ARTICLE IN PRESS

Tourism Management 27 (2006) 781–790

www.elsevier.com/locate/tourman

Designing an artificial neural network for forecasting tourism

time series
Alfonso Palmer, Juan José Montaño, Albert Sesé
Facultad de Psicologı´a, Universidad de las Islas Baleares, Ctra. Valldemossa Km. 7,5, 07122 Palma de Mallorca, Spain
Received 23 July 2003; accepted 19 May 2005

Abstract

This paper aims to provide, on one hand, an introduction to the theoretical principles of artificial neural networks (ANN) and on
the other, a step-by-step methodology for designing a neural network for tourism time series forecasting. The time series
corresponding to tourism expenditure in the Balearic Islands (Spain), one of the world’s major tourist destinations, has been used as
data to illustrate this process. A number of practical rules and discussion points between authors, comprehensible to both academic
researchers and practitioners, have been included throughout the paper so that ANN can be applied successfully. Lastly, the results
obtained in this study provide information for researchers interested in applying ANN to tourism data forecasting.
r 2005 Elsevier Ltd. All rights reserved.

Keywords: Neural networks; Tourism forecasting

1. Introduction also of value in ascertaining the relative contributions of

Due to the perishable nature of the tourism industry,
the need to devise accurate forecasts has become crucial
(Chandra & Menezes, 2001; Law, 2000a; Law & Au,
1999). Thus, researchers, practitioners and policy
makers have openly acknowledged the need for accurate
forecasts in the field of tourism (Sheldon & Var, 1985).
In the case of tourism demand, better forecasts would
help directors and investors make operational, tactical
and strategic decisions, examples of which are schedul-
ing and staffing, preparing tour brochures and hotel
investments, respectively. Similarly, government bodies
need accurate tourism demand forecasts to plan
required tourism infrastructures, such as accommoda-
tion site planning and transportation development,
among other needs. Forecasting tourism expenditure is
Corresponding author. Tel.: +34 971 17 34 32;
fax: +34 971 17 31 90.
E-mail addresses: alfonso.palmer@uib.es (A. Palmer),
juanjo.montano@uib.es (J. José Montaño), albert.sese@uib.es
(A. Sesé).
tourism to production, income and employment in
tourist destinations (Bull, 1995). Thus, the large
quantity of academic literature which has been gener-
ated in this area is not surprising (Morley, 2000).
Despite the consensus on the need to develop accurate
forecasts and the recognition of their corresponding
benefits, there is no one model that stands out in terms
of forecasting accuracy (Law & Au, 1999; Witt & Witt,
1995). In this respect, one of the most widely used
procedures in time series forecasting is the Box–Jenkins
methodology (Box & Jenkins, 1976), which is based on
the fit of a special type of linear statistical model known
as Autoregressive Integrated Moving Average (ARI-
MA). One problem that makes developing and im-
plementing this type of time series model difficult is that
the model must be formally specified and a probability
distribution for data must be assumed (Hansen,
McDonald & Nelson, 1999).
In recent years, the study of artificial neural networks
(ANN) has aroused great interest in fields as diverse as
biology, psychology, medicine, economics, mathematics,
statistics and computers. The reason behind this interest

