4 Keys to Weathering the Storm of Forecasting Errors After a Natural Disaster

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4 Keys to Weathering the Storm of Forecasting Errors After a Natural Disaster

By Paul Murray, Vice President, Hospitality Practice, Revenue Analytics - 10/01/2019

During hurricane season, high risk communities and hoteliers must plan for impact. Many hotels begin activating natural disaster protocols, which may include waiving cancellation fees or implementing flexible pet policies. But Hospitality Revenue Managers in impacted areas must also plan for potential fluctuations that may influence future forecast performance. These fluctuations could be caused by a few different scenarios:

  • Destination markets will likely see a drop in demand and rates, resulting in lowered revenues. This is often followed by a drawn-out recovery period if the market experiences damage or destruction. 
  • Evacuation markets may encounter a pop in demand, increased rates, and an associated spike in revenue during the event and potentially into recovery.

If these anomalies in demand are not accounted for in your forecast, then your future performance will suffer.

How do you fix this problem?

Our experience shows that Revenue Managers must educate demand forecasts to make sure they have all the information they need to account for these anomalies.

Here are four steps Revenue Managers must take to make effective use of post-disaster data and ensure that these events don’t negatively impact future performance:

  1. Isolate the data. One way to educate your forecast is to separate the period of exceptional demand during a hurricane event from the historical data that is used to build future forecasts. Using capabilities such as special events to remove the irregular demand will ensure your upcoming forecasts are not including patterns from the hurricane.
  2. Predict future impact. We also recommend leveraging the data that you’ve isolated to predict the impact of future natural disasters. An educated forecast will be able to apply the demand curve, cancellation rates, and overall occupancy from this event to the next hurricane to ensure Revenue Management decision making is fully informed.
  3. Consider the recovery. It is important to consider not only short-term impact but also the longer-term effects of a natural disaster.  In the case of a hurricane, there may be property damage or negative impact to beaches or scenery that reduces demand as the environment recovers. 
    Or, as we saw with Hurricane Harvey in 2017, there could be continued effects caused by the number of people who need prolonged accommodation due to severe home damage. During this time of recovery, daily monitoring and interaction with your system’s demand forecast will be required to ensure occupancy projections are as accurate as possible. Your pricing and inventory optimizations will then have the best possible information to maximize revenues.
  4. Plan for next year: As you approach the anniversary of the hurricane and subsequent recovery period, it’s important to focus on the quality of your Revenue Management System’s forecast. Even if you’ve isolated the event, the prior year recovery period data may be artificially suppressing the current year’s forecast. Revenue Managers must pay attention to long term forecasts and booking pace to optimize the hotel’s performance and not miss out on revenue opportunities

Educating your forecast with these 4 ways will guarantee that your hotel handles data from the hurricane in a way that maximizes performance.

 

About the Author

Paul Murray is the Vice President of the Hospitality Practice for Revenue Analytics, a revenue management solutions provider for the hospitality industry. Prior to Revenue Analytics, Paul served as Senior Vice President of Revenue Management at MGM Resorts International, as Vice President of Revenue Management at Hyatt Hotels Corporation, and as Senior Director of Revenue Analysis at Hilton Worldwide.