Chapter 4 Forecasting Tourism Demand (Tourism Planning and Development)

1. Forecasting Tourism Demand

2. Md. Shaifullar Rabbi
BBA & MBA, Major inTourism & Hospitality Management
University of Dhaka
Coordinator & Lecturer
Dept. of Tourism & Hospitality Management
Daffodil Institute of IT
-NU
Presented By

3. A general view on forecasting international tourism
In the process of planning, forecasting occurs in step "detailed research and analysis"
and the stage of "synthetic" is expressed when the estimated amount that is intended to
reach through the plan. Tourism forecasting methodology includes all methods used in
the forecasting process. This methodology must be scientific because it can only obtain
useful results. Despite its important role, the activity of forecasting tourism does not
enjoy unanimous recognition of its importance in the planning process and in
formulating macroeconomic policies. This is because first, most short-term forecasts are
made and therefore cannot be a support for strategic planning and forecasting
methodology on the other hand tourism is less developed than other economic sectors.
Under the name "Tourism 2020", WTO established a long-term forecast of tourism
demand in making an assessment of its development until 2020. It is a quantitative
forecast covering 25 years (taking the base year 1995) and decomposes the flow in the 6
areas worldwide travel destination: Europe, Americas, East Asia and Pacific, Africa,
Middle East and South Asia. Despite the fact that tourism development in recent years
has been irregular, UNWTO maintains this long-term vision, based on experience that
periods of strong growth (1995, 1996, and 2000) are followed by periods when growth is
slower, but the general trend remains almost unchanged.

4. Hence the Internet provides unprecedented and affordable opportunities
for the global representation and marketing for both large and small
tourism suppliers. Practical it provides unique opportunities for multimedia
offer which is addressing the new consumer of tourism and resolved the
follows issues:
1. Increase security of transmissions
2. Ensure credibility and accountability of information
3. Secure intellectual property and copyright issues
4. Enhance bandwidth and reduce speed limitations
5. Reduce user confusion and dissatisfaction
6. Provide adequately trained specialists
7. Develop equal access for smaller and larger partners
8. Establish pricing structures for distribution of information and
reservations
9. Enhance the standardization of information and reservation procedures

5. FORECASTING FOR TOURISM
Tourism industry is a multi facet industry which besides the
destination has three main sectors: Transport, Accommodation and
Intermediary services. Tourism "Products" are directly dependent
on the overall turnover of tourism industry which in turn depends
on and its Products number of tourists and the money they spend.
Also though these sectors of the industry are offering different
products, they are closely interdependent on each other to run the
business smoothly. For example, if travel agents and tour operators
do the promotion, tourists are drawn to the destination, which will
use the transport services and then accommodation and local
services. So the promotion will benefit not only travel agents or
tour operators but also transport and accommodation sector.

6. FACTORSWHICH INFLUENC TOURISM
To predict tourism demand it is essential to understand
various factors which will affect the number of
travelers and the flow of travelers. Some of these
factors are:
Politics and legal environment
Social and safety factors
Geographical and climatic factors
Accessibility and accommodation
State of economy
New developments in industry etc.

7. 1) Politics and Legal environment is one important factor that affects the movements
of tourist flows. Political conditions, the type of government and travel regulations (like
visa, foreign exchange etc.) effect the free movement of travelers. For example China
has very recently only encouraged inbound tourism; In India also there are certain
regions which are not open to tourists or one needs a permit to enter those regions.
2) Social and Safety factors are directly related to mental and physical security of the
tourists. These factors also affect the trends of tourist flows. For example the flow of
tourists to the Kashmir valley has gone done where as Himachal Pradesh has picked up.
Certain social activities attract tourists. If there is a special social event like a festival,
meet or a conference the tourist industry at that location should be ready to receive
higher tourist inflows.
3) Geographical and Climatic ,conditions decide the seasonality of flows, such as
tourist flow from areas of hot plains will go to hill stations in summer or tourists from
colder countries will escape to sunny beach resorts during winter etc. By making
proper observations the forecasting of tourist arrivals can be made to undertake
planning of additional tourist inflows.

