 2014; Assaf et al., 2010; Assaf & Magnini, 2012; Barros, 2004,
2005a, 2005b; Barros & Santos, 2006; Hwang & Chang, 2003; Pulina et al.,
2010; Rodriguez & González, 2007).
However, the goal of maximizing profits has had little to no research attention
in the hotel industry. Not only does this goal require that goods and services be
produced at minimum cost, but it also requires revenues to be maximized. The
concept that best reflects these two important economic aims is profit efficiency
(Berger & Mester, 1997), defined as the ratio between current profit and
maximum profit. This is a more accurate concept than cost efficiency, as it takes
into consideration both the effect of the choice of the portfolio of products and
services on costs as well as revenues. Therefore, estimating profit efficiency is
much more important for the management of hotels than the partial perspective
given by cost efficiency. In fact, there is empirical evidence showing that other
industries have much higher levels of profit inefficiencies than costs
inefficiencies (Berger, Hancock, & Humphrey, 1993; Berger & Mester, 1997;
Maudos, Pastor, Pérez, & Quesada, 2002). This highlights the importance of
inefficiency on the side of revenue because of the failure to produce a higher
output value.
Given the superiority of the concept of profit efficiency in relation to cost
efficiency in the study of economic efficiency, this article has an innovative goal
since it estimates, in addition to cost efficiency, profit efficiency for a sample of
hotels in Spain from 2007 to 2011, using a methodology also innovative in this
sector, that is, the distribution free approach (DFA). This approach has not been
previously used to estimate efficiency in the hotel industry and it differs from
the two techniques that have dominated studies in the field to this day, that is,
data envelopment analysis (DEA) and the stochastic frontier approach (SFA).
The structure of the rest of this paper is as follows: In the second section, the
concept of economic efficiency is analyzed; in the third section, a review of the
literature in this area is undertaken; in the fourth section, the empirical model is
introduced. The description of the data and empirical results are presented in the
fifth section. Finally, the conclusions of the article are presented.

ECONOMIC EFFICIENCY
Economic literature considers cost and profit efficiencies the two most
important concepts of economic efficiency. They are based on economic
optimization as a reaction to price and market competition rather than the use of
a particular technology (Berger & Mester, 1997).2 In other words, these two
concepts of efficiency respond in turn to two important economic goals: cost
minimization and profit maximization.
However, a review of the literature on efficiency in the hotel industry and
other sectors shows a dominant interest in estimating cost efficiencies. In
contrast, there are relatively few studies that have dealt with estimations of profit
efficiency. These have primarily focused on the financial sector, mainly due to
technical difficulties involving the use of traditional econometric methods.
Nevertheless, profit efficiency is the most suitable concept of efficiency for the
evaluation of the combined results because of the fact that it takes into
consideration the effects of the activities of a company, both on the cost side and
on the revenue side, as well as their interaction. This allows us to state that this
type of efficiency better reflects the objective of maximizing profits than any
other concept.
Cost efficiency is defined as the ratio of minimum costs that can be achieved
for a given production volume and the actual cost of production. These
inefficiencies tell us how much higher the costs of one hotel are in relation to
the costs of a more efficient hotel with the same combination of output and input
prices, where the difference cannot be explained by random error. For
Leibenstein (1966), most of them are caused by errors in management and/or
organization as a result of improper motivation of workers by the management
of the company. Consequently, we can say that cost inefficiency is due, first, to
poor choices of production plans, defined as allocative inefficiency, and second,
to poor implementation of these plans, which is called “technical inefficiency.”
Cost efficiency defined in this manner simply refers to the capacity of a hotel to
minimize its costs for a given quantity of output. However, this concept has,
from our point of view, two main limitations:

1. Cost efficiency evaluates the efficiency of a given level of output, which

normally does not have to correspond with optimal levels of production.
Thus, while a hotel may be cost-efficient for its current level of output,
it is very likely it is not efficient in terms of an optimal level of output.
In this case, when a company deviates from its optimal scale of
production, profit efficiency gives us a better estimation of possible
inefficiencies (Berger & Mester, 1997).
2. Quality as a differentiating element has become a key mechanism in the
search for greater competitiveness in the hospitality industry (Ingram &
Daskalakis, 1999; López & Serrano, 2001; Poon, 1993).3 What is more,
as stated by Assaf and Magnini (2012), for a correct estimation of
efficiency both the quantity and quality of output should be taken into
account. However, cost efficiency does not reflect any differences in the
service quality provided by hotels. If these differences in quality are not
taken into consideration, and given that higher quality implies higher
costs, one might make the mistake of considering that higher costs are
inefficiencies, when in fact unmeasured differences in the quality of
hotel service are.

On the contrary, the concept of profit efficiency is more apt than cost
efficiency because it does not have the above drawbacks, namely:

 Profit efficiency can be considered as “overall efficiency,” since it includes

allocative efficiency, technical efficiency, and scale of production efficiency. This
means that if a hotel is efficient from the point of view of profits, it would also be
so from the point of view of these three efficiencies (Fitzpatrick & McQuinn,
2008).
 Profit efficiency integrates both the ability of a hotel to minimize its costs and to
maximize its revenues, being therefore a concept that includes both cost and profit
efficiencies.
 Profit efficiency is more consistent with the economical goal of profit
maximization than other concepts of efficiency.
 Literature in this field distinguishes between standard profit efficiency and
alternative profit efficiency, depending on whether the hypothesis of perfect
competition in output and input markets is assumed or not. Standard profit
efficiency measures how close a hotel is operating to its maximum possible
profit under the assumption of perfect competition in these markets, given a level
of input and output prices. This means that a hotel takes as given the prices of
inputs and outputs and maximizes its profits by adjusting the quantities of them.
However, in practice the estimation of standard profit efficiency has some
inconveniences (Berger & Mester, 1997):

 It is very sensitive to the measure of output prices, that is, an inaccurate measure
of them also provides an erroneous measure of this efficiency.
 It does not adequately capture differences in the quality of hotel services.
 It is not recommended in markets without perfect competition conditions, as is the
case in the hospitality sector (Bull, 1995; Davies, 1999); thus, some market power
from price fixing by companies is not ruled out.

