Overbooking, also known as double booking or overselling, is a revenue management strategy involving a hotel accepting more reservations than the number of available rooms, banking on a certain number of cancellations and no-shows.
NB: This is an article from RoomPriceGenie, one of our Expert Partners
Subscribe to our weekly newsletter and stay up to date
During the pandemic, flexible cancellation policies became the norm for lodging operators, leading to high cancellation rates. Today, cancellation rates have returned to pre-pandemic patterns, yet many travelers still prefer the flexibility to cancel without penalty if their plans change. Others neglect to advise the hotel if they won’t be coming, resulting in a no-show.
For hotels, this behavior leads to volatility in occupancy patterns, and achieving 100% occupancy can seem like a moving target. Often hotels are left with empty rooms that are difficult to resell at the last minute. These rooms tend to be highly profitable, directly impacting the bottom line.
Meanwhile, hoteliers face pressures from ownership to maximize occupancy. It’s not easy to explain why your property had empty rooms when your competitors were full.
For these reasons, overbooking has become a common part of revenue strategy for all types of accommodation operators, from small hotels to large resorts. The ultimate goal is to achieve a “perfect fill”: all rooms occupied and no relocates. But this requires a careful balancing act – taking calculated risks without being too aggressive.
On the upside, strategic overselling can lead to higher occupancy and increased profitability. On the downside, there is always the risk of overshooting the mark and having to relocate or “walk” guests to another property.
How can hotels strike the right balance, enjoying the benefits while keeping the risks in check?
Uh Oh, Who Took a New Booking?
Arriving to work to discover your hotel is oversold can be a difficult start to the day, yet it’s an all-too-familiar scenario for hotel staff. How does it happen?
Not all overbooking situations are intentional. They may be the result of:
- Employee errors, like entering incorrect reservation dates
- Technical glitches, such as delays in updating room inventory in the PMS
- Maintenance issues that take rooms out of service
- Decisions to accommodate VIPs even though the hotel is sold out
- Higher than expected group room pickup
Assessing the Risks of Relocating
When cancellations don’t materialize as anticipated, a hotel may end up with more reservations than it can accommodate, necessitating relocates. This can present several challenges:
- Upset guests. Being relocated is inconvenient for guests and can lead to unpleasant encounters with staff, negative reviews, complaints on social media, and damage to the hotel’s reputation.
- Stressed-out employees. Front desk staff often bear the brunt of guest frustration. While overbooking decisions are usually made by daytime managers, the task of relocating often falls to nighttime staff after the hotel runs out of rooms.
- Additional costs. It’s customary for hotels to cover one night’s accommodation at the receiving property and transportation costs, and they may face further demands for compensation from displaced guests.
Overbooking Strategies: Pursuing the Perfect Fill
To maximize occupancy while minimizing the risk of relocates, consider the following strategies:
- Set overbooking limits. For example, a 50-room hotel might set a limit of five overbookings (10% of inventory) as a buffer, reducing the limit as the arrival date approaches. When the limit is reached, all booking channels should be closed.