A NEW APPROACH FOR HOTEL ROOM REVENUE MAXIMIZATION USING ADVANCED FORECASTING AND OPTIMIZATION METHODS Neamat El Gayar,

Athanasius Zakhary, Heba Abdel Aziz, Mohamed Saleh Faculty of Com uters and !nformation, Cairo "ni#ersity Giza, E$y t n%el$ayar&fci'cu%edu%e$ , athanasius%it&$mail%com , heba%ds&$mail%com , saleh&salehsite%info Amir Atiya Faculty of En$ineerin$, Cairo "ni#ersity Giza, E$y t amir&alumni%caltech%edu Hisham El Shishiny !(M Center for Ad#anced Studies in Cairo !(M Cairo )echnolo$y *e#elo ment Center Giza, E$y t shishiny&e$%ibm%com ABSTRACT !n this a er a ne+ hotel re#enue mana$ement model is ro osed to ro#ide hotel mana$ers +ith a fle,ible and efficient decision su ort tool for room re#enue ma,imization% )he ro osed system is com osed of an ad#anced room demand forecast model and an o timization model that takes $rou reser#ations into account% )he system also allo+s for e, ert inter#ention to u date system arameters and out uts in order to inte$rate domain kno+led$e +ith com uter models% A case study based on three different sets of reser#ation records of simulated hotel data demonstrated the #iability of the system for $i#in$ useful recommendations related to acce tin$ room re-uests in order to ma,imize hotel room re#enue% .ey /ords0 1e#enue Mana$ement System, Hotel 1oom *emand Forecastin$, 2 timal Hotel 1oom Allocation

1. INTRODUCTION 1e#enue Mana$ement 31M4 is commonly racticed in the hotel industry to hel hotels decide on room rate and allocation% Hotel re#enue mana$ement is ercei#ed as a mana$erial tool for room re#enue ma,imization, i%e% for attem tin$ to sell each room to the customer +ho is +illin$ to ay the hi$hest rice so as to achie#e the hi$hest re#enue 3 El Gayar et al% 56674% A re#enue mana$ement system a lies basic economic rinci les to ricin$ and controllin$ rooms8 in#entory and e,ecutes t+o main functions0 Forecastin$ and o timization% )he forecastin$ system attem ts to deri#e future demand usin$ historical data and current reser#ations acti#ity ro#ided by the reser#ations system% (ased on the demand forecast and the remainin$ ca acity, the o timization function sets the a ro riate controls on the rooms8 in#entory% /ith the inte$ration of so histicated information technolo$y a roaches and their effecti#e combination +ith Machine 9earnin$, *ata Minin$, Statistics, 2r$anizational )heory and business e, erience and kno+led$e: ne+ models of Hotel 1e#enue Mana$ement Systems can be de#elo ed and used to ro#ide hotel mana$ers +ith effecti#e means to achie#e an o timal le#el of re#enue by sellin$ hotel rooms at #arious rice le#els to different cate$ories of customers 3Choi and Cho, 56664% )he use of hotel re#enue mana$ement systems is re orted to substantially increase re#enue of hotels 3Shehata, 566;4% 2n the other hand, e,istin$ 1M soft+are roducts are not based on inte$rated ad#anced com uter methods and so histicated rediction models, +hich make their results far from bein$ com rehensi#e or o timal% Further de#elo ment and enhancements in hotel 1M models is needed and is e, ected to ha#e si$nificant im act on the tourism industry%

