Overbooking in hotels: What to do and how to turn it into a strategy to increase revenue

In the hotel sector, we talk about overbooking (or overselling) when more bookings are accepted than there are rooms actually available.

The reasons for this usually fall into three categories:

1. an error (such as overlapping bookings by phone and online),
2. a technical issue (like a malfunction that suddenly makes a room unavailable),
3. or a strategic choice, that is, an intentionally organized overbooking.

Only in this third case, therefore, is overbooking not seen as a source of complications to avoid at all costs, but as a technique to capitalize on bookings while minimizing risks.

To distinguish between unintentional overbooking (due to errors or unforeseen events) and planned overbooking, industry professionals prefer to define the latter with the term overselling.

Despite the technical distinction between overbooking and overselling, for convenience and to facilitate reading, in the course of this article we will use the more common term overbooking.

Overbooking has a single, enormous advantage: optimizing revenue by always aiming for maximum occupancy.

Because, although cancellation rates have gradually decreased compared to the peak recorded during the pandemic, going from 39% in 2020 to 24% in 2022, cancellations and no-shows can be a major problem for some hotels, reducing the occupancy rate by several percentage points. (If no-shows are critical for you too, read our tips on how to prevent or reduce cancellations in hotels)

Looking at the disadvantages, overbooking can:

• generate customer dissatisfaction and consequently negative reviews,
• lead to the loss of potential loyal customers,
• require incurring additional costs related to the obligation to rebook,
• create stress for the staff, who have to manage potentially very tense situations with the guests affected by overbooking.

As mentioned, however, these disadvantages can be minimized thanks to a well-thought-out strategy that allows you to enjoy only the economic benefit of overbooking.

If it is true that “an empty room is the greatest cost for a hotelier,” the challenge is to avoid this cost while minimizing the associated risks.

Here are the key steps to transform overbooking into a strategy in the service of Revenue management:

Creating a general forecast allows you to predict, day by day, how many rooms are expected to be occupied and at what price. Only in this way is it possible to identify the most suitable dates for overbooking.

Analyzing last-minute pick-up allows you to refine the strategy for the hottest dates identified with the general forecast. By observing the pick-up of the last week or the last ten days, an estimate of the rooms that will be booked on those days, walk-ins, and stay extensions can be deduced.

Based on the data obtained, it will be possible to understand how many potential extra rooms can be sold and therefore how likely it is to go into overbooking.

Wash down is the opposite of pick-up and serves to predict how many rooms might be 'lost' due to cancellations and changes. For example, a pick-up of 45 rooms and a wash down of 22 for a given period would generate a net pick-up of 23 rooms (thus including cancellations, last-second departures, and any stay reductions).

In this final phase, the actual feasibility of overbooking is assessed. Using the previous example, if it is expected to have 60 rooms occupied out of a total of 80 and a net pick-up of 23 is anticipated, the total number of occupied rooms would rise to 83, creating an overbooking situation for 3 rooms.

Therefore, the critical question arises: should one risk overbooking and potentially enjoy full occupancy, or play it safe, with the possibility of ending up with unused rooms?

Each step requires careful consideration, and therefore, it is essential to refer to solid and accurate historical data, as well as your own experience and analytical skills.

Overbooking strategies differ significantly depending on the accommodation facilities: some choose never to resort to this tactic, others implement it to a limited extent (5-10% of the rooms), and others still resort to it heavily, going as far as operating with overbooking even at 300%.

There is no precise rule even on the minimum number of rooms a hotel should have to implement an overbooking strategy. Even though larger hotels might have more flexibility and resources, smaller ones could still consider this technique, especially during peak occupancy periods.

Regardless of the approach you choose or your number of rooms, there are 4 universal guidelines to consider for managing overbooking in your accommodation facility.

Being clear and decisive about the overbooking strategy is crucial, whether you choose to implement it conservatively or aggressively. Clearly communicating the strategy to the entire team is fundamental to avoid providing conflicting information and ensure a synergistic approach in customer management.

The law does not prohibit overbooking, but it requires that travelers be protected with the obligation of repositioning, i.e., the guarantee of accessing an alternative accommodation of equal or greater value. It is the hotel that generated the overbooking that must cover any cost differences and any additional related expenses.

Adopting overbooking as a planned strategy allows for early organization. Finding partner hotels for repositioning agreements, establishing availability and prices in a way that is advantageous for both parties, is a key step. Carefully deciding which customer to reposition, communicating proactively and offering them valid solutions that are ready, can transform a potential inconvenience into an opportunity to showcase one's professionalism and attention.

No-show, meaning a guest who does not show up for check-in without notifying, is a source of financial loss and frustration. The most common strategy to reduce this occurrence is to require guarantees, such as a credit card number or a deposit.

Another method is to resort to increasingly popular insurance policies, which can be taken out by both guests and structures, offering financial protection to both parties.

Finally, an effective (but often overlooked) method is to contact the guest a few days before arrival, announcing that everything is ready for their stay: in most cases, the social nature of human beings prevails and encourages the guest, to avoid others working unnecessarily for them, to inform the hotel that they will not show up for their stay.

In Italy, there is no specific regulation on overbooking in hotel and non-hotel establishments because, in our country, the hotel contract is an atypical contract, meaning it is not specifically regulated by the law.

To understand how to behave, therefore, one must refer to the general regulations indicated in articles 1175 and 1375 of the Civil Code, which respectively govern fairness and contractual good faith.

That is, both the hotel operator and the customer must behave honestly and loyally. If, in the case of the customer, this implies notifying in case of unforeseen events or inability to use the stay, for the hotel it means fulfilling the obligation of repositioning.

With repositioning, the guest is entitled to:

• be accommodated in another establishment of equal or superior category to the one booked and without any additional expenses on their part;
• receive the reimbursement of any price differences if the identified accommodation for rebooking is of a lower category;
• be compensated for all collateral expenses, such as transportation from one facility to another.

On the other hand, the client has the right to refuse the alternative accommodation and, if it can be demonstrated that the overbooking was intentional, to request compensation equal to twice the deposit paid.

In this article, you have seen how overbooking can be turned into a strategy with potential beneficial effects on your facility's revenues.

If you want to delve deeper into this topic and have an effective tool at your disposal to better evaluate the possibility of resorting to overbooking, we have prepared a comprehensive guide for you with examples and detailed explanations.

In addition, within the guide, you will also find advice on how to manage unintentional overbooking, which occurs not due to strategy but because of errors or unforeseen events.