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ECONOMIC RECESSION AND HOTEL PERFORMANCE IN UMUAHIA, ABIA STATE

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Product Code: 00009634

No of Pages: 90

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ABSTRACT

 

The study examined the economic recession and hospitality performance in Umuahia, Abia state. The objectives of the study are; to examine the influence of income rate on customer patronage of hotels in Umuahia, Abia state. to determine the influence of unemployment rate on customer patronage of hotels in Umuahia, Abia state, to examine the influence of cost of production on customer patronage of in Umuahia, Abia state, to examine the influence of income rate on sales volume of hotels in Umuahia, Abia state. To achieve the objective of the study, survey research design was adopted. The researcher adopted primary data in getting the required information through the use of structured questionnaire. The population of the study is up of staff of all the registered hotels in Umuahia, Abia State. However, there are thirty eight (38) registered hotels in Umuahia with five hundred and twenty employees (520) (Ministry of Culture and Tourism, Abia State). The sample size of the study is 226 after adopting Taro Yamane formula. In analyzing the data, simple descriptive statistics was used. The findings revealed that economic recession (income rate, cost of production, and unemployment rate) has significant influence on customer patronage of hotels in the study area. The findings also revealed that economic recession (income rate, cost of production, and unemployment rate) has significant influence on sales volume of hotels in the study area The study recommends that government of Nigeria should work towards reducing the rising rate of inflation and other economic crisis to encourage businesses including hospitality business in Nigeria. Also, Hospitality industry in the midst of recession should cut down their cost of operation such as reducing unnecessary expenses that are not very important to the business. That would help in improving their performance.




TABLE OF CONTENTS

Title Page                                                                                                                                i

Approval page                                                                                                                        ii

Certification                                                                                                                                    iii

Dedication                                                                                                                         iv

Acknowledgements                                                                                                              v

Table of content                                                                                                                vi

Abstract                                                                                                                                  x

 

CHAPTER 1: INTRODUCTION                                                          

1.1 Background to the study

1.2 Statement of the problem         4

1.3  Objectives of the study                                                                6

1.4 Research questions                                                                                                           7

1.5 Research hypotheses                                7

1.6 Significance of the study                           8

1.7 Scope of the study                                                 9

1.8 Operational framework      

 

CHAPTER 2: REVIEW OF RELATED LITERATURE                   

2.1 Conceptual framework        

2.1.1Concept of Hospitality                                                                       13

2.1.2 Concept of Hotels                   14

2.1.3 Types of Hotels                                                                                  16

2.1.4 Hotel Products                                                                                   17

2.1.5 Classification systems of hotels                                                        19

2.1.6The Nigerian Hospitality Industry                       21

2.1.7The Causes of Recession                                   23

2.1.8 The impact of Recession on Politics, Business, Employment and Social life.              24

2.1.9 Measures to reduce the Economic Crisis Impact on  Hotels in  South East Nigeria            26

2.1.10 Definition of Nigerian Hospitality Economy                                  27

2.1.11 The Channels of Economic Impact                                                 28

2.1.12 Economic importance of Hospitality Industry             30

2.1.13 Factors affecting the hospitality industry               32

2.1.13.1 Economic influences                                                                    33

2.1.14 Economic Impacts of Hospitality                                                    34

2.1.14.1 The positive economic impacts of the industry         34

2.1.14.2 The negative economic impacts of the industry         37

2.1.15 The Impact of Economic Crisis on Hospitality Worldwide                                        38

2.2 Theoretical framework                                           42

2.2.1 Theory of Constraints Credited                                            42

2.2.2 Valid theory                                                               43

2.2.3 Keynesian Approach to Economic Recession        44

2.2.4 Recessions and Economic Theories                    44

2.3 Empirical Review                                                      46


CHAPTER 3: RESEARCH METHODOLOGY                                                              

3.1 Research design                                                                                                                52

3.2 Area of the study                                                                                                              52

3.3 Population for the study                                                                                                   52

3.4 Sampling and sampling technique                                                                                    53

3.4.1 Sample size determination                                                                                            53

3.4.2. Sampling technique                                                                                                      53

3.5 Instrument for data collection                                                                                           54

3.6 Validation of the instrument                                                                                             54

3.7 Reliability of the instrument                                                                                             55

3.8 Method of data collection                                                                                                 55

3.9 Method of data analysis                                                                                                                                        55


