The Secrets To Hotel Demand Forecasting

WEDNESDAY, MAY 27th - 9:00AM (PDT) Duetto Educational Series

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About: Nathaniel “Nat” Estis Green

Senior Global Solutions Engineer

Duetto family member since Dec. 2012
Agenda

▍ What is Forecasting?

▍ Why Forecast?

▍ Do macro and micro trends impact forecasts?

▍ How do you evaluate forecast accuracy?

▍ Budgeting

▍ Questions

4
Revenue Management Introduction
“The application of disciplined analytics that
predict consumer behavior at the micro-market level and
optimize product availability and price to
Inventory /
maximize revenue growth. Demand
Capacity
The primary aim of Revenue Management is selling the
right product to the right customer at the right time for $
the right price and with the right pack.

The essence of this discipline is in understanding

customers' perception of product value and accurately Price
aligning product prices, placement and availability with
each customer segment.”

Cross, R. (1997) Revenue Management: Hard-Core Tactics for Market Domination. New York, NY: Broadway Books.
Ever leave money on the table?

250,000 + People
Hotel 123
100 room hotel
Does not forecast

7
Hotel ABC
100 room hotel
Has YoY Reservation data
Tracks STLY Pricing
Has additional data sources

8
Ever leave money on the table?

250,000 + People
Ever leave money on the table?

Hotel 123

$250
ADR

250,000 + People
Ever leave money on the table?

Hotel ABC

$350
ADR

250,000 + People
 Industry at a Crossroads

Separation of Product First online Online Crowded Meta search;

ownership, segmentation; booking; enter distribution value chain enter tech
brand, and financial Expedia explodes giants & new
management engineering complexity gatekeepers

1970s 1980s 1990s 2000s 2010s 2013

12
Historically Travelers Booked Directly
with Stay Brands

Consumer Stay Brands

Courtesy
13
Booking Brands Now Dominate
Consumer Point of Entry

Consumer Stay Brands

Booking Brands Courtesy

14
Commissions Rise at 2x the Rate of
Revenue Growth
39%+
Retail commissions only
Source: HAMA Study 2013-2014 Commission
Increase

%
Increase 20%

Total Acquisition Costs

Room Revenue

Sales & Marketing Expense

Courtesy
Total Revenue

2009 2010 2011 2012

15
Customer Acquisition
Comparative Costs as % of Revenue

Revenue

15-25%
Cost %
3-6% 4-6%

16
What is Forecasting?
Getting started.
Forecasting

Demand Demand if
controlled by capacity is not
hotel capacity a factor

Constrained Unconstrained
Forecasts Forecasts
Basic Terminology
Rolling
Variance Forecasts Compression

Forecast-to-
Budget Occupancy Forecast Accuracy

Booking Window
Segmentation Etc.

19
Why Forecast?
See the cross-departmental impact.
 5 Key Reasons to Forecast

Pricing Staffing Product Development Performance

Inventory Work Evaluations

21
Trends in Forecasting
Evaluating macro and micro trends.
Big Data = Better Data

Reviews & Web Shopping

Social Media Regrets & Denials

Competitor Weather
Pricing Data
Traditional Revenue Management

Booking & Air Traffic

Reservation Data
Traditional Revenue Management
Big Data = Better Data

Reviews & Web Shopping

Social Media Regrets & Denials

Competitor Weather
Pricing Data
Traditional Revenue Management

Booking & Air Traffic

Reservation Data
Traditional Revenue Management
Big Data = Better Data

Reviews & Web Shopping

Social Media Regrets & Denials

Competitor Weather
Pricing Data
Traditional Revenue Management

Booking & Air Traffic

Reservation Data
Traditional Revenue Management
Web Site (IBE) & Air Activity
Be proactive, not reactive, with demand trends.

▍ Review search date, stay

dates, rate code, room
type, rate, source, and
country
▍ Understand high-demand
periods before you sell-
out supply
Excel v.s Revenue Strategy Systems?

