Have you ever priced the rain? Unravelling how the weather forecasts affect prices in the hospitality industry

Abstract

This paper investigates how changes in weather forecasts affect prices of firms operating in hospitality, a sector heavily dependent on natural and meteorological conditions. Empirically, the study examines how the prices posted by 1300 hotels in seven destinations of the Mediterranean area (six in Italy, one in France), monitored daily in May-October 2019, are linked to changes in the weather conditions expected during the stay. We assess any difference between destinations, studying the role played by different accessibility regimes, demand segmentation, and meteorological events. We show that weather forecasts and their sudden changes affect the hotels’ pricing strategy, especially in seaside areas hosting leisure tourists. The impact is found to be stronger outside the peak summer season, when agents rely more on forecasts because of the weather’s higher uncertainty. Our work has implications for the vulnerability of destinations to the increased variability of climate conditions projected by future climate scenarios.