Covering Fixed Costs to Survive a Global Crisis: Financial Vulnerability, Coping Strategies and Bankruptcy Risk in South African Accommodation Establishments

Abstract

The accommodation sector in South Africa was among the economy's most severely impacted sectors during the COVID-19 pandemic, yet individual firms’ responses to the financial crisis, and the factors that differentiated business survival from bankruptcy, remain empirically under-researched. This paper addresses this gap.  Data were obtained from a cross-sectional, self-administered online survey of 477 accommodation establishments in all nine provinces, conducted in 2020 while strict lockdown rules were in force. The paper examines how establishments responded to the crisis and how their characteristics and financial position related to perceived bankruptcy risk. Frequencies described the extent of disruption; exploratory factor analysis (EFA) identified the main coping types; Kruskal-Wallis and Mann-Whitney tests compared coping across establishment groups; binary logistic regression modelled perceived bankruptcy risk; and K-means cluster analysis grouped establishments by coping pattern. The EFA produced four coping dimensions: operational downsizing, workforce management, financial strategy and support, and business suspension and contraction (overall α = 0.834). Ability to meet fixed costs was the only significant correlate of perceived bankruptcy risk (OR = 5.874, p < 0.001); revenue decline and establishment size were not significant. Size and category, but not province, separated three coping groups (Passive Withdrawers, Comprehensive Responders and Selective Adapters). When asked about hypothetical lockdown lengths, operators expected them to last at most six months. From a Resource-Based View perspective, financial slack held before the crisis, the ability to pay fixed costs without income- best separated vulnerable from less vulnerable firms. Larger establishments with more resources took a wider range of actions. Because the authors did not measure dynamic capabilities directly, they treat these actions as operational adjustments rather than evidence of dynamic capabilities. The authors propose a Financial Vulnerability Index (FVI) for future crisis research. Managers should build cost flexibility and reserves in normal times, and banks and government should direct crisis support at liquidity and fixed costs, for example, payment holidays on loans, rates and utilities, and deliver it quickly and widely instead of relying mainly on access to credit.