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Tourism Management 22 (2001) 403}409

A practitioners guide to time-series methods for tourism demand


forecasting * a case study of Durban, South Africa
C.J.S.C. Burger , M. Dohnal, M. Kathrada *, R. Law
Ecotourism Research Unit, Technikon Natal, P.O. Box 953, Durban 4001, South Africa
Faculty of Business and Management, Institute for Applied Studies, Technical University of Brno. Technika 2, 616 69, Brno, Czech Republic
Department of Hotel and Tourism Management, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong
Received 5 May 1999; accepted 17 October 2000

Abstract

This paper compares a variety of time-series forecasting methods to predict tourism demand for a certain region, and is meant as
a guideline for tourism forecasters at the commencement of any study who do not have access to large databases in order to create
structural models. This study has been conducted at a metropolitan level to forecast the US demand for travel to Durban, South
Africa. A brief description of the tourism attractions and context of this area is provided to give a qualitative feel of the system prior to
the modelling process. A variety of techniques are employed in this survey, namely namK ve, moving average, decomposition, single
exponential smoothing, ARIMA, multiple regression, genetic regression and neural networks with the latter two methods being the
non-traditional techniques. O$cial statistical data from 1992 to 1998 was used in this study. The actual and predicted number of
visitors are then compared. The survey shows that the neural network method performs the best.  2001 Elsevier Science Ltd. All
rights reserved.

Keywords: Tourism forecasting; Durban; Genetic regression; Neural networks

1. Introduction South Africa, so much a part of Africa, can play an


important role in the growth and development that
Global consumer trends indicate that tourists are be- tourism can o!er to improve the quality of peoples' lives,
coming more discerning in their choice of destinations. both as an &escape' for tourists and as a source of employ-
They are furthermore becoming less predictable and ment and income for local communities. South Africa has
more spontaneous in terms of their consumption pat- a well-established network of national and private nature
terns. It can be claimed that the need for stimulation and reserves that cater for the environmentally sensitive visi-
new experiences are now the most important motivators tor. The World Tourism Organisation, in its 1995 review
for tourism trips. In this respect Africa has much to o!er of African tourism, considered South Africa to be `one of
as a future tourist destination, provided that it is cured of the most promising tourism destinations on the African
ethnic wars, mismanagement and corruption. Tourism continenta (South Africa, 1996). However, South Africa
depends entirely on the quality of the resources and has not yet been able to realise its full potential in tourism
political stability of the destination visited. The &magic' of and the contribution of tourism to employment, small
Africa is still perceived as a strong selling point and business development, income and foreign exchange earn-
European and American tourists are attracted due to its ings remains limited (South African Government, 1996).
uniqueness, which should be kept intact to preserve bio- Tourism has become a very competitive business. The
diversity. competitive advantage no longer lies in natural resources
only, but increasingly in the level of technology, informa-
tion and innovation o!ered. Therefore, the future of
South African tourism will not be determined by wildlife
* Correspondence address. Ecotourism Research Unit, Technikon parks, beautiful scenery, cultural diversity or other re-
Natal, P. O. Box 953, Durban 4001, South Africa. Tel.: #27-31-2611-
6591; fax: #27-31-203-6633. sources, but rather by how well such resources are
E-mail address: staalb@city.ntech.ac.za, shongweni@ananzi.co.za managed and to what extent they complement human
(M. Kathrada). skills and innovations.

