While the effects of a superior hotel location on profitability have been well recognized
by hotel owners (e.g. Imperiale, 2002), previous research has also suggested the
performance of different hotel types may vary in different time periods. It is suggested
that limited-service hotels are less affected by an unfavorable economic environment
than full-service hotels because of their relatively lower fixed costs; while in a favorable
economic environment, limited-service hotels can be affected more quickly by the new
supply than full-service properties, because the development cycle of limited-service
hotels is much shorter (Imperiale, 2002). A more recent study conducted by O’Neill and
Mattila (2006) supports this argument by revealing that the most profitable hotel type
in 2003 was the economy segment. Based on findings in the literature, one could argue
that, some aggressive hotel owners seeking return maximization may like to acquire
luxury and upscale hotels if they foresee promising economic growth, some owners
seeking risk minimization may tend to acquire limited-service properties if they expect
economic downturns, while other owners may diversify their hotels in different
segments to seek balanced return and risk in the long-term. However, research is
lacking regarding the topic of hotel owner’s strategic decisions related to hotel type(s)