!n this a er a ne+ 1M model is ro osed to ro#ide hotel mana$ers +ith an effecti#e tool for room re#enue ma,imization% )he ro osed 1M model is com osed of an ad#anced room demand forecast model and an o timization model that addresses $rou reser#ations% )he system also allo+s for e, ert inter#ention to u date system arameters and out uts to inte$rate domain kno+led$e +ith com uter models in order to ro#ide a fle,ible and effecti#e decision su ort tool for hotel re#enue mana$ers% )he a er is or$anized as follo+s0 Section 5 re#ie+s research efforts conducted in the field of hotel re#enue mana$ement and outlines roblems addressed by this study% Section < ro#ides an o#er#ie+ on the function of the ro osed 1M system% Sections = and ; are de#oted to outlinin$ the details of the forecastin$ system and the o timization model ro osed in this +ork, res ecti#ely% Section > resents the results of a case study% Finally conclusion and future +ork are resented in Section ?% 2. RELATED WORK AND PROBLEMS ADRESSED *etailed and accurate forecasts are crucial to re#enue mana$ement% !naccurate redictions lead to subo timal decisions about the rate and a#ailability recommendations roduced by the re#enue mana$ement system that in turn ha#e a ne$ati#e effect on hotel re#enue% !n addition, accurate forecastin$ can also hel hotels in better staffin$, urchasin$ and bud$etin$ decisions 3/eatherford and .imes, 566<4% 1e#enue mana$ement forecastin$ methods fall into one of three ty es% Historical bookin$ models, ad#anced bookin$ models and combined models% Historical bookin$ models only consider the final number of rooms or arri#als on a articular stay ni$ht% Ad#anced bookin$ models only include the build u of reser#ations o#er time for a articular stay ni$ht% Combined models use either re$ression or a +ei$hted a#era$e of historical data and ad#anced bookin$ models to de#elo forecasts% A re#ie+ of forecastin$ methods for all three ty es is found in /eatherford and .imes, 566< and Frechtlin$, 566@% !n this study articular interest is de#oted to reser#ation data as it is #ery rich and contains #ery useful information indicatin$ the actual demand to come% A recent study that com ares se#eral #ariations of ad#anced bookin$ models is found in Zakhary et al% 5667% Generally, #ery little +ork +as ublished on room demand forecastin$% 1esearch on re#enue mana$ement forecastin$ is mainly based on the airline industry% Most ublished +ork on hotel re#enue mana$ement systems deal +ith room ricin$ and allocation% 1efer to Chian$ et al%, 566? for a recent sur#ey% !n this a er an alternati#e a roach to room demand forecast is su$$ested% )his a roach is based on modelin$ hotel arri#als from its first rinci les and relatin$ it +ith other #ariablesA arameters like reser#ations, cancellations, seasonality and simulatin$ that for+ard to obtain the forecast% 2ur ro osed method is based on analyzin$ reser#ation data and e,tractin$ information' basically distributions of arameters' from ast reser#ation to feed them in a simulator to $enerate future reser#ation% )he ro osed forecastin$ module uses both current bookin$s and historical reser#ations and arri#als to deri#e accurate forecast% )o the best of our kno+led$e, there is no ublished +ork that simulates future reser#ations and uses it for forecastin$ as the ro osed system does% !n addition, modelin$ hotel arri#als as an interrelated rocess of many other factors and roducin$ density forecast rather than oint forecast, is a no#el a roach to hotel room demand forecastin$% 2n the other hand, hotels offer the same rooms to different ty es of $uests% /hile hotel mana$ers +ould like to fill their hotels +ith hi$hly rofitable $uests as much as ossible, it is $enerally necessary to allo+ for less rofitable $uests in order to re#ent rooms from remainin$ #acant% An im ortant decision to be made is +hether to acce t a bookin$ re-uest and $enerate re#enue no+ or to reBect it in antici ation of a more rofitable bookin$ re-uest in the future 3Goldman et al%, 56654% Findin$ the ri$ht combination of $uests in the hotel such that re#enues are ma,imized is the to ic of re#enue mana$ement% 1e#enue mana$ement is therefore defined in the hotel industry as the rocess of selecti#ely acce tin$ or reBectin$ customers by rate, len$th of stay and arri#al date to ma,imize re#enue 3Cinod, 566=4: by o timally matchin$ demand to a#ailable su ly 3rooms4 to accommodate the most rofitable mi, of customers% Methods for o timal ca acity utilization ran$e from sim le rule'based heuristics to so histicated mathematical ro$rams +ith hundreds of decision #ariables% !n$old et al% briefly re#ie+ed a subset of related mathematical ro$rammin$ a roaches and mar$inal re#enue a roaches% )alluri and Can 1yzin, ro#ided a com rehensi#e treatment for the classic, e,act and heuristic a roaches to sin$le resource ca acity control% Sin$le resource ca acity control deals +ith o timally allocatin$ ca acity of a hotel room for a $i#en date at different rate classes% 2n the other hand, the roblem of mana$in$