0261-5177/$ - see front matter r 2005 Elsevier Ltd. All rights reserved.
doi:10.1016/j.tourman.2005.05.006
 ARTICLE IN PRESS
782 A. Palmer et al. / Tourism Management 27 (2006) 781–790
is that ANN are universal function approximators
capable of mapping any linear or non-linear function
(Cybenko, 1989; Funahashi, 1989; Hornik, Stinchcombe
& White, 1989; Wasserman, 1989). Due to their
flexibility in function approximation, ANN are powerful
methods in tasks involving pattern classification, esti-
mating continuous variables and forecasting (Kaastra &
Boyd, 1996). In the last case, neural networks offer
several potential advantages over alternative methods—
mainly the ARIMA time series models—when handling
problems with non-normal and non-linear data (Hansen
et al., 1999). The first advantage is that ANN are very
versatile and do not require formal specification of the
model nor acceptance of a determined probability
distribution for data. As for the second advantage,
Masters (1995) demonstrates that ANN are capable of
tolerating the presence of chaotic components better
than most alternative methods. This capacity is parti-
cularly important, as many relevant time series possess
significant chaotic components.
ANN have been applied in the many fields mentioned
above and have been a pioneer in the field of tourism
data analysis (Chandra & Menezes, 2001). Thus, neural
network models have recently been used as a statistical
technique in the main fields of tourism research, such as
demand and consumer behaviour forecasting (Burger,
Dohnal, Kathrada & Law, 2001; Cho, 2003; Jeng &
Fesenmaier, 1996; Law, 1998, 2000a, b, 2001; Law &
Au, 1999; Mohsin & Ryan, 1999; Pattie & Snyder, 1996;
Sirakaya, Delen & Choi, 2005; Tsaur, Chiu & Huang,
2002; Uysal & El Roubi, 1999; Wang, 2004), market
segmentation and positioning analysis (Bloom, 2002,
2004, 2005; Dolnicar & Fluker, 2003; Ganglmair &
Wooliscroft, 2000; Kim, Wei & Ruys, 2003; Mazanec,
1992, 1995, 1999; Wallace, Maglogiannis, Karpouzis,
Kormentzas & Kollias, 2003).
These studies indicate a growing interest in using
ANN to represent complex, non-linear cognitive activ-
ities that are often studied in tourism management
(Morley, 2000). Nevertheless, due to the relatively recent
introduction of neural networks in tourism, the number
of published articles which clearly explain a methodol-
ogy that obtains reliable tourism data modelling
through neural networks continues to be limited in
comparison with other statistical methods (Uysal & El
Roubi, 1999). On the other hand, due to their flexibility,
neural networks lack a systematic procedure for model
building. Therefore, obtaining a reliable neural model
involves selecting a large number of parameters experi-
mentally through trial and error.
Thus, this paper aims to provide both an introduction
to the main principles of ANN and a step-by-step
methodology for designing a neural network for tourism
time series forecasting. Several practical rules and
discussion points between authors, comprehensible both
to academic researchers as well as practitioners, have
been included throughout the paper for successful
application. Lastly, the results obtained in this study
provide valuable information on applying ANN in
tourism data forecasting.
The time series corresponding to tourism expenditure
in the Balearic Islands, one of Spain’s most internation-
ally relevant tourism destinations, shall be used as data
to illustrate the application of this technique. Spain is
the world’s second major tourism destination, with a
total of 49.5 million tourists in 2001 (Ivars, 2003). The
Balearic Islands, which covers a surface area of
4968.36 km2 and had 878,627 inhabitants in 2001, is
considered an exceptional tourism centre, one of the
top-ranking regions in the world in terms of affluence,
with a volume of 8.4 million arrivals in 2001, a 1.2%
share of the total world market. At the same time, the
significance of tourism to its economy can be determined
by observing the Balearic Islands’ own statistics–an
estimated E5096.2 million of revenue generated in 2001.
Additionally, tourism added value (TVA) amounted to
21.2% of the Balearic GDP in 1997, while the value
added of tourism industries (VATI) was estimated at
31.2% (Palmer & Riera, 2003).
Having discussed the role that ANN can play in tourism
time series forecasting and the objectives of this research,
the remaining sections of this paper are organised as
follows: Section 2 briefly introduces the basic foundations
of ANN and describes artificial neuron operations.
Section 3 presents the neural network model most widely
used in time series forecasting: the multi-layer perceptron
(MLP). Section 4 describes a step-by-step methodology
for applying a neural network to tourism expenditure
forecasting in the Balearic Islands. The paper’s final
section concludes with a discussion of the results obtained
and suggestions for future lines of research.
2. The artificial neuron
ANN can be defined as information processing
systems whose structure and functioning are inspired
by biological neural networks. They have three funda-
mental features—parallel processing, distributed mem-
ory and adaptability—that provide them with a series of
advantages compared to other processing systems, such
as robustness and a tolerance to error and noise.
In general, an ANN is made up of a large number of
simple processing elements known as nodes or neurons,
which are organised in layers. Each neuron is connected
to other neurons by communication links, each of which
has an associated numerical value known as a ‘‘weight’’.
Weights contain the knowledge or information that
ANN possess about a specific problem.
The task of an artificial neuron j is simple and consists
of receiving input signals (xi) (weighted by connection
weights (wij)) from neighbouring neurons. The sum of
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A. Palmer et al. / Tourism Management 27 (2006) 781–790 783

