Unveiling cancellation dynamics: A two-stage model for predictive analytics

Booking cancellations have an adverse impact on the performance of firms in the hospitality industry. Most of the studies in this domain have considered the questions of whether a booking would be cancelled or not (if). While useful, given the nature of the industry, it would be important to understand the timing of cancellation as well (when). Answering the inter-temporal nature of the question would help hotels to devise appropriate strategies to accommodate this change. In our study, we have proposed a novel two-stage model, which predicts both the likelihood (if) as well as the timing (when) of cancellation, using various statistical and machine learning techniques. We find that significant predictors include the average daily rate (which is an indicator of average rental revenue earned for an occupied room per day), month of arrival, day of arrival, and the lead time. Our insights can help hotels design bespoke cancellation policies and exercise personalised services and interventions for guests.