room ca acity on consecuti#e days +hen customers stay multi le ni$hts is referred to as the net+ork control ca acity roblem% )his deals +ith a mi, of customers ha#in$ different len$ths of stay and share the ca acity on any $i#en day% )he net+ork ca acity control roblem is si$nificantly more com le, than the sin$le'resource roblem and therefore its solutions rely mainly on a ro,imations% )alluri and Can 1yzin discussed some net+ork ca acity control methods in details% !n this +ork $rou reser#ations are of articular interest% Grou reser#ations D unlike indi#iduals' are reser#ations filed by a lar$er $rou of eo le and can either be totally acce ted or totally denied% Most o timization models ro osed in the literature i$nored $rou reser#ations and assumed a re'defined robability distributions to re resent $uest arri#als 3see (rumelle and /alczak, 566< and Slyke and Eoun$, 56664% Not takin$ $rou reser#ations into account is a critical limitation to the model: as $rou reser#ations can sometimes constitute the main stream for $uests accommodated in the hotel, articularly in hotels tar$etin$ tourist attractions% 2n the other hand assumin$ a robability distribution for hotel arri#als can be a rather restricti#e constraint in the real a lication of the hotel business: as hotels arri#al characteristics can ha#e a dynamically chan$in$ and e#ol#in$ nature% )he 1M model resented in this +ork treats the shortcomin$s discussed abo#e% !n articular the method resented in this a er e,tends e,istin$ o timization techni-ues for hotel re#enue mana$ement to address $rou reser#ations and uses Fforecasted demandF arri#als $enerated from the data% More details on the forecastin$ and the o timization models +ill be ro#ided in sections = and ; res ecti#ely% 3. OVERVIEW OF THE PROPOSED REVENUE MANAGEMENT SYSTEM )he ro osed 1M model is com osed of an ad#anced room demand forecast model and an o timization model that addresses $rou reser#ations% )he system also allo+s for e, ert inter#ention to u date system arameters and out uts in order to inte$rate domain kno+led$e +ith the com uter model to ro#ide a fle,ible and effecti#e decision su ort system for re#enue mana$ement% )he system erforms the follo+in$ functions0 @% Scans and analyses historical bookin$ and occu ancy atterns and current reser#ations and fits a -uantitati#e forecastin$ model 3forecastin$ module4% 5% Gredictions are used as in uts to an o timization module to make rate and allocation decisions% <% System users D +hich are mainly the hotel re#enue mana$ers' are allo+ed to chan$e system arameters and out uts and to assess ho+ these chan$es affect the final hotel re#enue% )his can hel them in makin$ better decisions re$ardin$ ricin$ and allocation% )he ro osed forecastin$ module takes as in ut recorded reser#ation records from the hotel database% Each reser#ation record contains all the arameters that ortray a certain reser#ation like Arri#al *ate, 1eser#ation *ate, 9en$th of Stay, 1oom )y eH% )his data is then analyzed and used to e,tract many arameters and com onents like )rend, Seasonality, (ookin$ Cur#e, CancellationsH% )hese arameters and com onents are then used to $enerate for+ard reser#ation records that +ould take lace in the future% )he future $enerated reser#ation records are assed +ith all their attributes to the o timization module as an in ut% (y analyzin$ these $enerated reser#ation cases one can obtain realistic erce tions for 2ccu ancy, Arri#als, and 1e#enue in the future% )he o timization module hence determines rates and allocations accordin$ to the estimated demand% At any sta$e the re#enue mana$er can o#erride system out uts, like for e,am le the forecasted demand% )his mi$ht be necessary in order to include ne+ e#ents in the surroundin$ en#ironment% After o#erridin$ system out ut by the re#enue mana$er, the system is re'run based on the ne+ chan$es and the reser#ation system is fed +ith the modified system out ut% Fi$ure @ illustrates the relationshi bet+een the ro osed system and the hotel en#ironment includin$ the e,istin$ 1eser#ation System, 1e#enue Mana$er and the Hotel *atabase% 4. ROOM DEMAND FORECAST USING SIMULATION Forecastin$ is often considered the most critical art of re#enue mana$ement% )he -uality of re#enue mana$ement decisions, such as ricin$, ca acity control, or o#erbookin$, de ends on an accurate forecast% Chian$ et al% re orted that a 56I reduction of forecast error can translate into a @I incremental increase in re#enue $enerated from the re#enue mana$ement system% )his section resents a ne+ a roach for room

demand forecast% )his a roach is based on analyzin$ reser#ation data and e,tractin$ information' basically distributions of arameters' from ast reser#ation to feed them in a simulator to $enerate future reser#ations%

