Project Title

Developing a Tourism Demand Forecasting System for Hong Kong

Background

Tourism practitioners are interested in tourism demand forecasting for the following reasons:

1. Tourism demand is the foundation on which all tourism-related business decisions ultimately rest. Companies such as airlines, tour operators, hotels, cruise ship lines, and recreation facility providers are interested in the demand for their products by tourists. The success of many businesses depends largely or totally on the state of tourism demand, and ultimate management failure is quite often due to the failure to meet market demand. Because of the key role of demand as a determinant of business profitability, estimates of expected future demand constitute a very important element in all planning activities. It is clear that accurate forecasts of tourism demand are essential for efficient planning by tourism-related businesses, particularly given the perishable nature of the tourism product.

2. Tourism investment, especially investment in destination infrastructures, such as airports, highways and rail-links, requires long-term financial commitments and the sunk costs can be very high if the investment projects fail to fulfill their design capacities. Therefore, the prediction of long-term demand for tourism related infrastructure often forms an important part of project appraisal.

3. Government macroeconomic policies largely depend on the relative importance of individual sectors within a destination. Hence, accurate forecasts of demand in the tourism sector of the economy will help Hong Kong in formulating and implementing appropriate medium-long term tourism strategies.

Specific objectives of this project:

The proposed project will aim at developing an appropriate modeling and forecasting system.

The specific objectives of the project are:

1. To develop an automatic forecasting system based on economic theory which postulates a relationship between the demand for Hong Kong tourism and its influencing factors;

2. To generate recursive tourism demand forecasts on a quarterly basis using the forecasting system developed;

3. To carry out tourism policy evaluations using impulse response analysis, which is available in the forecasting system with a view to providing feedback on the effectiveness of the policies implemented by the government and tourism authorities;

4. To provide an ad hoc forecasting service on sectoral demand related to tourism. These forecasts could include but are not limited to forecasts of demand for hotels, tourism catering, retailing, transportation, and leisure and recreation facilities.

This project started in 2005 and will be completed in 2008.

At this stage, we have applied three econometric models using data on Hong Kong inbound tourist arrivals, tourist expenditures and outbound flows. We have also generated Hong Kong tourism demand forecasts on a quarterly basis up to 5-years-ahead.