Tourism seasonality and hotel firms’ financial performance: evidence from Norway

ABSTRACT

This study explores the impact of seasonality on hotel firms’ financial performance and whether this impact depends on tourism destinations and the variations of the tourism demand distinguished by domestic market and international market. Financial performance is measured by the most commonly-applied indicator, Return on Assets (ROA), which is further decomposed to profit margin and asset turnover. The present study contributes to the literature by evaluating the importance of pricing strategies and marketing efforts in alleviating the negative effect of seasonal demand. Dynamic panel models at both the national and regional levels are applied to a sample, including the accounting data of all Norwegian hotel firms between 2008 and 2017. Our empirical findings suggest that the impact of seasonality on financial performance depends on market segments and varies across tourism destinations. Additionally, seasonality has a stronger impact on profit margin than on asset turnover, indicating that marketing strategies and pricing and revenue management techniques can effectively alleviate the negative impact of seasonality.

KEYWORDS:

• Tourism seasonality
• hotel firms
• profitability
• Norway
• dynamic panel model

Acknowledgements

The authors wish to thank the editor and two anonymous reviewers for their valuable and constructive comments on an early draft of this study. Appreciation is also expressed to Torstein Horn from the Brønnøysund Register Center for his answering our many queries about the registry data.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Financial performance is directly related to hotels’ competitive advantage and survival probability. Tourism seasonality affects financial performance through its impact on the operations. Analyzing operational performance can reveal the direct consequence of tourism seasonality. However, financial performance is one of the essential concerns for stakeholders like investors. Furthermore, good financial performance is a precondition for the sustainable tourism.

2 In 2017, the corresponding shares are 12.2%, 36.8%, and 51.0%, respectively.

3 Between 2013 and 2017, the share of inbound tourist overnight stays in summer increased from 46.3% to 49.2%.

4 Innovation Norway represents the Norwegian government and regional authorities in stimulating the profitable development of the tourism industry and other economic sectors.

5 The Brønnøysund Register Center is a Norwegian government agency that is responsible for registered data, including balance sheets, income statements, and firm-specific information.

6 As recently pointed out by Turrión-Prats and Duro (2018, p. 26), “To the best knowledge of the authors, the use of this particular methodology for the empirical analysis of tourism seasonality is new.” Lado-Sestayo et al. (2016) applied the dynamic panel model to investigate the profitability determinants of hotel firms in Spain.

7 Since the lagged dependent variable is used in the model, data analysis and descriptive statistics are based on the 2009–2017 data.

8 The correlation relationship matrix for each region is not substantially different from the one for the whole sample.

9 Taking the significant coefficient of the lagged dependent variable into account, we calculated the long-term effect of seasonality by dividing the coefficient of Gini by (1 – coefficient of the lagged ROA) yields. This is -0.852. Using this long-term effect of seasonality, the reduction of profitability for hotels in Eastern Norway due to seasonality changes is about 0.26%.