8. 4) The Economic environment also affects the trends of tourist flow -
particularly from the tourist generating regions. Also the exchange rate
between two currencies can alter the cost of holidays thus a holiday
package may become cheaper or more expensive which also affects the
tourist traffic.
5) Accessibility and Accommodation are the two basics of tourism.
Any change in these affects the tourist traffic tremendously. The change
in frequency of transport services or beginning of any new services is
bound to affect tourist traffic along with the distance and time of travel.
Long haul destinations face a problem in this regard.
6) New developments in the industry such as setting up of a new
attraction say an amusement park or any other theme park will definitely
bring in more tourists. Opening of new destinations like "Shn City" in
South Africa has lured lot of traffic from India. It is important that the
industry players watch such changing trends and competition to do
forecasting.

9. DIFFERENT METHODS OF FORECASTING
Basically forecasting could be of various duration such as,
 Short term -Seasonal
 Medium term – Annual
 Long term- More than 2 - 5 years.
The methods used for tourism forecasting can be similar to methods used for
forecasting of other products, but they have to be applied to suit the industry set - up.
They can be as follows:
 a) Surveys,
 b) Time-series,
 c) Correlation,
 d) Market tests,
 e) Judgment based on experience.

10. a) Survey can be conducted by Government organizations, or small private firms. These are very
helpful in finding out the preferences of tourist and their impressions about various tourism
services. The DOT carries out surveys through a team at departure lounges of international airports
where tourist’s have already finished the visit to the country and have time to answer questions of
surveyors. The airlines and hotels continuously take a feedback from customers to understand their
opinions which can be helpful in product design. Various surveys can be conducted for customers,
sales force and experts to predict the requirement of quantity and quality of a product.
b) Time-series: By using historical data and sorting it on time basis, highs and lows of seasons can
be better understood, especially tourism industry which is highly seasonal can benefit from such
details. To promote sales figures in low season and prepare for onslaught of tourists in high season
this is necessary.
c) Correlation: This method can help in linking the tourist flows to certain variable factors such as
per-capita incomes etc. This is also vital in working out the marketing plan and mix of product,
price, place of distribution and promotion.
d) Market tests are conducted to understand demand in the market and the products of
competitors.This can give definite clues of product design; pricing etc.
e) A very common method which is used regularly is using judgment based on prior experience
of senior executives or senior planners. The advantage of this method is, it is very quick, and does
not follow detailed technical analysis. But it may not be very reliable at times.

11. Demand Forecasting: Concept, Significance, Objectives and Factors
Some of the popular definitions of demand forecasting are
as follows: According to Evan J. Douglas, “Demand estimation
(forecasting) may be defined as a process of finding values for
demand in future time periods. ”Demand forecasting is an
estimate of sales during a specified future period based on
proposed marketing plan and a set of particular uncontrollable
and competitive forces.”
Significance of Demand Forecasting: Demand plays a crucial
role in the management of every business. It helps an
organization to reduce risks involved in business activities and
make important business decisions. Apart from this, demand
forecasting provides an insight into the organization’s capital
investment and expansion decisions.

12. The significance of demand forecasting is shown in the following points:
i. Fulfilling objectives: Implies that every business unit starts with certain pre-decided objectives.
Demand forecasting helps in fulfilling these objectives. An organization estimates the current demand for
its products and services in the market and move forward to achieve the set goals.
ii. Preparing the budget: Plays a crucial role in making budget by estimating costs and expected
revenues. For instance, an organization has forecasted that the demand for its product, which is priced at
Rs. 10, would be 10, 00, 00 units.
iii. Stabilizing employment and production: Helps an organization to control its production and
recruitment activities. Producing according to the forecasted demand of products helps in avoiding the
wastage of the resources of an organization.
iv. Expanding organizations: Implies that demand forecasting helps in deciding about the expansion of
the business of the organization. If the expected demand for products is higher, then the organization may
plan to expand further. On the other hand, if the demand for products is expected to fall, the organization
may cut down the investment in the business.
v. Taking Management Decisions: Helps in making critical decisions, such as deciding the plant
capacity, determining the requirement of raw material, and ensuring the availability of labor and capital.
vi. Evaluating Performance: Helps in making corrections. For example, if the demand for an
organization’s products is less, it may take corrective actions and improve the level of demand by
enhancing the quality of its products or spending more on advertisements.
vii. Helping Government: Enables the government to coordinate import and export activities and plan
international trade.

