Efficiency performance of the Algarve hotels using a revenue function

The tourism industry, particularly the hotel sector, is becoming increasingly competitive and dynamic as a result of the pressures of globalized supply and demand in a context of uncertainty. The aim of this study is to discuss the efficiency of hotel companies in the Algarve (Portugal), a tourist destination of excellence in southwest Europe. In particular, we intend to assess the efficiency of the hotels in terms of star rating (four and five-star hotels), their location (Windward and Leeward), owning or not golf courses and owning just a single hotel or more than one. This analysis will be based on the parametric method of stochastic frontier approach using a revenue function. We found relevant levels of inefficiency. The results also point out the important role of the operational environment, particularly the hotel location and the existence of golf facilities. Star rating and owning multiples hotels do not seem to be so relevant.