Decision Sciences Journal
Volume 30, Number 1
Winter 1999
A Comparative Revenue Analysis of Hotel Yield Management
Heuristics
Timothy Kevin Baker
Bass Hotels and Resorts, Inc., Three Ravinia Drive, Suite 2900,
Atlanta, GA 30346-2149, email: baker.tim@hiw.com
David A. Collier
The Ohio State University, 2100 Neil Ave., Columbus, OH 43210-1144,
email: collier.4@osu.edu
Abstract. Yield management is the dynamic pricing,
overbooking, and allocation of perishable assets across market
segments in an effort to maximize short-term revenues for the
firm. Numerous optimization heuristics for allocation and overbooking
exist for the airline industry, whose perishable asset is the
airplane seat. When an airplane departs, no revenue is gained
from the empty seat(s). In the hotel industry, the perishable
asset is the hotel room—once a room is left empty for a
night, that night’s revenue cannot be recaptured. The literature
on yield management heuristics for the hotel industry is sparse.
For the hotel operating environment, no research has adequately
(1) integrated overbooking with allocation, (2) modeled the phenomenon
of hotel patrons extending or contracting their stay at a moment’s
notice, or (3) performed a realistic performance comparison of
alternative heuristics.
This research develops (1) two hotel-specific algorithms that
both integrate overbooking with the allocation decisions, (2)
a simulation model to reproduce realistic hotel operating environments,
and (3) compares the performance of five heuristics under 36
realistic hotel operating environments. Seven conclusions are
reached with regard to which heuristic(s) perform best in specific
operating environments. Generally, heuristic selection is very
much dependent on the hotel operating environment. A counterintuitive
result is that in many operating environments, the simpler heuristics
work as well as the more complex ones.
Subject Areas: Heuristics, Service Operations, and
Simulation. |