Proactive Walking and Overbooking With Class Dependent Walk-Out Costs

Abstract

The increasing uncertainty in travel has resulted in elevated cancelation and no-show rates across many aspects of travel, elevating the importance of overbooking practices. Overbooking helps address travel uncertainty by accepting reservations beyond available rooms but may result in walk or re-accommodation costs if all (most) of these reservations materialize. Walk costs are not homogeneous across all customer types, with costs potentially different for loyal (branded, direct) versus non/less-loyal (third-party-intermediated) guests. We formulate an optimal overbooking model with class-dependent walk-out costs for a hotel with two classes of reservations—loyal members with higher walk-out costs, and nonmembers with lower walk-out costs, but with each class at the same room rate. We embed a dynamic walk-out model, one where guests may be proactively walked, that is, walked while rooms still available, into an overbooking model. The joint model determines optimal walk-out decisions to minimize expected walk-out costs while also determining optimal overbooking levels. We investigate how class-dependent no-show rates and walk-out costs impact optimal walk-out decisions and optimal overbooking levels. We find that changes in the no-show rates for a customer class only impact the overbooking levels of the related class whereas changes in class-specific walk-out costs impact all customer class overbooking levels. We offer managerial insight into a proactive and strategic walk-out policy for the lodging industry, aiming to achieve optimal overbooking levels.