In contrast, alternative profit efficiency does not present the problems of standard
profit efficiency, since in this case the efficiency measures more or less how a hotel
operates at maximum possible profit, given its level of output rather than its price.
That is to say, in the alternative profit estimate the quantity of outputs is taken as a
given and the price of inputs are allowed to vary freely and affect company profit,
and therefore efficiency. However, possible errors in the measurement of the
amounts of outputs will not affect alternative profit efficiency (Berger & Mester,
1997). In this way, inconveniences arising from inaccuracies in estimating the prices
of outputs are avoided and, in addition, possible differences in the quality of services
provided are taken into account. The additional revenue that generates a higher
quality output is computed, which can far exceed the extra cost of this quality level.
Finally, the concept of alternative profit efficiency is also very useful in
situations where there are hotels that exercise some market power in the fixing
of prices of services, since as mentioned previously, this concept does not take
into account the prices of outputs. In short, alternative profit efficiency is closer
to the reality of hotel service markets, characterized by a significant degree of
imperfect competition and heterogeneity of hotels in the amount and quality of
services provided.
Profit efficiency understood in this way includes both cost efficiency and
revenue efficiency and their interaction. Revenue efficiencies arise from market
choice and/or erroneous competitive strategy, reflecting the failure to produce a
higher value of output (given the level of output and input prices). Alternatively,
a hotel may also have revenue inefficiencies if the response to the relative prices
of outputs is poor and produces some high-margin services and lots of small-
margin ones. In this way, revenue inefficiencies are analogous to cost
inefficiencies since in both cases a net loss of real value results, whether the loss
is in terms of lower value produced or greater value of inputs consumed.4
There is the possibility, contrary to what is expected, that cost and profit
efficiencies are negatively correlated. This outcome may have two possible
explanations (Berger & Mester, 1997):
 1. A company can compensate for low cost efficiency with high revenue
efficiency if competitive pressure, for example, causes the company to
have higher values for the production of output and achieve higher
revenue results in terms of market power which derives from greater
specialization.
2. As explained earlier, part of what are now considered cost inefficiencies
are consequences of not incorporating differences in the quality of the
output, that is, higher quality requires additional costs which cannot be
considered as inefficiency.

LITERATURE REVIEW
Unlike studies up to and during the final decade of the 20th century, where
the number of articles on efficiency in the hotel industry was sparse and
generally used estimating methods based on simple ratios, literature on the topic
over the past decade has had a very fast development and has included more
complex methods of estimation, such as DEA or SFA, as a result of the changes
and new challenges in the sector (Assaf & Magnini, 2012). Barros, Peypoch, and
Solonandrasana (2009) and Assaf et al. (2010) make an extensive and
comprehensive review of the literature on efficiency in the hotel industry up
until 2009, so we will only analyze studies published after that date.
Pulina et al. (2010) used DEA to compare, as a first step, hotel efficiency in
20 Italian regions. To further study the relationship between size and efficiency
for a small sample of hotels in the Italian region of Sardinia from 2000 to 2002,
they used a significantly superior number of observations compared with those
made in other research articles using DEA so far. Assaf et al. (2010) introduced
the meta-frontier concept as an appropriate methodological solution to solve the
problem of heterogeneity presented by the hotels because of differences in size,
market share, and access to technological advances in a study on the impact of
environmental variables on hotel efficiency in a sample of 78 Taiwanese hotels
from 2004 to 2008.
Barros et al. (2010) employ a random frontier model to study technical
efficiency in a sample of 12 hotels in Luanda from 1990 to 2007. These authors
assume the heterogeneity of the hotels in the sample, and the results confirm the
evidence that the use of heterogeneous frontiers is more advisable than the use
of homogeneous frontiers. Hu, Chiu, Shieh, and Huang (2010) use SFA to
estimate cost efficiency in a sample of 66 hotels in Taiwan from 1997 to 2006.
Results show that the hotels in the sample were operating at a level of very high
cost efficiency on average (around 91%) and that this efficiency is influenced
very significantly by environment variables.
Wu, Liang, and Song (2010) analyzed efficiency in a sample of 23 hotels in
Taipei from 2002 to 2006 using a variation of DEA. Results show that efficiency
decreased in the studied period, going from 0.709 in 2002 to 0.596 in 2006.
Bernini and Guizzardi (2010) used SFA to study the relationship between
competitiveness and efficiency in the Italian hospitality industry from 1998 to
2005. Assaf and Knezevic (2011) studied the effects of a set of variables on cost
efficiency in tourist hotels in Slovenia, using Bayesian frontier methodology,
with a sample of 23 hotels.
 Assaf and Magnini (2012) studied the importance of incorporating customer
satisfaction into the estimation of efficiency. These authors used SFA
methodology to evaluate the efficiency of a sample of hotels in the United States
of America from 1999 to 2009, concluding that the inclusion of customer
satisfaction has a significant importance in the estimation of efficiency. Hadad,
Hadad, Malul, and Rosenboim (2012) used DEA to compare the economic
efficiency of the tourism industry in 105 countries, and finally, Assaf and Agbola
(2014) use Bayesian techniques to estimate the efficiencies in the
accommodation industry in Australian.

EMPIRICAL MODEL

Cost Efficiency
Specification of a cost frontier enables an estimation of a cost function that
relates the observed costs for a set of outputs, the price of inputs, random error,
and inefficiency. This frontier can be expressed as follows:
C  C  y, w, vc , uc  , (1)

where C measures the cost variable, y is a vector of quantities of outputs, w

is a vector of prices of the variable inputs, vc is the random error, and uc
represents the inefficiencies found. Inefficiency factor uc covers both allocative
inefficiency, a consequence of a nonoptimal reaction to the relative prices of the
inputs, w, and technical inefficiency, because of the use of many inputs to
produce y. To facilitate the estimation of inefficiency, it is assumed that the
random error and inefficiency, vc and uc , are separable. Taking logarithms on
both sides of Equation 1, we get the following:
ln C  f  y, w  ln vc  ln uc , (2)

where f is the chosen functional form and the terms ln vc  ln uc are

considered compound error terms. The cost efficiency of one company (CE) is
estimated as the ratio between the minimum cost to produce the output vector
C  and the cost incurred (C), that is,
min 5

