BOHOL ISLAND STATE UNIVERSITY

Main Campus
College of Business and Management
Department of Tourism and Hospitality Management
Vision: A premier Science and Technology university for the formation of world class and virtuous human resource for sustainable
development in Bohol and the country.

Mission: BISU is committed to provide quality higher education in the arts and sciences, as well as in the professional and
technological fields; undertake research and development and extension services for the sustainable development of Bohol and the
country.

APPROVED
9/29/2024

COURSE: OPERATIONS MANAGEMENT IN TOURISM

AND HOSPITALTIY INDUSTRY

MODULE 4: FORECASTING AND DEMAND MANAGEMENT

Learning Objectives:

By the end of this lesson, learners will be able to:

1. Learn forecasting methods, how to handle demand variability, and

strategies for inventory management in a hospitality context.

2. Understand supply chain components, logistics and strategies for

effective supply chain management.

3. Learn about current technologies, information systems, and emerging

innovations enhancing hospitality operations.

4.1. Definitions of Tourism Demand

1) According to Mathieson and Wall, 1982, “Tourism demand is the total
number of persons who travel or wish to travel to use the tourist facilities
away from their places of work and residence.”

2) According to IGI Global Dictionary, “Tourism demand is defined as the

number of people that plan to buy tourism products supported by sufficient
purchasing power and spare time in order to meet tourism needs of people.”

3) According to Cooper et al, 1993, Tourism demand is, “The total number of
persons, who travel or wish to travel and use tourist facilities and services at
places away from their places of work or residence.”

4) According to Professor H.P. Gray, tourism demand can be discussed under

two sub-parts as: Wanderlust: The desire to exchange the known for the
unknown, to leave familiar things and to seek new experiences, places,
people and cultures. Sunlust: A desire to travel and enjoy sunny places.

5) According to Song et al. 2010, “Demand is made of all those travelling to

some place (tourists and destination). It can be measured by taking into
account four elements: people (tourists), money (expenditure, receipts), time
(stays and travels durations) and space (distances, lengths of trips).

4.2. Concept of Tourism Demand and Supply

The concept of tourism demand and supply revolves around the interaction
between the needs or desires of tourists (demand) and the services and
infrastructure provided by destinations (supply). Understanding this
relationship is crucial for the success of tourism businesses and destinations.

Tourism Demand refers to the need for various tourism products, such as
tour packages, escort services, catering, and currency exchange, at a
specific location and time. It encompasses several types:

 Active Demand: This is the current utilization of tourism products by

people at a particular place or market.
 Potential Demand: This includes individuals who are not currently
using tourism products but may do so in the near future.
 Deferred Demand: This refers to those who have the potential to
travel but have postponed their plans due to reasons like lack of free
time, health issues, or personal circumstances.
 Suppressed Demand: This involves people who could travel but are
not currently using tourism products due to a lack of motivation or
information. Efforts to motivate these individuals can convert
suppressed demand into active demand.
 Future Demand: This predicts the need for tourism products in the
near future, which may fluctuate based on changes in lifestyles.
 Creative Demand: This pertains to the demand for innovative
tourism products and new trends, exploring and developing new
destinations.
4.3. Tourism Supply refers to the provision of tourism products and
services at a specific place and time. This includes tour packages, individual
tour components, and various services such as escort, guide, catering,
insurance, security, currency exchange, and visa services. Supply can be
categorized based on the type of supplier:

 Wholesale (Tour Operators): These suppliers provide tourism

products in bulk, typically at lower prices due to the large quantities
sold.
 Retail (Travel Agents): Retail suppliers offer tourism products in
smaller quantities, catering to individual customer needs and acting as
intermediaries between wholesalers and customers.
In addition, supply can be classified as:

 Direct Selling: This involves selling tourism products directly through

the parent organization’s online platforms or physical stores.
 Indirect Selling: This occurs through affiliates, resellers, independent
sales representatives, or other sellers, both online and offline.
 Personal Selling: This includes direct methods such as door-to-door
sales, which can be part of both direct and indirect selling.
4.4. Factors Affecting Demand and Supply
Demand Factors: Various socio-economic factors, such as income levels,
purchasing power, and availability of paid holidays, impact tourism demand.
Psychological factors like personal motives, perceptions, and awareness also
play a role. Technological factors, including the use of mobile apps and
internet resources, influence demand by making information and booking
easier. Geographical factors, such as the location, climate, and natural
features of a destination, also affect demand.

