Abstract: In the face of a highly competitive environment, hotel’s operational efficiency plays a crucial role in determining a hotel’s profitability and competitiveness. Efficiency measures can provide hotel managers with benchmarking information and further insight of how the hotel can improve efficiency with its current resources or through changing resource allocation. This research initially adopted Data Envelopment Analysis (DEA) to measure the relative operational efficiency of 57 international tourist hotels in Taiwan. However, this DEA score only indicated the relative efficiency of all sample hotels and did not consider the role of location. This shortcoming was rectified through the construction of an area adjustment to reflect the effect of location on DEA efficiency. Implications for hotel management arising from this adjustment are discussed.