Predicting hotel booking cancellations to decrease uncertainty and increase revenue

Authors

Abstract

Booking cancellations in the hospitality industry have a substantial impact in demand-management decisions. Booking cancellations limit the production of accurate forecasts, a critical tool in terms of revenue management performance. To circumvent the problems caused by booking cancellations, hotels implement rigid cancellation policies and overbooking strategies, which can also have a negative influence on revenue and reputation. Using data sets from four resort hotels and addressing booking cancellation prediction as a classification problem in the scope of data science, authors demonstrate that it is possible to build models for predicting booking cancellations with accuracy results in excess of 90%. This demonstrates that despite what was assumed by Morales and Wang (2010) it is possible to predict with high accuracy whether a booking will be canceled. Results allow hotel managers to accurately predict net demand and build better forecasts, improve cancellation policies, define better overbooking tactics and with that, have more assertive pricing and inventory allocation strategies.

Keywords

Data Science, Machine Learning, Revenue Management

Subject

Revenue Management

Conference

TMS Algarve 2016 - Tourism and Management Studies International Conference , December 2016