0261-5177/01/$ - see front matter  2001 Elsevier Science Ltd. All rights reserved.
PII: S 0 2 6 1 - 5 1 7 7 ( 0 0 ) 0 0 0 6 8 - 6
404 C.J.S.C. Burger et al. / Tourism Management 22 (2001) 403}409

The African market only grew slightly in 1995 by investment should be based on professional business
1.7 per cent in terms of arrivals and 6 per cent in terms of planning, long-term operating viability and an achiev-
receipts while Southern Africa was the fastest growing able vision of the industry's future (Lundberg, Krishna-
destination in Africa as this region's arrivals increased by moorthy, & Stavenga, 1995). The tourism industry needs
17 per cent and receipts by 10.5 per cent (Caras, 1998). to reduce the risk of poor decisions. One important way
KwaZulu-Natal (Durban lies in this province in South to reduce this risk is by discerning future events or
Africa) dominates the domestic tourism market with environments more clearly (Smith, 1995).
a market share of 26 per cent (Caras, 1998). Durban and The bene"ts of accurate forecasts are well documented
the adjacent areas capture a large proportion of this. in forecasting literature (Frechtling, 1996; Smith, 1995).
KwaZulu-Natal already attracts the third highest Accurate forecasts are valuable to both the private and
number of international tourists (only Gauteng and the the public sectors. Forecasting expenditure, for example,
Western Cape are visited more often). Foreign visitors is valuable in "nding tourism's relative contribution to
spend on average 5 nights in the Durban area and income or GDP; forecasting tourist numbers is more
7 nights in the rest of the province. Cape Town, the rest of helpful in assessing the impact that tourism will make on
KwaZulu-Natal, Johannesburg and the Eastern Cape (in resources (Bull, 1995).
that order) achieve higher average length of stays than The value of forecasting models rests on their ability to
Durban (Muller, Haynes, Totman, & Ferendinos, 1998). make accurate forecasts. However, as Dharmaratne,
The average number of days spent by foreign tourists (1995) pointed out, most previous forecasting models
in KwaZulu-Natal increased from 5.05 in 1996 to 7.40 in have failed to perform empirical tests of theoretical speci-
1998, but dropped from 6.30 to 5.30 in Durban. Foreign "cations. Forecasts are only as good as the assumptions
tourists who visit KwaZulu-Natal spend an average of of the model used. It is important to know what these
R175 000 per individual while they are in the province. assumptions are so that should any of these assumptions
This implies that this province's foreign tourism market prove to be incorrect, forecasts can be re-evaluated. The
is worth in the order of 2 billion Rand or about 300 major problem, however, is the unpredictability of eco-
million US dollars (KwaZulu-Natal Tourism Authority, nomic trends and outside events and crises such as
1999). In 1999 about 8 million domestic tourists visited strikes, crime, disease outbreak, wars or disasters. There
KZN while the number of international tourists is no one, distinct, optimal set of tourism forecasting
was about 450 000. It is expected that there will be a methods. Rather, quantitative and qualitative techniques
13 per cent increase in international tourists in the year developed to forecast variables of interest to business
2000, while domestic and continental tourist arrivals managers and public planners have been used to forecast
will grow by 3 per cent and 10 per cent, respectively phenomena of interest to those interested in tourism
(KwaZulu-Natal Tourism Authority, 1999). (Frechtling, 1996).
Tourism has a signi"cant impact on local economies, The challenges of successful forecasting are more than
directly and indirectly. Since 1995 a steady growth in job just the technical di$culties of developing an accurate
creation has underlined the importance of tourism as model. Forecasting models must be developed with
a job creator. In simple terms, it has been estimated that, a clear understanding of both the nature of the situation
for every eight tourists visiting South Africa, one perma- for which a forecast is desired and the resources available
nent job is created (SATOUR Media Release, 2000). for making the forecast (Smith, 1995). It is important to
Durban has wonderful natural assets like a warm and ensure that the variable selected relates directly to the
sunny all-year-round climate, sub-tropical vegetation, forecast data needed (Sheldon, 1993). This does not mean
world-class beaches and marine life. The rich historical that forecasts are useless, but that those who use them
and cultural background, an impressive hotel base and should be constantly monitoring their operating environ-
one of the largest conference centres on the continent are ment to detect any factors that indicate any inconsistent
strong selling points to attract foreign visitors. It is also or irregular patterns.
the gateway to one of the most ecologically varied desti- In many instances forecasters and policy makers "nd it
nations in the world and the newly declared World di$cult to develop a structural model of the system they
Heritage Site of St Lucia Wetland. On the negative side, are dealing with. The problem is mainly due to the many
foreign and even local tourists still perceive Durban and factors that in#uence the system and acquiring data for
KwaZulu-Natal as a security risk and a lack of safety all these factors is very di$cult especially when dealing
standards is discouraging tourist mobility in many areas with government authorities. Hence, sometimes qualita-
of the city and the province. Extensive measures are tive models have to be built to gain insight into the
being taken to rectify this problem (KwaZulu-Natal system (Kathrada, Burger, & Dohnal, 1999). In these
Tourism Authority, 1999). situations time-series forecasting can give valuable projec-
Forecasting plays a signi"cant role in tourism plann- tions although it must be emphasised that these projec-
ing and it is crucial for the private sector in avoiding tions are short term only. Chaos theory has largely shown
shortages or surpluses in goods and services. Tourism that long-term forecasting is a futile e!ort. Time series
C.J.S.C. Burger et al. / Tourism Management 22 (2001) 403}409 405