Supply Factors: The supply of tourism products is influenced by the

geographical location of the market, with accessible areas generally having
better supply. Technological advancements allow for better access and
distribution of tourism products through electronic gadgets and mobile
applications. The presence of service providers, such as tour operators and
travel agents, impacts supply by increasing competition and improving
service availability. In addition, the quality of infrastructure, including hotels,
restaurants, and public utilities, positively affects the supply of tourism
products.

4.5. Indicators of Tourism Demand and Supply

Indicators of tourism demand and supply are essential for understanding the
dynamics of the tourism industry. They provide valuable insights into visitor
behavior, economic impacts, and the effectiveness of tourism services.
Understanding these indicators allows stakeholders to make informed
decisions to improve tourism experiences and optimize resources.

1. Indicators of Tourism Demand

Visitor Flows

Visitor flows refer to the movement patterns of tourists to and from various
destinations. This indicator includes the number of arrivals, departures, and
the duration of stays. It helps assess the popularity of destinations and
gauge peak travel seasons, providing insights into capacity needs and
infrastructure requirements.

Visitor Characteristics

The characteristics of visitors include demographic factors such as age,

nationality, and purpose of travel (e.g., leisure, business, education). These
characteristics play a crucial role in shaping tourism offerings, marketing
strategies, and service customization, allowing businesses to target specific
segments effectively.

Trip Details

Trip details encompass the specifics of each traveler’s journey, such as

duration, spending behavior, and travel preferences. This information is vital
for understanding how tourists engage with various services and attractions,
aiding in the planning and management of tourism experiences.

Expenditure Patterns

Tourism expenditure represents the amount of money visitors spend during

their trips, including accommodation, food, activities, and shopping.
Monitoring this expenditure provides insights into the economic impact of
tourism on local economies and can assist in evaluating the financial health
of the tourism sector.

Economic Indicators

Economic indicators related to tourism demand include implicit price indexes

for tourism products, GDP growth rates, and the consumer price index. These
indicators provide insights into the economic environment affecting travel
behavior, including how pricier experiences may deter or attract visitors.

Geographical and Socio-Cultural Factors

Indicators reflecting geographical conditions (e.g., climate, proximity to

attractions) and socio-cultural factors (e.g., local customs and values) are
important for assessing demand. These factors influence travelers'
destination choices and their overall satisfaction with their experiences.

2. Indicators of Tourism Supply

Services and Product Availability

Tourism supply refers to the range of services and products available to meet
tourist demand. Key indicators of supply include the availability and quality
of accommodation, transportation, food services, and recreational facilities.
These elements are essential for creating a satisfactory tourist experience.

Infrastructural Components

Infrastructure plays a critical role in supporting tourism supply. Indicators in

this category assess the availability and quality of transportation networks,
airports, and access roads that facilitate tourist movement and enhance
accessibility to attractions.

Economic Contributions

The economic contributions of tourism supply can be measured through

various metrics, including consumption values and the total contributions to
GDP from the tourism sector. For example, in 2022, tourism generated
approximately $7.7 trillion globally and created 22 million jobs, underlining
the industry's economic significance.

Quality of Tourism Supply

Perceived quality of tourism supply is crucial in determining visitor

satisfaction and their likelihood to return. This includes factors such as
service efficiency, staff friendliness, and the overall impression of attractions
and accommodation services. High-quality supply often leads to increased
customer loyalty and positive word-of-mouth marketing.

Consumer Spending Trends

Trends in consumer spending for travel-related activities serve as crucial

indicators of tourism supply dynamics. This includes expenditures on lodging,
meals, activities, and transport services, which reflect the willingness of
tourists to invest in their experiences. Understanding spending patterns can
inform supply-side adjustments to better meet customer expectations.

Market Conditions and Corporate Objectives

Economic conditions, such as exchange rates and income levels, significantly

influence tourism supply. Additionally, corporate objectives and marketing
strategies play a role in how services are offered to meet demand trends.
This interplay between market conditions and corporate goals can dictate the
availability of tourism products in various regions.

