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Weekly UpdatesSecond, planning for walking guests should start no later than the traditional 11:00 AM checkout time, when the number of unexpected stayovers and early departures is known. It goes without saying that the hotel should do everything in its power to placate guests who are thus inconvenienced. In all cases, it is best to ask for volunteers, just as the airlines are doing by way of auctions.
Third, guests should be told of cancellation deadlines and no-show penalties when they confirm their reservation. MasterCard suggests that hotels get the cardholder's address as proof that a reservation was made, while Visa suggests that the hotel get the guest's telephone number for the same purpose. The wisdom of such actions is shown by the 1998 estimate that the hotel industry incurred $13.5 million in charge-backs for no-show penalties, 80 percent of which were settled in favor of guests. (24) It is not surprising that some hotels are now sending credit-card authorization forms to guests for their signature to confirm reservations.
In closing, all the rooms managers whom we interviewed are experienced and energetic people who work long hours and appear to enjoy their work. When we asked in various ways whether computers could replace them, they all indicated that it would not be possible, because there are too many eventualities that cannot be anticipated or programmed. We agree with their assessment. Even when guided by proprietary company-wide room-management applications, all the rooms managers were constantly obliged to override the computer, based on circumstances and guided by their personal expertise. Helpful as mathematical models may be, no overbooking model, however sophisticated, can supplant good judgment based on accumulated experience.
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(1.) Respondents had various titles, but all were responsible for managing the hotel's rooms division.
(2.) In most states holdovers have squatter's rights, but in Hawaii they are considered trespassers and can be evicted.
(3.) Americans spend about $40 billion on more than one million meetings a year involving 79 million people (see: Meetings and Conventions, August 2002). By comparison, in 2002 hotels had total revenues of about $107 billion (data from the Hotel Operating Statistics database).
(4.) Lawrence R. Weatherford and Samuel E. Bodily, "A Taxonomy and Research Overview of Perishable Asset Revenue Management: Yield Management, Overbooking, and Pricing," Operations Research, September-October 1992, pp. 831-844.
(5.) As claimed by: S.P. Ladany, "Optimal Marker Segmentation of Hotel Rooms--The Non-Linear Case," Omega International Journal of Managerial Science, Vol. 24, No. 1 (1996), pp. 29-36.
(6.) Fred Williams, "Decision Theory and the Innkeeper: An Approach for Setting Hotel Reservation Policy," Interfaces, Vol. 7 (August 1977).
(7.) Yuri Arenberg, "Reservations and Overbooking," Eastern Economic Journal, January-March 1991, pp. 100-108.
(8.) Carolyn U. Lambert, Joseph M. Lambert, and Thomas P. Cullen, "The Overbooking Question: A Simulation," Cornell Hotel and Restaurant Administration Quarterly, Vol. 30, No. 2 (August 1989), pp. 15-20.
(9.) For a discussion of the multiplier effect of hotel rooms on a hotel's other services, see Sheryl E. Kimes, "The Basics of Yield Management," Cornell Hotel and Restaurant Administration Quarterly, Vol. 30, No. 3 (November 1989), pp. 14-17.
(10.) Apart from one Florida regulation, there is no statutory or administrative law outlawing hotel overbooking. The U.S. Supreme Court has also declined to outlaw the practice of overbooking. See: Rodney E. Gould, Thomas J. Ramsey, and John E. Sherry, "The Hotelkeeper's Contract and the International Traveler," Cornell Hotel and Restaurant Administration Quarterly, Vol. 20, No. 4 (February 1980), pp. 67-74; and Rex S. Toh, "Coping with No-shows, Late Cancellations, and Oversales: American Hotels Out-do the Airlines," International Journal of Hospitality Management, Vol. 5, No. 3 (1986), pp. 121-125.
(11.) For references to articles on yield management, we refer you to the bibliographies in three recent publications: George C. Hadjinicola and Chryso Panayi, "The Overbooking Problem in Hotels with Multiple Tour Operators," International Journal of Operations & Product Management, Vol. 17. No. 9 (1997), pp. 874-885; Y. Feng and B. Xiao, "Revenue Management with Two Market Segments and Reserved Capacity for Prior Customers," Advanced Applied Probability, Vol. 32 (2002), pp. 800-823; and Ralph D. Badinelli, "An Optimal, Dynamic Policy for Hotel Yield Management, European Journal of Operational Research, Vol. 12 (1998), pp. 476-503.
(12.) See: Rex S. Toh, "Airline Overbooking Model for Terminator Flights," International Journal of Transport Economics and Policy, December 1975, pp. 241-250; and Rex S. Toh, "Airline Revenue Yield Protection: Joint Reservation Control Over Full and Discounted Fare Sales," Transportation Journal, Vol. 19, No. 2 1979), pp. 74-80.
(13.) See: Steven J. Belmonte, "Better Reservation Management Can Boost Profits," Executive Forum, H&MM, April 6, 1992, pp. 38-40.
(14.) For a full discussion as to how an airline determines the appropriate customer-service level, see Rex S. Toh (1975), op. cit.
(15.) A Bernoulli problem involves a situation that has only two possible mutually exclusive, complementary outcomes, such as the guest shows up or does not do so.
(16.) The Central Limit Theorem holds that, provided the sample is of sufficient size, the distribution of the means of every conceivable sample combination will be approximately normal. The distribution of the proportion of no-shows is strictly binomial, but when the sample size is sufficiently large so that both np arid nq are equal to or greater than 5, then the normal distribution is a good approximation. For an explanation of all the statistical techniques used, see: Rex S. Toh and Michael Y. Hu, Basic Business Statistics: An Intuitive Approach (St. Paul: West Publishing Co., 1991), chapters 5, 9, and 10.
(17.) We acknowledge that no-show, early departure, and unexpected-stayover rates may be different among customer segments, between groups and individuals, on different days of the week and among seasons, and may even change over time. But it would be immensely difficult to accommodate all possible variations. Thus, we are obliged to deal with aggregates. Fortunately, another researcher discovered that while rates may be different by day of the week, the variation is small. See: Williams, p. 20.
(18.) Strictly speaking, the working inventory of rooms depends on the number of stayovers, which differs for each day, and the holdover rate.
(19.) See: Toh (1979), op. cit.
(20.) This overbooking model was used by Singapore Airlines in the mid-1970s to set authorized booking levels on single-sector flights. See: Toh (1975), op. cit.
(21.) See: Gould, Ramsey, and Sherry, op. cit.
(22.) All six of the rooms managers whom we interviewed had worked with several other hotels in the past, and all have wide experience within the industry. Anecdotally, we noticed a high turnover rate among those in the profession, as the best rooms managers are repeatedly lured away by bigger hotels.
(23.) See: C. Smith, J.F. Leimkuhler, and R.M. Darrow, "Yield Management at American Airlines," Interfaces, Vol. 22 (1992), pp. 8-31.
(24.) See: Kathy Seal, "Hotels, Credit-card Companies Debate Discretionary Billing," Hotel and Motel Management, Vol. 214, No. 9 (1999), pp. 1, 13b.
Rex S. Toh, Ph.D., is a professor at Albers School of Business and Economic at Seattle University (rextoh@seattleu.edu), where Frederick DeKay, Ph.D., is an associate professor (dekay@seattleu.edu).
[c] 2002, Cornell University; refereed article: submitted on April 28, 2002; evisions requested on June 5 and accepted with minor revisions on July
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