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Hotel overbookings: What are the pros and cons and how can you make the most of an overbooking strategy?

  Posted in Resources

Hotel overbookings can be a divisive topic.

Some hoteliers love using this strategy to boost their revenue and protect their property from losing out due to last-minute cancellations. Others see it as a nightmare because they worry about the repercussions of dissatisfied guests.

However, you can minimise the risk of having to walk travellers if you have a solid overbooking strategy. At the same time, this can help you get the most out of overselling.

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

What is the definition of overbooking for a hotel?

Overbookings, or double bookings, happen when a hotel sells more rooms than it has available for a given night. Many hotels do this deliberately to offset last-minute cancellations or no-shows and avoid losing revenue and occupancy.

Of course, it can also happen by accident. The most common cause of unwanted overbookings is when inventory availability fails to update on some distribution channels, and they don’t close on time. Then reservations can continue coming in despite the hotel being full.

What happens when a hotel overbooks?

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. Monitor occupancy levels and close reservation channels before you get 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. 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 pre-paid, 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. 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 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.

The two main reasons some hotels use an overbooking strategy

1. To avoid losing revenue
Cancellations are part of doing business. A study even revealed that up to 40% of OTB revenue is lost to cancellations. If they happen far enough in advance, you still have a chance to generate new bookings. But if they come last minute or you have no-shows, your rooms are likely to go unsold and you lose that revenue. Overbooking lets you avoid this and helps you take advantage of every room’s revenue potential.

2. To achieve 100% occupancy
If you have no-shows or last-minute cancellations, you’ll close below 100% despite being fully booked initially. Overbooking compensates for these lost reservations and ensures that you reach 100% occupancy.

How to unlock the advantages of overbookings at your hotel

  • 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.
  • 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.
  • 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.
  • 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, diffuse 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.

The cons of overbooking and how to avoid it at your property

Despite the potential advantage of overbooking, keep the risks and disadvantages in mind when you plan your strategy.

  • Poor guest experience.
    Guests that 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.
  • A dent in your online reputation
    You’ll probably agree that it’s hard to blame a walked guest if they leave a bad review or complain 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.
  • Difficult situation for staff
    Usually the reservation manager or revenue manager decides when to overbook the hotels. 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.

Technology solutions that help prevent unwanted overbookings

While it’s possible to manage your overbooking strategy manually, that would take way too much time out of your day. Instead, leverage the following hotel tech tools to save time and improve your results.

Channel manager: It allows you to push inventory updates and new reservations between all online sales channels and your PMS in real-time. You can also use it to open and close your distribution channels and set overbooking limits. This means your system will stop taking bookings automatically once you’ve reached a certain occupancy rate. Now, you no longer have to worry about accidentally going too far with overselling.

Web booking engine with integrated payment solutions: This handy tool lets guests book and guarantee or even pre-pay their reservations directly via your website. While it doesn’t help you with overbooking per se, this lets you increase the number of confirmed bookings and protects you from last-minute cancellations and no-shows.

Business intelligence platform: Explore data on your history of no-shows, cancellations, overstays and early departures. Look more closely to see how these stats vary by weekday, month or season. This will help you gauge by how many rooms you can safely overbook.

Interested in how a hotel commerce platform like SiteMinder helps you control and manage your reservations more effectively?

The world’s leading hotel commerce platform.

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