Navigating cost-cutting practices to cope with crisis: Insights from the hotel industry during COVID-19

Abstract

The unpredictable nature of crises poses a significant challenge to the operation of businesses. Hotels often resort to reactive measures, specifically cost reduction strategies, as their primary means of surviving a crisis. Despite the challenges that firms often face in determining which expenses to prioritize to improve their chance of survival, no prior studies have delved into this pressing matter. Thus, this study applied machine learning classification models to prove which expense should be targeted for cuts first to increase the odds of surviving a crisis. We proposed that food and beverage salaries were the most important operating expense as a determinant of a good-performing hotel during the COVID-19 crisis, and marketing expenses were the second most important operating expense. We also found that the relative importance of hotel operating expenses had changed before and during COVID-19.