Everything hoteliers need to know about demand forecasting

This almost goes without saying; and in the here and now, it’s relatively straightforward to gauge it – you can look at your competitors’ advertised prices, review your on-the-books figures, peruse other metrics at your disposal and react accordingly. 

Whether you raise your room rates to capitalize on increased demand, reduce them to create it, or hold firm on your prices but up your promotional game, your options are clear.

But what about the long-term view? If you can’t see it, you can’t plan. This is the domain of demand forecasting, and the good news is that with the right data, the best tools to capture and analyze it, and an understanding of some core principles, you can be a master of this discipline – and reap the rewards.

In the blog post, we outline the principles and practices that will bring you success.

Hotel demand forecasting demystified

Demand forecasting in hotels involves predicting future guest demand based on historical data, market trends and external factors such as seasonality or local events. 

It enables hoteliers to anticipate booking data patterns, optimize pricing and allocate resources efficiently. Accurate forecasts are therefore essential for maximizing revenue and maintaining operational efficiency.

Revenue managers or dedicated analytics teams are typically responsible for demand forecasting. These professionals rely on data analysis tools and market insights to make informed predictions. Their expertise ensures that forecasts align with broader hotel business goals, enhancing profitability and guest satisfaction.

Types of demand forecast include:

• Operational forecasting: focuses on staffing and inventory needs.

• Total revenue forecasts: projects income from all revenue streams and market segments.

• Financial forecasts: predicts overall business performance.

• Revenue management forecasting: concentrates on pricing and demand strategies to optimize revenue.

3 Reasons to prioritize demand forecasting in your hotel

The better you understand your market and your guests, the better you can plan for periods of high, normal, and low demand. Let’s see how. 

1. Inform your pricing strategy

Demand forecasting empowers hoteliers to optimize pricing by predicting fluctuations in guest demand. With insights into booking patterns, seasonality and market conditions, hotels can implement dynamic pricing, adjusting rates in real-time to match demand. 

For instance, during peak periods, higher prices capitalize on strong demand, while discounts during low seasons attract guests.

By leveraging demand forecasting and forecasting models, revenue managers can better anticipate occupancy levels and competitor strategies. 

This informed approach ensures competitive rates that maximize revenue without compromising guest value perception, making it a cornerstone of effective hotel revenue management and all its many facets.

2. Improve your distribution strategy

Demand forecasting helps hoteliers analyze how different distribution channels – like OTAs, direct bookings and global distribution systems (GDSs) – perform under varying demand conditions. 

By identifying which channels drive the most revenue during high and low-demand periods, hoteliers can allocate inventory strategically, maximizing visibility and profitability.

Forecasting also supports informed decisions about commission rates, promotional timing and partnerships. 

For instance, during peak demand, hotels may prioritize direct bookings to reduce reliance on high-commission OTAs. 

Conversely, in slower periods, leveraging OTA deals or partnerships with wholesalers may help fill rooms. This data-driven approach ensures an optimized distribution strategy tailored to current and future market conditions.

3. Optimize resource allocation

Demand forecasting helps hoteliers predict guest volumes, enabling precise allocation of resources like staff, amenities and supplies. For instance, forecasting can inform staffing schedules, ensuring adequate coverage during peak times and cost efficiency during slower periods.

By aligning resources with anticipated demand, hotels deliver a seamless guest experience, reducing waiting times and improving service quality. Satisfied guests are more likely to leave positive reviews and book repeat stays, driving revenue growth. 

Proper resource allocation also reduces operational waste, ensuring every dollar spent enhances profitability and guest satisfaction. This proactive approach makes operations more efficient and supports long-term success.

How to forecast demand for your hotel

To forecast demand, the starting point is gathering and analyzing historical data on bookings, occupancy and revenue.

Predictive analytics tools will help in identifying patterns, while market research can be deployed to assess trends, competitor performance and traveler behavior. It’s all about building a comprehensive, data-driven forecast that informs pricing, marketing and operational strategies.

Which all comes back to demand.

Key factors that impact demand forecasting

Demand is fickle. It can turn at a moment’s notice on the slightest of whims and in response to the most chaotic and unpredictable events.

It can. But that isn’t to say that it usually does. For the most part, it’s fairly predictable, at least if you’re clever in your analysis and know what to look for.

