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Stanislav Ivanov
Dynamic overbooking limits for guaranteed and
nonguaranteed hotel reservations
Stanislav Ivanov
ABSTRACT:
Tourism Today - Fall 2007 - Full Paper
stanislav_h_ivanov@yahoo.com
The research note addresses the problem of dynamic overbooking limits in the context of
guaranteed and nonguaranteed bookings. The note shows how the optimal number of
overbookings will change when the hotel receives a request for a specific date given the
current guaranteed/nonguaranteed reservations ratio for the same date.
Key words: hotel management, overbookings, yield and revenue management
Acknowledgements: The author would like to thank the two anonymous referees for their
useful comments.
INTRODUCTION
Overbooking is a well-known and widely used practice in the hotel industry. Its goal is to
maximise room revenue by confirming more rooms than the available capacity of the property.
From a theoretical perspective it has been usually analysed in the context of yield and revenue
management (e.g. Jain and Bowman, 2005; Lee-Ross and Johns, 1997; Netessine and Shumsky,
2002; Sanchez and Satir, 2005; Ivanov, 2006). Most of the research has focused so far on
calculating a static optimal overbooking level (for econometric modelling of static overbooking
limits for accommodation establishments see Netessine and Shumsky, 2002; Ivanov, 2006).
It has been argued that a hotel can afford to overbook until the marginal revenues from the
overbookings exceed the marginal costs associated with them (Netessine and Shumsky, 2002).
Albeit their merits, overbookings are not without their shortfalls. Wirtz et al (2002:18)
emphasize that overbookings and other inventory control revenue management practices could
cause perceived unfairness or perceived lack of customer appreciation by clients. In order to
avoid the large financial costs, missed revenues and negative word-of-mouth associated with
overbookings, hotel companies should collect detailed information on no-shows, cancellations,
and last minute amendments (Kimes and McGuire, 2001:11).
Although much research has focused on overbookings, the problem of dynamic overbooking
limits has not received much attention. In our research note we address the problem by posing