Make Reservations to Guests

Ho !" R!#!$%& 'o( A)!(

Current Reservation System

saves Reservations on DB

$istening to Updates
R!%!(*! M&(&)!$

Update Bid Price and Overbooking levels

DB

nput Parameters and Overriding Updates i! needed

"orecasted Detailed Demand#

Our Revenue Management System

Access recorded reservations

F')*$! 1 Gro osed 1e#enue Mana$ement System and its relationshi +ith the Hotel En#ironment =%@ Hotel *ata Hotels store many forms of data like arri#als, reser#ation data, folio history, occu ancy rates and more% )he definitions and a#ailability of these data may differ from one hotel to another% )here are < forms of data that are of articular interest to this study0 1. Historical arri#als0 +hich are the final numbers of $uests that arri#e in the hotel at a certain date in the ast%

2. 1eser#ation 1ecords 31140 a detailed #ersion of reser#ation data% A 11 contains all the arameters that
ortray a certain reser#ation like 3Arrival Date, Reservation Date, Length of Stay). )his data should e,ist for all the $uests that used the hotel in the ast% 1ecords must contain at least the abo#e stated three arameters ' to be useful% 2ther arameters like Cancellation Date, Customer Type, Room Type can be also useful% <% (ookin$ Matri,0 a com act #ersion of reser#ation data% !t $i#es the buildu of reser#ations for e#ery day in the ast alon$ its bookin$ horizon% )he days in the future +ill ha#e incom lete buildu s% Considerin$ all the arri#al dates in the ast in addition to those that +ill take lace in the future and uttin$ them in ascendin$ se-uence +ill $i#e the bookin$ matri,%

)he 1eser#ation 1ecords3114 form can be considered the most im ortant data format as the other t+o forms of data, stated abo#e, can be $enerated from this Fra+F data% Many other forms could be $enerated by analyzin$ the 1eser#ation 1ecords of the ast% =%5 Forecastin$ Simulator )he forecastin$ simulator consists of t+o main modules: the analysis module and the simulation module% )he analysis module takes as an in ut the historical reser#ation records% !t then analyzes this data and uses it to e,tract many arameters and com onents like 3trend, seasonality, bookin$ cur#es, cancellations dynamics and len$th of stayH4% Certain distributions can be assumed a riori or can be set by the user: 3refer to Zakhary et al, 566?4% An alternati#e a roach is to deduce the distributions and the arameter #alues from the data directly% For e#ery distribution or arameter, a suitable a roach is de#ised to estimate it% For e,am le, the seasonal inde, is estimated usin$ the multi licati#e seasonal decom osition 3Frechtlin$, 566@4, the len$th of stay and room ty e distributions are estimated usin$ a sim le fre-uency based distribution estimator%

)he effects of the a#era$e daily reser#ations 3 i days rior to arri#al4 and the trend and seasonality is estimated by assumin$ that the net reser#ation rate b(i) e-uals a normalized reser#ation rate bn(i) times a trend com onent tr(t) times a seasonal com onent s(t), +here t is the arri#al date, as follo+s0 b(i) bn(i)!tr(t)!s(t) )he reser#ation rates bn(i) are estimated by $rou in$ the reser#ation cur#es to hi$h, medium and lo+ accordin$ to their corres ondin$ seasonality inde,es, and estimatin$ a tem late for each seasonal inde,% !n summary, the com onents e,tracted by the Analysis "o#ule can be cate$orized into < classes0 Easily E,tracted Com onents0 such as (ookin$ Horizon, Arri#al )ime series and Cumulati#e (ookin$ Matri,% - "ser *efined Com onents0 such as Forecastin$ !nter#al, and A#ailable 1ooms% - !ntelli$ently e,tracted Com onents0 such as Seasonal !nde,es, )rend, *uration of Stay *istribution, Cancellation 1ate, and (ookin$ Cur#e )em lates% A detailed list of all com onents and ho+ to com ute them can be found in Zakhary et al% 566?% Fi$ure 5 de icts the o eration se-uence of the Forecastin$ Simulator%

Raw Data
Reservation Date 1 1 : Current Date Arrival Date 5 20 : Current Date +7 Length of Stay 4 5 : 2 Room Type 2 1 : 4 Price Class 1 3 : 2 Cancellation Date : ... ... ... : ...