So what should you look for? Broadly speaking, the core areas of focus revolve around; historical data – past successes (and failures) can provide some guidance; seasonality; economic conditions; and what your competitors are up to.

Let’s take a look at each.

Historical data provides a baseline

Historical data serves as a foundation for demand forecasting by offering a clear picture of past performance trends. This data includes occupancy rates, booking patterns and revenue metrics.

By analyzing previous years’ data, hoteliers can identify recurring trends and anomalies, helping to predict future demand. For instance, if a hotel sees consistent spikes in occupancy during holiday weekends, this insight can inform pricing and resource strategies for similar future periods.

Seasonality determines demand fluctuations

Seasonality is a major driver of demand variations. Hotels experience high and low seasons depending on factors like weather, local holidays and events. Demand forecasting accounts for these patterns to adjust pricing and inventory levels effectively. 

For instance, peak seasons may warrant higher rates and increased staffing, while low seasons require cost-control strategies. Special events, such as festivals or conventions, create short-term demand spikes, adding another layer to forecasting complexity.

Economic factors guide traveler spending

The state of the economy significantly influences traveler behavior. During economic booms, discretionary spending on travel often increases, leading to higher occupancy and revenue. Conversely, in recessions, travelers may opt for budget accommodations or cancel trips altogether. 

Demand forecasting incorporates indicators like inflation rates, unemployment, and consumer confidence to anticipate these shifts and adjust strategies, such as offering discounts during downturns.

Competitive landscape determines demand

Competitor activity is a key consideration in demand forecasting. Changes like the opening of a nearby hotel or an increase in short-term rental availability can dilute demand. 

Additionally, competitor pricing strategies and promotional campaigns influence market dynamics. By monitoring these factors, hoteliers can adapt their own pricing and marketing efforts to remain competitive, ensuring they capture their share of bookings.

Hospitality trends and how they impact demand forecasting

At the end of last year, we highlighted eight top travel and hospitality trends to look out for in 2024, including the growth of experiential tourism, the rise of AI, machine learning and automation, greater personalization in the hospitality industry, and an increase in hotel room bookings via mobile.

Our headline comment was that the industry has shown remarkable resilience in the face of economic uncertainty, tightened disposable incomes and the shadow of the pandemic hanging overhead – with consumers prioritizing vacations and putting more savings aside to fund substantial trips.

We stand by this assessment, and our predictions have borne out. But what does this say about demand forecasting?

Well, appraised individually, it’s hard to draw firm conclusions. But what about holistically?

Reliable forward-looking data is the key to accurate demand forecasting

That’s the good news; holistic, forward-looking search data – which merges several key pre-booking metrics to help hoteliers understand booking intent much earlier in the booking journey – extends the window of opportunity for hoteliers to put in place the right pricing and marketing strategies to capture demand.

Predictive market intelligence solutions, such as Market Insight, source and aggregate this data for you, optimizing your demand forecasting and highlighting new revenue opportunities in your market before your competition is even aware of them. 

It helps to identify those outlier periods where the market is behaving differently from what would typically be expected by aggregating many of the indicators of demand, up to a year before the arrival date. It means that hoteliers can track dates that are showing signs of high, low and normal demand well in advance and receive alerts when there is a shift in demand in their market.

With this level of accuracy in forecasting methods, you can then implement the strategies that ensure you are positioning your property effectively, leaving nothing to chance and maximizing your hotel’s revenue potential.

How to adjust your revenue strategy when the forecast predicts high demand

By spotting demand levels ahead of time, hoteliers can apply demand-generating actions, such as a new pricing strategy, that can boost both their market position, average daily rate (ADR) and revenue per available room (RevPAR). Days around recurring events that generate high interest can be forecast in advance so that you can establish how your pick-up may be trending – if it’s in line with the rest of your market – and when you can expect it to peak.

Special events that may have driven demand in previous years might behave differently this year. Importantly, you can leverage what the data is telling you about your own demand, pickup and occupancy to act early, decisively and confidently.

Here are some actions you can implement at your hotel to optimize your revenue performance when demand is higher than normal:

Pricing

• When travelers are looking, make sure your individual pricing is right.

• Make sure your group pricing reflects the demand trends identified in Market Insight.