C min exp  f  y, w  exp  ln vc 

CE    exp   ln uc  . (3)
C exp  f  y, w exp  ln vc  exp  ln uc 

Cost efficiency defined like this can be interpreted as the proportion of

resources that are used efficiently, so that if CE for a hotel is 0.80 it must be
interpreted that this hotel is operating at an efficiency level of 80% or an
inefficiency level of 20% of its costs. In other words, that hotel could produce
the same number of products saving 20% of its costs.
Profit Efficiency
In contrast to the cost function, the profit function includes as a dependent
variable profit instead of costs and exogenous variables remain the same as the
cost function. Thus, we define the profit function as follows:
   y, w, v , u  , (4)

where  is the profit variable, y is a vector of quantities of outputs, w is a

vector of prices of the variable inputs, v is the random error, and u represents
the inefficiencies found that reduce profit. Again, in order to facilitate the
estimation of efficiency, it is assumed that random error and inefficiency, v
and u are separable. Taking logarithms on both sides of Equation 4, we get
the following:
ln      f  y, w  ln v  ln u , (5)

where  is a constant that is added to profit variable for all hotels to ensure a
positive value thereof and so we can apply logarithms. 6 Profit efficiency (PE) is
defined as the ratio between the actual profits of a company () and the
maximum level that could be achieved by the most efficient company in the
 
sample max , that is,

PE 


exp  f  y, w exp  ln u  exp(ln v )   .
 
(6)
 max
exp  f  y, w exp(ln v )  


Profit efficiency defined like this is no more than the proportion of maximum
potential profit a hotel can achieve; if PE for a hotel is 0.80 it would be indicate
that because of excessive costs and/or poor revenues, the hotel would be losing
20% of its maximum potential profit. This efficiency is equal to one for the most
efficient hotel included in the sample, but unlike cost efficiency, profit efficiency
can be negative, since a hotel may waste more than 100% of its potential profit.

Estimation Method
The main problem when measuring inefficiencies is to separate the behavior
of these from other random factors affecting costs and revenues. In the literature
on efficiency analysis, we can find two estimation methodologies—parametric
and nonparametric—each with its advantages and disadvantages. Among the
nonparametric, a method that has dominated work on efficiency in the hotel
industry is the DEA, which although allowing the use of multiple inputs and
outputs does not impose any functional form on the data nor assume a particular
distribution of the inefficiency term, yet has the drawback of considering all
errors as inefficiency (Barros, 2004). However, parametric models have the
advantage of allowing decomposition of error between random portion and
inefficiency. Also, nonparametric methods usually ignore prices and can, thus,
only detect technical inefficiencies that occur when using many inputs or
producing few outputs. Therefore, these techniques are not suitable for
estimating the concepts of cost and profit efficiencies defined in this article,
since they focus more on technical optimization than economic optimization
(Berger & Mester, 1997).
Consequently, this article will use a parametric model to estimate the
efficiencies in the hotel industry in Spain since it fits better with the concepts of
cost and profit efficiencies explained above. 7 In parametric models a company
is considered inefficient if its costs are higher or its profit lower than the most
efficient company in the total sample, which is produced with the same
combination of output and price of inputs, and where the difference cannot be
explained by random error. However, there is no simple rule to determine which
method, in parametric models,8 is the one that best describes the true nature of
the data.9
The most commonly used parametric model in the study of efficiency in the
hotel industry is SFA (Anderson et al., 1999; Barros, 2004; C. Chen, 2007; Hu
et al., 2010). However, this model has the inconvenience of imposing a
distribution for the inefficiency term. An alternative methodology that does not
have this inconvenience is the DFA introduced by Berger (1993) based on data
panel approaches developed by Schmidt and Sickles (1984). As DeYoung
(1997) points out, this is a highly recommended technique because its statistical
foundations are intuitive and easy to apply. DFA allows technologies to change
from one year to another, without imposing any distribution for the inefficiency
term. That is, the regression coefficients are allowed to vary in time to collect
the possible effects of changes in technology and the environment. This method
also assumes the hypothesis that there is a level of efficiency for each hotel that
is constant for the whole period of estimation, while the random parts of the
errors tend to offset each other over time.
The cost and profit functions are estimated separately for each year of the
data panel. The errors of each of the regressions separately consist of both
inefficiency, u, and random part, v, but since it is assumed that the random parts
of the error cancel each other out over time, the average errors for a hotel and all
regressions, uˆ , estimate the inefficiency term, u. However, if the number of
periods in the sample is small, it is possible that the extreme values of û reveal
that random parts of the errors are not fully compensated for over time. In this
case, it is advisable to truncate these outliers to ensure the robustness of the
results, it being necessary to test for different truncation points (Berger, 1993).
On the other hand, if the number of periods is very large one might question the
assumption that efficiency is constant for the entire period.
DFA estimated cost and profit efficiency, respectively, as

CE  

C min exp  f  y, w   exp ln uˆ
ˆ  min
 
uˆ min (7)
,
C exp  f  y, w   exp  ln uˆ 
ˆ uˆ
 

PE 


exp  fˆ  y, w exp(ln uˆ)   . (8)
max
exp  fˆ  y, w exp(lnuˆ )  
max
Functional Form
The most usual functional form in the reviewed literature for estimation of
cost and profit efficiency is the Translog (Christensen, Jorgenson, & Lau, 1973),
which is expressed as follows:
n m n n m m n m
(9)
ln Ci 0  
j 1
j ln y j   ln w  1 2 
l 1
l l
j 1 k 1
jk ln y j ln yk  1
2 ò
l 1 s 1
ls ln wl ln ws  
i 1 j 1
ij ln yi ln w j  i ,

where i  ln vi  ln ui , with vi as the random term and ui the hotel i

inefficiency term; n and m are the numbers of outputs and prices, respectively;
and  0 ,  j , l ,  jk , ls , and ij are the regression coefficients. The conditions
of linear homogeneity and symmetry are imposed on the price of inputs. In the
case of profit function, it is almost the same specification except that the
dependent variable in this case is profit rather than cost. Since this profit function
does not contain the price of outputs, it is not necessary to impose the restriction
that it be homogeneous in prices.
Once cost and profit functions are estimated, the residues obtained will cover
inefficiency, u, and random error, v. As it has been assumed that the average of
these errors over time is zero, we will estimate the inefficiency, u, for each hotel
as the average of the residues from each year in the sample.