Processed Data
Seasonality Indexes Trend oo!ing C"rve Templates Length of Stay Pro#a#ilities Price Class Pro#a#ilities Room Type Pro#a#ilities $

A n a ly s is Fed as Input

%orecasting Sim"lator

ts u tp u

Raw Data
Reservation Date 1 1 : Current Date Current Date +1 Arrival Date 5 20 : Current Date +7 Current Date +7 Length of Stay 4 5 : 2 3 : 4 Room Type 2 1 : 4 2 : 2 Price Class 1 3 : 2 3 : 1 Cancellation Date : Current Date +5 : ... ... ... : ... ... : ...

: : Current Date + Current Date + Forecasting Forecasting Interval Interval+5

F')*$! 5 2 eration Se-uence of the Forecastin$ Simulator )he Simulation Module takes the arameters and com onents estimated by the Analysis "o#ule as an in ut to $enerate for+ard reser#ation records that +ould take lace in the future% )he future $enerated reser#ations are assed +ith all their attributes to the $ptimi%ation "o#ule as an in ut% Analyzin$ these $enerated reser#ation cases: one can obtain realistic redictions for occu ancy, arri#als, and re#enue in the future% 2ne ad#anta$e of this simulation a roach is that one obtains distributions of future key arameters 3reser#ations, arri#als, etc4% )his is erformed by runnin$ the simulator many times from the current 3deterministic4 startin$ oint 3determined by the current sna shot of e,istin$ reser#ations4, thereby roducin$

many aths, each obtained by the different random com onents of the future reser#ations rocess% )his is a fa#orable and a re-uested feature for the subse-uent o timization module in the ro osed 1e#enue Mana$ement System% Fi$ure < de icts the a#era$e daily forecast for three months $enerated from the forecastin$ simulator% )he in ut data is obtained from actual historical reser#ations of Plaza Hotel1 in Ale,andria, E$y t% )he blue continuous cur#e re resents the a#era$e of @666 arri#al cur#es $enerated from the simulator out ut% )he #ariance of @666 forecasted arri#als are also lotted #ersus the actual arri#als% )able @ com ares the results of the forecastin$ simulator to classic forecastin$ techni-ues% !n articular, it com ares the o ular icku method, the e, onential smoothin$ method and the common racticed Fsame day last yearF method to the forecastin$ simulator: based on different statistical error measures 3MAE, 1MSE and SMAGE4 to forecast both arri#als and occu ancy% !t is +orth notin$ that the icku method cannot roduce forecast for the occu ancy because it does not take ad#anta$e of the len$th of stay% !t is ob#ious that the simulator forecasts out erform the other methods% )his is besides its su eriority in modelin$ the hotel arri#al intrinsically from the first rinci les, hence allo+in$ for Scenario Analysis based on control arameters and also roducin$ density forecasts rather than sim le oint forecast%
70 Simulator Forecast for t e Arriv al timeseries of !la"a #otel Actual $ccu%a&c' (imeseries )ea& Forecaste* $ccu%a&c' (imeseries + ,- 1 S(D Dev iatio& .o&fi*e&ce /a&*s

60

50 Number of Arrivals

40

30

20

10

0 0

10

20

30

40 Dates

50

60

70

80

90

F')*$! 3 A sam le out ut from the forecastin$ simulator T&+"! 1 Com arison of Arri#al )ime Series
Arrival M! ,o-.E$$o$ M!&#*$! Fo$!/&# '() S'0*"& o$ Gicku E, onential Smoothin$ Same &Day ' last (ear MAE 11.2112 @5%@;;> @7%7555 @<%5>?7 RMSE 13.1331 @=%J@J@ 5<%;775 @?%<J57 SMAPE 4.4113 6%==;< 6%?>5J 6%;6JJ Occupancy MAE 15.3665 NA <;%=;;> 56%<J@@ RMSE 21.1324 NA =5%@J<< 5>%J=67 SMAPE 4.3322 NA 6%7@;5 6%===6

Glaza Hotel, Ale,andria, E$y t is a ) stars, "i#'si%e, business as *ell as sea'si#e hotel. http+,,***.pla%aegypt.com,home.htm