methods are also easy to implement. Cyclical and sea- The moving-average model uses the average of the last
sonal e!ects can distinctly be seen in time series data as 3 months as a forecast value:
well as long-term upward or downward trends.
F "(¸ #¸ #¸ )/3. (2)
This paper reports a study that was undertaken using R R\ R\ R\
time-series data of tourist arrivals from the US to Dur-
The decomposition method involves "rst creating a 12
ban, South Africa over the time period 1992}1998 in an
month moving average that is then centred after which
attempt to create models that can predict the expected
seasonal ratios are calculated. The actual rates are then
number of tourist arrivals over de"ned future periods.
divided by these ratios to give a forecast one year into the
future. The following set of equations describe the de-
composition method. Frechtling (1996) has a detailed
2. Modelling methods spreadsheet method outlining the procedure.

Monthly data over the time period 1992}1998 was A12 "Average(¸ , 2, ¸ #11) t"1, 2, n!12,
R R R
obtained from the national tourism authority SATOUR.
C12 "Average(A12 #A12 ) t"1, 2, n!6,
Fig. 1 shows the actual data used in the model building R R R>
process, and illustrates the high degree of nonlinearity, sr "¸ /C12 t"1, 2, n!6, i"1, 2, n!12,
seasonality and upward trend in time. Ten per cent of the G R> R
data were selected randomly to be used as a validation SR "Average(sr , sr , sr , sr , sr )
set for all the models in order to provide a fair compari- G R R> R> R> R>
son of the e!ectiveness of the models built. The rest of the t"1, 2, n!6, i"1, 2, 12,
data were used in constructing the models.
F "¸ /SR t"1, 2, n!12, i"1, 2, 12. (3)
The modelling methods used are namK ve, moving aver- R> R G
age (3 and 6 months), decomposition, single-exponential In the exponential smoothing model, the number of tour-
smoothing, ARIMA models, multiple regression, genetic ists for the next month is predicted using
regression and neural networks. The "rst "ve models are
of the type commonly used in the tourism industry F "F (x)#¸ (1!x) 0(x(1 (4)
R R\ R\
(Frechtling, 1996; Witt & Witt, 1992).
The namK ve model operates on the assumption that the to "nd a best "t value of x. An extension to single-
number of visitors at time t is the same as the value at exponential smoothing models is the ARIMA type mod-
time t!1, denoted by ¸ . els (Duke University Department of Statistics, 2000;
R\ Montgomery & Zarnowitz, 1998). ARIMA is an acro-
F "¸ . (1) nym for `Auto-Regressive Integrated Moving-Averagea.
R R\

Fig. 1. USA visitor arrivals to Durban, South Africa.


