Key Overbooking Considerations in a Recovering Market
By Tracy Dong - Exclusive for 4Hoteliers.com
Thursday, 18th August 2022

Managing an unhappy customer is never an easy task, especially when it involves walking a paying guest out the door due to an overbooking scenario.

However, any hotel that doesn’t have established overbooking strategies in place is leaving money on the table due to missed occupancy at the property’s highest price-point where profits can be maximised.

As international travel volumes return and demand for hotel rooms increases, some property owners can be tempted to adopt an aggressive overbooking strategy to build back business after the pandemic.

But how should your hotel approach overbooking to ensure you maintain positive guest relations while also maximising bookings and revenue?

Your front desk is on the frontline of customer service

Hotels should have clear and practiced procedures in place for dealing with overbooking situations. Revenue managers should alert their front office colleagues a day ahead, or during the day of overbooking, ensuring they're fully prepared and provide clear instructions about where to 'walk' the guests and at what rates.

Front desk managers should also have easy access to a list of preferred hotels you cooperate with when sending overbooked guests away. Ideally, front office team members should have contacts, or know a counterpart in these properties—be they a sister hotel as part of the same chain, or a property independent to your own. Having connections in these hotels can assist with obtaining a more flexible cancellation policy (if you just need to hold a reservation in the event of having to walk guests) and obtaining preferred booking rates.

It’s also extremely important to evaluate how well the hotel’s front desk handles guest recovery in any overbooking situation. One of the greatest opportunities afforded to any front desk is the ability to take a guest problem (such as being walked to another hotel) and convert it into guest loyalty. To do this, though, hoteliers need to ensure hotel staff are properly supported and trained to accommodate walking guests.

At a minimum, ‘walked’ guests should have their transport to their next hotel paid and ensure they are staying in a better standard of hotel room, to make the unfortunate experience a positive upsell. Guest recovery in ‘walking’ situations should also be supported by amenities, complimentary room upgrades, or no-walk/VIP statuses for future reservations.

Know which guests to move

Not all guests are worth the same and, as such, hotels need to be tactical about who they keep at their property and who it is best to try and move on. There are a range of factors in evaluating a guest’s worth and who should be moved, including any loyalty or rewards program members (and their status level), how many times the guest has visited the hotel, and their average spend.

High value return guests are more likely to visit again in the future, so introducing them to a rival property through ‘walking’ them is a poor outcome. Whereas a first-time guest who booked through a special discount price through an OTA or wholesaler is more likely an opportunistic, price sensitive traveller for whom property loyalty is not much of a consideration.

Trust your forecast

Hoteliers can often make the mistake of trying to book out their properties too soon, which misses bookings at the property’s highest price point closer to a guest’s date of stay. They try and sell out early and then have to reopen rooms for sale at a lower price when late cancellations come in. Hotels should accurately forecast and understand their cancellation ratios, so they don’t sell out too early or have to hold space at other hotels for expected overbookings.

Hoteliers need to understand overbooking is a long-term strategy that requires constant review. By analysing overbooking numbers months in advance, hotels can better compensate for expected group wash with high-paying transient guests.

Focus on net maximum revenue

Any hotelier looking to take an advanced approach to demand forecasting and overbooking needs to focus on their net maximum revenue. The aggressiveness of any overbooking strategy needs to be balanced with an understanding that net revenue for a night can be impacted by high or frequent walking of guests. Sometimes, it may be a better net revenue result to be one or two rooms short of a sell-out than to pay for a number of replacement rooms in another hotel for previously booked guests.

While maximizing net revenue is important to the financial performance of a hotel, it is also critical that hoteliers don’t excessively overbook on an ongoing basis. The short-term financial gains achieved through doing so will only come at the expense of a hotel’s long-term reputation as it could become known for walking guests, impacting consumer perception.

Consider cancellation behaviours

Thousands of people cancel and re-book online reservations every single day. In fact, there is automated technology specifically designed to alert travellers to new price reductions. Aside from losing the monetary difference in rate, hotel rate reductions cause guests to cancel and re-book reservations, having the potential to wreak havoc on your forecast.

Today, advanced revenue management solutions allow hotels to account for this specific guest buying behaviour. Before even making a reduction in rate, hotels can use revenue technology to automatically account for any potential revenue lost with guests cancelling and re-booking at the lower rate.

With cancellation and re-booking patterns varying by property, market, season, and day-of-week, these powerful features layer even more analytical insights into the revenue solution to optimally balance price and demand.

Maximise revenue opportunities through strategic overbooking

In a recovering and highly competitive market, hotels need to ensure that their businesses are operating effectively and to their capacity. When overbooking is established strategically through analytics, hotels can better understand the wash and cancellation patterns of their market segments to maximise revenue opportunities.

Written by: Tracy Dong, Principal Industry Consultant, IDeaS. For more information on how your hotel can better manage overbooking scenarios, please visit: www.ideas.com

This is strictly an exclusive feature, reprints of this article in any shape or form without prior written approval from 4Hoteliers.com is not permitted.

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