Tourism & Hospitality Industry 2018, Congress Proceedings, pp. 273-285 K. Mihalinčić, I. Mrša Haber: ANALYSIS AND FORECAST OF CROATIAN TOURISM DEMAND ... 273 ANALYSIS AND FORECAST OF CROATIAN TOURISM DEMAND SEASONALITY Krešo Mihalinčić Iva Mrša Haber Abstract Purpose – Investigate the issue of seasonality of Croatian tourism demand. Design – We have established the seasonality of Croatian tourism as a whole by measuring monthly overnight stays (“overnights”) using advanced automated as well as original methods. We also investigated land vs. coast contributions to Croatian hospitality industry. Methodology – Seasonal ARIMA (SARIMA) was utilized to analyze above data and forecast future demand in terms of the “overnights” time series. Approach – Having proven the standard SARIMA automated methods deficient, we developed an alternative approach and proved its reliability by a comparison to actual data. Findings – The smoothing nature of ARIMA forecasting algorithm leads to a mitigation of seasonal effects in its forecast. Therefore, an alternative approach is called for. Originality of the research – Due to the apparent shortcomings of ARIMA forecasting we developed an alternative model that pays due attention to the strong seasonal effects of tourism demand common to Mediterranean countries. Nonetheless, we anchored our approach in some existing concepts (e.g. random walk). Still, our concept of “tiers” that mimic standard quarters but preserve the information on crucial differences between peak and shoulder months is, for all our research, original. Our results demonstrate clearly that we have found a fine balance between automated methods and expert judgment. Keywords tourism, demand, Croatia, ARIMA modeling, seasonality, forecasting 1. INTRODUCTION Croatian tourism dates back to the mid-19th century. Croatian coast has since been one of the most visited tourist destinations on the Mediterranean. After the war years of 1991 to 1995 more attention has been paid to the development of continental tourism. Nonetheless, coastal tourism remains the main driver of Croatian tourism and Croatian economy as a whole. The total contribution of travel and tourism to Croatian GDP in 2016 was 24.7% and their total contribution to employment was 23.4%, according to Travel and Tourism Economic Impact – Croatia, 2017 (WTTC, 2017). Now, this dependence on the coastal tourism comes at a price of high seasonal effects. Butler (Butler, 2014) defines seasonality as a “temporal imbalance in the phenomenon of tourism, which may be expressed in terms of dimensions of such elements as numbers of visitors, expenditure of visitors, traffic on highways and other forms of transportation, employment, and admissions to attractions”. They emphasize a great economic importance of measuring seasonality; in particular: “The tourism industry – more specifically hotels – has a strong desire for seasonal extension. The main reason is overcapacity outside the peak season.”