Revenue Management Of Hotels Under Cooperation With Online Travel Agencies

As the rapid development of tourism e-commerce, online travel agencies (OTAs) play a crucial role in the distribution system of hotels. Hotels establish cooperation relationship with OTAs to widen market shares and enhance market competitiveness. However, the similar customer source, control over room rate of hotels and OTAs lead to the conflicts of distributions channel to the hotels. Therefore, OTAs bring an opportunity of development as well as great challenges to hotels. This paper investigates the revenue management of hotels in the context of cooperation with OTAs.This paper studies hotel revenue management from the perspective of room allocation and hotel overbooking strategy in the context of cooperation with OTAs.The first part investigates how the hotel allocates rooms between its own distribution channel and OTAs. When cooperating with OTAs to operate online marketing channels, hotels are required to pay high commission fees to OTAs, or get a wholesale room rate lower than their selling price. Thus, to maximize their revenues, hotels optimize their room allocation for their cooperative OTAs. There are two ways for customers ordering rooms through OTA:one is to book room directly, another is to buy travel packages which hotel rooms are included. Chapter 3 proposes a new method to manage such room allocation between hotel’s marketing channel and OTA when the OTA sells hotel rooms directly. Chapter 4 investigates the optimal bidding strategy of the OTA when it cooperates with the hotel in travel package marketing, and analyzes the optimal amount of rooms allocated to the OTA’s travel packages in centralized scenario, decentralized scenario, information asymmetric scenario and one OTA to multi-hotels scenario.The second part investigates hotel overbooking strategy under cooperation with OTAs. In the hotel industry, some customers who have reserved rooms may cancel their reservations very late, or give up their trip or change schedule and fail to show up at the target date without notifications. As hotel rooms are perishable and cannot be reflected in inventory for future use as tangible products, unoccupied rooms cannot generate any revenue for hoteliers. Therefore, overbooking strategy is widely applied by hoteliers to improve room occupancy rate. Chapter 5 studies the optimal pricing and overbooking strategies of a hotel under cooperation with multiple competing OTAs, and analyzes how they influence the cooperation process. However, once overbooking strategy is adopted, the number of arrivals may exceed their room capacity and hotels have to deny some customers on the target date. Hence, Chapter 6 analyzes overbooking strategy of the hotel from the perspective of over sale, i.e., by analyzing its service level and the probability of customer denying.Based on the studies referred above, the innovation of this paper can be concluded as follows.First, Chapter 2 proposes a new method to allocate hotel rooms between hotel’s distribution channel and OTAs. It assumes that customers can make reservations directly through the hotel or indirectly through the OTA at the beginning of the selling period. The hotel then forecasts future demand based on distribution information after receiving enough room bookings, and optimizes room allocation with respect to its maximum revenue by determining whether on-hand rooms are available for the OTA. Besides, an update process is proposed for hotels to adjust their decisions and obtain more accurate decisions. The method proposed in this paper is simple and easy to operate for hotel managers. It is proved that this method is conducive to revenue improvement of hotels.Second, a modified merchant model is applied to describe the cooperation process between the OTA and hotel in the section where the hotel cooperates with the OTA in travel package marketing. In the traditional merchant model, the hotel is assumed as the leader of Stackelberg game to determine the wholesale room rate. However, as the rapid development of tourism e-commerce, the bargaining power of OTAs becomes stronger in the cooperating process with hotels, especially for small-scale hotels. Therefore, the OTA is assumed as the leader in Chapter 4, and it acts first to bid the wholesale room rate, then the hotel determines the number of rooms allocated to OTA’s travel packages according to the wholesale room rate. This modified merchant model is more suitable than the traditional one in the cooperation problem where OTAs have stronger bargaining power and hotels are relatively weaker. The present paper also analyzes the influence of OTA’s travel packages on the customer source of the hotel.Third, hotels cooperate with OTAs to consolidate online market and improve market shares; while adopt overbooking strategy to hedge against late cancellations and no-shows. In this paper, Chapter 5 combines the two themes together, and studies hotel pricing and overbooking strategies under cooperation with multiple competing OTAs. Furthermore, this paper analyzes how hotel pricing and overbooking strategies influence the cooperation process between the hotel and OTAs.Fourth, most of the past studies on hotel overbooking strategy emphasize that overbooking strategy is able to improve room occupancy rate, and aim at setting an optimal overbooking level for hoteliers. Chapter 6 first deeply probes hotel overbooking strategy by exploring the adverse consequences of overbooking. To be specific, this paper works out service levels of the hotel and the probabilities of denied service under different levels of monetary compensation. Therefore, the hotel is able to adjust its overbooking strategy in turn according to its service level. In addition, from the customers’perspective, this paper probes into the generation of overbooking strategy and provides suggestion on room reservation by analyzing the possibility of denied service.