VS

Excel
27
How to Determine Forecast Accuracy?
Evaluate your forecast properly.
Four Major Statistics

Simple Error Mean Simple Percent Error

(MSPE)

Forecast Accuracy

Mean Absolute Deviation Mean Absolute Percent Error

(MAD) (MAPE)
29
 100 Room Property
Hotel ABC

30
Four Major Statistics

Simple Error Mean Simple Percent Error

(MSPE)

Forecast Accuracy

Mean Absolute Deviation Mean Aboslute Percent Error

(MAD) (MAPE)
31
Simple Error Example
DBA 10
Monday, -2
April 6 ▍ April Simple Error = Sum (April 6, April 13, April 20, April 27)
Monday, +3
April 13
Monday, -2 ▍ April Monday Simple Error = -2+3+(-2)+4= +3
April 20
Monday, +4
April 27
April +3
Monday
Simple
Error
32
Four Major Statistics

Simple Error Mean Simple Percent Error

(MSPE)

Forecast Accuracy

Mean Absolute Deviation Mean Absolute Percent Error

(MAD) (MAPE)
33
Simple Error Percent Example
DBA 10 10
(Simple (Simple
Error) Error %) ▍ Simple Error % = Simple Error/ Room Count
Monday, -2 -2%
April 6 ▍ Simple Error % = Simple Error/ 100
Monday, +3 +3%
April 13
Monday, -2 -2% ▍ April Simple Error % = Sum (April 6, April 13, April 20, April 27)
April 20
Monday, +4 +4% ▍ April Monday Simple Error % = -2%+3%+(-2%)+4%= +3%
April 27
Monday +3 +3%
April
Error 34
Four Major Statistics

Simple Error Mean Simple Percent Error

(MSPE)

Forecast Accuracy

Mean Absolute Deviation Mean Absolute Percent Error

(MAD) (MAPE)
35
Mean Absolute Deviation (MAD)
DBA 10
Monday, |-2| -> 2
April 6 ▍ April MAD= Absolute Sum (April 6, April 13, April 20, April 27)
Monday, |+3| -> 3
April 13
▍ April Monday MAD= (|-2|+|3|+|-2|+|4|)= 11
Monday, |-2| -> 2
April 20
Monday, |+4| -> 4
April 27
Monday 11
April
MAD

36
Four Major Statistics

Simple Error Mean Simple Percent Error

(MSPE)

Forecast Accuracy

Mean Absolute Deviation Mean Absolute Percent Error

(MAD) (MAPE)
37
Mean Absolute Percent Error (MAPE)
Example
DBA 10 (MAD) 10
(MAPE)
Monday, |-2| -> 2 2% ▍ MAPE = MAD/ Room Count
April 6
Monday, |+3| -> 3 3%
April 13
▍ April MAPE= Sum (April 6 MAD, April 13 MAD, April 20 MAD,
Monday, |-2| -> 2 2%
April 20 April 27 MAD)
Monday, |+4| -> 4 4% ▍ April Monday MAPE= 2%+3%+2%+4%= 11%
April 27
Monday 11 11%
Accuracy

38
Mean Absolute Percent Error (MAPE)
Example
DBA 10 (MAD) 10
(MAPE)
Monday, |-2| -> 2 2% ▍ MAPE = MAD/ Room Count
April 6
Monday, |+3| -> 3 3%
April 13
▍ April MAPE= Sum (April 6 MAD, April 13 MAD, April 20 MAD,
Monday, |-2| -> 2 2%
April 20 April 27 MAD)
Monday, |+4| -> 4 4% ▍ April Monday MAPE= 2%+3%+2%+4%= 11%
April 27
Monday 11 11%
Accuracy
*Note – there is an 8% difference between the Simple Error % and the MAPE
39
Best Practices in Budgeting
Be efficient, effective, and thorough.
Efficient Budgeting: What’s Best?

1 2 3
Daily Monthly Quarterly

41
Key Takeaways
Things to think about per type of property.

42
Key Takeaways

Economy Luxury Resorts

City-Center Airport Convention Casino

43
 Questions?
WEDNESDAY, May 27th - 9:00AM (PDT) Duetto Educational Series