3. ROOM ALLOCATION MODEL )he room allocation model uses the deterministic model described in literature 3(aker and Collier, 566<, (ertsimas et al., 566;, Goldman et al., 56654, +hich re laces demand by its estimation and obtains the o timal allocation of the rooms o#er the e, ected demand, i%e% it treats demand as if it +as deterministic and e-uals it to its e, ectation% )he deterministic model has three dimensions to define a stay in the hotel: 3a,9,k4, +here a is the first ni$ht of the stay, 9 is the len$th of the stay and k the rice class% Further, it denotes the set of stays that make use of ni$ht l by Nl, +here Nl K L3a,9,k40 a K l 0 aM9'@N% )he contribution in the +ork described in this section is mainly addin$ a forth dimension to the ori$inal model to re resent the size of a $rou 3$4 in a hotel +hile takin$ into consideration the inte$rality constraints, +hich are t+o roblems often i$nored in the literature 3(aker and Collier, 566<, (ertsimas et al%, 566;, Goldman et al%, 56654% )he follo+in$ are the arameters used in the model alon$ +ith the final form of the modified deterministic model% . a , L , - , g K )he number of rooms allocated to a stay of ty e (a,L,-,g)

Ra , L , - , g K )he re#enue obtained from a stay of ty e (a,L,-,g) # a , L , - , g K )he e, ected demand of a stay of ty e (a,L,-,g)

C l K )he ca acity 3number of rooms4 of the hotel a#ailable on ni$ht l

Ma,imize

f=
SubBect to

a , L ,- , g

a , L ,- , g

. a , L ,- , g
l

a , L , - , g /l

gP.

a , L ,- , g

Cl

. a , L ,- , g # a , L ,- , g a , L, - , g . a , L ,- , g Q a , L, - , g
)he maBor difference in this model '' beside the addition of the fourth dimension '' is the first constraint L
a , L , - , g /l

gP.

a , L ,- , g

Cl N% Here the number of rooms allocated to each ty e of stay is multi lied by its

associated $rou size% )he obBecti#e of this model is to ma,imize the total re#enue under the restriction that the total number of reser#ations for a ni$ht does not e,ceed the ca acity of the ni$ht% Moreo#er, in order to re#ent #acant rooms, the number of rooms allocated to each ty e of stay is restricted by the le#el of the demand, +hich in this model is re laced by its e, ectation% )o incor orate stochastic demand, the randomized model found in 9ai and N$, 566; is used%, i%e% +e obtain the simulator out ut a number of times: and for each the modified deterministic model for $rou s D described abo#e' is run, before and after acce tin$ any s ecific re-uest% )he out ut for the randomized model +ill be the a#era$e o ortunity cost% Hence a re-uest +ill be only acce ted if its re#enue is lar$er than 3or at least e-ual to4 the a#era$e o ortunity cost roduced by the randomized model% )o formally describe the idea of an o ortunity'cost based control, consider a re-uest for a stay (a,L,-,g), +hich arri#es at a oint in time 0t1, and its re#enue is 0r1 (for the case of $rou reser#ations4%% )his re-uest is acce ted +hen the follo+in$ condition holds0 r R fbefore ' fafter

/here fbefore is the o timal total re#enue $enerated, at time t, by the model before acce tin$ the re-uest% And fafter is the o timal total re#enue $enerated, at time t, by the model after acce tin$ the re-uest% )he only difference bet+een the o timization model before and after acce tin$ the re-uest is the ca acity #ector Cl: i%e% in the model arisin$ after a re-uest is acce ted, the ca acity #ector is subtracted by the amount of reser#ed ca acity that must be allocated% 6. A CASE STUDY