these weighted signals provides the neuron’s total or net
input (netj). Then, the activation threshold of neuron j—
represented by a positive or negative yj value—is added
to net input and through applying a mathematical
function f ð
Þ (generally non-linear and known as an
activation function) to net input, output value yj is
computed and sent to other neurons (see Fig. 1).
3. The MLP
MLP (also known as a feedforward neural network) is
the neural network model most widely used in applied
work (Sarle, 2002), because it is capable of resolving a
wide variety of problems. For the purposes of this
paper, the MLP network is also the type of neural
network most commonly used in time series forecasting
(Bishop, 1995; Kaastra & Boyd, 1996).
A MLP network is made up of an input layer, an
output layer and one or more hidden layers of neurons.
In this type of architecture, data are always transmitted
from the input layer to the output layer. From a
statistical point of view, each input neuron represents
one of the independent variables, while the output
neuron(s) represent dependent variable(s) or MLP
network forecasts.
Two stages may be considered in the MLP network:
the running stage, in which an input pattern is presented
to the trained network and transmitted through
successive layers of neurons until reaching an output,
and the training or learning stage in which the weights
or parameters of the network are iteratively modified on
the basis of a set of input–output patterns known as a
training set, in order to minimise the deviance or error
between the output obtained by the network and the
user’s desired output. This is why MLP network
learning is said to be supervised. The learning rule
commonly used in this type of network is the back
propagation algorithm or gradient descent method,
developed and disseminated by Rumelhart, Hinton
and Williams (1986).
Univariant time series modelling is normally carried
out through this neural network by using a determined
number of the time series’ lagged terms as inputs and
forecasts as output (Bishop, 1995). The number of input
neurons determines the number of prior time points to
be used in each forecast, while the number of output
neurons determines the forecast horizon. Thus, a one-
step-ahead forecast can be performed through a neural
network with one output unit and a k-step-ahead
forecast can be performed with k output units. Fig. 2
illustrates an MLP forecasting model in which four past
terms in the series are used to forecast the value of the
series in a one-step-ahead forecast.
4. Designing an ANN model for tourism time series
forecasting
Resolving a forecasting task through an MLP net-
work means applying a methodology that not only has
aspects in common with conventional statistical model-
ling techniques, but also has other singular aspects that
can only be found in the ANN field. The application
procedure is described below.
4.1. Data preprocessing
This research worked with data on tourism expendi-
ture in the Balearic Islands (in millions of pesetas) from
each quarter of 1986 through to the year 2000. There-
fore, this time series is composed of 60 time points. The
data were provided by the Ministry of the Economy.
Fig. 3(a) shows the time series which was used. In the
first place, a marked seasonality can be seen in which
the first and fourth quarters (October–March) make up
the ‘low season’ and coincide with autumn and winter,
and the second and third quarters (from April to
Input
layer

X1 tn-4
1 Hidden
layer

f Output
X2 W1j tn-3
2 layer
N yj
W2j net j = Σ WijXi + θj yj = f(netj) tn
i=1
Xi
i tn-2
Wij

XN
WNj
N tn-1

Neurons i Neurons j
Fig. 2. MLP network for one-step-ahead forecasting based on four
Fig. 1. General functioning of an artificial neuron. lagged terms.
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784 A. Palmer et al. / Tourism Management 27 (2006) 781–790

Raw Data
Time series Histogram
400000
14
350000
12
300000
Millions of pesetas

10
250000

Frequency
8
200000
6
150000

100000 4

50000 2

0 0
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
(a) Year (b) Millions of pesetas
Preprocessed Data
Time series Histogram
0.5
8
0.4

0.3
6
0.2
Difference

Frequency
0.1
4
0

-0.1
2
-0.2

-0.3 0
87 88 89 90 91 92 93 94 95 96 97 98 99 00
(c) Year (d) Difference

Fig. 3. Graphic representation of raw and preprocessed data.

