Challenge of demand forecasting in tourism

By Ankita Agarwal and Abhinash Jena on December 25, 2012

Forecasting the demand in tourism industry and maintaining a proper demand-supply balance is a major challenge.  There is no doubt about tourism being an industry of economic, social and cultural importance for the world economy. Tourism connects people from one corner of the globe to the others. The exchanges that take place among nationals of different countries act as a great source of mutual advantage. The peculiarity of the tourism industry lies in the fact that this industry brings customers to the product/services rather than delivering the products/services to the customers. Tourism by its very nature is seasonal and fragile. There are frequent seasons of boom and slowdown threatening the survival of industry players.

Why demand forecasting is not possible in tourism industry?

The tourism sector is so unpredictable that even a small disturbance in the environments of the host country may bring down the level of demand significantly. Be it predictions about changes in the economic scenario leading to sudden inflation or deflation, any expected occurrences of hostile activities like war or terrorism, any warned natural disasters like earthquakes or floods, any likely incidences of cultural hostility or any kind of threat to public health owing to environmental imbalance or spread of some contagious diseases; all such factors have massive impact on the demand in tourism, making it almost impossible to forecast demand. But this demand-supply imbalance in tourism often leads to severe challenges for the host country.

Challenge of demand forecasting due to inaccuracy

As already stated above, it is not possible to accurately forecast the demand in tourism owing to the very nature of this industry. But this may result into a number of challenges which can be categorized as follows:

  1. Infrastructural challenges: Whenever there is sudden tourists’ traffic at a place, the host country faces infrastructural challenges due to increasing pressure of providing sufficient means of living to the tourists apart from the need to develop means of transportation like railways, roadways, airways and waterways.
  2. Financial challenges: The imbalance in demand-supply continuum leads to several financial challenges for both the industry players as well as the country as a whole. This is because huge investments are often involved in infrastructural development and on other means of rendering services; if there is a slowdown, the investments get choked resulting into heavy financial losses in the short-run.
  3. HR challenges: Due to difficulties in forecasting demand in the sector, securing the right kind of human resources is a common problem. Though seasonality of tourism industry offers employment to masses, mostly unskilled labors; but it is a challenge to find the skilled ones in required numbers. Recruiting manpower for the year would mean paying without work for dull seasons of the year so that is not a good option.
  4. Environmental challenges: During peak seasons when there is huge tourist inflow, it puts a lot of pressure on the local authorities to maintain the environment. Many times due to the burden of providing basic amenities to the tourists, trees and other natural resources are exploited in irresponsible manner and this disturbs the ecological balance of the place. Also, the problems like garbage disposal and water contamination are very common at major tourist destinations.
  5. Cultural challenges: Apart from the above challenges, the host country also faces the challenge of maintaining its cultural heritage. Main tourist destinations are often flooded with tourists from different parts of the world and these tourists bring their culture with them. Interaction and exchange that takes place between the locals and the tourists leave a mark of foreign culture upon the nationals of the host country. Though sometimes it is good as it gives an opportunity to learn from the culture of different countries, but when learning takes a wrong way it becomes a severe challenge for the host country.