13. Objectives of Demand Forecasting:
The objectives of demand forecasting are divided into short and long-term objectives, which are
shown in Figure-1:

14. The various factors that influence demand forecasting (“as shown
in Figure-2) are explained as follows:
i. Types of Products and Services: Affect the demand forecasting process to a larger extent. Goods can
be producer’s goods, consumer goods, or services. Apart from this, goods can be established and new
goods. Established goods are those goods which already exist in the market, whereas new goods are those
which are yet to be introduced in the market.
ii. Competition Level: Influence the process of demand forecasting. In a highly competitive market,
demand for products also depends on the number of competitors existing in the market. Moreover, in a
highly competitive market, there is always a risk of new entrants. In such a case, demand forecasting
becomes difficult and challenging.
iii. Price of Services : Acts as a major factor that influences the demand forecasting process. The demand
forecasts of organizations are highly affected by change in their pricing policies. In such a scenario, it is
difficult to estimate the exact demand of products.
iv. Level of Technology: Constitutes an important factor in obtaining reliable demand forecasts. If there is
a rapid change in technology, the existing technology or products may become obsolete. For example,
there is a high decline in the demand of floppy disks with the introduction of compact disks (CDs) and pen
drives for saving data in computer. In such a case, it is difficult to forecast demand for existing products in
future.
v. Economic Viewpoint: Play a crucial role in obtaining demand forecasts. For example, if there is a
positive development in an economy, such as globalization and high level of investment, the demand
forecasts of organizations would also be positive.

15. Apart from aforementioned factors, following are some of the other
important factors that influence demand forecasting:
a. Time Period of Forecasts: Act as a crucial factor that affect demand forecasting. The accuracy of demand
forecasting depends on its time period.
Forecasts can be of three types, which are explained as follows:
1. Short Period Forecasts: Refer to the forecasts that are generally for one year and based upon the judgment of the
experienced staff. Short period forecasts are important for deciding the production policy, price policy, credit policy,
and distribution policy of the organization.
2. Long Period Forecasts: Refer to the forecasts that are for a period of 5-10 years and based on scientific analysis
and statistical methods. The forecasts help in deciding about the introduction of a new product, expansion of the
business, or requirement of extra funds.
3. Very Long Period Forecasts: Refer to the forecasts that are for a period of more than 10 years. These forecasts are
carried to determine the growth of population, development of the economy, political situation in a country, and
changes in international trade in future.
4. Level of Forecasts: Influences demand forecasting to a larger extent. A demand forecast can be carried at three
levels, namely, macro level, industry level, and firm level. At macro level, forecasts are undertaken for general
economic conditions, such as industrial production and allocation of national income. At the industry level, forecasts
are prepared by trade associations and based on the statistical data.
5. Nature of Forecasts: Constitutes an important factor that affects demand forecasting. A forecast can be specific or
general. A general forecast provides a global picture of business environment, while a specific forecast provides an
insight into the business environment in which an organization operates. Generally, organizations opt for both the
forecasts together because over-generalization restricts accurate estimation of demand and too specific information
provides an inadequate basis for planning and execution.

16. Steps of Demand Forecasting
The Demand forecasting process of an organization can be effective only when it is
conducted systematically and scientifically. It involves a number of steps, which are
shown in Figure-3:

17. The steps involved in demand forecasting (as
shown in Figure-3) are explained as follows:
1. Setting the Objective: Refers to first and foremost step of the demand
forecasting process. An organization needs to clearly state the purpose of
demand forecasting before initiating it.
Setting objective of demand forecasting involves the following:
a. Deciding the time period of forecasting whether an organization
should opt for short-term forecasting or long-term forecasting
b. Deciding whether to forecast the overall demand for a product in the
market or only- for the organizations own products
c. Deciding whether to forecast the demand for the whole market or for
the segment of the market
d. Deciding whether to forecast the market share of the organization