September) make up the ‘high season’ and coincide with
spring and summer, as tourists visiting the Islands are
mainly attracted by the sun and sand offer. In the
second place, the time series shows a slightly rising
trend from approximately 1992, which indicates the
growth that tourism expenditure in the Balearic Islands
has experienced in recent years. Fig. 3(b) shows the
histogram of data distribution in which a marked
asymmetry to the right can be seen.
Preprocessing data refers to analysing and transform-
ing input and output variables in order to detect trends,
minimise noise, underline important relationships and
flatten the variable’s distribution. These analyses and
transformations help the model learn relevant patterns.
Logarithmic transformation (natural log) and differ-
encing are the two preprocessing techniques most
commonly used in both traditional and neural networks
forecasting (Kaastra & Boyd, 1996). Logarithmic
transformation is useful in correcting the asymmetry
to the right present in data distribution. This transfor-
mation also allows multiplicative relations to be con-
verted into additive relations, which simplifies and
improves data modelling (Masters, 1993). Differencing
or the use of changes in a variable can be used to
eliminate both linear trend as well as seasonality in a set
of data (Masters, 1993).
Lastly, when applying MLP networks it is recom-
mended, although not strictly required, that the
variables’ range of values be limited in the work interval
of the activation function used in the hidden and output
layers of neural networks (Masters, 1993; Sarle, 2002).
This measure considerably accelerates weight learning
and avoids saturation or overflow of the hidden and
output neurons whose activation values generally fall
between the [0, 1] or [1, 1] interval.
In order to analyse the effect that the data preproces-
sing has on MLP networks performance, two sets of
data were used. The first set (which shall be called raw
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A. Palmer et al. / Tourism Management 27 (2006) 781–790
data) is made up of the time series data limited by the
[1, 1] interval through the linear transformation
proposed by Masters (1993). The second set (which
shall be called preprocessed data) is made up of the time
series data to which two consecutive transformations
have been applied with the twofold aim of pre-
processing the data and eliminating the two determinis-
tic components identified above, linear trend and
seasonality. Thus, the logarithmic transformation was
applied and then a differentiation that consists in
subtracting the value of the previous year’s quarter
from the value of each quarter (e.g., the 3rd quarter of
1998—the 3rd quarter of 1997) was applied. Fig. 3(c)
shows the preprocessed time series from which linear
trend and seasonality have been eliminated, while
Fig. 3(d) shows the histogram which reflects a more
symmetrical distribution after preprocessing. Finally,
the differentiated values were limited by the [1, 1]
interval through linear transformation (Masters, 1993).
Next, different data matrices were generated for both
sets of data on the basis of the number of lagged terms
(from 1 to 8) that would act as input and the number of
step-ahead forecast (1 and 2) that would act as the
neural network’s output. To illustrate, Fig. 4 shows the
structure of the data matrix corresponding to the MLP
network in Fig. 2, in which each time point is to be
forecast on the basis of the four previous time points.
4.2. Creating training, validation and test sets
In ANN methodology, data samples are frequently
subdivided into three sets (Bishop, 1995; Ripley, 1996)—
training, validation and test sets—in order to obtain a
network which is capable of generalising and performing
well with new cases.
During the network’s learning stage, the weights are
iteratively modified on the basis of the training set’s
values, in order to minimise the error between the
network output and the user’s desired output. Never-
theless, an excessive number of parameters or weights in
relation to the problem at hand and to the number of
training data may lead to overfitting. This phenomenon
occurs when the model fits the irrelevant features present
in training data too closely instead of fitting the
underlying function which relates inputs and outputs,
Inputs Outputs
t1 t2 t3 t4 t5
t2 t3 t4 t5 t6
t3 t4 t5 t6 t7
t56 t57 t58 t59 t60
Fig. 4. Structure of the data matrix corresponding to the MLP
network in Fig. 2.
785
losing its capacity to generalise learning to new cases
(Baum & Haussler, 1989).
To avoid the problem of overfitting, it is recom-
mended using a second set of data, the validation
set, which permits the learning process to be controlled.
During learning, the network modifies weights on
the basis of the training data and alternatively the
network error made with validation data is obtained.
Thus, the optimum number of weights can be ascer-
tained on the basis of the architecture that has
performed best with the validation data. The value of
other parameters that play a part in network learning
can also be determined through the validation set, as can
be seen below.
Lastly, if the final effectiveness of the system built is to
be measured in a completely objective manner, the error
committed with validation data should not be used as a
basis, as to some degree, these data have participated in
the training process. A third set of independent data
must be used, the test set, which provides an unbiased
estimate of the generalisation error.
There is no precise rule on the optimum size of the
three sets of data, although authors agree that the
training set must be the largest (Kaastra & Boyd, 1996;
West, Brockett & Golden, 1997). In this research, data
from the years between 1986 and 1996 were used as the
training set (73.3%), data from 1997 and 1998 were used
as the validation set (13.3%) and data from 1999 and
2000 were used as the test set (13.3%).
4.3. ANN model building
The following is practical advice on four sets of
parameters involved in creating an MLP network
through the back propagation learning rule: network
architecture, learning rate and momentum factor,
activation function of the hidden and output layers
and number of iterations.
As for the MLP network architecture, it is known that
using one sole hidden layer of neurons will be sufficient
for most practical problems (Funahashi, 1989; Hornik
et al., 1989). The number of hidden neurons determines
the MLP network’s capacity to learn. Despite its
importance, there is no rule that indicates the optimum
