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In our latest guide, we cut through the noise to provide the essentials every independent hotelier should know about revenue management. Get answers to the following topics and more.
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8
Overbooking Strategy: How to Maximize Occupancy and Avoid Relocating Guests
If you’ve ever worked on the front desk, you probably know that sinking feeling when a guest you hoped would be a no-show walks into the lobby to check in.
Gulp. Your hotel is oversold, and now you’re faced with the delicate task of relocating the guest to another hotel.
Overbooking is standard practice for hotels today, bringing both risks and rewards. 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?
In this guide, we’ll walk you (no pun intended) through the essentials of overbooking strategy, sharing guidelines and tips for managing room inventory, minimizing relocates, and ensuring that, if guest displacements do occur, the process is as smooth as possible.
What is Overbooking in the Hotel Industry?
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.
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.
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.
- Forecast demand. Use demand forecasts to identify opportunities to oversell, incorporating estimations of daily cancellations and no-shows into projections.
- Centralize decision-making. Restrict overbooking authority to the revenue manager or hotel manager – those best positioned to monitor occupancy and make informed decisions.
- Keep staff informed. Ensure that reservations and front office staff know to check availability before taking a booking.
- Avoid being too aggressive. Overbooking limits can vary by hotel based on the number of rooms, booking patterns, and risk tolerance. Smaller properties should be more conservative since they have less room for error.
- Offer a variety of rate plans. To reduce cancellations and no-shows, charge a premium for cancellable bookings and a discount for nonrefundable rates, advance payment, and direct bookings.
- Wash group blocks. Insure against group attrition by reducing the number of rooms held in group blocks to reflect expected pickup. Once the cutoff date is reached, adjusting overbooking limits as needed.
- Overbook entry-level room types only. Avoid overbooking suites and premium room types to reduce the likelihood of having to relocate or downgrade these guests.
- Confirm reservations. Send reservation reminders a few days before arrival. On sold-out dates, review the arrivals list and reach out to guests who have the potential to no-show to confirm their arrival time.
- Monitor and fine-tune. If your property is often left with empty rooms on high-demand dates due to cancellations or no-shows, increase oversell limits. If you relocate frequently or can easily pick up last-minute bookings, reduce oversell limits.
Making Tough Decisions: Who Can and Can’t Be Relocated?
Every property has important guests who should never be relocated. By defining these criteria in advance, you can help prevent walking the wrong guests and jeopardizing important relationships.
Depending on the property, non-relocatable guests may include the following:
- VIPs
- Frequent guests or loyalty members
- Top corporate accounts
- Media and influencers
- Prepaid guests
- Guests celebrating special occasions
- Long-stay bookings
- Suites and high-rated bookings
As for guests who can be relocated, some hotels prioritize those who booked through lower-value channels like OTAs and wholesalers over those who booked directly. Again, guidelines will help ensure staff make appropriate decisions.
Staff should also be aware of any terms in contracts with OTAs and corporate clients or legal obligations that prevent them from displacing guests without consent.
Handle with Care: Five Ways to Manage Relocates Like a Pro
Even with the best intentions, relocations sometimes happen. Here are a few ways to reduce the negative impacts and ensure the most favorable outcome.
- Create guidelines. Provide a checklist of relocate procedures along with training and role-playing exercises to help staff handle relocates confidently and professionally.
- Plan ahead. Review the arrivals list first thing in the morning and identify guests who can be relocated. If possible, contact them in advance so they can go directly to the new hotel.
- Secure rooms. Relocate to a nearby property that is comparable to yours in quality and amenities. Arrange a special rate in advance and secure rooms when you know relocation is inevitable.
- Show empathy. When the guest arrives, explain the situation calmly, apologize sincerely, and arrange transportation to the new hotel if required.
- Follow up. Contact the receiving property to confirm the guest is coming and arrange payment. Leave a note for the a.m. manager to organize return transportation if needed. Upgrade the room and send a welcome amenity.
Overbook and Pricing Strategy
Overbooking strategy is closely tied to pricing. Keep these tips in mind:
- For consecutive night overbookings, relocate guests for the full period instead of multiple guests for one night.
- If entry-level rooms are fully booked but premium rooms aren’t selling, oversell entry-level rooms to capture more bookings, then upgrade them.
- If demand exceeds supply frequently, your prices might be too low—revisit your pricing strategy.
- Sometimes, maintaining a higher average rate can bring in more revenue than striving to maximize occupancy.
Hotel Software to Help Manager Overbookings
With the right revenue technology, hotels have access to the data, insights, and automated tasks they need to maximize occupancy and revenue while minimizing the chance of displacing guests.
- A modern property management system (PMS) allows hotels to set daily overbooking limits and monitor booking patterns, cancellations, and no-show rates to more confidently predict the optimal number of rooms to overbook.
- A channel manager centralizes room inventory and rates across distribution channels, providing real-time inventory updates to reduce the risk of double bookings.
- An automated revenue management solution leverages demand data to manage rates dynamically, ensuring hotels are priced strategically in overbooking situations and minimizing the risk of unsold rooms due to cancellations or no-shows.
More Perfect Fills, Less Stress, Happier Guests
In the hotel industry, balancing financial objectives with the need to provide the best possible experience for guests and employees is an ongoing challenge.
With smart overbooking strategies supported by best-of-class revenue technology, hotels will be well positioned to accomplish it all: maximize revenue, minimize inconveniences to guests, and reduce stress levels on the team.
For more insights on hotel pricing and revenue management, check out our Content Library.
About RoomPriceGenie
RoomPriceGenie is the easiest way to ensure that your rooms are priced right, every night. Purpose-built for the independent hotelier, RoomPriceGenie is fast to implement, intuitive to use and simple to understand. In an uncertain world, it’s revenue that you can count on. To find out more about automated pricing, start your free trial today.
Contents
8. Overbooking Strategy: How to Maximize Occupancy and Avoid Relocating Guests
- What is Overbooking in the Hotel Industry?
- Uh Oh, Who Took a New Booking?
- Assessing the Risks of Relocating
- Overbooking Strategies: Pursuing the Perfect Fill
- Making Tough Decisions: Who Can and Can’t be Relocated?
- Handle with Care: Five Ways to Manage Relocates Like a Pro
- Overbooking and Pricing Strategy
- Hotel Software to Help Manage Overbookings
