| Summary: | This article explores the relationship amongst hotel ratings, service quality; customer satisfaction and loyalty in the Ethiopian hotel industry, since the prevalence of different rating (grading) systems is confusing customers. Using stratified cluster sampling by which customers were clustered under the hotels that they stayed in, and stratified according to their hotel ratings, a sample of 1200 hotel guests were targeted. A total of 415 hotel guests responded, by completing the HOTSPERF questionnaire, which is a modified version of SERVQUAL and SERVPERF. Through various inferential techniques, it became apparent that there is a significant relationship between hotel ratings and service expectations, service perceptions, and customer satisfaction. However, no significant direct relationship was found between hotel ratings and overall service quality. . Furthermore, significant relationships were found between customer satisfaction and loyalty; but there was no direct relationship between hotel ratings and customer loyalty. Even though, there was no direct relationship between service quality and loyalty, there may be an indirect or mediated effect of hotel ratings on both service quality and loyalty, through its effect on service expectations and customer satisfaction. Hotel management in Ethiopia should understand the importance of the criteria to attain different star ratings locally, by reviewing that as evidenced in the World Tourism Organization and its criteria for evaluation. Adjustments need to be made to individual hotel ratings to align to internationally accepted criteria, which will enable hotel management to understand their customers’ expectations and strive to exceed it, in order to maintain their satisfaction and loyalty. Furthermore, consumer education may be necessary to apprise them on the grading system and what can be expected in terms of the service.
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