406 C.J.S.C. Burger et al. / Tourism Management 22 (2001) 403}409

Lags of the di!erenced series appearing in the forecasting able selection style was used for the genetic regression
equation are called `auto-regressivea terms, lags of the technique and the neural network. The multiple regres-
forecast errors are `moving averagea terms, and a time sion equation generated is of the form
series which needs to be di!erenced to be made station-
ary is said to be an `integrateda version of a stationary F "a #a ¸ #a ¸ #a ¸ #a ¸
R   R\  R\  R\  R\
series. Random-walk and random-trend models,
autoregressive models, and exponential smoothing mod- #a ¸ #a ¸ #a ¸ #a ¸ #a ¸
 R\  R\  R\  R\  R\
els (i.e., exponential-weighted moving averages) are all
#a ¸ #a ¸ #a ¸ . (8)
special cases of ARIMA models.  R\  R\  R\
A non-seasonal ARIMA model is classi"ed as an
`ARIMA (p, d, q)a model, where The multiple-regression technique is used here mainly to
compare its e!ectiveness against the neural network as
E p is the number of autoregressive terms, both are essentially interpolating tools. This is done so as
E d is the number of non-seasonal di!erences, and to justify whether or not a more sophisticated technique
E q is the number of lagged forecast errors in the like neural networks should be used whereas multiple
prediction equation. regression is relatively quick and easy to implement.
The input to the neural network model is the same as
ARIMA (0, 1, 0) is a random walk function the input to the multiple regression procedure. A short
discussion is given as follows on the non-traditional
F "#¸ , (5)
R R\ techniques used.
where the constant term  is the average di!erence in >.
Since it includes (only) a non-seasonal di!erence and 2.1. GMDH (Group method of data handling * genetic
a constant term, it is classi"ed as an `ARIMA (0, 1, 0) regression) algorithm
model with constant.a
ARIMA (1, 1, 0) is a di!erenced "rst-order autoregres- 2.1.1. Polynomial support Function
sive model: If the errors of the random walk model are This method involves sorting, that is successive testing
autocorrelated, the problem may be addressed by adding of models selected out of a set of candidate models
one lag of the dependent variable to the prediction equa- according to a speci"ed criterion. Nearly all known
tion. This would yield the following prediction equation: GMDH algorithms use polynomial support functions.
General connection between input and output variables
F "#¸ #
(¸ !¸ ), (6) can be found in the form of a functional Volterra
R R\ R\ R\
series, whose discrete analogue is known as the
where
is optimally found from a solver as found in
Kolmogorov}Gabor polynomial (Lemke & Mueller,
most spreadsheets.
1997; Ivakhnenko & MuK ller, 1995),
ARIMA (0, 2, 1) or (0, 2, 2) without a constant is termed
linear exponential smoothing. Linear exponential + + +
smoothing models are ARIMA models which use two y"a # a x # a x x
 G G GH G H
non-seasonal di!erences in conjunction with MA terms. G G H
The second di!erence of a series > is not simply the
+ + +
di!erence between > and itself lagged by two periods, but # a xx x , (9)
GHI G H I
rather it is the "rst di!erence of the "rst di!erence, i.e. the G H I
change-in-the-change of > at period t. A second di!er-
where X(x , x ,2, x ) is the vector of input variables
ence of a discrete function is analogous to a second   +
and A(a , a ,2, a ) is the vector of the summand coe$-
derivative of a continuous function: it measures the `ac-   +
cients. The complexity of the model structure is estimated
celerationa or `curvaturea in the function at a given point
by the number of polynomial terms used. The sorting
in time.
procedure consists in computing the criterion as the
The ARIMA (0, 2, 2) model without a constant predicts
structure of the model gradually changes.
that the second di!erence of the series equals a linear
The input data sample is a matrix containing N levels
function of the last two forecast errors. This is essentially
(points) of observations over a set of M variables. The
the same as Brown's linear exponential smoothing
sample is divided into two parts. Two-thirds of points
model,
having a high variance make up the learning sub-sample
F "2¸ !¸ !2(1!a)E #(1!a)E . (7) N , and the remaining one-third of points from the check
R R\ R\ R\ R\ 
sub-sample N . The learning sample is used to derive
The other standard technique used is multiple regression. estimates for the coe$cients of the polynomial, and the
Here the input variables are the previous 12 months and check sub-sample is used to choose the structure of
the output variable the following month. The same vari- the optimal model, that is, one for which the regularity
C.J.S.C. Burger et al. / Tourism Management 22 (2001) 403}409 407

