What is hotel overbooking?
Hotel overbooking, or overselling, occurs when a property confirms more room reservations than it can physically accommodate for a specific date. Hotels employ this deliberate revenue management strategy to offset anticipated last-minute cancellations and no-shows, to ensure maximum room occupancy and to protect profitability.
Overbooking is one of several levers hotels use to protect occupancy and revenue as part of their wider hotel revenue management strategy. While often executed intentionally as a commercial safeguard, overbooking can also occur accidentally, whether due to human error or inventory-sync delays across third-party distribution channels.
Evaluating the pros and cons of overbooking allows hoteliers to balance the potential for 100% occupancy against operational risks, ensuring deliberate overselling limits are managed in a way that keeps guests happy and brand reputation unharmed.
This blog will take you through everything you need to know about the benefits, risks, and best practices of a hotel overbooking strategy.
Table of contents
Why do hotels overbook?
Hotels overbook rooms to protect against the financial loss of last-minute cancellations and no-shows. By selling slightly beyond physical capacity based on historical drop-off rates, hoteliers can achieve true 100% occupancy and ensure every room generates revenue. It’s a common strategy in the travel industry that is perhaps most famously employed by airlines.
Navigating the complexities of hotel management often requires innovative strategies to ensure optimal occupancy and revenue, and dealing with no-shows and late cancellations is one of the most complex challenges. Latest industry data from SiteMinder’s Hotel Booking Trends shows the global average cancellation rate sits at a rather high 19.15%, meaning that almost one in five reservations ultimately gets cancelled. When these cancellations or unannounced no shows occur on the day of stay, properties rarely have enough time to resell the room.
Strategic overbooking counterbalances this volatility. Rather than letting rooms sit vacant and forfeiting room and ancillary revenue, you can calculate the expected cancellation rates and sell extra rooms in advance. While far from risk-free – we’ll get to those soon – a strategic approach to overbooking can mitigate issues and provide a hotel with much-needed revenue in an ever more competitive hospitality market.
Is hotel overbooking legal?
Hotels commonly overbook to account for cancellations and no-shows, but the legal consequences vary by country, state, and booking terms. Hotels may relocate affected guests to comparable accommodation and cover related costs under their policies, but equal-or-better accommodation and additional compensation are not universal legal requirements. In the EU, individual hotel-booking disputes are generally governed by national law and contract terms, and there is no single EU-wide hotel compensation regime. In the US, there is no general federal hotel-overbooking compensation rule; state law, contract law, and hotel policy may apply.
What are examples of hotel overbooking policies?
Effective hotel overbooking policies establish strict guardrails that govern overselling limits, guest relocation procedures and mandatory guest compensation. Standard policies include setting a fixed overbooking percentage based on historical cancellation and no-show rates, and establishing a formal policy, including clear compensation structures, for displaced guests.
- Overbooking by a Fixed Percentage: Some hotels may choose to overbook by a certain percentage, such as 2%, 3%, or even 10%. This percentage is often based on historical data and the hotel’s past experiences with cancellations and no-shows.
- Walking Policy: When a hotel is overbooked and a guest cannot be accommodated, the guest is “walked” to a different hotel. The original hotel typically arranges and pays for the guest’s stay at the alternative hotel. This policy is common in the industry, but the quality of the alternative hotel can vary. Some hotels may walk guests to a comparable property, while others may have to walk guests to a less expensive or lesser quality hotel, resulting in potential dissatisfaction.
- Compensation Policy: In many cases, an overbooked hotel will provide compensation to the guest for the inconvenience caused. This could include free transportation to the alternative hotel, a free meal, or a free night’s stay. The specifics of this policy can vary from one hotel to another as well as local laws. Many OTAs have specific rules around overbooking and compensation as well that must be adhered to in order to remain on the platform.
Remember, these are general examples and the exact policies can vary significantly from one hotel to another. It’s always a good idea to familiarise yourself with a hotel’s overbooking policy before making a booking.
What should you do when your hotel is overbooked?
When your hotel is overbooked for a certain date, follow the steps below to ensure everything goes smoothly. An established set of procedures is important.
1. Check occupancy levels
Monitor occupancy levels and close reservation channels before you take on too many overbookings. Check your data to see how many cancellations and no-shows you can expect. Use this information to gauge how many extra bookings you can accept and close sales in time.
2. Analyse potential book-outs
On the day, analyse your arrivals to determine who you can walk. This can have a significant impact on your overbooking strategy’s success, so choose wisely.
If possible, keep the following travellers in-house:
- Repeat guests: Walking a loyal guest would risk upsetting them because they’d likely feel you don’t value them. In the worst case, this could mean losing them and their future business.
- Loyalty members: First-time guests who are part of your (or your chain’s) loyalty program should have priority as they are more likely to return.
- Direct bookers: Keep guests who reserved via your website in-house as they’re more likely to become loyal to your property or brand.
- High-paying and long-stay guests: Those who booked a special package (e.g. including ancillary services), a more expensive room category or a long stay bring more value than a one-night standard room booking.
- Travellers celebrating a special occasion: Someone who is staying at your hotel to celebrate their birthday or wedding anniversary, probably booked your hotel for a reason. Walking them would seriously dampen their day and could result in a particularly bad review.
