Hotel daily occupancy forecasting with competitive sets: a recursive algorithm

Abstract

Purpose – This paper aims to improve the accuracy of hotel daily occupancy forecasts – an essential element in the revenue management cycle – by proposing and testing a novel approach. The authors add the hotel competitive-set’s predicted occupancy as an input of the individual property forecast and, using a recursive approach, demonstrate that there is a potential for significant reduction in the forecasting error. Design/methodology/approach – The paper outlines the theoretical justification and the mechanism for this new approach. It applies a simulation for exploring the potential to improve the accuracy of the hotel’s daily occupancy forecasts, as well as analysis of data from a field study of two hotel clusters’ daily forecasts to provide empirical support to the procedure’s viability. Findings – The results provide strong support to the notion that the accuracy could be enhanced. Incorporating the competitive set prediction by using either a genetic algorithm or the simple linear regression model improves the accuracy of the forecast using either the absolute or the absolute percentage as the error measure. Research limitations/implications – The proliferation of data sharing practices in the hotel industry reveals that the timely data sharing-aggregation-dissemination mechanism required for implementing this forecasting paradigm is feasible. Originality/value – Given the crucial role of accurate forecasts in revenue management and recent changes in the hotels’ operating environment which made it harder to achieve or maintain high levels of accuracy, this study’s proposed novel approach has the potential to make a unique contribution in the realm of forecasting daily occupancies.