criterion AR(s) takes on a minimal value 3. Results and analysis


1 ,
AR(s)" (y !>K (B))Pmin. (10) The accuracy of the models discussed was assessed
N G G using the mean absolute percentage error (MAPE) and
G
To obtain a smooth exhaustive-search curve, which the Pearson product moment correlation coe$cient (r):
would permit one to formulate the exhaustive-search MAPE"X !> /n;100% (i"1, 2, n) (13)
termination rule, the exhaustive search is performed on G G
models classed into groups of an equal complexity. The r"[n(X > )!(X )(> )]/([nX!(X )]
"rst layer uses the information contained in every col- G G G G G G
umn of the sample, that is, the search is applied to models ;[n>!(> )] (i"1, 2, n). (14)
G G
of form:
Table 1 shows the empirical results of the di!erent mod-
y"a #a x (i"1, 2, M). (11) els. The namK ve, moving average and single-exponential
  G
The output variable must be speci"ed in advance by the models perform fairly similarly and with reasonably
experimenter. Only a small number of variables (usually, good accuracy. Similar results in using these models were
F"3), showing the best results in the "rst layer, are obtained by (Law & Au, 1999). The best value of x ob-
allowed to form second-layer candidate models of the tained in the single-exponential smoothing was 0.2. The
form decomposition method performed poorly (r!0.791).
This is probably due to the fact that decomposition
y"a #a x #a x ( j"1, 2, M). (12) method cannot calculate reasonable seasonable ratios on
  G  H
such a highly non-linear dataset, which is showing an
2.2. Neural networks increasing trend.
The ARIMA models all performed similarly indicating
Neural networks are being increasingly used in various very much that once they are e!ective in removing the
industries with many recent applications in the tourism seasonal component. The MAPE achieved is approxim-
industry (Law & Au, 1999; Uysal & Sherif El Roubi, ately 11.4 per cent and r of 0.995 for all the ARIMA
1999). A brief account of neural networks is given here. models. The ARIMA (0, 1, 0) had a  of 190, showing that
A more in depth account can be obtained from Masters the data is fairly stationary, hence the reason for all the
(1993). In recent years the application of arti"cial neural ARIMA models behaving similarly. The ARIMA (1, 1, 0)
networks has been the subject of much study. This new had a
of !0.17 and the ARIMA (0, 2, 2) had and a of
interest in approach to modelling is due to the fact that 1.445. In these cases the values of
and a were found
neural networks generally have high degrees of freedom, using the built in solver in a spreadsheet program.
thus they can capture the non-linearity of a process being In comparing the two regression procedures, multiple
studied much better than regression techniques. In addi- regression (MAPE!7.20) produces better results than
tion, neural networks have the ability to model systems the GMDH regression procedure (MAPE!20.58). This
with multiple inputs and multiple outputs. Arti"cial neu- is mainly due to the GMDH algorithm setting aside
ral networks are composed of many elements called neur- a large part of the input data for the validation set hence
ons. Neural networks have one input layer, one output
layer and one or more hidden layers. A set of input and
output variables are entered and the network attempts to Table 1
map (train) the process by which the input variables are Accuracy comparison in sample for di!erent time-series models
linked to the output variables.
Neural networks are trained by adjusting the con- r MAPE
nection weights (= ) by some suitable optimisation
GHI NamK ve 0.908 11.24
algorithm such as genetic optimisation or simulated 3-month MA 0.853 12.85
annealing so that the di!erence between the predicted 6-month MA 0.907 10.89
and the observed outputs is made as small as possible. Single-exponential smoothing (0.2) 0.870 10.04
A common algorithm used for training is the back- Decomposition 0.791 20.56
propagation algorithm with momentum. The output ARIMA (0, 1, 0) 0.995 11.30
ARIMA (1, 1, 0) 0.995 11.33
from one neuron is calculated by applying a transfer ARIMA (0, 2, 2) 0.993 11.50
function to the weighted summation of its input to give GMDH 0.702 20.58
an output, which in turn can serve as inputs to other Multiple regression 0.944 7.20
neurons. Commonly used transfer functions in the Neural networks (1 month forecast) 0.979 5.07
hidden layer is the sigmoid function which gives values in Neural networks (3 month forecast) 0.779 14.37
Neural networks (6 month forecast) 0.789 15.56
the range from 0 and 1 while it is common to have Neural networks (12 month forecast) 0.892 11.00
a linear function in the output layer.
408 C.J.S.C. Burger et al. / Tourism Management 22 (2001) 403}409

