DETERMINANTS OF PROFITABILITY IN HOTEL INDUSTRY: THE CASE OF HAWASSA CITY ADMINISTRATION

Abstract

This study investigates the determinants of profitability in the hotel industry, focusing on hotels within the Hawassa City Administration. Using Return on Assets (ROA) as the measure of profitability, the research examines the influence of key factors including firm size, location, number of rooms, liquidity, and hotel age. Employing both ordinary least squares (OLS) regression and random-effects generalized least squares (GLS) panel regression models, the study analyzes data from 25 observations to identify the significant predictors of hotel profitability. The OLS regression results demonstrate that the model explains approximately 93.6% of the variance in ROA, indicating a strong fit. Findings reveal that location, number of rooms, liquidity, and hotel age significantly influence profitability. Specifically, location has a statistically significant negative effect, suggesting that hotels situated further from urban centers tend to experience lower profitability. Conversely, the number of rooms and hotel age show positive and significant impacts, indicating that larger hotels and those with more operational experience tend to be more profitable. Unexpectedly, liquidity exhibits a significant negative relationship with profitability, implying that higher liquidity may indicate inefficient asset utilization. Firm size, measured by equity, does not show a significant effect in this model. The random-effects GLS model further supports these findings, highlighting hotel age and liquidity as significant predictors of the natural logarithm of ROA (lnROA), while firm size and location lose significance when accounting for group-specific effects. The model explains a substantial portion of between-group variation but little within-group variation, suggesting that differences across clusters largely drive profitability outcomes. Overall, the study underscores the critical role of operational factors such as location, capacity, liquidity management, and hotel experience in driving profitability, while challenging assumptions about the impact of firm size. These insights provide valuable guidance for hotel managers and investors aiming to enhance financial performance in the hospitality sectoA