Advantages and Disadvantages of Overbooking in Hotels
Overbooking is a situation when the total number of rooms reserved for a certain period exceeds the total number of rooms available for sale for the same period.
In other words, it is the number of additional reservations needed to achieve 100% occupancy. Overbooking for hotels is a revenue management strategy that helps to maximize the total capacity and increase the room revenue.
On the other hand, overbooking for guests means waiting and inconveniences that result in their dissatisfaction with the services.
Below statistical and historical data should be stored and processed by the reservation manager or revenue manager to calculate optimum overbooking levels.
- The total number of rooms available.
- Confirmed reservations vs no-shows based on historical data.
- Credit Card / Guaranteed reservations vs no-shows based on historical data.
- Expected cancellations.
- Predicted stayovers and predicted understays.
- Predicted Walk-in guests.
- Room type-wise overbooking levels.
Advantages of Overbooking:
- Helps the hotel to achieve 100% occupancy by hedging against guests who do not arrive or cancel their reservations.
- Maximize expected revenue.
- Optimizes the efficiency of the operation by increasing profitability.
- Long-term revenue and profit increases
- Overbooking is a risk and the oldest and most commonly used method to increase profitability.
- Widely used strategy in hotel revenue management.
- When overbooking is done based on past statistics the chances of miscalculation decrease.
- Compensation is normally cheaper than keeping a room empty.
- Rules of refusing are predetermined and also acceptable.
- Because hotel rooms are considered perishable products, overbooking yields a considerable impact on hotel revenue.
Disadvantages of Overbooking:
- The additional financial loss for example guests staying at the hotel might have used other hotel facilities.
- Guests can be negatively affected by it and therefore it is not a good long-term strategy for hotels.
- Negative reviews on the internet eg. Social media, Tripadvisor, lodginglists.com, and OTA’s reviews.
- Requires professionally trained and experienced staff to reduce the risk of miscalculation.
- Guests need to be walked to other hotels in case predicted overbooking is more than actual availability.
- Sometimes Overbooking decisions can be very expensive eg. Walking guests to alternate arrangements / higher cost.
- All possible service recovery efforts should be followed.
- Reservations must be closely monitored to control overbooking.
- Loss is an excess of expenses over sales revenue. of room and other potential revenue.
- Decreased customer loyalty.
- Loss of hotel reputation.
- The potential risk of denied services.
- Lost future business from the walked guest.
- Negative word-of-mouth publicity.
- If communicating compensation and process is not appropriate there is a risk of significant financial loss.
Conclusion Advantages and Disadvantages of Overbooking in Hotels
Overbooking is a common practice in the travel industry, particularly for airlines and hotels. This means that more reservations are accepted than the actual number of seats or rooms available. The main advantage of overbooking is that it allows businesses to maximize their revenue by filling up any cancellations or no-shows with standby customers. This way, they can avoid leaving any seats or rooms empty and increase their profits. However, overbooking can also lead to some disadvantages.
One of the biggest drawbacks is that it can result in customers being denied their reservations, which can be frustrating and inconvenient. This can also lead to a negative reputation for the business, as customers who have been turned away may share their negative experiences with others. Another disadvantage of overbooking is that it can create logistical challenges for businesses, especially during peak travel times. Managing overbooking can be complex and time-consuming, and it requires a lot of coordination to ensure that customers are accommodated as best as possible.
Overall, while overbooking can be a useful strategy for maximizing profits, businesses must also be aware of the potential downsides and work to minimize any negative impact on their customers.