4.6. Measuring Demand for Tourism

Measuring demand for tourism is essential for stakeholders in the tourism
industry to understand traveler behaviors, economic impacts, and the
effectiveness of tourism services. Employing various methods and indicators
enables decision-makers to optimize marketing strategies, enhance service
offerings, and ensure sustainable tourism development.

1. Methods for Measuring Tourism Demand

Tourist Arrivals

The total number of international tourist arrivals to a destination is a primary

indicator of tourism demand. This can be measured through immigration
records, airline statistics, and data collected from hotels and
accommodations. This method provides a direct count of the quantity of
tourists visiting specific locations.

Tourist Expenditures

Tourist expenditure refers to the money spent by visitors during their travels,
including spending on accommodation, food, transport, activities, and
shopping. Understanding expenditure patterns helps gauge the economic
impact of tourism. Surveys and questionnaires targeting tourists are often
used to gather this information.

Surveys and Questionnaires

Surveys are widely used to measure tourism demand, focusing on aspects

such as visitor demographics, trip characteristics, and expenditure behavior.
Implementing both quantitative and qualitative approaches enhances the
richness of the data collected. For instance, the use of Likert scales in
surveys can provide insights into traveler satisfaction and preferences.

Statistical Models

Advanced statistical models such as binary and multinomial choice models

are used to analyze tourism demand by examining the choices travelers
make regarding destinations and services. These models help predict future
demand patterns based on historical data and factors influencing decision-
making.

Data from Tourism Satellite Accounts (TSA)

Tourism Satellite Accounts provide a comprehensive view of the economic

contributions of tourism to national economies. They encompass data on
inbound, domestic, and outbound tourism expenditures, allowing for a robust
understanding of tourism’s impact on GDP, employment, and revenue
generation.

2. Indicators of Tourism Demand

Visitor Flows

Visitor flows involve tracking the number of tourists arriving and departing
from destinations. This indicator helps analyze seasonal trends, peak travel
periods, and overall destination popularity. For example, the World Tourism
Organization provides data on international tourist arrivals, which helps
countries forecast demand.

Demographic Characteristics

Understanding the demographics of tourists—such as age, nationality, and

purpose of travel—can provide valuable insights into the preferences and
needs of visitors. This data can help tailor services and marketing strategies
to specific segments of the market.

Expenditure Patterns

Monitoring how much tourists spend during their trips is crucial for assessing
the economic impact of tourism. By analyzing average daily expenditures
across different categories such as accommodation, dining, and shopping,
stakeholders can make informed decisions about resource allocation and
service enhancements.

Trip Characteristics

Trip characteristics such as length of stay, frequency of travel, and booking

channels are essential components in understanding tourism demand. Data
collected from surveys about trip details provide insights into travel patterns
and preferences, enabling better planning and marketing efforts.

4.7. FORECASTING
Forecasting involves using historical data and predictive analytics to
estimate future demand and revenue in the hospitality sector. It serves as a
foundational element in revenue management, enabling businesses to
predict demand effectively and optimize their pricing strategies accordingly.
By analyzing previous trends and customer behavior, stakeholders can make
calculated decisions about inventory and marketing strategies, ultimately
aimed at maximizing revenue.

Importance of Forecasting in Hospitality

1.) Anticipating Demand

One of the primary benefits of forecasting is its ability to help businesses

anticipate demand. By predicting customer volume during different periods,
hospitality businesses can ensure they are adequately staffed and stocked,
which is vital for providing quality service. This foresight allows managers to
react quickly to changes in the market1.

2.) Optimizing Pricing

Effective forecasting enables hotels and other hospitality businesses to

optimize pricing strategies. By understanding the predicted demand for
different times of the year, businesses can adjust their prices to maximize
revenue. For instance, during peak seasons or events, they might increase
prices, while offering discounts during off-peak periods to attract more
guests12.

3.) Resource Management

Accurate forecasts assist in managing resources efficiently. For example,

information obtained from revenue forecasts can influence staffing levels and
inventory management, ensuring that services align with expected guest
volume. This type of resource optimization helps to minimize operational
costs while maintaining customer satisfaction2.

4.) Identifying Trends

Forecasting allows businesses to identify trends in customer behavior and

preferences. By analyzing data on past bookings, length of stay, and other
relevant metrics, hotels can tailor their marketing strategies and service
offerings to meet the evolving needs of their clientele. This proactive
approach provides a competitive edge in a rapidly changing market1.

