Advantages and Disadvantages of Overbooking in Hotels
Overbooking is a situation when the total number of rooms reserved for a certain period of time exceeds the total number of rooms available for sale for the same period.
In other words, it is the number of additional reservations needs to achieve 100% occupancy. Overbooking for hotels is a revenue management strategy that helps to maximize the total capacity and increase the Room revenue.
But on the other hand overbooking for guests means waiting and inconvenience 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.
Credit Card / Guaranteed reservations vs no-shows based on historical data.
Predicted stay overs and predicted under stays.
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 operations efficiency by increasing profitability.
Long-term revenue and profit increases
Overbooking is a Low risk and the oldest most commonly used method to increase profitability.
Widely used strategy in hotel revenue management.
When overbooking done based on past statistics then chances of miscalculation decreases.
Compensation are normally cheaper than keeping a room empty.
Rules of refusing are predetermined and also acceptable.
Because hotel rooms are considered as perishable products, overbooking yields considerable impact on hotels revenue.
Disadvantages of Overbooking:
Do not justify the guest expectations which result to bad experience and reputation.
The additional financial loss for example guest 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.
Requires professionally trained and experienced staff to reduce 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 guest to alternate arrangement / higher cost.
All possible service recovery efforts should be followed.
Reservations must be closely monitored to control overbooking.
Loss 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.