Hotel Overbooking: Impact, Best Practices, and Tech Solutions

Every hotelier wants to increase their profit margin and sell more rooms.

That's why hotel adopt an overbooking strategy to get the best out of each room and avoid those inconvenient moments when a guest cancels a reservation or doesn't arrive.

On one side, you're taking more bookings than the number of available rooms.

However, it can also lead to problems. What if both guests arrive? What if they become disappointed? What if you lose hotel revenue? All these "what if" situations can tarnish your hotel's reputation.

Remember! One dissatisfied guest can ruin your hospitality business and impact your profitability. It also lowers your employee morale when dealing with angry guests.

Of course, every hotel manager wants to meet their revenue targets consistently. But if overbooking is done strategically, it can yield positive rewards for your hotel business.

In this blog, we'll explore what hotel overbooking is, its impact on your hotel business, and its benefits, along with the best overbooking strategies you can adopt.

What is Hotel Overbooking?

When you have more guests to serve but the number of hotel rooms isn’t available. 

In a nutshell, it means you have received more hotel reservations than the total number of rooms available that day.

Generally, hoteliers who manage their hotel operations manually face such overbooking issues.

It’s not a new school concept that hoteliers around the globe have been adopting, it’s an age-old practice they use to maximize their occupancy and increase their revenue.

Some hotels adopt overbooking strategies deliberately as they presume that there might be a possibility that a few guests who book a stay may not come or cancel their reservation, so why not offer rooms to other guests?

In such a situation, a guest might book a hotel room more than once because the availability is updated across all OTAs and other booking channels. That’s known as overbooking.

Hence, hoteliers create overbooking strategies to maximize their occupancy rate and sell as many rooms as fast as possible.

Impact of Overbookings on your hotel business

Consider a scenario where one room in your hotel is overbooked. Now, the first guest arrives at the property to check-in. The front office hotel staff initiated the check-in process and guided them to their hotel room.

Suddenly, another guest enters the hotel and talks to the front desk staff, but the front desk informs him/her about the overbooking issue.

Such hotel overbooking issues worsen the guest experience. In the hospitality industry, guest experience matters the most and when you are turning your guests away, that means you disappoint them and dissatisfies them.

Even if you arrange an alternative hotel for them or offer them a free transportation facility, they won’t come back to your doorstep.

Remember! Angry and dissatisfied guests are more likely to post a negative review or comment on socials and tell other guests to not book a stay with you. As a result, it dampens your hotel’s overall reputation.

Loss of Reputation = Loss of Revenue

What are the benefits of hotel overbooking?

From the hotelier’s perspective, overbooking is a good strategy to maximize occupancy and increase hotel revenue. 

If the occupancy rate can’t be at its peak, the hotel manager can’t reach its full revenue potential.

Alternatively, overbooking is a bad strategy because when guests book a stay at your hotel, they come with a certain level of expectations. Upon entering the hotel, they get to know that the hotel has offered the same level of room to another person, and their frustration increases.

But a good overbooking strategy when implemented strategically can bring significant rewards for your hotel business-

1. Minimize your losses

One of the significant advantages of hotel overbooking is to minimize loss from last-minute cancellations or if the guest doesn’t arrive at the property. 

When the hotel is at its full capacity, and a guest cancels the last-minute bookings, then it causes direct revenue loss. 

But an overbooking strategy in place helps you recover the same amount from another guest. This way you can deal with possible losses and prevent those last-minute cancellations. 

2. Operate your hotel at full occupancy

Overbooking is a great strategy to help hotels operate at full occupancy. Hotel Overbooking means that you receive more bookings than the number of rooms available.  

Your hotel becomes more profitable during the peak season or when demand for rooms is higher, such as during a holiday season or any event that’s happening around the area in which the hotel is operated. 

Thus, your hotel will be fully booked up in the event of no-shows or last-minute cancellations. 

If your hotel reaches the stage of 100% occupancy, it means that you’ve made the best out of each room. It increases the revenue per available room (RevPAR).

3. Cost-effective and low-risk strategy

It has been a while since hoteliers have adopted overbooking as it’s a low-risk strategy and it brings more revenue for their business. 

Hotel Overbooking keeps them safer, especially during those conditions when the guest cancels a last-minute reservation.  

When the rooms are overbooked, it keeps you on the safer side because paying compensation to the disappointed guest is more profitable than operating your hotel at a lower occupancy rate. 

Alternatively, you can offer alternative accommodation and offer them a free transportation facility. 

Thus, it’s a profit-making strategy for some hoteliers as it depends on how well you talk to them, handle that situation and what extra things you’re doing for them to reduce their frustration such as offering discounts for the next reservation.