)his section resents the results of the ro osed o timization model on a simulated hotel case study% Here a hotel mana$er +ants to identify the o timal allocation for rooms to each ty e of stay a year ahead% )he forecast simulator Ddescribed re#iously' rocesses reser#ation records that took lace in the last < years in the hotel and e,tracts arameters that are used to $enerate for+ard reser#ation records that +ill take lace in the comin$ year% From this $enerated data, the o timization model uses the follo+in$ attributes0 Arri#al *ate, 9en$th of Stay, Grice Class, and Grou Size% )he future time horizon of the study is hence <>; ni$hts, the ma,imum len$th a $uest can stay is ? days, and the ma,imum number of ersons in a $rou is @6 ersons% Moreo#er, the hotel mana$er has se$mented the $uests into < rice'classes 3+here each class is char$ed differently: the first class is char$ed for S=66, the second for S566 and the third is char$ed for S@664% )he hotel roomsT ca acity is @;66 rooms% !t is assumed that before the onset of the model that the initial room occu ancy is >6I for the first month: and this occu ancy rate decreases @6I 3of total ca acity4 each month% (ased on the abo#e information, and based on the demand scenarios $enerated by the simulator, the randomized model is sol#ed as described re#iously% )his model is cate$orized as a lar$e'scale inte$er ro$rammin$ model% )o sol#e this model a so histicated mi,ed inte$er lar$e'scale ro$rammin$ sol#er by )2M9A( is used 3Ed#all and GUoran, 566>4 +orkin$ under the Matlab en#ironment ?%; 3)he Math+orks, 566>4% )he reader may refer to 3Abdel Aziz et al% 56674 for more details on the im lementation% )he ro osed model is com ared to the a sim le Vfirst'come'first'ser#eW 3FCFS4 model for all three demand scenarios: +here in the FCFS the first re-uest to come is to be acce ted 3if thereTs a#ailable ca acity4 not considerin$ +hether or not it +ill ma,imize the total re#enue of the hotel% )able @ summarizes the re#enue $ained from usin$ either the FCFS model or the ro osed o timization model for the three in#esti$ated demand scenarios% )he last column in the )able calculates the increase in re#enue $ained +hen usin$ the su$$ested o timization model o#er sim ly acce tin$ all re-uest $i#en a#ailability of rooms% )able 5 Com arison bet+een results of FCFS X the ro osed model FCFS
Scenario @ S@5<,5<;,<66

P$o7o#!0o-!"
S@<7,7==,666

8 I(/$!&#! '( R!%!(*!

12.668

Scenario 5

S@5<,?<J,;66

S@<>,J56,666

14.638

Scenario <

S@5;,JJ<,J66

S@<J,<7=,=66

14.628

2b#iously, the modified randomized model has contributed in ma,imizin$ the total re#enue of the hotel under different demand scenarios +hen com ared to the sim le FCFS model% )he im ro#ement in re#enue is at least @6I as seen from )able @% !n fi$ure =3a4 the total number of the rooms allocated by the model #s% their e, ected demand alon$ the year is de icted% Another im ortant illustration, fi$ure = 3b4, is the total number of rooms occu ied in the hotel: +hich is e-ual to the allocated rooms by the model lus the ones already reser#ed before runnin$ the model% !t

can be seen from both fi$ures that the total room allocation ne#er e,ceeds the ca acity constraint and neither e,ceeds their e, ected demand% )here are other cate$ories of information that can be of interest to the re#enue mana$er of the hotel: for e,am le kno+in$ ho+ lon$ the maBority of the $uests like to s end in his hotel, or +hich rice class is more beneficial for him, or he may +ant to kno+ the distribution of the $uests amon$st the $rou sizes associated +ith the model% Fi$ure ; sho+s these distributions to a total number of 5@@7; of o timal reser#ations that are $enerated after sol#in$ the modified model% Fi$ure ;3a4 sho+s that most of the o timal reser#ations are of a len$th of stay of < days% Also most reser#ations are from the first rice class, +hich is the hi$hest class 3refer to Fi$ure ;3b44% Finally as obser#ed from fi$ure ;3c4, the maBority of the hotelTs $uest ha#e a $rou size of <%

3a4 3b4 Fi$ure =3a40 )otal number of rooms #s% total number of forecasted demand Fi$ure =3b40 )otal rooms 3allocated X reser#ed4

T,! -'# $'+* 'o( o9 -'99!$!( "!() ,# o9 # &:

=;66 =666 <;66 <666 5;66

T,! -'# $'+* 'o( o9 ,! -'99!$!( 7$'/! /"&##!#

@>666 @=666 @5666 @6666 5@56 7666 5@66 5676 56>6 5@76 5@>6 5@=6

T,! -'# $'+* 'o( o9 -'99!$!( )$o*7<# #';!#

5666 @;66 @666 >666 =666

'( & 9#% o $ ! + 0 * N

6 @ 5 < = ; > ?

6 @ 5 <

'( & 9#% o $ ! + 0 * N

56=6 @ 5 < = ; > ? 7 J @6

;66

!$o9#%&'( + 0 * N

5666

L!() , o9 # &:

P$'/! C"&##

G$o*7 S';!

