Friday, March 03, 2006

Time to pack your bags

Yesterday, we had some excellent holiday packages circulated by our nternal communications department through email. Largely India, there were some great deals on visits to Manali, Shimla, Shirdi, Kerala, Kumaon etc. I liked the Goan package :-)

The hotels and tour operators were offering a drop-down of upto 20% on all charges which was rather enticing. This made me wonder ... if at any given time, there are people in a hotel who stay at full price and also those how donot pay as much (i.e. they have a discount of 20% or even 30%) ... how in the world, does the hotel arrive at the logics to determine the number of rooms, it wants to keep at a discounted rate.

I found this a very interesting and logical exercise.

Some things to ponder on -
1. When the hotel rents the room at a price below the 'card price' then the hotel is at a risk of losing potential revenue on account of -
a) it's possible that the customer would have paid the card rate, as he desperately needs a room
b) demand for that day might have been more than the supply, and all rooms could have been occupied at the card rate, or
c) if the hotel over estimates the number of people who would rent at a lower rate

2. The second aspect of the problem is : how much should be the card rate at the hotel? It's truly possible that the current 'card rate' might actually be a perceivably discounted rate for the customer. What is the deemed logic for arriving at the 'card rate'?


Anonymous Anonymous said...

Hello Shankar,
Nice post and good stuff to ponder wonder 'Supply Chain' is the new buzz word...
anyways was reading something similar today morning, i.e airline tickets....

if you care its an interesting read...


12:45 AM  
Blogger Shankar said...

It seems a problem of 'operational research' to arrive at the correct numbers of discounted room rents and full-fare room rents. So the fomula should be something like [maximize R = a1*b1 + a2*b2]
R = total room revenue, a1 = card rate, b1 = no. of card-rate rooms, a2 = discounted rate, b2 = no. of discounted-rate rooms.

These algorithms should also factor in a number of other variables such as traffic in that part of the year from all historical trends, over-booking of rooms (a number of hotels, like airlines tend to overbook the number of rooms on the pretext of cancellations or visitor non-presence) etc.

- Shankar

2:21 PM  

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