Demerits of Hotel Overbooking Strategy

Let’s talk about the dark side of creating a hotel overbooking strategy-

1. Creates a negative guest experience

The guests that aren’t happy with your hotel services won’t come back again. So, you must leave them satisfied and do something valuable for them, especially when they’re coming with family or kids.

More importantly, if they’re your loyal guests, they feel disheartened. 

2. Creates a poor publicity

Social media connects everyone, but an unsatisfied guest can leave a negative review on your socials. A bad overbooking strategy can give you tons of bad reviews and this affects your hotel's reputation.

When people share a bad experience with others, they are more likely to trust them and their negative reviews than you. 

To combat the hotel overbooking issue, hotel managers should invest in a cloud-based property management system (PMS) to organize bookings in one place and manage last-minute cancellations. 

3. It’s an expensive strategy

Although hotel overbooking is a profitable strategy that hoteliers create, It depends on how much additional cost (meals, perks, or transportation) you need to incur to relocate the guest to the recommended place.

Also, when you get 2 spots reserved for the same room and one guest has had a terrible experience. They’ll post negative reviews on socials about your hotel which might decrease future bookings and affect your reputation. 

Thus, you’ll face revenue loss coming ahead. 

Best practices hoteliers should use to avoid overbookings

Let’s talk about some of the popular ways that top-notch hoteliers follow to avoid overbookings such as -

1. Track your bookings

Keeping track of metrics is highly important. If you receive a new reservation request today or a guest cancels it yesterday, you should have data in your hand.  

Another way to avoid hotel overbooking issues is to use historical data as your benchmark and check a few aspects such as booking patterns, cancellation rates, or booking lead times. 

Taking insights from historical data helps you avoid overbooking problems as you can get an estimate of the property’s occupancy status. 

2. Use a property management system (PMS)

Investing in PMS is a game changer for the hotel business as it provides real-time insights on inventory availability across all channels. This way you can get a clear picture of high and low periods and decide the pricing strategy and inventory allocation accordingly. 

Such an automated cloud-based PMS system connected with the channel manager keeps track of all your reservations in one place.

Supposedly a room is booked twice on different channels, and then PMS sends an automated alert to hotel staff. They then will handle the overbooking situation before it affects the guest experience.

3. Invest in a channel manager

Previously, a hotel manager needed to manually update the inventory availability and rates across various channels. That leads to an increase in manual errors and more overbooking issues.

A channel manager updates inventory availability and prices across various platforms in real time.

So, the issue of double bookings is solved. As your property is visible on multiple channels, you get more revenue as you are present everywhere where your potential guests are searching.

4. Use a dynamic pricing strategy

Hotels can use dynamic pricing strategies to optimize their occupancy level and prevent overbookings.

Dynamic pricing is a part of the yield management technique that focuses on setting different prices for different rooms by analyzing factors such as market demand, seasonality, competitor rates, etc.

This way, you can capture more revenue from guests as you’re pricing your rooms as per market demand.

It might be possible that some guests turn to different hotels or cancel a reservation at the last minute, so that becomes a matter of concern for hoteliers. 

You can implement a dynamic pricing strategy and offer last-minute deals or offers to guests when the demand is low.

5. Provide training to your staff

Overbooking issues arise in hotels all the time so make sure that you train your staff in this type of situation. If this happens, they should communicate with frustrated guests and arrange alternative accommodation for them. 

Compensate them for the efforts and time they wasted in arriving at your hotel. More importantly, train your staff to be more polite and handle this situation calmly as it’s a matter of preserving your hotel's reputation.  

Arrange regular training sessions that infuse various traits in them such as empathy, and active listening, and demonstrate problem-solving skills when they are stuck in such tricky situations. 

How does Technology help the Hospitality Industry with overbookings?

Though overbooking is a profitable strategy in the long run, if implemented wrongly, it can ruin your hotel’s reputation and affects your guest’s experience. 

But if you adopt the above-mentioned hotel overbooking strategies, your hotel is on the path to success.

Relying manually and tracking the sources from where the reservation is coming from is altogether a challenging task. It’s high time for you to jumpstart your hospitality journey by investing in technology.

Ultimately, you want to generate more hotel revenue and that’s truly possible when you sell more rooms and operate at 100% occupancy level.  

That’s why you need the right tools to avoid overbooking issues and one such tool is the Property Management System (PMS). Our AI-powered PMS helps hospitality businesses maximize their hotel revenue by optimizing their room inventory. 

Want to avoid overbookings at your fingertips? 

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