DATA AND RESULTS

Data
The hotel information contained herein was obtained from SABI database. 10
Of all the companies in the initial sample taken, 11 the companies that did not
have complete information were eliminated. Also, in concordance with
Rodriguez and González (2007), other companies were also eliminated because
their activity not only involved the administration and operation of a hotel.
Finally, the sample is composed of 1,725 observations, corresponding to 345
hotels in Spain over the years 2007 to 2011. The sample includes hotels in all
regions of the country, competing to offer similar services to their customers and
use similar inputs.
The choice of variables was performed as a result of a literature survey and
information provided by balance sheets and revenue statement given by SABI
database. To choose the outputs has been taken into account that they reflect so
far as a hotel achieves its objectives (Anderson et al., 2000; Barros, 2005a;
Barros & Alves, 2004). We measured two outputs, the operating revenue,
corresponding to the two main activities of a hotel, renting rooms and service of
food and beverages, and other operating revenues, relating to revenues as lease
of store spaces, laundry, beauty salons and hairdressing.
We define the inputs as those items using a hotel to generate its total revenue
(Anderson et al., 1999). Three inputs are defined, the price of labor, the price of
materials,12 and the price of physical capital. The price of inputs cannot be
observed directly, therefore, must be approximated from the available
information, which is common to all studies of efficiency because of the used
data limitations. All these variables are detailed below.
 Outputs

y1  Operating revenue (rooms, food, and beverages)

y2  Other operating revenues

Inputs

w1  Price of labor (measured by dividing the total salary expenditure, including

social security costs, by the number of full time equivalent employees)
w2  Price of materials (measured by dividing the total food, beverage, and rooms
expenditure by the total operating revenue)
𝑤3 = Price of physical capital (measured by dividing the depreciation of the fixed
assets plus other operating expenses by the total fixed assets)

For the cost function model, the dependent variable is the total operating cost
(C) comprising labor cost, materials cost, and other operating cost, and in the
profit function, the dependent variable is EBITDA () defined as earnings
before interest, taxes, depreciation, and amortization. Table 1 presents
descriptive statistics for the study variables between 2007 and 2011.

Results
Table 2 shows the results for the efficiency of cost and profit estimated for
the hotels in the sample. Also, to make possible comparisons between
efficiencies, different truncation points at levels of 0%, 1%, 5%, and 10%, are
shown.
The level of cost efficiency changes significantly depending on the truncation
point selected. Thus, the efficiency changes from 70.6% to 71.4% when only
1% of the extreme values observed are changed by the value of the
corresponding point of truncation; when 5% truncation level is used, efficiency
increase to 81.6%; beyond this point the gain is reduced. The result shows that,
even after using panel data for 5 years, random error is not compensated for over
the period, and this significantly affects the estimates of efficiency. However,
when increasing from 5% to 10% in the level of truncation the efficiency does
not change significantly, so we consider 5% a reasonable level of truncation to
evaluate our results. According to this level of truncation, cost efficiency shows
an average level of 81.6%, which means it would be possible to reduce costs by
18.4% simply by eliminating inefficiencies. For average operating costs of the
hotels in the sample this would be 8,480 thousand euros, a saving in cost of
approximately 1,560 thousand euros. This relatively high level for cost
efficiency is very similar to that found by Anderson et al. (1999) and Hu et al.
(2010), among others, although these authors used a different technique.
The results for profit efficiency again show a significant variation in
efficiency levels depending on the level of truncation chosen. As with cost
efficiency, this change in efficiency, from 5% to 10% for the truncation point, is
small, so the results should be evaluated at a truncation level of 5%. The hotel
efficiency scores are displayed in the appendix for this level. Estimated average
profit efficiency is 13.9%, and a degree of dispersion for the values is relatively
high. Again, these companies could improve profit by 86.1% on average, if they
would enhance the management of resources, revenue, or both. For an average
profit level of the hotels in the sample of 926 thousand euros, we would suppose
an average increase of these profits by about 797 thousand

Table 1
Descriptive Statistics for the Variables (Pooled): 2007 to 2011
Pearson
Correlations
Total
Variables Average Maximum Minimum SD Cost EBITDA
C, Total operating costa 8,480 283,158 259 22,186 1
, EBITDAa 926 43,047 26,165 2,759 1
y1, Operating revenuea 8,264 274,190 181 20,786 .993* .413*
y2, Other operating 222 8,828 0.006 630 .695* .151*
revenuesa
w1, Price of labor 26.9 106.2 1.4 6.05 .121* .016
w2, Price of materials 0.199 13.8 0.003 0.345 .006 .002
w3, Price of physical 2.22 311.7 0.027 14.14 .005 .039
capital
a. Thousands of Euros.
*p < .001.

Table 2
Cost and Profit Efficiencies
Cost Efficiency Profit Efficiency
Truncation Level 0% 1% 5% 10% 0% 1% 5% 10%
Average .706 .714 .816 .854 .046 .063 .139 .187
Standard deviation .085 .086 .091 .087 .109 .141 .228 .577
Variation coefficient .120 .120 .111 .102 2.396 2.236 1.648 3.079

Table 3
2 2
Coefficients of Determination ( R ) and Adjusted ( Rad ) for Periods Regressions

Cost Efficiency Profit Efficiency

2 2
Year R 2 Rad SE R 2 Rad SE
2007 .984 .983 .135 .627 .610 .057
2008 .978 .976 .157 .651 .635 .050
2009 .981 .980 .146 .239 .205 .091
2010 .982 .981 .145 .146 .107 .122
2011 .982 .981 .146 .128 .088 .530
Note: SE = standard error.

