Dear WuBookers, today we tackle a topic of great interest to both hoteliers and customers: overbooking in hotels.We will talk about it from the perspective of the hoteliers, trying to understand what tools to adopt to limit the potential problems and take advantage of the opportunities.

What is an overbooking

Overbooking is a widespread practice among airlines and sometimes used in the hotel industry as well. In the case of accommodations, it consists of the possibility of selling more rooms than are actually available for a given date. A situation that can occur by mistake or voluntarily and that in fact identifies two types of overbooking: 

• intentional (also called overselling): the deliberate choice by the hotelier to make more rooms available than inventory to protect against possible “physiological” cancellations; 
• Accidental: caused by involuntary mistakes or sudden technical problems (e.g., a breakdown that makes the accommodation unusable).

In the former case, therefore, it is a business strategy, while in the latter it is an involuntary action.

What happens in case of overbooking

Overbooking is generally a legal mode of sale in many countries. In Italy it lacks specific legislation, but this does not relieve tourism managers from possible liability. In fact, the contract between the customer and the facility, governed by Articles 1175 and 1375 of the Civil Code (i.e., according to the principles of fairness and good contractual faith), requires the latter to provide accommodation equipped with all necessary or possible furnishings and services on the basis of a certain price. 

In the event of overbooking, the customer is therefore entitled to “rebooking”: he or she must be offered the opportunity to be reallocated to another facility in the same place, of the same or higher category, at no charge to him or her. On the contrary, if the facility identified is of a lower level than the reservation, the hotelier will have to bear the difference in price, refunding the customer. Any collateral costs, including transfer costs, will also have to be covered. The guest may still decide to reject the hotel’s counter proposal and obtain compensation of up to twice the deposit paid.

From the customer’s point of view, therefore, overbooking is an acceptable practice as long as they receive adequate compensation or more than the reservation made.

And for the structure, what are the pros and cons?

The advantages and disadvantages of overbooking

If a very large facility, such as a hotel chain, is applying overbooking, it may make sense because alternative solutions will almost certainly be feasible. The hotel manager may, for example, still have the option of offering the customer a better room at the same price or moving the customer to a nearby property.

In fact, controlled overbooking can lead to some advantages, such as:

• maximize revenue and profits, without having to significantly reduce sales rates;
• achieve 100 percent occupancy, compensating for cancellations and no-show customers;
• Optimize operating costs by securing the sale of all rooms.

Is all that glitters gold? Not really, because – although it is not an illegal practice – overbooking is frowned upon by customers and, in general, undermines the concept of transparency and fairness that underlies the agreement between facility and guests.

Thus, among the disadvantages to be paid close attention to are:

• the risk of not meeting customer expectations with a possible increase in negative reviews;
• the risk of having to return any deposit paid;
• the possibility of incurring high costs to find an acceptable alternative solution;
• The failure to win customers’ trust or the loss of already loyal customers; 
• A stress on staff who, if inadequately trained, must handle unpleasant and potentially tense situations with customers;
• The loss of potential revenue from “walk-ins.” “Walk-ins” is the technical term that industry insiders give to transient travelers, whom it would then not be possible to accommodate due to a total lack of availability.

This practice, in our opinion, is especially to be avoided for smaller entities that want to be able to play the “ family relationship with the customer ” card.

Things to know about applying intentional overbooking

In consideration of this, if a hotelier still wants to use this revenue management technique, they must take several elements into account while avoiding improvisation as much as possible.

1. Data analysis

As we anticipated, overbooking is not a risk-free practice. Therefore, it is necessary to study a strategy based on historical data, that is, starting from the analysis of past years’ trends.

Here are some aspects to consider on a historical basis:

• The ratio of no-shows to confirmed bookings;
• The ratio of “no shows” to guaranteed reservations with deposit or credit card;
• The number of potential cancellations;
• The average length of expected reservations;
• potential walk-ins;
• The amounts of overbooking by room type.

This will help to understand if, over time, there is a pattern in reservations and related cancellations/no-shows, in what volumes and at what times. In this way, a decision can be made to apply overselling only at fruitful times, minimizing related disadvantages.

2. Selection of clientele

Overbooking pays off if the clientele is also pre-selected.It’s not a good idea to jeopardize the experience of a loyal customer or a guest who has paid a higher rate, is it?

It’s better to target, rather, travelers from third-party channels (such as OTAs and metasearch) who have made a reservation with flexible cancellation policies (which do not include penalties or costs to the guest), thus more likely to cancel; or shorter stays.

It is also inadvisable to separate the groups for obvious reasons .

3. Staff training

As mentioned, a customer who finds themselves without a room, without perhaps having been pre-informed, is potentially an angry customer. Therefore, it is important for hotel staff to be able to handle and reassure them, avoiding as much as possible counterproductive repercussions for the property such as negative reviews or harmful word of mouth.

Adequate training therefore includes not only the establishment of uniform guidelines on what to say and do in the event of overbooking in order to give consistent information and guidance to customers, but also the adoption of mediation and dialogue techniques for managing foreseeable conflict.

4. Establishing partnerships with other properties

Establishing a partnership with other hotels is essential to ensure proper re-accommodation of the overbooked customer. Indeed, this will ensure that there is always a solution to offer, even if there are no more rooms available at the property. Not only that, forming a partnership beforehand allows to keep costs under control – especially if the other hotel’s rates are lower – to the benefit of overall profitability.

Managing overbooking with WuBook

A cautious hotelier who does not want to jeopardize their own credibility now has the ability to better manage the practice of overbooking, while also limiting the damage of last-minute cancellations. This is possible thanks to two key tools: the hotel PMS and the channel manager.

Zak, the all-in-one PMS

Having full control of the property is essential to ensure its efficiency and minimize disservices and negative guest experiences. Zak, WuBook’s hotel management system, is the Property Management System that centralizes the operation and coordination of the entire flow of activities: from sales, to the management of ancillary services, to billing, to the trend statistics essential for accurate planning.

In addition, integration with major digital payment systems makes it possible to obtain greater assurance from guests during reservation, lowering frustration levels and economic losses related to no-shows. 

The Channel Manager

The Channel Manager is a technological solution that makes it possible to easily and simultaneously manage the supply and sale of an accommodation property’s rooms from multiple reservation platforms.

The Channel Manager is able to update room or apartment availability in real time and automatically across all sales platforms to which it is connected. When someone books a room, the Channel Manager updates availability on all websites, whether it is your own sales site, an OTA, or a metasearch. This way you will not have to make manual changes that expose you to the risk of inadvertent overbooking.

Shortcomings, oversights or human errors can be minimized or avoided altogether thanks to technology designed and developed specifically for the hospitality industry. Similarly, bolder sales strategies can also be implemented with the help of suitable analysis and planning tools. In both cases, overbooking can-and should-be well managed.