Many hotels overbook rooms as part of their revenue management strategy.
While advantages in overselling rooms include increasing revenue and mitigating loss, there are pros and cons in balancing your profits from this strategy with the guest experience.
We’ve put together a basic guide of best practices for hotel overbooking. Many suggestions are common sense but put them together and they can create an overall plan to maximize revenue and minimize risk.
What is Overbooking in a Hotel? (definition)
According to Setupmyhotel.com, “Overbooking is a situation when the total number of rooms reserved for a certain period of time exceeds the total number of rooms available for sale for the same period. In other words, it is the number of additional reservations a hotel needs to achieve 100% occupancy. Overbooking for hotels is a revenue management strategy that helps to maximize the total capacity and increase room revenue.”
Why do Hotels Overbook?
Hotels overbook to mitigate losses from no-shows, cancellations and early check-outs, and to increase revenue with clients who overstay or walk-in. (Airlines use this same practice)
Pros and Cons of Overbooking Hotel Rooms
- It helps the hotel achieve full occupancy, maximizing revenue
- It produces long-term revenue and profit increases
- It’s a low-risk and common strategy in hotel revenue management
- Compensation is usually cheaper than keeping a room empty
- Rules of refusing to be walked are predetermined and also acceptable
- Can potentially lead to a bad guest experience
- Decreased customer loyalty
- Negative reviews on social media
- Additional costs for guests to be walked to other locations
- Reservations must be carefully monitored to control unintended or excessive overbooking
Basic Guidelines on Hotel Overbooking for Hoteliers
- Put a strategy in place before you begin this practice. This strategy should include reviewing your franchise agreement and consulting with the hotel brand representative to ensure you are not violating any brand standards.
- Start by Identifying Overbooking to get a better picture of potential opportunities or risks.
- According to Cloudbeds.com, the first step in identifying overbookings is to determine how many bookings the hotel has by carefully monitoring daily reporting on new reservations, canceled reservations, current ability, including nightly departure reports, arrival reports, and all in-house reports.
- Find out where they came from (did guest book directly or through an OTA) and make sure that channel is no longer open and susceptible to overbookings. (for example, two guests might book the same room from different channels at the same time).
- After it’s determined that a hotel is overbooked, hoteliers should check how many cancellations the hotel has. Cloudbeds.com describes that one or two bookings won’t matter because of future cancellation.
- Pay attention to group contracts and online travel company terms and conditions. Walking a group to another property will likely violate your group sales contract, which could put a great deal of revenue at risk. And while you are viewing that group contract, take care to check for any contract provisions that could address consequences for walking guests attending the meeting who happen to book outside a room-block.
How Hoteliers Should Handle Overbookings?
- Double-check for any errors: check carefully that a guest relocation is necessary. Many times hoteliers will relocate a guest without realizing there was a duplicate reservation in place, such as a canceled reservation or a name-spelling mistake.
- Determine which guests to relocate: This is best treated on a case-by-case basis. VIPs, groups or families, or individuals who are staying for multiple nights should ideally get the priority to stay. Short-term business travelers might be more flexible. Some hotels will qualify guests based on rates, for example, a guest who booked through an OTA and bringing in $100 might be better to move than a guest who booked directly for $400.
- Cloudbeds.com notes additional factors that hoteliers should consider: determining “how many times your guests have been to your property, and how much they’ve spent. Guests who stay at your property regularly might not mind relocating if you incentivize them with rewards points”. Guests who have never stayed at your property before are also good candidates to move because their expectations are lower.
- Be proactive, keep an updated list of local properties you can send a guest to while making sure the properties are of similar value and quality.
- Call the replacement lodging directly to make sure they accommodate your walked guest with care. It’s best to contact your guest before they arrive, but in some cases, you may need to move a guest last minute. Get personal feedback from your guest about important factors, location, etc. Remember to show genuine their inconvenience.
- Guest Recovery Plan – when you do need to walk a guest you should acknowledge their inconvenience with a bottle of wine, extra points, a hand-written note or perks to show you still value their loyalty.
Overbooking Strategy can help keep your hotel fully booked and minimize empty rooms. But it can also be stressful to manage for both the hotel and their guests.
If you create a plan to successfully manage an overbooking, you can both maximize your revenues and maintain your guest’s satisfaction.