Hotels use overbooking as a revenue management strategy. Rooms are a hotel’s major revenue source; however, a common and frequently occurring problem that hotels face is no-shows, the situation in which guests fail to turn up for the rooms they booked. This is detrimental to the hotel as its survival lies in full or near-full occupancy. Hotels overbook strategically by selling more rooms than are available at a particular time and for a particular period. The hotel uses experience to gauge the percentage by which it overbooks.
An article on StayNTouch, a company that designs and builds hotel software, elaborates on the practice, which they say is a risky strategy with the potential for great gain, if done well. Overbooking is used to increase occupancy and revenue. If overbooking is done carelessly the hotel’s revenue and reputation can suffer great damage. Statistics referenced in the article show that on a regular night the no-show rate for hotels in general could be up to 15 percent, and to safeguard their revenue, hotels can overbook by up to a similar percentage.
Overbooking can also occur outside of a strategic framework through online travel agencies, which can be both advantageous and disadvantageous for hotels. The advantages derive from more bookings and the potential for higher revenue per room. The disadvantages occur when hotels must manually adjust their room availability amongst several online travel agencies, which is an onerous process. If a hotel fails to update its room availability, it may advertise rooms that were already reserved through the travel agencies, resulting in overbooking. Legitimate guests who show up may then have to be redirected or “walked” to another hotel, causing chagrin to the guest and a smeared reputation to the hotel. The hotel further loses in that it must bear the cost of walking the guest.
One way to help you overbook your hotel strategically and to manage the process well is to pursue eCornell’s program in Hotel Revenue Management.
eCornell courses are approved by SkillsFuture Singapore for SkillsFuture Credit as well as by HRDF Malaysia under its SBL Scheme