How digital transformation shapes tourism firm profitability: cost stickiness and asset productivity channels in Chinese listed tourism enterprises

The tourism industry operates on a delicate financial tightrope. It is built on heavy, unmovable investments like hotels, scenic area infrastructure, and transport fleets that must be paid for regardless of how many visitors show up. When travel demand is high, these fixed costs are easily covered, but when demand drops suddenly, revenues fall while those costs remain stubbornly high. This creates a persistent tension where profits can vanish quickly during downturns. To solve this, many companies are turning to digital transformation, a broad term for embedding technologies like data analytics and online platforms into their daily operations. The hope is that these tools will make costs more flexible and help existing assets work harder. However, the path from spending money on new technology to seeing a profit is rarely straight. It often involves a period of heavy investment before the benefits appear, and it is unclear exactly how these digital changes translate into better financial health for tourism companies.

Researchers from Xi'an University of Architecture and Technology set out to map this journey using data from 28 listed tourism companies in China over a decade, from 2015 to 2024. This period was particularly revealing because it captured a full cycle of digital investment, including the massive demand collapse caused by the pandemic and the subsequent recovery. The team analyzed how digital transformation influenced the return on assets, a standard measure of how efficiently a company uses its resources to generate profit. They looked specifically at two hidden mechanisms that might explain the results: how well companies could adjust their costs when business slowed down, and how effectively they could get more revenue out of the buildings and equipment they already owned.

The study uncovered a clear pattern that resembles a "J-curve" in the financial performance of these firms. In the short term, investing in digital transformation actually hurt profitability. For the first year or so after companies began their digital upgrades, their returns on assets dropped significantly. This initial dip happens because the money spent on new systems and restructuring is recorded immediately as a cost, while the efficiency gains from using those systems take time to materialize. However, this negative effect did not last. By the second year, the trend reversed, and the digital investments began to generate positive returns. By the third year, the benefits were still present, though they started to level off as more competitors adopted similar technologies. This timeline suggests that while digital transformation is expensive upfront, it pays off if companies can wait out the initial implementation phase.

To understand why this turnaround happens, the researchers traced the money through two specific channels. The first channel involved "cost stickiness," a concept describing how costs behave differently when business goes up versus when it goes down. In traditional tourism firms, costs tend to stay high even when revenue falls because managers are reluctant to cut staff or close facilities immediately, fearing they will need to rebuild capacity later. The study found that digital transformation helps break this stickiness. By using better data to forecast demand and more flexible platforms to manage staffing, companies became better at reducing costs when business slowed. This ability to trim expenses during downturns acted as a powerful shield, partially offsetting the heavy initial costs of the digital investment.

The second channel focused on asset productivity, or how much revenue a company generates for every dollar of assets it owns. Tourism is an industry where empty rooms or unvisited scenic spots represent wasted potential. The researchers discovered that digital tools helped companies fill these gaps. Through dynamic pricing and better online distribution, firms were able to attract more visitors to their existing infrastructure, effectively getting more work out of the same physical resources. This increase in asset turnover also contributed to the long-term profit recovery. Interestingly, the study showed that these two channels worked in competition with each other. The initial financial pain of the investment was real and significant, but the gains from better cost management and higher asset usage eventually outweighed that burden.

The impact of these changes was not the same for every type of tourism business. The researchers found that the dominant factor depended on the nature of the company's assets. For heavy-asset businesses like hotels and scenic area operators, the ability to manage costs more flexibly was the primary driver of success. These companies have huge fixed costs, so the digital ability to adjust those costs quickly mattered most. In contrast, for asset-light businesses like travel agencies, the main benefit came from increasing the speed and volume of transactions, making their existing resources work harder. This distinction suggests that a one-size-fits-all approach to digital investment does not work; the strategy must match the specific economic structure of the business.

Ultimately, the study confirms that digital transformation is a long-term strategy rather than a quick fix. The data shows that while the immediate financial impact is often negative, the delayed benefits are substantial and real. By helping companies manage their costs more intelligently and utilize their physical assets more efficiently, digital tools offer a path to sustainable profitability. This finding is particularly relevant for the broader goal of sustainable tourism, as getting more value out of existing infrastructure means less need to build new facilities, thereby reducing the environmental footprint of the industry. The research provides a clear roadmap for investors and managers: expect a period of adjustment and loss, but if the digital integration is managed correctly, the long-term rewards are worth the wait.