euros. Moreover, these levels of profit efficiency are much lower than those obtained
for cost efficiency, which is very similar to those found in other industry results
(Ariff & Can, 2008; Berger & Mester, 1997; Maudo et al., 2002).
Coefficients of determination for cost model vary between 0.978, in 2008,
and 0.985, in 2007, instead to 0.128 (2011) and 0.651 (2008) for profit model.
Detailed values for each year are shown in Table 3.
The Spearman correlation coefficient between cost and profit efficiencies
evaluated for a level of truncation of 5% is .302 (p < .001), which is not too high
but is positive and statistically significant, as expected, which would indicate
that hotels that are more profit efficient are also more cost efficient.
Distribution of cost and profit efficiencies depending on the size of the hotels,
measured by average total assets, is presented in Figure 1. It can be observed
how cost efficiency is almost constant for both small and large hotels,

Figure 1
Cost and Profit Efficiencies by Interval of Average Total Assets, 2007 to 2011

being only a little lower for the latter, probably because of some loss of control over
costs that occurs in large organizations (Dhawan, 2001). However, the figure shows
that the profit efficiency remains constant and at very low levels for the smaller
hotels, improving substantially for medium hotels and reaching significantly higher
levels (near 60% efficiency, but still lower that the average levels of cost efficiency)
for hotels of higher average total assets. These levels of profit efficiency of the larger
hotels, more than four time the sample average, would clearly reveal a more efficient
management of these hotels for their revenues.

