An analysis of capital expenditure in five-star hotels in Malta

Abstract

Purpose: The purpose of this study is to provide an insight into the Capital Expenditure (CapEx) process adopted by five-star hotels in Malta, as well as the underlying factors that drive the need to undertake such expenditure. Design: In meeting these objectives, a qualitative method was adopted. Two different types of interviews were conducted: the first with hotel executives who play an essential part in managing the finances of their respective hotel, while the second with an engineer who has ample experience working in a five-star hotel environment. Findings: This study showed that hotel managers with a solid financial background are highly involved in coordinating the whole CapEx process. In addition to this, no standard approach is adopted by hoteliers in financially appraising capital projects due to the vast extent of variables involved. Nonetheless, non-monetary factors are given paramount importance as the guest is often placed at the centre of every CapEx decision undertaken. Hotel executives also tend to adopt a more stringent and detailed approach with larger and more expensive capital projects than with small and inexpensive ones. Conclusions: This study concludes that hotel managers are overall pleased with the process adopted by their respective hotels. Nonetheless, the majority feel that there is room for improvement, especially with respect to the level of autonomy they are given. Moreover, a system which would allow for better comparison between capital projects would also be beneficial for hotels to adopt. It can also be concluded that taxation is not a factor driving the undertaking of capital projects in five-star hotels in Malta, whereas, market demands, wear and tear, and technology were determined to be the leading causes of CapEx in this respect. Value: This study enables the reader to gain an understanding of CapEx in Maltese five-star hotels and what can be changed to improve the process in light of the vast number of variables surrounding each capital project.