Yield

• Put in place the right length-of-stay (LOS) restrictions using Market Insight.

• Check your LOS promotions and see what travelers are searching for so that you can implement an LOS for which there is actual demand.

• Restrict low rates, e.g. FIT rates, corporate, friends and family.

• Restrict promotions, e.g. mobile, point of sale, channel-specific discounts.

• Restrict low-priced room categories to drive increased revenue in higher-priced room categories.

• Ensure your website is on parity or offer special deals to drive more direct booking.

Dubai, Valentine’s Day 2022. Very high demand. Final market occupancy: 97%

In the graph above we can see that in the buildup to Valentine’s Day in 2022, Dubai began to see elevated demand a year in advance.

The graph shows how far in advance demand evolved there before any pick up in bookings. 287 days prior to the date of travel, Market Insight adjusted its prediction to very high demand, but it was only 146 days before travel that the market occupancy began to pick up.

Having the right strategy in place early on in the booking phase shows just how long hoteliers have to ensure they are optimized to realize high occupancy, at the best possible price

What your revenue strategy should look like when the forecast predicts normal or low demand

Spotting low demand days far in advance is equally as important. It will support you in capturing demand before any of your competitors. While hoteliers can’t create demand, they can align their property position with the demand in their market according to what potential visitors are looking for, with effective demand forecasting.

Capturing market share during periods of low demand requires forward-looking data and a proactive range of tactics to drive bookings and ensure you have your share of the market.

With predictive market intelligence tools, such as Market Insight, hoteliers can identify feeder markets that drive high volumes of searches, and thus become much more targeted in their promotional, marketing and sales strategies. Here’s what you can do:

Pricing

• When travelers are looking, make sure your individual pricing is right.

• Make sure your group pricing reflects the demand trends identified in Market Insight.

Yield

• Know who is looking, and target those feeder markets that are driving higher search volumes with market-specific offers on OTAs, metasearch sites, GDS and/or Brand.com.

• Target length of stays that drive high volume of searches with LOS offers on OTAs, metasearch sites, GDS and/or Brand.com.

• Open mobile rate offers. Tip: On OTAs, you can target specific markets through member deals. Become part of the OTAs' member programs and increase your visibility.

• Overbook low room categories and ensure your low rates are available to book (corporate, FIT rates, friends, family, etc.)

• Ensure rate parity across your website and other channels, or offer special deals to drive more direct booking.

Marketing

• Boost your visibility on OTAs, meta, GDS, and search engines in these markets via commission increase or with ads.

• Optimize your advertising spend down to city-level.

• Reduce costs associated with campaigns in geographical areas of low source demand, eliminating some of the trial-and-error in the process.

Sales

• Develop new partnerships with travel agencies, OTAs and wholesalers located in countries with a high volume of searches.

• Negotiate exclusive deals or promotions with local travel agents in feeder markets to drive targeted bookings.

• Collaborate with corporate accounts to offer tailored packages for low-demand periods, such as discounted group bookings or extended-stay incentives.

Sydney, 1st July 2022. Elevated demand. Final market occupancy: 61%

In Sydney, demand indicators showed that even though there was a slow buildup, it provided hoteliers with a window of 136 days to implement a strategy to drive bookings and capture demand. The final market occupancy was 61% for that particular date.

Make sense of market demand with competitive insights

At the heart of having an effective revenue management strategy is the data that feeds it.

Knowing who is looking, for which dates, and for how long, up to 365 days in advance, means that you have a longer period to monitor future dates and ensure that you are well positioned to maximize your revenue with the right offer, exactly when guests are looking to book.

We cannot overstate the importance of high-quality data and reliable market insights; they underpin everything in a revenue manager’s day-to-day work.

So if you want to simplify and improve your demand forecasting, look no further than Market Insight from Lighthouse.

Intuitive to navigate and benefiting from real-time intelligence, you can accurately forecast market demand with its forward-looking search data. Use it to:

• Leverage the heat map to easily visualize demand

• View shifting demand up to 365 days in advance

• Identify demand patterns with hotel and flight search trends

• See upcoming market trends before your competitors

Start your free trial today and see how you can harness the power of demand predictions, stay ahead of emerging market trends and reveal untapped revenue opportunities.