number of hidden neurons for any given problem.
Bearing in mind the overfitting problem, selecting the
network which performs best with the validation set
using the least possible number of hidden neurons
(Masters, 1993; Smith, 1993; Rzempoluck, 1998) is most
recommended. The input layer is in charge of receiving a
determined number of the time series’ lagged terms to
carry out the forecast. Normally, the selection of lagged
terms is determined experimentally through trial and
error, on the basis of the minimum set of terms that
obtains the least error with the validation set. Two
alternatives to the experimental selection of input
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786 A. Palmer et al. / Tourism Management 27 (2006) 781–790
variables have been suggested. First, applying a
sensitivity analysis to the network model provides
information on the significance that each input has on
output, and as a result, the lagged terms most relevant to
forecasting can be selected (Montaño & Palmer, 2003).
Second, selecting the lagged terms in the MLP network
can be carried out on the basis of the autoregressive or
lagged terms obtained by applying the Box–Jenkins
methodology (Tang & Fishwick, 1993). Lastly, the
output layer determines the neural network’s forecast
horizon. As for the scope of the forecast horizon,
authors such as Masters (1993) and Kaastra and Boyd
(1996) recommend limiting the forecast to a one-step-
ahead prediction, assuming that the use of broader
forecast horizons has very serious repercussions on
network performance. Nevertheless, Tang and Fishwick
(1993) proved in a systematic study that expanding the
forecast horizon does not imply a decrease in the neural
network’s performance.
A set of models based on the combination of different
values for the number of input (from 1 to 8), hidden
(from 1 to 3) and output (1 and 2) neurons were
constructed for this study in order to analyse the effect
that the type of architecture has on MLP networks
performance and in consonance with the structure of
matrices generated in the data preprocessing stage.
The learning rate value plays a crucial role in the
MLP networks training process, as it controls the size of
the changes in weight in each iteration. Both a too-small
change in size as well as a too-large change in size must
be avoided in order to obtain optimum weight config-
urations. A learning rate between 0.05 and 0.5 provides
good results in most practical cases (Rumelhart et al.,
1986). The momentum factor determines the effect of
past changes in weights on current changes in weights
and allows the speed of learning to be increased by
filtering the oscillations caused by the learning rate. The
momentum factor usually has a value of close to 1, e.g.,
0.9 (Rumelhart et al., 1986). A learning rate of 0.25 and
a momentum factor of 0.8 were constantly used in all the
MLP networks in our study, although it was shown that
similar results were obtained for a wide range of values
in both parameters.
In a standard MLP network, the input layer neurons
use a linear activation function, while the hidden and
output layer neurons use a sigmoid activation function.
In this sense, the two sigmoid functions most used
are the logistic (providing continuous values between 0
and 1) and hyperbolic tangent (providing continuous
values between 1 and 1) functions. In this study, the
hyperbolic tangent function was used in the hidden and
output layers of the MLP networks, as it considerably
accelerates weight learning in comparison to the logistic
function (Fahlman, 1988; Fausett, 1994). It should be
recalled that the data were scaled to the interval between
[1, 1] in the preprocessing stage, coherent with the
activation function used in the hidden and output layers
of the models built.
Lastly, MLP network training must conclude when
the weights converge. This point occurs when the error
committed with the training data stops decreasing. In
most studies, the number of training iterations used until
convergence was reached oscillated between 100 and
200,000 iterations (Kaastra & Boyd, 1996). A total of
10,000 iterations in each training was sufficient in this
study to guarantee convergence of the weights obtained.
At present there are many free computer programs
and commercial computer programs that allow MLP
networks to be simulated through the manipulation of
all the parameters analysed in this section without the
need for deep knowledge of the underlying mathema-
tical algorithms. The MLP networks used in this paper
were generated by the Neural Connection 2.1 computer
program (SPSS Inc., 1998).
4.4. Evaluation and selection of ANN models
A total of 96 MLP networks were obtained on the
basis of combining the following parameters: raw/pre-
processed data and the number of input (from 1 to 8),
hidden (from 1 to 3) and output (1 or 2) neurons. The
models were evaluated with the validation data through
three forecasting accuracy measures: root mean squared
error (RMSE), mean absolute percentage error (MAPE)
and Theil’s U coefficient.
The MLP architecture which was selected, and
therefore, the architecture which presented the best
forecasting accuracy with the validation data, was
composed of eight inputs, one hidden and one output
neurons (in abbreviated form, a 8-1-1 architecture),
the time series having been previously preprocessed. The
values obtained through this MLP network with the
validation data as regards accuracy measures were
RMSE ¼ 6270.57, MAPE ¼ 3.32 and U-Theil ¼ 0.016.
These three accuracy measures were applied to the 96
MLP networks using the test set as data in order to
analyse the different created models’ level of general-
isation. Table 1 shows the results of a selection of 28
MLP networks and reflects the effect that manipulating
different parameters has on performance. In the first
place, one of the most striking results is that neural
networks performance clearly improved in the three
measures used when data were preprocessed. In this
case, all the architectures, including the architecture
selected in the validation stage, obtained MAPE values
of less than 5 percent, which can be considered highly
accurate forecasting (Witt & Witt, 1992). This implies
that data preprocessing which consists of eliminating the
deterministic components of the time series—linear
trend and seasonality—has positive repercussions on
the goodness of fit of MLP networks. In the second
place, it can be seen that two-steps-ahead forecasting
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A. Palmer et al. / Tourism Management 27 (2006) 781–790 787

