M3Link Assignment: Overbooking example

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M3Link Assignment: Overbooking

A regional Revenue Manager for three Courtyard hotels has been informed about a client’s request for reservation of three rooms in one of the Courtyard hotels for Monday, April 15, 2013. However, all of Courtyard hotels are sold out on that night, and this paper seeks to calculate and overbooking ration for Courtyard hotels and to conduct a no-show analysis to make a decision about accepting a reservation.

1. Overbooking Ratio

According to the case study, the average daily rate (ADR) for Courtyard hotels on April 15, 2013 was $129.00, the variable cost was $30, and the cost to walk a guest to another property was $269.00. Thus, the cost of an empty room amounted:

Cost of an empty room = $129.00 (ADR) – $30 (Variable Cost) = $99.00

In order to calculate an overbooking ratio, the following formula should be used:

Cost to walk

=

269.00

= 0.73

Cost to walk + Cost of an empty room

269.00 + 99.00

2. The Distribution of No-Shows

a. Collecting No-Shows Data

#

Day

No-Show daily total

1

April 8, 2013

1

2

April 1, 2013

0

3

March 25, 2013

1

4

March 18, 2013

3

5

March 11, 2013

4

6

March 4, 2013

0

7

February 25, 2013

2

8

February 18, 2013

1

9

February 11, 2013

1

10

February 4, 2013

2

Source: (Adapted from: M3Link, 2016)

b. Occurrences of No-shows and Respective Rates

# No-shows

Occurrences

Rate

0

2

0.2

1

4

0.4

2

2

0.2

3

1

0.1

4

1

0.1

5

0

0

6

0

0

7

0

0

Total

10

1

Source: (Adapted from: M3Link, 2016)

c. Finding Cumulative Probabilities

# No-shows

Calculation of Cumulative Rate

Cum. Rate

0 or more

0.2+0.4+0.2+0.1+0.1+0+0+0

1.0

1 or more

0.4+0.2+0.1+0.1+0+0+0

0.8

2 or more

0.2+0.1+0.1+0+0+0

0.4

3 or more

0.1+0.1+0+0+0

0.2

4 or more

0.1+0+0+0

0.1

5 or more

0+0+0

0

6 or more

0+0

0

7 or more

0

0

Source: (Adapted from: M3Link, 2016)

d. Recommended Overbooking Ratio

Decision: The cumulative probability amounts 1 no-show (according to table 2c), because cumulative rate is 0.8, which is larger than overbooking ratio (0.73). Thus, the request for reservation of three rooms on April 15, 2013 should be rejected.

3. Overbooking Policy

All overbookings of more than 1 (one) room in any of Courtyard hotels shall be rejected because of high overbooking ratio.

References:

M3Link (2016). Daily Flash Report Analysis (Variance %). Retrieved from: …

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