Forecasting hotel cancellations through machine learning

Abstract

Accurate and reliable forecasting of cancellations is important for successful revenue management in the tourism industry. The objective of this study is to develop classification models to predict hotel booking cancellations. The work involves a number of key steps, such as data preprocessing to properly prepare the data; feature engineering to identify relevant attributes to help improve the predictive ability of the models; hyperparameter settings of the models, including choice of optimizers and incorporation of dropout layers to avoid overfitting in the neural networks; potential overfitting is evaluated using K‐fold cross‐validation; and performance is analysed using the confusion matrix and various performance metrics. The algorithms used are Multilayer Perceptron Neural Network, Radial Basis Function Neural Network, Deep Neural Network, Decision Tree Classifier, Random Forest Classifier, Ada Boost Classifier and XgBoost Classifier. Finally, the results of all models are compared, visualizing Deep Neural Network and XgBoost as the most suitable models for predicting hotel reservation cancellations.