Table 1
Forecasting accuracy of MLP networks with test data

Network architecture Raw data Preprocessed data

(input-hidden-output)
RMSE MAPE U-Theil RMSE MAPE U-Theil

2-2-1 94077.38 29.30 0.266 10556.78 4.20 0.023

3-2-1 28473.71 11.45 0.068 8235.75 3.72 0.018
4-2-1 16531.10 8.87 0.039 10578.32 4.11 0.023
5-2-1 16211.88 9.70 0.038 11842.94 4.14 0.026
6-1-1 24292.66 17.34 0.058 9688.92 3.88 0.021
7-2-1 22574.47 15.44 0.054 7412.12 3.40 0.016
8-1-1 27603.08 21.07 0.065 8181.41 3.44 0.018
2-3-2 11482.83 7.26 0.026 8982.47 3.97 0.020
3-1-2 33268.98 18.51 0.081 6592.16 4.32 0.015
4-1-2 45808.06 31.98 0.115 8160.88 4.60 0.018
5-2-2 20697.03 8.04 0.049 6386.23 4.22 0.014
6-1-2 64520.22 46.03 0.164 9781.20 4.11 0.022
7-2-2 13863.27 8.78 0.032 7423.22 4.12 0.017
8-2-2 18417.48 8.92 0.044 9308.34 3.69 0.021

