Room-Risk Management at Sunquest Vacation

Abstract

This article outlines some of the basic complexities that originate with the acquisition of hotel rooms for a reseller of bundled vacations. A tour operator typically acquires or contracts for service capacity, bundles the services (air, hotel, food and beverage, and excursions), then markets and sells to consumers. The article focuses on the short-term aspects of room-risk management for the tour operator, specifically how to manage blocks of take-or-pay contracted rooms. The room-risk management problem is formulated as a math program with the objective of minimizing wasted rooms. While the exposition focuses on a particular reseller of packaged vacations, the method is applicable to any firm acquiring capacity on take-or-pay contracts and reselling this capacity as bundled vacations.