3a4

3b4

3c4

Fi$ure ;0 Number of reser#ations accordin$ to 3a4 different len$ths of stay, 3b4 different rice classes, 3c4 different $rou sizes

Finally, as e, lained before, to com ute the o use the follo+in$ formula r R fbefore ' fafter

ortunity cost associated +ith a certain re-uest, one should

)o outline the o eration of the model, an e,am le is $i#en as follo+s% !t is re-uired to determine +hether to acce t or reBect a s ecific reser#ation on ni$ht @<J +ith len$th of stay e-uals ; and a $rou size of =% Hence the o ortunity cost is calculated for each of the three demand scenarios and the follo+in$ o ortunity cost is obtained Y7=6, @@76, and @666Z for the first, second and third demand scenario, res ecti#ely% )he a#era$e o ortunity cost of this re-uest +ould then be @66>%>> dollars% !n this case the 1M system +ould recommend to the mana$er to acce t this re-uest, if its re#enue is at least e-ual to @66>%>>% 5. SUMMARY AND FUTURE WORK )his a er resents a re#enue mana$ement model that is based on ad#anced forecastin$ and o timization% )he ro osed forecastin$ module attem ts to model the hotel reser#ation rocess from first rinci les% !n articular it models hotel arri#als as an interrelated rocess of stochastic arameters like reser#ations, cancellations, duration of stay, no sho+s, seasonality, trend, etc% !n our a roach +e attem ted to model all these rocesses as faithful as ossible and simulate for+ard in time the actual rocess of reser#ations to obtain the forecast% )he distinct ad#anta$es of our ro osed forecastin$ can be summarized in the follo+in$ oints0 First, it roduces the density of the forecasts, and hence also confidence inter#als% !t also allo+s for scenario analysis like for e,am le e,aminin$ the effect of o#erbookin$ on future arri#als% Finally, the sensiti#ity of the arri#al forecast due to chan$es of some control #ariables can be estimated% )his, of course is a #ery useful feature for decision su ort in re#enue mana$ement% Also it is +orth notin$ that the forecastin$ model deri#es the necessary demand that the o timization model needs directly from data +ithout the need of rior assum tions% !n the future the forecastin$ module +ill also incor orate other statistical and machine learnin$ forecastin$ methods 3Ahmed et al% 566J and Zakhary et al% 56674 usin$ both reser#ation data and historical arri#als% 2n the other hand, the ro osed o timization module e,tends e,istin$ o timization techni-ues for hotel re#enue mana$ement to address $rou reser#ations +hile includin$ inte$rality constraints and usin$ Fforecasted demandF arri#als $enerated from the data% )he o timization model is based on lar$e'scale inte$er ro$rammin$ model to o timize decision rules for acce tin$ reser#ations% 1esults sho+ that the model is able to $enerate effecti#e recommendations to ma,imize re#enue% For future research se#eral more issues need to be addressed% For e,am le, considerin$ cancellations or $uests no sho+s% 2#erbookin$ olicies com ensate for $uests that +ould cancel or Bust not sho+ u % !n $eneral, an o#erbookin$ limit should be determined in order to balance bet+een minimizin$ the loss of re#enue caused by em ty rooms, and the loss of customers8 satisfaction caused by not findin$ a#ailable rooms des ite reser#in$ beforehand 3 !$naccolo and !nturri, 56664% Also, this a er mainly focuses on the allocation of rooms to different se$ments and assumes fi,ed rices for each se$ment% Ne#ertheless, Fen$ and [iao ro osed a method +here the ricin$ and ca acity allocation decisions are carried out inde endently% So another ossible e,tension of this +ork is the inte$ration of ricin$ and ca acity allocation decisions% AKNOWLEDGEMENT= )his +ork is art of the V*ata Minin$ for !m ro#in$ )ourism 1e#enue in E$y tW research roBect +ithin the E$y tian *ata Minin$ and Com uter Modelin$ Center of E,cellence% /e +ould like to e, ress our thanks to Mr% Hossam Shehata for su ortin$ us +ith the necessary domain kno+led$e in the hotel industry% /e +ould also like to e, ress our dee $ratitude to *r Hanan .attara and FGlaza HotelF family, Ale,andria, E$y t for ro#idin$ us +ith the reser#ation data to test and de#elo our models%

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