18. 2. Determining Time Period: Involves deciding the time perspective for demand
forecasting. Demand can be forecasted for a long period or short period. In the short
run, determinants of demand may not change significantly or may remain constant,
whereas in the long run, there is a significant change in the determinants of demand.
Therefore, an organization determines the time period on the basis of its set objectives.
3. Selecting a Method for Demand Forecasting: Constitutes one of the most important
steps of the demand forecasting process Demand can be forecasted by using various
methods. The method of demand forecasting differs from organization to organization
depending on the purpose of forecasting, time frame, and data requirement and its
availability. Selecting the suitable method is necessary for saving time and cost and
ensuring the reliability of the data.
4. Collecting Data: Requires gathering primary or secondary data. Primary’ data
refers to the data that is collected by researchers through observation, interviews, and
questionnaires for a particular research. On the other hand, secondary data refers to the
data that is collected in the past; but can be utilized in the present scenario/research
work.
5. Estimating Results: Involves making an estimate of the forecasted demand for
predetermined years. The results should be easily interpreted and presented in a
usable form. The results should be easy to understand by the readers or management of
the organization.

19. Tourism Supply Components
Here are typical components of the tourism supply: Tourism supply components are classified into five main
categories:
1. Natural resources — includes elements in an area for the use and enjoyment of visitors such as climate,
landforms, terrain, flora, fauna, bodies of water, beaches, natural beauty and water supply for drinking,
sanitation,and similar uses.
2. Infrastructure — consists of all underground and surface developmental construction such as water
supply systems, sewage disposal systems, gas lines, electrical and communications systems, drainage
systems and other constructed facilities such as highways, airports, railroads, roads, drives, parking lots,
parks, night lighting, marinas and dock facilities, bus and train station facilities and similar tourist service
installations.
3. Superstructure- The above ground facility services such as airport buildings, passenger traffic terminals,
hotels, motels, resorts, restaurants, shopping centers, places of entertainment, museums, stores and similar
structures.
4. Transportation and transportation equipment- includes items such as ships, airplanes, trains, buses,
limousines, taxis, automobiles, cog railways, aerial tramway, and similar passenger transportation facilities.
5. Hospitality resources — include the cultural wealth of an area which makes possible the successful
hosting of tourists. Examples are the welcoming spirit of tourist business employees, attitudes of the residents
towards visitors, courtesy, friendliness, sincere interest, willingness to serve and to get better acquainted with
visitors, and other manifestations of warmth and friendliness. It also includes the cultural resources of an area
such as fine arts, literature, history music, dramatic.

21. Attractions
They are the places the tourists perceive as the
satisfaction of their leisure-oriented needs.
Natural Attractions: Caves, canyons, rocks, water
bodies, landscapes.
Man-Made Attractions: Theme parks, towers,
bridges, architecture, temples, mosques, churches,
and monuments.
Cultural Attractions: Historical sites, monuments,
local arts and crafts, local folk core, music and
dance.

22. Transportation
They are the modes of commuting.
Road: Car, bus, cycle.
Rail: Long distance, high speed, commuter, or
intercity trains.
Water: Boats, ferries, cruises.
Air: Carriers that operate on fixed schedule,
Charters that operate as and when required.

23. Intermediaries
They are the mediators.
 Travel Agents: The business of selling hospitality
and tourism products.
 Tour Operators: They deal with the operating
components for rates.

24. Destination
It is the place the tourists visit. It is composed of:
Accommodation: Hotel, motel, lodge, guest house,
B&B.
Restaurant: Specialty restaurants, themed
restaurants, branded restaurants such as CCD, KFC,
Bistros, and takeaway food joints
 Tourist Facilities: Pubs, entertainment parks,
shopping centers, and casinos.

25. Activities
They include activities the tourists are interested to engage in:
Adventure Sports: Mountain biking, bungee jumping,
rafting, and other similar activities
 Leisure: Basking on beaches, swimming, dining near water
body.
 Business Activities: Attending seminars, business meetings,
promotions.
Health Activities: Attending Yoga sessions, exercising,
undergoing naturopathy,and similar such activities.