Abstract

This study identifies the critical success factors that influence the operational success of budget hotels in Malaysia, and it examines the mediating role of customer satisfaction. A quantitative design was adopted, using surveys distributed to 212 hotel practitioners and 424 hotel guests. The data were analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM). Five critical success factors, namely Technology, Customer Service, Pricing, Food and Beverage, and Supplementary Facilities, significantly influenced customer satisfaction. Customer satisfaction partially mediated the effects of Technology, Pricing, and Customer Service on hotel performance. The findings offer useful guidance to managers and policymakers on resource allocation, the adoption of technology, pricing policies, and improved customer service for those seeking to strengthen the performance of Malaysian budget hotels. The results can also help policymakers justify budgetary allocations for development initiatives. This paper contributes to the existing literature on CSFs by incorporating Islamic-friendly facilities, adopting a dual-respondent design, and treating customer satisfaction as an intervening variable within a unified RBT-Stakeholder Theory model.