obtains very similar results to those provided by one-
step-ahead forecasting when data have been pre-
processed. It can therefore be said that expanding the
forecast horizon did not lead to a noticeable decrease in
the models performance.
5. Conclusions
This paper has presented an introduction to the
theoretical principles of ANN and a step-by-step
methodology to design a neural network for tourism
time series forecasting.
ANN can be considered flexible, non-linear, all-
purpose statistical tools, capable of learning the complex
relations that occur in the social processes associated
with tourism. This technology presents a series of
advantages compared to classic statistical models. On
one hand, ANN do not depend on meeting statistical
conditions such as the type of relation between variables
or the type of data distribution, for example. On the
other hand, as universal function approximators, they
are capable of fitting both linear and non-linear
functions without the need to know the form of the
underlying function a priori. Thus, in the field of
tourism forecasting ANN have presented a better fit in
comparison to classic statistical models such as the
multiple linear regression model (Burger et al., 2001;
Law, 1998, 2000a, b; Law & Au, 1999; Pattie & Snyder,
1996; Uysal & El Roubi, 1999), ARIMA models (Burger
et al., 2001; Cho, 2003; Law, 2000a; Law & Au, 1999;
Pattie & Snyder, 1996) and the single exponential
smoothing model (Burger et al., 2001; Cho, 2003; Law,
2000b; Law & Au, 1999; Pattie & Snyder, 1996).
As for their limitations and the criticisms levelled
against them, ANN lack a theoretical background and a
systematic procedure for model building, in contrast to
classic approximations such as the Box–Jenkins meth-
odology (Box & Jenkins, 1976). As a consequence, the
model building stage involves the experimental selection
of a large number of parameters through trial and error.
The use of classic statistical procedures to determine the
parameters of a neural network in forecasting time series
can help overcome this limitation. Thus, Hansen et al.
(1999) suggest using time series methods based on
interpreting correlograms and periodograms to deter-
mine the number of lagged terms that will serve as input
variables in the neural network. The field of statistics
and numerical analysis has generated a set of non-linear
optimisation algorithms (Bertsekas & Tsitsiklis, 1996)
which estimates the weights of the neural network more
quickly and efficiently than back propagation algorithm
without the need to use parameters such as the learning
rate and the momentum factor. Furthermore, a
systematic methodology and a series of practical rules
that together guarantee obtaining a network model
fitted to reality have been provided throughout this
paper. Nevertheless, the most criticised aspect of
applying ANN is the study of the effect or significance
of the input variables on an MLP network, as the values
of the parameters obtained by the network do not have
a practical interpretation, in contrast to classical
statistical models. As a result, ANN have been presented
to users as a kind of ‘black box’ on the basis of which it
is not possible to analyse the role played by each input
variable in the forecasting carried out. In recent years,
various methods to interpret learning by an MLP
network have been proposed (Montaño & Palmer,
2003). Most of these procedures fall under the generic
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788 A. Palmer et al. / Tourism Management 27 (2006) 781–790
name of sensitivity analysis and have been applied in a
wide range of fields of knowledge. In the tourism field,
Tsaur et al. (2002) applied sensitivity analysis to an
MLP network to establish a ranking of importance of
the different service attributes used in forecasting guest
loyalty to international tourist hotels.
The time series corresponding to tourism expenditure
in the Balearic Islands used in this paper has been
relevant in illustrating the application of ANN to
tourism forecasting, as it meets a twofold prerequisite.
From the applied point of view, the Balearic Islands is
one of the most relevant destinations in the international
tourism field. From the methodological point of view,
this time series is representative of the time series set
given in the field of tourism because it has both linear
trend as well as seasonality. Thus, tourism is undoubt-
edly one of the activities with the highest growth rate in
recent decades (Palmer & Riera, 2003). This is reflected
in the ascending linear trend which is easily observable
in most of the tourism time series which habitually
measure tourism demand or tourism expenditure in a
determined destination (Burger et al., 2001; Law, 1998,
2000a, b; Law & Au, 1999; Uysal & El Roubi, 1999;
Wang, 2004). As for seasonality, it is an inherent
characteristic of the tourism industry and is present in
