What is the meaning / definition of Overbooking in the hospitality industry?
Sometimes it can be necessary for a hotel to sell more rooms than it actually has available. To those unfamiliar with the internal workings of the Hospitality Industry, which is always influenced by and somewhat vulnerable to the vicissitudes of the global economic climate, that may sounds strange. But experienced hoteliers will tell you that selling rooms/spaces that you don’t have – Overbooking – can sometimes be the only way to protect a hotel from diminished revenue due to unexpected cancellations, no-shows or booking errors.
A hotel needs to reach 100% occupancy for obtaining the maximum amount of revenue.
To achieve this, you need to take into considertation in your forecast the following fluctations
- cancellations (last-minute / same day)
- stay extension
- early departures
Hotels will calculate based on historical trends how much they can overbook the hotel to reach a perfect sell out.
For instance a 100 room hotel, might need to sell 103 room, to be 100% occupied in the end.
Unfortunately, working with statistics, means that you are using trends and averages. The result can vary, meaning that at times you will fall short of the 100% occupancy, and sometimes you will have more guests than rooms.
For all these reasons, including an Overbooking policy in a hotel’s overall pricing and reservations strategy requires consideration and caution. Careless implementation could cause irreparable harm, but a well-managed Overbooking procedure could mean that a hotel’s profits are maximised year after year.
What should the Guest Service Manager do in case of overbooking:
- Explain the circumstance and reason for the situation (i.e. guest staying over).
- Apologise to the guest and explain what will be done.
- The hotel must arrange and pay for another hotel in the nearby areas with similar facilities and guest service standard. It is good to have overbooking agreements ijn advance between hotels. This can allow you to minimize revenue loss due to a difference in pricing between the rate paid to your hotel and the current rate where the guest is acutally sent to.
- The hotel also must reimburse the guest for any reasonable expenses incurred by reason of the change, including transportation and the cost of telephone calls to notify family.
- No Show