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Hotel overbooking: Strategy, Solutions & Policies

  Posted in Resources  Last updated 21/07/2023

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.

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 happens when there is a hotel overbooking?

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 get too many overbooking. 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 compensations

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.

Examples of hotel overbooking policies

Overbooking is a common practice in the hotel industry, often used as a strategy to maximise revenue and account for last-minute cancellations or no-shows. However, the approach to overbooking can vary significantly from one hotel to another. Here are some examples of hotel overbooking policies:

  • 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.

Is overbooking legal?

Yes, overbooking is legal in many jurisdictions, including the United States and many countries in Europe. Hotels, like airlines, often overbook to compensate for no-shows and cancellations, aiming to maximise their occupancy and revenue.

However, while it is legal, hotels that overbook are typically expected to take responsibility for finding alternative accommodations for guests they cannot accommodate due to overbooking. This practice, known as “walking” a guest, often involves booking the guest into a nearby hotel of equal or greater quality and covering any additional costs.

It’s important to note that while overbooking is generally legal, the specific laws and regulations can vary by country and even by state or region within a country. Therefore, it’s always a good idea for hoteliers to familiarise themselves with the laws in their specific location.

Reasons why some hotels use an overbooking strategy

Navigating the complexities of hotel management often requires innovative strategies to ensure optimal occupancy and revenue. Overbooking is one such strategy that, despite its potential risks, is employed by many hotels to counterbalance the uncertainties of last-minute cancellations and no-shows. This approach aims to maximise every room’s revenue potential and achieve full occupancy. There are two primary reasons why hotels overbook:

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 hotel overbooking

While it may seem like a risky strategy, when executed correctly, overbooking can help hotels unlock significant advantages. However, to truly harness the benefits of overbooking, hotels need to approach it with a strategic mindset and a focus on customer service. Here’s how:

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.

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, 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.

Challenges and solutions around overbooking

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

1. 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.

2. 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 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 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.

Using the right tools as hotel overbooking solutions 

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.

A channel manager is a powerful tool that allows real-time inventory updates and new reservations to be pushed between all online sales channels and your Property Management System (PMS). It also enables you to control your distribution channels and set overbooking limits, ensuring you never oversell beyond your comfort zone.

A hotel booking engine with integrated payment solutions enhances the guest booking experience by allowing them to book, guarantee, or even pre-pay their reservations directly via your website, increasing the number of confirmed bookings, reducing the risk of last-minute cancellations show you how to avoid overbooking for your hotel.

A business intelligence platform allows you to delve into your hotel’s data, exploring patterns in no-shows, cancellations, overstays, and early departures. By understanding these trends, you can make informed decisions on safe overbooking limits.

SiteMinder’s platform offers these tools and more, providing you with a comprehensive solution for managing your reservations effectively. Here are three key value propositions of the SiteMinder platform:

  • Streamlined Operations: SiteMinder’s platform integrates with your existing systems, providing a seamless flow of data and enabling efficient management of your reservations, inventory, and overbooking strategy.
  • Data-Driven Decisions: With SiteMinder’s Business Intelligence tools, you can leverage your hotel’s data to make informed decisions that optimise your revenue and occupancy.
  • Enhanced Guest Experience: SiteMinder’s Web Booking Engine not only streamlines the booking process for your guests but also provides integrated payment solutions, enhancing the guest experience and increasing confirmed bookings.

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

By Dean Elphick

Dean is the Senior Content Marketing Specialist of SiteMinder, the leading technology provider delivering hoteliers unbeatable revenue results. Dean has made writing and creating content his passion for the entirety of his professional life, which includes more than six years at SiteMinder. Through content, Dean aims to provide education, inspiration, assistance and value for accommodation businesses looking to improve the way they run their operations achieve their goals.

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