Guests and front desk receptionists hate it. Meanwhile, hotel and revenue managers see it as a profitable strategy.
Hotel overbooking awakens strong emotions on both sides: guests and the hotel.
And here is what you need to know: overbooking in the hotel industry is a common practice. It’s often made on purpose, not unintentionally.
Cancellations and no-shows can hurt annual hotel revenue because empty rooms mean lost opportunities you can’t recover. To protect from this situation, hotels apply an overbooking strategy in their revenue management.
What does hotel overbooking mean?
When the hotel is overbooked, there is more demand than supply: the hotel sells more rooms than it has.
Travel accommodations can use overbooking as a strategy to minimize lost revenues from last-minute cancellations or no-shows. However, it can also happen unintentionally.
Unintentional overbooking is usually caused by updating booking channels manually. Especially when you’re short on time and have too much work – unwanted reservations can enter from one second to another.
It also happens when there are errors in the booking engine – channel manager – property management system connection. When there’re connection incompatibilities or the systems are outdated – overbookings can happen.
So, how to apply the overbooking strategy correctly and what to do when it happens (planned or accidentally)?
Note: it’s better to be prepared in advance to avoid uncomfortable situations.
What to do when your hotel is overbooked
The best-case scenario is when you know about the overbooking in advance — finding the solution before the guest arrives can help avoid the negative emotions of frustrated guests.
Hotel overbooking solutions:
- First, check what options you have available in your room allocation.
The overbooking might be created for a particular room type, but the hotel still can have other categories available. Is there a possibility to make an upgrade or downgrade? (if it’s the second option, it’s worth compensating it with, for example, complimentary breakfast, massage, or dinner).
2. Check the list of arrivals and estimate any possible no-show or cancellation (maybe you have a duplicated booking or reservation with an invalid card?)
3. Evaluate which reservation will be best to “walk” to another property: preferably 1-night stays, reservations made on the third-party website, solo travelers, and guests who don’t belong to your hotel’s club membership.
4. Create a list of similar category hotels which can accommodate your guests
It’s always a good practice to collaborate with other hotels when it comes to overbooking situations.
5. Book a new room for a guest and inform them in advance to go directly to the new hotel.
6. When the guest is already in front of the reception desk, you should show empathy. Suggest waiting in the hotel cafeteria while you search for alternatives.
7. You can also provide extra guest money for covering transport expenses to another hotel.
8. Offer some compensation in case of overbooking.
9. Ensure you don’t walk the “guaranteed” reservations – the ones you confirmed either via email or phone.
10. In the case of OTA reservations, you will probably need to contact their agents to inform them that you’ve changed guest accommodation. If you need to notify the guest and can’t reach him, OTA can help you. Plus, they will change the reservation details and send new confirmation to the guest.
11. Sometimes OTA can help in searching for accommodation replacement in the name of the hotel. More often than ever the hotel loses more money here because OTA doesn’t care about the hotel cost and will charge the hotel for the differences. Despite that, when there’s no time for your staff to search for alternatives, you can use this service.
Hotel overbooking compensation ideas:
It’s important to remember that when overbooking happens, it’s usually an inconvenience for the guest. Even if you booked a much nicer room for them.
That’s why you should remember to treat them with understanding, patience and follow up on them the next day and after their stay.
It’s worth remembering that the hotel’s upgrade might not be seen as such by the guest. It’s a very subjective matter.
Here are few compensation ideas:
- If your hotel has a membership, you can give a guest additional points
- Discounts for future stays or vouchers
- Money to cover taxi expenses
- Offering free services like breakfast or access to VIP lounge, etc.
Hotel overbooking policies
The first step to spot overbookings is carefully monitoring daily reservations. It’s an excellent idea for the night shift to revise all the arrivals and the room allocation. This way, you can see if there’s overbooking on time before the day even starts.
Unlike airlines, there’s no policy that the hotel needs to provide a guest with alternative accommodation in the overbooking. However, a decent hotel will always try providing comparable hotel rooms and “walk” the guest.
Before you start playing with overbooking in your revenue management, set up a strategy in place.
It’s essential to train your staff on how to proceed. When overbooking happens, it’s a very stressful situation for guests and the receptionist. I was constantly stressed when it happened because I had no idea how to proceed and talk with potential hotels or hostels with a vacancy.
That’s the reason why instructing your staff is essential, so when the time comes, they know what to do.
Tips for creating an effective overbooking strategy
Here are some tips on creating an effective overbooking strategy:
- Train staff
- Create a chain of hotel partnerships – mutual understanding on the rates and procedures
- When you plan to overbook, it’s recommended to avoid peak dates as it will be harder to find an alternative hotel for the guest.
- Choose the potential guests to be “walked” wisely: preferably one-night stay and people traveling solo or business travelers (whose expenses cover company).
- Property Management Systems and Revenue Management Systems help in spotting the patterns of cancellations and no-shows.
- Hotel chains with various hotels in one city can create overbookings in one and send guests to another.
- When it’s possible – contact the guest in advance. The best-case scenario is when the guest goes directly to the new accommodation.
- Provide “walked” guests with alternatives and compensation if possible.
- Follow up on the guest and their stay.
The good and the bad of hotel overbooking strategy
There are a few pros and cons of this strategy. Let’s start with the pros:
- Maximizing hotel revenues (when it’s planned and executed correctly).
- The cost of the overbooking is usually lower than the cost of an empty room
- It’s a low-risk strategy
The cons are:
- It can hurt the hotel brand.
- Potential negative reviews on Google, social media, or TripAdvisor (it’s enough to read hotel overbooking stories from the readers of The Points Guy)
- Additional costs like paying for the guest transport to the new hotel
- Need for careful monitoring of reservations to see if there are unintended overbookings (or excess of them)
Create a strategy and stay prepared
Hotel overbookings are a common practice in the hotel industry.
Preparing staff in advance and putting a strategy in place with your team on board should lower the possible disadvantages caused by overbooking. That way, you can maximize revenues and protect the hotel from negative reviews.
Others read also:
- Hotel pricing strategies – How do hotels calculate prices
- What is revenue management and how does it work?
- Awesome working tips on how to increase hotel revenue
Pricepoint helps hotels and hostels maximize revenues with an automated revenue management system. On this blog, Pricepoint shares industry knowledge about revenue management.