Reservation Forecasting Models for Hospitality SMEs with a View to Enhance Their Economic Sustainability

In many tourism destinations, sustainability of the local economy leans on small and medium-sized hotels that are individually owned and operated by members of the community. Suffering from seasonality more than their big competitors, these hotels should undertake marketing initiatives to counteract wide demand fluctuations. Such initiatives are most effective if based on accurate occupancy forecasts, which must be performed at the individual hotel level. In this aim, the present paper suggests a demand forecasting approach adapted to specific features that characterize reservation data for small and medium-sized enterprises (SMEs) in the hospitality sector. The proposed framework integrates historical and advanced booking methods into a forecast combination with time-varying, performance-based weights. Whereas historical methods use only past observations about the number of guests recorded on a particular stay night to forecast future room occupancy (long-term perspective), advanced booking methods predict bookings-to-come based on partially accumulated data from reservations on hand (short-term perspective). In order to provide a possible solution to data sparsity issues that affect the application of advanced booking models to hospitality SMEs, a procedure that incorporates length-of-stay information directly into the reservation processing phase is also introduced. The methodology is tested on real time series of reservation data from three Italian hotels, located either in a city center (Milan) or in a typical destination for seasonal holidays (Lake Maggiore). Model parameters are calibrated on a training dataset and the accuracy of the occupancy forecasts is evaluated on a holdout sample. The results validate earlier findings about combinations of long-term and short-term forecasts and, in addition, show that using performance-based weights improves the quality of forecasts. Reducing the risk of large forecast failures, the proposed methodology can indeed have practical implications for the design and implementation of effective demand-side policies in hospitality SMEs. These policies are expected to provide a competitive advantage that can be crucial to the sustainability of small establishments in a context of growing global tourism