When looking for guests to walk, travellers who have booked a standard room for a single night via an OTA are your best choice. You can also go through your bookings to see who hasn’t prepaid, left a deposit or given a credit card to guarantee their reservation.
Since these bookings have a higher probability of being cancelled, you can add them to your list of potential book-outs.
3. Offer compensation
Arrange for alternative accommodation and compensation: As soon as you know how many people you need to walk, look for a suitable alternative for them. Consider offering some sort of compensation as well, to show you’re sorry and appreciate their collaboration.
4. Share your guest list
Share your list of guests to walk as well as the new hotel with your team. Then ensure they know which procedures to follow when these travellers arrive. The goal is to make things go as smoothly as possible to reduce the added friction guests experience.
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How can hotels overbook successfully?
Hotels can overbook successfully by analysing historical data and creating clear operational procedures. You should establish accurate cancellation and no-show projections, set conservative overbooking percentages, create formal overflow partnerships with nearby properties, and train staff on how to ensure affected guests don’t think less of your hotel.
1. Analyse your data to make accurate predictions
Analysing data on past no-show and cancellation numbers is the first step to a successful overbooking strategy. Knowing your stats will allow you to make accurate predictions, better manage your room inventory and set the right overbooking limits.
As a starting point, many properties overbook by a percentage at or just below their historical average no-show and cancellation rate for that date or season, then adjust conservatively as they track results. The goal is to cover expected drop-off without routinely exceeding it.
2. Implement and follow SOPs for overbooking
Establish a standard process and make sure your team has everything they need to work effectively. This will keep things running smoothly even while you’re at 100% and reduce the inconvenience for the guests you had to book out.
3. Partner with hotels nearby
Most hotels overbook occasionally, so why not help each other out? Arrange overflow contracts that outline under which conditions you welcome each other’s guests during crunch time. That way you always have a good alternative up your sleeve, and you can generate extra revenue when your competitors are full.
4. Train front desk staff on how to handle book-outs
Walking an unsuspecting guest is not an easy task. Your staff needs to know how to act in this tricky situation. Provide training on how to manage the inevitable complaints, defuse potential conflicts and offer compensation.
Keep them updated on your alternative accommodation arrangements as well, so they can help guests get there with minimal fuss.
Key takeaways
- Historical cancellation and no-show data can give you the insights you need to set safe overbooking limits.
- Reciprocal overflow contracts with nearby hotels can help to save your reputation amongst displaced guests.
- Dedicated staff training and clear operational SOPs minimise guest friction during relocation events.
Heather Minyard,
Director of Commercial Strategy
Smoky Mountain Resorts
What are the risks of hotel overbooking?
The primary risks of hotel overbooking include guest dissatisfaction, damage to your reputation, and operational stress for staff. When overselling limits fail and guests must be walked to another hotel, properties face negative online reviews, lost repeat business, OTA penalties, and financial impacts from last-minute relocation costs – though all these risks can be mitigated.
1. Poor guest experience.
Guests who arrive only to get sent away probably won’t be happy. Many of them likely won’t want to come back either. Still, it’s your job to find a suitable alternative for them and do your best to ensure they have a pleasant experience at the new property.
2. A dent in your online reputation
You’ll probably agree that it’s hard to blame a guest if they leave a bad review or complaint on social media. Unfortunately, that can hurt your overall reputation or lead to negative coverage and cause you to lose future bookings.
Your best chance of avoiding this is to offer generous compensation and to make the move to the other hotel as easy and smooth as possible.
3. Difficult situation for staff
Usually, the reservation manager or revenue manager decides when to overbook the hotel. But it’s the receptionists who have to tell travellers they’re being moved.
That’s not fun for your front desk team and can become quite stressful depending on the guest’s reaction. Keep this to a minimum by using data to determine optimal overbooking levels and avoid going beyond that.
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Frequently asked questions on hotel overbookings
What does ‘being walked’ mean in hotel overbooking?
‘Being walked’ refers to the process of relocating a guest with a confirmed reservation to an alternative hotel because the original property has no rooms available, whether due to intentional or unintentional overbooking. The overbooked hotel typically covers the full cost of the replacement room, transportation and additional compensation for the inconvenience.
What is the difference between overbooking and double booking?
Overbooking is a deliberate revenue management strategy where a hotel intentionally sells more rooms than it has available to offset anticipated cancellations and no-shows. Double booking is an accidental error where the same room is sold twice, whether from human error or due to delayed inventory synchronisation as two bookings are made simultaneously.
What are the pros and cons of overbooking for hotel operators?
The primary benefit is maximising revenue by getting as close as possible to 100% occupancy, avoiding the losses caused by cancellations and no-shows, and opening up the opportunity for ancillary sales from a present guest. The main cons include potential brand damage from negative reviews, lost loyalty, staff stress during relocations, and financial penalties or lower search rankings from online travel agencies.
How can hotels prevent accidental overbooking?
Hotels can prevent accidental overbooking by using an automated channel manager integrated directly with their Property Management System (PMS). This technology is capable of updating room availability across all online distribution channels in real time, so can instantly close off rooms on OTAs and other third-party platforms the moment they are booked elsewhere.