many international tourism destinations (Burger et al.,
2001; Cho, 2003; Pattie & Snyder, 1996; Uysal & El
Roubi, 1999).
As for the results obtained in our research, in the first
place it has been shown that MLP networks provide
more accurate forecasts when the time series involved
has been detrended and deseasonalised. A review of the
literature shows that authors do not agree on the need to
eliminate deterministic components in the time series
when ANN are applied. Thus, some authors suggest
that neural networks can effectively fit linear trend and
seasonality on the basis of their capacity to model any
arbitrary function (Franses & Draisma, 1995; Gorr,
1994; Kang, 1991; Marseguerra, Minoggio, Rossi & Zio,
1992; Tang, Almeida & Fishwick, 1991). Other authors
maintain that despite being universal function approx-
imators, neural networks can benefit by the prior
elimination of trend and seasonality on the assumption
that the model can thus focus on learning more complex
behaviours (Chakraborty, Mehrotra, Mohan & Ranka,
1992; Jurik, 1992; Kolarik & Rudorfer, 1994; Nelson,
Hill, Remus & O’Connor, 1999; Pattie & Snyder, 1996).
Our results seem to support this last group of
researchers. One possible explanation of our findings is
that adequate modelling of a time series with trend and
seasonality requires the use of an MLP network with a
large number of hidden neurons. Taking into account
that the amount of data available in the tourism field is
normally very limited, a network model with too many
parameters will most probably cause overfitting. The
most effective solution consists of previously eliminating
the deterministic components of the time series and
fitting a simple MLP network that concentrates on
learning the non-deterministic or chaotic components of
the data.
In the second place, it has been shown that expanding
the forecast horizon does not lead to a noticeable
decrease in the forecasting accuracy of the MLP
networks when data have been duly preprocessed. This
result suggests that ANN can be of great use in those
cases in which carrying out long-term forecasting is
desired and coincides with the results obtained by Pattie
and Snyder (1996) and Burger et al. (2001) in long-term
forecasting of demand in several tourism destinations.
Lastly, it has been shown that the MLP network
selected in the validation stage provides highly accurate
forecasting with test data. The 3.44% MAPE value
obtained through this architecture is comparable to
those obtained by MLP networks designed in the field
of tourism forecasting by Pattie and Snyder (1996)
(2.69%), Law (1998) (3.10%), Uysal and El Roubi
(1999) (3.23%), Law (2000a) (2.76%), Law (2000b)
(7.17%) and Burger et al. (2001) (5.07%).
This set of results indicates that ANN are effective
and flexible instruments for researchers interested in
forecasting the behaviours which occur in the field of
tourism. This paper offers a series of contributions to
knowledge in the field of tourism research. In the first
place, no didactic explanations exist in available
literature on how to apply a neural network model to
the field of tourism research, as opposed to other
statistical models such as structural equation modelling
(Reisinger & Turner, 1999), cluster analysis (Jurowski &
Reich, 2000), logistic regression analysis (Mitchell, 2001)
or time series analysis (Lim & McAleer, 2002). This
paper offers a practical guide that makes good use of
the RNA possible. In the second place, the study
proves that the use of preprocessed data substantially
improves the RNA’s performance compared to the use
of raw data, measured by different numerical indices.
In general, there are no indications that this work
procedure has been used in the field of tourism. In the
third place, it has been demonstrated that RNA’s
forecasting accuracy does not decrease when the
forecasting horizon is increased from a one to a two
step-ahead forecast.
Future lines of research should be aimed at over-
coming the two limitations involved in ANN that have
been mentioned, i.e., the selection of MLP network
parameters and the study of the effect or significance of
the input variables on the forecast carried out. This
paper indicates some possible directions to be taken. It is
also necessary to apply ANN to other tourism databases
to ascertain the degree of generalisation of the results
obtained in this paper. Lastly, a comparison in terms of
forecasting accuracy between ANN and classic statis-
tical models will permit ascertaining the conditions in
 ARTICLE IN PRESS
A. Palmer et al. / Tourism Management 27 (2006) 781–790
which using ANN in forecasting tourism data is
preferable.
Acknowledgements
This research was partially supported by Grant
BSO2001-0369 from the Ministry of Science and
Technology, Spain. We also wish to thank the anon-
ymous reviewers and the editor for their helpful
comments and suggestions.
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