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Tourism Forecast Methodologies

How We Generate Our Industry Forecasts

BMI’s industry forecasts are generated using the best-practice techniques of time-series modelling. The precise form of time-series model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. For example, data for some industries may be particularly prone to seasonality, i.e. seasonal trends. In other industries, there may be pronounced non-linearity, whereby large recessions, for example, may occur more frequently than cyclical booms.

Our approach varies from industry to industry. Common to our analysis of every industry, however, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable’s own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity.

When forecasting for some of our industry sub-component variables, however, using a variable’s own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting.

It must be remembered that human intervention plays a necessary and desirable part in all our industry forecasting techniques. Intimate knowledge of the data and industry ensures we spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not.

Tourism Industry

There are a number of principal criteria that drive our forecasts for each tourism sector variable.

Figures for the tourism sector data are based, where possible, on industry associations/operators, government/ministry sources and official data. Where these are unavailable, tourism forecasts are based on a range of variables:

• Government policy, industry trends and expenditure levels stated in international and national press;
• Industry trends and expenditure levels stated in tourism company official financial reports or releases;
• Likely expenditure and growth patterns owing to international developments and demographic patterns;
• Likely alterations in expenditure patterns owing to economic/political activity.

Sources

Sources used in Tourism reports include national industry associations, government ministries, global tourism organisations, officially released tourism company results and international and national news agencies.

Tourism Business Environment Ratings Methodology

Ratings Overview

Conceptually, BMI’s Tourism Business Environment Ratings system provides a globally-comparative, numerically-based assessment of the Risk/Return trade-off for the industry in each state covered in BMI Reports. In order to provide clients with a detailed assessment of this trade-off, the overall rating is comprised of two distinct sub-ratings:
Limits of Potential Returns: Evaluates the industry’s current size and growth potential, and also assesses broader industry/state characteristics that may enable/inhibit the industry’s development.
Risks to Realisation of Potential Returns: Evaluates issues within (a) the Tourism sector, and (b) the broader political/economic/business environment, that indicate the level of uncertainty surrounding the realisation of potential returns.

These ratings are themselves comprised of sub-ratings:

• The ‘Limits’ Rating is comprised of:
• Domestic Market: This evaluates industry growth/size dynamics
• Country Structure: This evaluates the broader economic/socio-demographic environment

• The ‘Risks’ Rating is comprised:
• Market Risks: This is a subjective evaluation of industry regulatory and competitive issues
• Country Risk: This evaluates the industry’s broader Country Risk exposure, which is based on industry-specific vulnerabilities that may be assesses using any combination of the 56 components of BMI's proprietary Political, Economic and Business & Operational Risk Ratings

Weighting

Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal weight. Consequently, the following weight has been adopted.

 

Component	Weighting
Limits of Potential Returns	70%
- Tourism Market	- 65%
- Country Structure	- 35%
Risks to Realisation of Potential Returns	30%
- Market Risks	- 40%
- Country Risk	- 60%

 

Indicators

The following indicators have been used. Overall, the rating uses three subjectively-measured indicators, and around 20 separate indicators/datasets.

Indicator	Rationale
Limits to potential returns
Market structure
International tourism revenue, US$bn	The larger the sector the greater the opportunities available.
Revenue growth, % y-o-y	Rapid growth will result in increased future opportunities.
Tourism employment, % of total	Proxy for extent to which economy is already oriented towards the sector
Country structure
Physical Infrastructure	Rating from BMI’s Country Risk Ratings (CRR). Poor power/water/transport infrastructure serve as bottlenecks to sector development.
Labour costs	Rating from BMI’s CRR to denote cost of labour. High costs will hinder international competitiveness and vice versa.
Risks to potential returns
Market Risks
Security/External Risks	Subjective evaluation against BMI-defined criteria. The tourism industry is especially vulnerable to security risks.
Environmental Issues	Subjective rating of changes to perceived risk of natural disaster. The tourism industry is especially vulnerable to shocks emanating from natural disasters.
Country Risk
Long Term External risk	Rating from BMI’s CRR, to denote vulnerability to external shock – principal cause of economic crises. Such a crisis will complicate long term planning by suggesting risk of future growth volatility and cutting access to investment funding domestically.
Regional competitiveness	Subjective rating evaluating changes in sector’s cost competitiveness in relation to key peers. Demand in the tourism industry is highly vulnerable to changes in price.
Market Openness	Subjective rating from BMI’s CRR, to denote predictability of openness to foreign investment trade.
Bureaucracy	Rating from BMI’s CRR to denote ease of conducting business in the state.
Legal framework	Rating from BMI’s CRR, to denote strength of legal institutions in each state – security of investment can be a key risk in some EM.
Corruption	Rating from BMI’s CRR, to denote risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies’ ability to compete.

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