How To Manage An Effective Hotel Overbooking Strategy?

It may seem bad at the outset but overbooking has its pros too. Here’s a quick guide to a hotel’s overbooking strategy and how to make it work to your benefit.

What is overbooking? Why does it occur?

Overbooking occurs when a guests book more rooms than the actual number available in a hotel. Overbookings can occur due to many reasons:

1. 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 a similar approach.
2. Overbooking is a way to maximise the total capacity and increase revenue.
3. Overbooking can even occur if a guest doesn’t check out when they are scheduled to leave or if a room becomes “out of service” due to an unexpected maintenance issue.
4. Sometimes, however, simultaneous bookings happen when two guests book the same room from different channels at the same time. This is easily avoidable with a good channel manager in place.

What is an overbooking strategy?

When properties purposefully book beyond their capacity to create a buffer for last-minute cancellations or no-shows, it forms part of their overbooking strategy.

Hotel overbooking strategy is one part of effective revenue management and aims towards full or optimal occupancy. If implemented correctly, overbooking can be a cost-effective strategy to mitigate losses. Unplanned room maintenance and multiple booking issues on OTAs does not form part of a planned overbooking strategy.

What are the advantages of a hotel overbooking strategy?

• The biggest positive of overbookings is revenue maximisation through full occupancy by allowing for fallback reservations
• Compensating for overbookings can be cheaper than the cost of leaving a room empty
• Given seamless connectivity and data sharing between your hotel property management system and channel manager, managing an effective overbooking strategy can be quite low risk. In fact, it is common practice nowadays. Modern hoteliers are able to make confident decisions to inform an effective overbooking strategy thanks to the data and insights available

What are the cons of hotel overbookings?

• Negative guest experience is the most obvious drawback of a hotel’s overbooking strategy. Imagine a large family with a reservation turning up on the front desk and being turned away due to an overbooking!
• Reduces customer loyalty. Someone who has been turned away despite having a reservation is unlikely to turn into a lifetime guest who grows in value
• Additional costs to relocate a guest who has been displaced or compensations offered
• Negative online reviews by disgruntled guests can affect the long-term reputation of a hotel

How to manage an effective hotel overbooking strategy?

Overbooking has its benefits, but to implement a successful hotel overbooking strategy, it is important to have some processes in place. Take a look at some tips to inform a successful overbooking strategy for your property:

1. Rely on data to make informed decisions. Look at your guest activity and reservations across your channel manager and property management system for a more accurate estimation of how many overbookings you should allow. Review cancellations each season and walk-ins to guide your overbooking decisions.
2. Pay special attention to groups and OTA terms. Walking these guests out due to overbooking could have legal ramifications.
3. Determine which guests to relocate. You would obviously not want to disappoint your VIPs or most loyal guests. Likewise, guests who have booked multiple nights are less likely to be flexible, especially if compared to short-term business travellers. Make sure you review guest profiles before walking anyone out of the door due to overbookings.
4. Keep a list of local properties updated. These are hotels or vacation rentals where you can send your guests to in case you are unable to honour their reservation. Call the property before you send a guest to them, and when the guest departs, make sure to acknowledge the other property. A tactical guest transfer plan is a must.
5. Clearly outline your guest compensation plan. The hotel industry standard for overbooking compensation is usually one night’s stay plus transportation cost to the new property. If the guest returns to the original hotel, they’re usually offered an industry rate plus any available upgrades.
6. Get the right technology. If the overbooking is caused by an insufficient or ineffective channel management technology that prevents multiple booking errors by making real-time updates on rates and availability, replace your channel management technology with something that works.
7. Create a guest recovery plan. Perhaps you had to send your overbooked guest away for one night. If it’s a multi-night booking and the guest is keen, try to entice them back to your hotel. For guests staying a single night, follow up with a personal email to apologise for the overbooking. The goal is to make the guest as happy as possible.

Final thoughts

Overbookings happen. A well-executed plan will help you turn overbookings into a positive revenue source and avoid disappointing your guests to the point of no return.

Hotel Overbooking Strategy: What You Need To Know was last modified: May 4th, 2022 by Nashi Dasgupta