CONCLUSIONS
Normally, articles on efficiency in the hotel industry have focused more on the
cost side, estimating scale, scope, or X-inefficiencies, and ignoring possible
inefficiencies on the revenue side. However, studies in other areas have shown that
profit inefficiencies are much greater than cost inefficiencies, which would reveal
that a correct assessment of efficiency requires estimation and analysis of profit
efficiency rather than of cost efficiency. Furthermore, profit efficiency is the concept
more appropriate for evaluating the overall outcome efficiency because it takes into
account the impact of the activities of a hotel both from the cost and the revenue side
as well as their interaction.
This article provides empirical evidence of the importance of profit efficiency in
the estimation of overall efficiency in the hotel industry. From this perspective, the
study analyses cost and profit efficiencies in the hotel industry in Spain for the years
2007 to 2011 using DFA methodology.
The results reveal that the hotels in the sample operate with relatively high
average levels of cost efficiency (81.6%) in relation to average levels for the
estimated profit efficiencies (13.9%), thus confirming the importance of these
inefficiencies in the sector and our working hypothesis. This difference could be
explained because while the profit efficiency is based on comparing each of the
companies with the company in the sample which best manages its profit
maximization, cost efficiency evaluates the results for a given output level, which
usually does not correspond to the optimum level. Thus, though still being a cost
efficient company according to its current level of output, it may not be right for its
optimal level of output, which most probably involves a different level and
composition of output. In this case, when there is a deviation of the optimum scale
of production, profit efficiency better estimates potential inefficiencies (Berger &
Mester, 1997). What is more, the low (though positive) correlation between the
rankings of cost and profit efficiency would confirm the incomplete and partial
analysis of cost efficiency (Maudos et al., 2002); in other words, hotels’ profits
efficiency penalizes not only the use of more expensive inputs to produce the same
amount of output but also the generation of a lower income because of the use of the
same number of inputs. Consequently, this efficiency, which takes into account the
efficiency of costs and profits, gives more useful information to managers and
shareholders about the performance of the hotels.
Furthermore, the analysis of the efficiency by the size of the hotels shows that
cost efficiency remains at high levels and very similar for both large and small hotels.
However, the result of profits efficiency reveals an interesting finding, that is, while
profit efficiency levels of the smaller hotels are really low, large hotels experience a
significant increase in the level of this efficiency. One possible explanation for this
result is that the management of big hotels handles better its product portfolio,
generating higher quality and greater value from its combination of outputs.
An example of a Hotel Brand where its success is explained in part by improving
their efficiency level is Sol Meliá Group, one of the most important hotel corporation
in Spain. The group has achieved significant improvements in efficiency and cost
savings by simplifying the management and a better control on their costs. This has
resulted in an improvement in their economic results. Another corporation that saw
improve their performance as a result of improved levels of efficiency is Barceló
Group. They have implemented a flexible, decentralized organizational model that
has enable each facility to better adapt to different markets and environments.
Finally, these results are consistent with a not very competitive market, so we can
conclude that the management of the hotels should focus their interest more on
correcting strong profit inefficiencies by producing a set of higher value services,
that is, improving the management of its own product portfolio and in consequence
be able to gain sustained competitive advantages.
The limitation of this study is basically derived from the database used. First, it
would be desirable a higher level of disaggregation of outputs; second, we recognize
that employing an approximation to estimate the prices of the inputs is not the most
appropriate; and third, the heterogeneity of the sample used, because on one hand,
there are companies that manage one establishment and others who manage more
than one, and on the other, there are chains with a company for each establishment
and others creating one or more companies to manage all their establishments.
However, and assuming this limitation, we believe that this does not reduce the
importance of the study. It should also be indicated that the empirical results of this
study need further research that will confirm; because, to our knowledge, this is the
first study to compare the efficiency of costs and profits in the hotel industry.
 APPENDIX
Cost and Profit Efficiencies per Hotel for a Truncation Level of 5%
Cost Profit Cost Profit Cost Profit Cost Profit
Hotel Efficiency Efficiency Hotel Efficiency Efficiency Hotel Efficiency Efficiency Hotel Efficiency Efficiency
1 0.753 0.086 39 0.947 1 77 1 0.148 115 0.859 0.047
2 0.607 0.101 40 0.863 0.538 78 0.787 0.009 116 0.842 0.113
3 0.926 0.225 41 0.863 0.364 79 1 0.143 117 0.866 0.04
4 0.771 0.02 42 0.913 0.312 80 0.744 0.433 118 0.838 0.003
5 0.677 0.019 43 0.842 0.053 81 0.779 0.205 119 0.815 0.077
6 0.768 0.077 44 0.869 0.206 82 0.833 0.492 120 0.908 1
7 0.694 0.008 45 0.87 0.159 83 0.602 0.082 121 0.808 0.166
8 0.797 0.022 46 1 0.26 84 0.721 0.125 122 0.883 0.118
9 0.706 0.079 47 0.737 0.045 85 0.721 0.241 123 0.965 0.06
10 0.795 0.057 48 0.592 0.057 86 0.828 1 124 0.771 0.054
11 0.884 0.058 49 0.88 0.083 87 0.786 0.026 125 0.941 0.095
12 0.801 0.08 50 0.902 0.058 88 0.868 0.064 126 0.895 0.03
13 0.821 0.02 51 0.643 0.084 89 0.739 0.044 127 0.784 0.036
14 0.863 0.106 52 0.807 0.057 90 0.716 0.005 128 1 0.102
15 0.706 0.041 53 0.94 0.151 91 0.894 0.044 129 0.727 0.176
16 0.851 0.058 54 0.835 0.005 92 0.743 0.199 130 0.865 0.229
17 0.759 0.095 55 0.592 0.007 93 0.835 0.252 131 0.927 0.421
18 0.755 0.157 56 0.831 0.091 94 0.886 0.104 132 0.719 0.383
19 0.78 0.01 57 0.814 0.04 95 0.834 0.388 133 0.851 0.22
20 0.907 0.845 58 0.854 0.028 96 0.833 0.097 134 0.884 0.05
21 0.699 0.079 59 0.755 0.083 97 0.865 0.048 135 0.699 0.035
22 0.734 0.018 60 0.776 0.025 98 0.917 0.07 136 0.676 0.088
23 0.828 0.226 61 0.802 0.06 99 0.856 0.057 137 0.922 1
24 0.7 0.084 62 0.957 0.047 100 0.953 0.226 138 0.934 0.072
25 0.592 0.038 63 0.924 0.059 101 0.894 0.412 139 0.895 0.243
26 0.784 0.064 64 0.89 0.047 102 0.872 0.079 140 0.701 0
27 0.943 0.028 65 0.88 0.143 103 0.648 0.031 141 0.83 0.03
28 0.848 0.336 66 0.974 0.009 104 0.883 0.042 142 0.842 0.057
29 0.678 0.025 67 0.746 0.217 105 0.732 0.098 143 0.952 0.276
30 0.75 0.419 68 0.917 0.067 106 0.876 0.128 144 0.758 0.015
31 0.841 0.277 69 0.857 0.018 107 0.776 0.036 145 0.766 0.14
32 0.826 0.194 70 0.72 0.077 108 0.872 0.125 146 0.876 0.116
33 0.751 0.037 71 0.896 0.116 109 0.74 0.177 147 0.764 0.012
34 0.866 0.055 72 0.948 0.176 110 0.703 0.2 148 0.917 0.039
35 0.625 0.084 73 1 0.217 111 0.831 0.066 149 0.648 0.012
36 0.833 0.252 74 0.822 0.087 112 0.761 0.009 150 0.798 0.037
37 0.767 0.561 75 0.752 0.007 113 0.702 0.031 151 0.875 0.079
38 0.85 1 76 0.721 0.124 114 0.888 0.455 152 0.799 0.057
153 0.825 0.007 191 0.906 0.005 229 0.592 0.079 267 0.935 0.49
154 0.93 0.022 192 0.713 0.052 230 0.907 0.984 268 0.932 1
155 0.818 0.006 193 0.681 0.009 231 0.834 0.089 269 1 0.228
156 0.822 0.007 194 0.907 0.362 232 0.861 0.272 270 0.845 0.219
157 0.592 0.193 195 0.903 0.49 233 0.861 0.029 271 0.837 0.045
158 0.854 0.12 196 0.767 0.022 234 0.97 0.035 272 0.74 0.081
159 0.763 0.049 197 0.702 0.049 235 0.877 0.057 273 0.817 0.054
160 0.85 0.036 198 0.774 0.034 236 0.801 0.047 274 0.878 0.186
161 0.738 0.032 199 0.832 0.166 237 0.816 0.075 275 0.824 0.008
162 0.791 0.295 200 0.878 0.291 238 0.834 0.192 276 0.727 0.009
163 0.812 0.079 201 0.702 0.178 239 0.859 0.038 277 1 0.812
164 0.9 0.091 202 0.739 0.011 240 0.844 0.323 278 0.828 0.142
165 0.785 0.032 203 0.675 0.044 241 0.629 0.025 279 0.829 0.035
166 0.851 0.281 204 0.82 0.126 242 0.878 0.026 280 0.824 0.252
167 0.963 0.638 205 0.883 0.008 243 0.818 0.118 281 0.849 0.121
168 0.882 0.038 206 0.765 0.013 244 0.752 0.214 282 0.968 0.136
169 0.865 0.108 207 0.862 0.029 245 0.877 0.219 283 0.818 0.341
170 0.826 0.648 208 0.907 0.526 246 0.973 0.049 284 0.684 0.021
171 0.754 0.008 209 0.835 0.086 247 0.753 0.046 285 0.815 0.098
172 0.919 0.033 210 0.718 0.052 248 0.806 0.065 286 0.679 0.07
173 1 0.014 211 0.863 0.027 249 0.887 0.065 287 0.902 0.278
174 0.753 0.12 212 0.794 0.444 250 0.93 0.865 288 0.704 0.095
175 0.866 0.046 213 0.828 0.133 251 0.834 0.038 289 0.796 0.07
176 0.761 0.372 214 0.781 0.013 252 0.707 0.029 290 0.863 0.114
177 0.856 0.032 215 0.762 0.237 253 0.857 0.061 291 0.788 0.058
178 0.895 0.149 216 0.75 1 254 0.84 0.035 292 0.592 0.487
179 0.937 0.025 217 0.777 0.361 255 0.803 0.168 293 0.833 0.37
180 0.926 0.039 218 0.684 0.098 256 0.845 0.041 294 0.91 0.243
181 0.907 0.046 219 0.802 0.069 257 0.681 0.017 295 0.857 0.285
182 0.736 0.09 220 0.859 0.011 258 0.737 0.164 296 0.856 0.088
183 0.819 0.379 221 0.592 –0.06 259 0.655 0.702 297 0.749 0.049
184 0.766 0.017 222 0.783 0.104 260 0.751 0.092 298 0.747 0.244
185 0.846 0.016 223 0.747 0.012 261 0.837 0.037 299 0.977 0.113
186 0.948 0.155 224 0.821 0.33 262 0.827 0.208 300 0.713 0.167
187 0.882 0.039 225 0.844 0.358 263 0.642 0.185 301 0.899 0.301
188 0.913 0.46 226 0.761 0.034 264 0.831 0.008 302 0.778 0.11
189 0.833 0.142 227 0.924 0.065 265 0.863 0.112 303 0.921 0.146
153 0.825 0.007 191 0.906 0.005 229 0.592 0.079 267 0.935 0.49
305 0.708 0.146 316 0.847 0.204 327 0.87 0.643 338 0.824 0.043
306 0.855 1 317 0.872 0.01 328 0.879 0.107 339 0.724 0.081
307 0.782 0.035 318 0.892 0.033 329 0.758 0.144 340 0.636 0.158
308 0.766 0.188 319 0.764 0.111 330 0.861 0.033 341 0.73 0.004
309 0.771 0.023 320 0.956 0.15 331 0.845 0.022 342 0.741 0.069
310 0.9 0.022 321 0.75 0.034 332 0.766 0.028 343 0.845 1
311 0.928 0.07 322 0.87 0.001 333 0.842 0.836 344 0.729 0.012
312 1 0.157 323 0.771 0.022 334 0.862 0.329 345 0.635 0.378
313 0.857 0.159 324 0.795 0.193 335 0.872 0.202
314 0.875 0.024 325 0.731 0.056 336 0.592 0.796
315 0.812 0.048 326 0.592 0.156 337 0.72 0.018
18 JOURNAL OF HOSPITALITY & TOURISM RESEARCH

