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The Ethiopian hotel industry is growing at a high pace, but it is also experiencing major challenges with regard to the provision of quality service to their guests. Data was collected and analysed from a stratified cluster sample of 415 hotel guests using the HOTSPERF questionnaire, which is a modified version of SERVQUAL and SERVPERF. Through inferential techniques, it became evident that there is a significant relationship between, the overall service quality and customer satisfaction; and between customer satisfaction and loyalty. However, no direct relationship was ascertained between service quality and loyalty. The implications of the aforementioned findings are that hotel management in Ethiopia should not set the customer expectations very high, and they also need to know their customers’ satisfaction levels, by conducting regular satisfaction surveys. Since an improvement in customer loyalty is important for any organization which depends on repeat business, the hotel management also needs to create a service milieu which engenders loyalty.