CHAPTER FOUR:  DATA PRESENTATION AND ANALYSIS               

4.1 Data presentation                                                                                                              57

4.2 Data analysis                                                                                                                     63

4.2.1 Effect of income rate, unemployment rate and cost of production

on customer patronage in hotels                                                                                             63

4.2.2 Effect of income rate, unemployment rate and cost of production on

sales volume of hotels                                                                                                            65

4.3 Test of hypotheses                                                                                                                        66

4.3.1 Hypothesis one                                                                                                              66

4.3.2 Hypothesis two                                                                                                              67

4.3.3 Hypothesis three                                                                                                            67

4.3.4 Hypothesis four                                                                                                             67

4.3.5: Hypothesis five                                                                                                             68

4.3.6: Hypothesis six                                                                                                              68

4.4 Discussion on findings                                                                                                     68


CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION      

5.1 Summary                                                                                                                           70

5.1.1 Restatement of the Problem                                                                                          70

5.1.2 Major Findings                                                                                                              72

5.1.3 Description of Methods Used                                                                                        72

5.2   Conclusion                                                                                                                      73

5.3 Recommendations                                                                                                            74

5.4 Contribution to knowledge                                                                                               74

5.5 Suggestion for Further Studies                                                                                         74

 

REFERENCES

 

 

 

 

 

 

 

 

 

 

CHAPTER 1

INTRODUCTION


1.1 BACKGROUND TO THE STUDY

The hospitality industry provides services for people who are away from home regardless of whether it is for long or short periods of time. These services can vary according to the specific needs of both the person away from home and the organization operating those services (Baker, Bradly & Huyton, 2010). The hospitality industry is important to the development of many parts of the world. In some regions, income from it is one of the main sources of foreign exchange e.g. Fiji, the Caribbean and Hong Kong (Baker et al, 2010). The industry is important because it contributes to the growth of an economy by providing a lot of employment opportunities for the people, funding a large percentage of a country’s Gross Domestic Product, thereby helping to raise the national income and by earning foreign currencies through the goods and services provided to foreign visitors, thus improving the balance of payments (Baker et al, 2010).

There is no doubting that hospitality industry is the livewire of tourism at all levels. The United Nations World Tourism Organization (UNWTO) confirms that between 70% and 75% of international tourists’ expenditure goes to hospitality services on annual basis (Akpabio, 2017). This confirms the strategic importance of the sector to tourism. It is estimated that there are over a million hotels in the United States of America. But in Nigeria, there are only about 12 internationally branded hotels (Amadi, 2018). Nigeria has so few internationally branded hotels due to the former perception of the country as a high – risk destination for investments, especially in hotel businesses, which are capital intensive and require long – term for the investor to recoup his money.  Investors in hotels hardly look towards Nigeria due to exorbitant cost of landed property and high lending rates in Nigerian banks. It is a lot easier and cheaper to acquire land and build a hotel in USA than it is in Nigeria (Amadi, 2018). Lending rate in USA is about 6 per-cent with mortgage of about 25 years in which investor has to pay back the money. But in Nigeria, the lending rate could go as high as 25 per-cent, depending on who is borrowing and for what purpose. Additionally, Nigerian banks will only give the investor about three years to pay back.

The National Bureau of Economic Research (NBER), defines recession as “a significant decline in economic activity spread across the macro-economy, lasting more than a few months, normally visible in real gross domestic product (RGDP), real income, employment, industrial production and wholesale retail sales”. When a country is in the phase of recession, the economy is far from the point of effective use of resources, i.e. Far from the optimal production and the natural rate of unemployment (Nikoloski and Lazarov, 2010) The recession has been challenging for hotel operators not adequately prepared for a downturn – whether in terms of the quality of the hotel product and service rendered, strong revenue management strategies, or the diversification of their demand markets.  But for operators and investors who truly intend to be mid- to long-term players, a recession is simply part of the cycle, and it creates myriad investment opportunities in the sector. Nigeria’s recession seems to have bottomed out in 2016. An upswing in 2017 and beyond will mean more growth opportunities to invest in. For investors who already have existing hotels, this is a great period for strategic planning – doing the research to study the market, discover demand trends, identify and possibly diversify target markets, and reposition their properties, if necessary, and if feasible.