NOTES
1. For a detailed revision of recent literature about efficiency in the hotel industry,
see Assaf et al. (2010).
2. As, for example, scale and scope economies.
3. A detailed discussion of the importance of service quality in the hotel industry
can be found, for example, in Knutson, Stevens, Wullaert, Patton, and Yokoyama (1991);
Saleh and Ryan (1991); Falces, Sierra, Becerra, and Briñol (1999); Oh (1999); and
Olorunniwo, Hsu, and Udo (2006).
4. Normally revenue efficiency is not calculated directly because of the difficulties
involved, so profit efficiency is estimated.
5. The range of cost efficiency is between [0, 1] and is equal to one for the most
efficient company in the sample. In practice, efficiencies are generally defined in relation
to the most efficient entity observed in the sector, rather than in reference to the true
minimum cost, as underlying technology is unknown. Fortunately, for most economic
hypotheses, it is more appropriate to use the concept of relative efficiency than absolute
efficiency.
6. The constant  must be considered when recovering the values of efficiency.
7. For a more detailed relation of the most commonly used models in the estimation
of efficiency in the hotel industry over the past few years, see Bernini and Guizzardi (2010).
8. For a wider discussion of different parametric estimation methods, see Berger
and Mester (1997).
9. This in itself would not be a problem if all methods reached the same conclusion,
but that is not so. In fact, the estimated level of inefficiency is affected substantially by the
chosen method (Berger, Hunter, & Timme, 1993).
10. SABI, Sistema de Análisis de Balances Ibéricos, System Analysis of Iberian
Balances, is a database that includes information on balances of more than 1.2 million
Spanish companies and more than 350,000 Portuguese companies.
11. The initial sample was selected according to Category 551 (hotels and similar
accommodation) of the Spanish National Classification of Economic Activities, CNAE-
2009.
12. Materials include raw materials necessary to give the room and food and
beverages services.

REFERENCES
Anderson, R. I., Fish, M., Xia, Y., & Michello, F. (1999). Measuring efficiency in the hotel
industry: A stochastic frontier approach. International Journal of Hospitality
Management, 18, 45-57.
Anderson, R. I., Fok, R., & Scott, J. (2000). Hotel industry efficiency: An advanced linear
programming examination. American Business Review, 18, 40-48.
Ariff, M., & Can, L. (2008). Cost and profit efficiency of Chinese banks: A non-parametric
analysis. China Economic Review, 19, 260-273.
Assaf, A., & Agbola, F. W. (2014). Efficiency analysis of the Australian accommodation
industry: A Bayesian output distance function. Journal of Hospitality & Tourism
Research, 38, 116-132.
Assaf, A., Barros, C. P., & Josiassen, A. (2010). Hotel efficiency: A bootstrapped metafrontier
approach. International Journal of Hospitality Management, 29, 468-475.
 Arbelo et al. / COST AND PROFIT EFFICIENCIES 19

Assaf, A., & Knezevic, L. (2011). Privatization, market competition, international

attractiveness, management tenure and hotel performance: Evidence from Slovenia.
International Journal of Hospitality Management, 30, 391-397.
Assaf, A., & Magnini, V. (2012). Accounting for customer satisfaction in measuring hotel
efficiency: Evidence from the US hotel industry. International Journal of Hospitality
Management, 31, 642-647.
Barros, C. P. (2004). A stochastic cost frontier in the Portuguese hotel industry. Tourism
Economics, 10, 177-192.
Barros, C. P. (2005a). Evaluating the efficiency of small hotel chain with a Malmquist
productivity index. International Journal of Tourism Research, 7, 173-184.
Barros, C. P. (2005b). Measuring efficiency in the hotels: An illustrative example. Annals
of Tourism Research, 32, 456-477.
Barros, C. P., & Alves, P. (2004). Productivity in tourism industry. International Advances
in Economic Research 10, 215-225.
Barros, C. P., Dieke, P., & Santos, C. A. (2010). Heterogeneous technical efficiency of
hotels in Luanda, Angola. Tourism Economics, 16, 137-151.
Barros, C. P., & Mascarenhas, M. J. (2005). Technical and allocative efficiency in a chain of
small hotels. International Journal of Hospitality Management, 24, 415-436.
Barros, C. P., Peypoch, N., & Solonandrasana, B. (2009). Efficiency and productivity
growth in hotel industry. International Journal of Tourism Research, 11, 389-402.
Barros, C. P., & Santos, C. A. (2006). The measurement of efficiency in Portuguese hotels
with DEA. Journal of Hospitality & Tourism Research, 30, 378-400.
Berger, A. N. (1993). Distribution-free estimate of efficiency in the US banking industry
and tests of the standard distributional assumptions. Journal of Productivity Analysis,
4(3), 61-92.
Berger, A. N., Hancock, D., & Humphrey, D. B. (1993). Bank efficiency derived from the
profit function. Journal of Banking and Finance, 17, 317-347.
Berger, A. N., Hunter, W., & Timme, S. (1993). The efficiency of financial institutions: A
review and preview of research past, present, and future. Journal of Banking and
Finance, 17, 221-249.
Berger, A. N., & Mester, L. J. (1997). Inside the black box: What explains differences in the
efficiencies of financial institutions? Journal of Banking & Finance, 21, 895-947.
Bernini, C., & Guizzardi, A. (2010). Internal and locational factors affecting hotel industry
efficiency: Evidence from Italian business corporations. Tourism Economics, 16, 883-
913.
Brown, J. R., & Ragsdale, C. T. (2002). The competitive market efficiency of hotel brands:
An application of data envelopment analysis. Journal of Hospitality and Tourism
Research, 26, 332-360.
Bull, A. O. (1995). The economics of travel and tourism (2nd ed.). Melbourne, Victoria,
Australia: Longman.
Chen, C. (2007). Applying to stochastic frontier approach to measure hotel managerial
efficiency in Taiwan. Tourism Management, 28, 696-702.
Chen, T. H. (2009). Performance measurement of an enterprise and business units with an
application to a Taiwanese hotel chain. International Journal of Hospitality
Management, 28, 415-422.
Christensen, L., Jorgenson, D., & Lau, L. (1973). Transcendental logarithmic production
frontiers. Review of Economic and Statics, 55, 28-45.
 Arbelo et al. / COST AND PROFIT EFFICIENCIES 20

