Leveraging profit from the fixed-variable cost ratio: the case of new hotels in Spain

The aim of this paper is to detect the variations in the risk of a hotel chain's performance derived from opening a new lodging establishment. Investments requiring huge fixed costs have a direct effect on the operating leverage of a firm; consequently, the analysis of the changes in the operating leverage derived from strategic decisions is a crucial aspect since it allows to shed some light on the degree of sensitivity of the firm to variations in demand. In order to operationalise the assessment of the risk, the volatility of returns is used. For this purpose, it is employed, for the first time in the hotel industry, a methodology based on GARCH-family models to detect such changes.