EasyBeds is a hotel chain operating in Europe and recently expanded into the Asian market. The last two years it operates a small- capacity hotel in Shanghai. The strategy of the business is to provide customers with int’l service standards but at a significantly low cost base. As a result, their competitors are 5* hotels, but the level of their prices are just above 2 to 3* hotels. To manage that they offer their clients only basic services. In addition, their client mix includes both int’l leisure and business travelers. The purpose of the business is to unveil untapped profit opportunities in the Asian markets. Bill has been recently hired by EasyBeds and his mission is to investigate these opportunities and present them to the Board of Directors at company’s headquarters in London. To do so, he decided to examine closely the situation regarding the hotel in Shanghai, as the company plans to build there a second hotel. B.
Quarterly data provided by the booking system shows that although the hotel was fully booked approx. 50% of each quarter days, it was never actually fully occupied. Apparently, there are a number of customers who book the room but do not show up. Bill thought that by matching demand and supply levels, the hotel could maximize its profits. He thought the overbooking concept adapted by the airlines industry, as a tool to achieve the goal of profit maximization. He has to analyze the potential implications of the employment of such a strategy and finally determine an optimal overbooking level which would led to max profits.
Part II: Modelling Overbooking
Karl believes that profit maximization can be achieved if the actual number of shown up customers equals the hotel capacity. He proposes that the formula which returns the number of customers who actually show up is given by the product of booking level times the average percentage of showing up costumers. That number should equal hotel capacity. Therefore, the...
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