Economic slowdown can be harmful to countries and has regional and sectorial repercussions particularly on the tourism industry. Previous research revealed that it could make changes to consumer behavior, reduce number of international tourist arrivals to countries affected by crisis, increase unemployment rate and loss of income (Smeral, 2019). The global economic recession in 2008 had a great effect on the economies and industries of many developing and developed countries. The demand for the hospitality industry had largely influenced as a result of the poor economic conditions (Song and Lin, 2010). The economic and political crises have strong negative consequences on Nigeria’s  economy as the Gross Domestic Product (GDP) has declined by 3.2%, the foreign debts were increased and significant reductions occurred in employees’ wages across all sectors particularly those working in the tourism and hospitality industry.

During economic challenges customers and firms reduce their expenditures on travelling in which negatively influence the volume of business (Henderson, 2017; Youn and Gu, 2019). During financial turbulence many hotel operators are struggling to manage declining demand and how best they can respond to the pressure to reduce tariffs. Almost all hotel categories have experienced falls in occupancy, average daily rate and revenue per available room in many parts of the world (kimes, 2009). Gehrels and Blanar (2012) added that the recession lead hotels to re-consider their prices and the value offered to customers.

The economic recession affects all business sectors in Nigeria. The tourism and hospitality industry in Nigeria is suffering since 2011 as reflected in its contribution to GDP and the laying of thousands of employees. Tourism is considered one of the most important pillars in Nigeria’s economy. According to the official estimates reported by the World Bank (2017) the international tourist arrivals were reached its peak in 2010 accounted for 14 million tourists with international receipts from tourism 13.6 Billion US dollars for the same year. However, these figures were reduced significantly in the following years in which number of tourists reached 9.6 million tourists in 2014 with 30 percent reduction compared to 2010, in addition, international tourism receipts accounted for 7.9 Billion US dollars in 2014. It can be noticed that number of tourist arrivals in Nigeria had witnessed a major declines since 2011. Nigeria lost about 5.7 Billion dollars as a result of the political and economic turbulences. 

The Nigerian hospitality industry is faced with a lot of problems. Among them are: high hotel charges and the slow pace on developing tourist sites that dot the various parts of the country (Akpabio, 2017). Others are erratic power supply (Amadi, 2018), poor services (Nwosu, 2018) and unethical behaviors by professionals in the industry (Awoseyin, 2017).  

 In spite of these shortcomings, the hospitality industry in Nigeria contributed N680.1 million to the Nigerian economy in 1980, N492.4 million in 1984 (using 1984 constant basic prices for both periods), N477.9 million in 1990, N591.9 million in 2000 (CBN, 2013), N1950.0 million in 2004 and N2, 390.0 million in 2006 (using1990 constant basic prices) (CBN, 2006).

 An analysis of any industry must at some stage take into account the context in which that industry exists. In more specific terms, it is important to examine the relationship of that industry to the government of the nation in which it functions. Government policies will determine many of the directions the industry will take and will also have an effect on the relationship of the industry to other industries in that nation (Gale and Odgers, 2010) as well as the economy of the nation as a whole. It is in the light of the above that the Nigerian economy over the years will be considered.


1.2 STATEMENT OF THE PROBLEM

Recession is known as one of the most significant exogenous events that threatens a firm’s existence and continued profitability (Mascarenhas & Aaker, 2019). Since 1990, more than 500,000 firms have filed for bankruptcy in the Nigeria as a result of economic recessions (Pearce & Michael, 2016). While a recession affects firms in almost all economic sectors, the hospitality firms appear to be more susceptible to economic downturns because they derive revenues mostly from people’s discretionary consumptions (Youn&Gu, 2019). During the economic crisis, the lodging industry faces significant challenges as both business and consumers cut back on travel expenditures. The vulnerability of the lodging industry to economic downturns is often reflected in the high business failure rate in recessions.

The Nigerian economy has not been stable over the years as it depended mainly on international economic system in the early 1980s. This unfortunately, became increasingly hostile (Koleoso, 2017). The economy had been seriously affected by massive devaluation of the national currency, the Naira, by the Structural Adjustment Programme introduced by the military.

Coupled with this is the instability in the prices of crude oil in the international market, crude oil being the major source of foreign exchange earning for the country. Corruption in high and low places also took its toil on the national economy. Despite all these, the GDP fell from N68, 246.2 million in 1980, to N62,474.2 million in 1984 (using 1984 constant basic prices for both periods) but rose to N92, 238.5 million in 1990, N121, 207.8 million in 2000, N527,580.0 in 2004 and N593, 570 million in 2006 (using 1990 constant basic prices).