5.) Competitive Advantage

Forecasting also offers a competitive advantage by enabling hospitality

businesses to react swiftly to market changes. With accurate forecasts,
businesses can make timely adjustments to their strategies, whether it
involves launching promotional campaigns, altering service offerings, or
changing pricing structures. This agility can significantly impact a hotel's
market share.

Types of Forecasting

1.) Revenue Management Forecasting: This focuses on predicting

demand to optimize pricing and maximize revenue streams. By analyzing
historical booking patterns and market conditions, hotels can develop
strategies to increase profitability.

2.) Operational Forecasting: Involves predicting staff requirements and

resource needs for effective daily operations, allowing for efficient scheduling
and supply management.

3.) Financial Forecasting: Provides estimates of future financial

performance, including revenues, expenses, and profits, facilitating
comprehensive budgeting processes.

4.) Demand Forecasting: Specifically targets the prediction of guest

demand for rooms and services, taking into consideration seasonality,
events, and market trends.

Steps in the Forecasting

Problem Definition: Clearly define the objectives of the forecasting

exercise, such as what specific metrics are being forecasted (e.g., occupancy
rates, revenues).

1.) Collection: Gather historical data, including occupancy rates, average

daily rates, revenue per available room (RevPAR), market trends, and
economic indicators.

2.) Preliminary Data Analysis: Perform initial analysis to identify patterns

and key factors that could influence future demand.

3.) Model Selection: Choose an appropriate forecasting model based on

the data available. Common models include simple trend analysis, moving
averages, and more complex statistical techniques like regression analysis.

4.) Forecast Generation: Utilize the selected models to generate forecasts

regarding demand, revenues, and occupancy levels.
5.) Validation of Forecasts: After a forecasting period, review actual
outcomes against predictions to assess accuracy and refine the forecasting
models as necessary.

6.) Communication and Implementation: Share the forecasts with

relevant departments (e.g., sales, marketing, operations) to ensure
alignment and effective strategy implementation.

Challenges in Forecasting Process

1.) Uncertainty and Variability in Demand

Customer demand can fluctuate significantly and be hard to predict due to

economic cycles, competition, changing tastes, etc.

2.) Organizational Integration Issues

Insufficient communication and information sharing across departments,

such as sales, marketing, finance, and operations, can result in forecasts not
reflecting inputs from all critical stakeholders.

3.) Lack of Resources/Skills

Many organizations lack specialized forecasters and rely instead on

managers who lack training. Software limitations may exist as well.

4.) Data Quality Issues

Accurate forecasting depends on accurate data. If the historical data used to

feed forecasting models is fraught with errors, inconsistencies, or missing
values, the resultant predictions can be misleading.

5.) Structural Breaks

Structural breaks refer to sudden and significant changes in a time-series

dataset. These can be due to policy changes, technological innovations,
major events or other influential factors.

Tools and Technologies Applications in Forecasting

A variety of tools and technologies are available to enhance the forecasting

process within the hospitality industry:

 Revenue Management Systems (RMS): These integrate real-time data

and historical trends to optimize pricing strategies and forecast
demand.
 Advanced Data Analytics Tools: Technologies such as machine learning
and predictive analytics are employed to analyze consumer behavior,
market trends, and booking patterns, enhancing forecasting accuracy.
 Business Intelligence Platforms: Tools that enable data visualization
and reporting, facilitating easy interpretation of complex data sets and
aiding strategic decision-making.
 Market Intelligence Solutions: These help hotels gain competitive
insights by monitoring market trends and competitors’ performances,
allowing for proactive adjustments to strategies.
  Automated Forecasting Software: Utilizing AI and automation can
streamline the forecasting process, reducing the manual workload and
increasing update frequency for more accurate predictions.

REFERENCES

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forecasting-in-operations-management

eGyankosh. (n.d.). Unit 10: Forecasting and its applications.

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HBenchmark s.r.l. (2018, March). Hotel forecasting: What it is and why it's
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forecasting-what-is-why-it-s-important-for-revenue-management

Hollander, J. (2024). Hotel forecasting: A step-by-step guide for 2024.

https://hoteltechreport.com/news/hotel-forecasting

Kumar, P. (2023, July 28). Forecasting in the hospitality industry:

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