Davies, B. (1999). Industrial organization: The UK hotel sector. Annals of Tourism

Research, 26, 294-311.
DeYoung, R. (1997). A diagnostic test for the distribution-free efficiency estimator: An
example using U.S. commercial bank data. European Journal of Operational Research,
98, 243-249.
Dhawan, R. (2001). Firm size and productivity differential: Theory and evidence from a
panel of US firms. Journal of Economic Behavior & Organization, 44, 269-293.
Falces, C., Sierra, B., Becerra, A., & Briñol, P. (1999). Hotelqual: A scale for measuring
the perceived quality in hosting services. Estudios Turísticos, 139, 95-110.
Fitzpatrick, T., & McQuinn, K. (2008). Measuring bank profit efficiency. Applied
Financial Econometrics, 18(1-3), 1-8.
Hadad, S., Hadad, Y., Malul, M., & Rosenboim, M. (2012). The economic efficiency of
the tourism industry: A global comparison. Tourism Economics, 18, 931-940.
Hu, J. L., Chiu, C. N., Shieh, H. S., & Huang, C. H. (2010). A stochastic cost efficiency
analysis of international tourist hotels in Taiwan. International Journal of Hospitality
Management, 29, 99-107.
Hwang, S. N., & Chang, T. Y. (2003). Using data envelopment analysis to measure hotel
managerial efficiency change in Taiwan. Tourism Management, 24, 357-369.
Ingram, H., & Daskalakis, G. (1999). Measuring quality gaps in hotels: The case of Crete.
International Journal of Contemporary Hospitality Management, 11(1), 24-30.
Knutson, B., Stevens, P., Wullaert, C., Patton, M., & Yokoyama, F. (1991). Lodgserv: A
service quality index for the lodging industry. Hospitality Research Journal, 14, 277-
284.
Leibenstein, H. (1966). Allocative efficiency vs “X-efficiency.” American Economic
Review, 56, 392-414.
Lin, B. H., & Liu, H. H. (2000). A study of economies of scale and economies of scope in
Taiwan international tourist hotels. Asia Pacific Journal of Tourism Research, 5, 21-
28.
López, C., & Serrano, A. (2001). Dimensions and measurement of service quality in hotel
industry. Revista Colombiana de Marketing, 2(3), 1-13.
Maudos, J., Pastor, J. M., Pérez, F., & Quesada, J. (2002). Cost and profit efficiency in
European banks. Journal of International Financial Markets, Institutions and Money,
12, 33-58.
Oh, H. (1999). Service quality, customer satisfaction, and customer value: A holistic
perspective. International Journal of Hospitality Management, 18, 67-82.
Olorunniwo, F., Hsu, M. K., & Udo, G. J. (2006). Service Quality, customer satisfaction,
and behavioral intentions in the service factory. Journal of Services Marketing, 20(1),
59-72.
Poon, A. (1993). Tourism, technology and competitive strategies. Oxford, England: CAB
International.
Pulina, M., Detotto, C., & Paba, A. (2010). An investigation into the relationship between
size and efficiency of the Italian hospitality sector: A window DEA approach. European
Journal of Operational Research, 204, 613-620.
Reynolds, D., & Biel, D. (2007). Incorporating satisfaction measures into a restaurant
production index. International Journal of Hospitality Management, 26, 352-361.
Rodriguez, J., & González, E. (2007). Cost efficiency of the lodging industry in the tourist
destination of Gran Canaria (Spain). Tourism Management, 28, 993-1005.
 Arbelo et al. / COST AND PROFIT EFFICIENCIES 21

Saleh, F., & Ryan, C. (1991). Analysing service quality in the hospitality industry using
the servqual model. Service Industries Journal, 11, 324-343.
Schmidt, P., & Sickles, R. C. (1984). Production frontiers and panel data. Journal of
Business & Economic Statistics, 2, 367-374.
Untong, A., Kaosa-Ard, M., Ramos, V., & Rey-Maquieira, J. (2011). Change in the
managerial efficiency and management technology of hotels: An application to
Thailand. Tourism Economics, 17, 565-580.
Weng, C. C., & Wang, K. L. (2006). Scale and scope economies of international tourist
hotels in Taiwan. Tourism Management, 27, 25-33.
Wu, J., Liang, L., & Song, H. (2010). Measuring hotel performance using the integer DEA
model. Tourism Economics, 16, 867-882.

Submitted October 31, 2014

Accepted March 11, 2015

Acknowledgements

The authors thank the Chief Editor and three anonymous referees of this Journal
for their comments and suggestions, but any oversights are our responsibility.

View publication stats