not being able to completely follow all the patterns that A tourist forecaster or policy maker can at least make
are evident in this relatively small dataset. GMDH algo- a good estimate of visitor arrivals in the absence of
rithms work best for large datasets involving industrial structural data by just using the available time series
online applications. data. Relatively simple methodologies can be used on
The neural network performs the best achieving the a spreadsheet and can give reasonable estimates albeit
highest r (0.979) and lowest MAPE (5.07%). This can be a short time period into the future. More complex
attributed to the complexity of neural network models, in methods like neural networks can give reasonable esti-
that they have a high degree of freedom, due to the large mates further into the future. From the point of view of
number of interconnections between the nodes. Hence Durban, the forecaster has a con"dent estimate of the
there is a larger parameter space that can be searched in visitor arrivals that subsequently can be used in reports
order to obtain a higher r. Regression models are con- to decision makers. Moreover the model is such that it
strained by the number of coe$cients in the model, which can easily be updated as time goes on; hence a constant
is usually small. The neural network outperforms the track can be kept of the expected number of visitor
multiple regression procedure by an MAPE of just over arrivals. The models can be extended to cover more
2 per cent. regions or even predict the total expected number of
Thereafter an attempt was made to forecast 3, 6 and 12 visitor arrivals.
months into the future using the neural network, since The neural network performed best of all the method-
this was the best performing model. This yielded interest- ologies and it is suggested that this method be used in
ing results. The prediction for 3 and 6 months into the time series forecasting as the innate model complexity is
future was poorer that the prediction one month in the far better able to handle non-linear behaviour. It was also
future, which is intuitive as usually the uncertainty into found that the longer the forecasting period the poorer
the future increases with time. However the prediction for will be the prediction, but, interestingly, if the forecast
12 months into the future was better that the 3 and period is exactly one year into the future the network
6 month prediction. Here it must be noted that, since the performs fairly well, due to repetitions of expected similar
neural network was trained on the last 12 months of seasonal patterns occurring.
visitor arrivals as an input, a similar pattern due to While positive research "ndings have been obtained,
seasonal variations would be expected 12 months into further work needs to be done to generalise the "ndings
the future. Hence the better performance of the network to other tourist receiving destinations. That is, future
arises form an inherent bias within the model. studies can employ the same forecasting models, but with
Depending on the desired level of accuracy, relatively di!erent data series, for forecasting accuracy testing.
simple models can be initially used to obtain a &quantitat- Moreover, additional forecasting techniques can be
ive feel' of their predictive strengths, and serve as a basis incorporated into future studies, particularly chaos
for comparing against other more complex models. In theory if large enough data sets are available (Kantz
practice, it is suggested that several simple spreadsheet & Schreiber, 1997). It would also be interesting to
models be built and if the results are not satisfactory, then compare the accuracy of time-series models with casual
more complex models like neural networks can be regression models.
used.
References
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