Due to recession, the productivity and profitability of the businesses has been reduced and some hotel establishments have got liquidated. With respect to the analysis of the hotel industry, it has been analyzed that the industry is widely influenced by recession. It is due to the reason that the hotel industry has a direct relation with the tourism industry and decrease in the tourist arrivals directly influences the hotel revenues (Henderson, 2017). The occupancy rates of the hotels and the average room rates got reduced, which affected the output from the business operations. The hotel industry involves large amount of fixed cost in the form of wages of the employees and billing of the desired utilities, so many organizations focused on the cost cutting and layoffs. The consumer behavior regarding the lodging facilities was changed and it affected the operability of different divisions of the hotels. Financial market variations reduced the credit availability to the hotels due to this; small business operators in this industry got adversely affected. The level of competition in the hotel industry was intensified and the hotels focused on differentiating their services for sustaining their brand name as well as service quality (Youn and Gu, 2019).

In order to become successful in the adverse economic conditions, the hotels require integrating their business strategy and the different divisions, so that the market opportunities can be maximized and tapped effectively for gaining control over the business operations in the adverse economic climate.

1.3 OBJECTIVES OF THE STUDY

Themain objective of the study is to examine the economic recession and hospitality performance in Umuahia, Abia state. The specific objectives includes:

(i)    To examine the influence of income rate on customer patronage of hotels in Umuahia, Abia state.

(ii)  To determine the influence of unemployment rate on customer patronage of hotels in Umuahia, Abia state.

(iii)                   To examine the influence of cost of production on customer patronage of in Umuahia, Abia state.

(iv)  To examine the influence of income rate on profitability of hotels in Umuahia, Abia state.

(v)  To examine the influence of unemployment rate on profitability of hotels in Umuahia, Abia state.

(vi)  To examine the influence of cost of production on profitability in Umuahia, Abia state.


1.4  RESEARCH QUESTIONS

The following questions addressed the study

(i)             What is the influence of income rate on customer patronage of hotels in Umuahia, Abia state?

(ii)           What is the influence of unemployment rate on customer patronage of hotels in Umuahia, Abia state?

(iii)         To what extent does cost of production influence customer patronage of in Umuahia, Abia state?

(iv)          To what extent does income rate influence profitability of hotels in Umuahia, Abia state?

(v)           To what extent does unemployment rate influence profitability of hotels in Umuahia, Abia state?

(vi)          What is the influence of cost of production on profitability in Umuahia, Abia state?


1.5 RESEARCH HYPOTHESES

The following null hypotheses will be tested in the course of this study

H01: Income rate has no significant influence on customer patronage of hotels in Umuahia, Abia State.

H02: Unemployment rate has no significant influence on customer patronage of hotels in Umuahia, Abia State.

H03: Cost of production rate has no significant influence on customer patronage of in Umuahia, Abia State.

H04: Income rate has no significant influence on profitability of hotels in Umuahia, Abia State.

H05: Unemployment rate has no significant influence on profitability of hotels in Umuahia, Abia State.

H06: Cost of production rate has no significant influence on profitability of in Umuahia, Abia State.


1.6 SIGNIFICANCE OF THE STUDY

The study will be significant to the following group of people; hospitality industry, government, customers, students and researchers.

Hospitality industry; the findings and recommendations of this work will help hospitality industry to understand the impact of economic recession on hospitality performance. The study will enable them to understand the measures to be taken to protect the industry during economic recession. The findings of the study will also reveal the influence of economic recession on customer patronage and profitability in hospitality industry.

Government; the findings and recommendations from this study will help government to set out policies and regulations that help in reducing the rate of recession in the country. The study will also help government to come up with support system(s) that can help to protect industries during economic recession.

Students; the findings of this study will educate students of this noble institution and other institutions on economic recession and hospitality performance.

Researcher: this study will be used by researchers who would want to research on a similar topic in the future.

 

1.7 SCOPE OF THE STUDY

The content scope is economic recession and hotel performance. The geographical scope is Umuahia, Abia State. The unit scope is managers and staff of selected hotels in Umuahia, Abia State.


1.8 Operational Framework

The operational framework showing the independent variable (economic recession) and the dependent variable (hotel performance).


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