Home Revenue Management Reservation How to Manage Overbooking… Properly! Part I

How to Manage Overbooking… Properly! Part I

Dec 20, 2012  By 

 I have written many an article that slanders overbooking and how detrimental this can be to a hotel’s reputation.  But there are some positives to it too…  Let’s bear in mind that an entire airline industry pretty much owes its multi-million pound booming successes to revenue management, which stemmed from the art of overbooking.

Airlines and hotels are different beasts with great similarities when it comes to overbooking, like non-identical twins.  Take for example the overbooking of an aircraft – if everyone turns up in economy you can bump them up into business class, if necessary bump business into first class to do so.  In hotels you can do the same thing – bump people up in to different rooms types.  The issue with this in hotels is that by ‘bumping up’ you erode all your upgrade revenue – I have seen hotels so drastically overbooked that you end up with no upgrade revenue at all, because everyone who went in an upgraded rom was bumped up free of charge!

 Now if all your upgraded seats are taken in an aircraft, you can ask for volunteers to take the next flight.  Usually these volunteers will receive accommodation whilst waiting, cash-in-hand compensation and an upgrade on the next flight (I actually know people who make a living out of volunteering like this… it truly is an art form!).  With a hotel, you cannot ask a guest to stay on another date, nor can you start compensating with cash-in-hand for them.  The best you can do is another ‘airline’ option, of sending them to a competitor – generally this is a double-whammy as not only have you (usually) annoyed the guest, you have gleefully handed them like a freshly-wrapped gift to one of your direct competitors in the area, who now have the chance to really excel and make that guest a returning visitor, losing you loyalty, revenue and reputation!

But what if… lo and behold… there were a way to manage overbooking correctly, and be overbooked when it makes you money and not overbooked when you can’t afford to be? Well, there is!

Overbooking is an art of fine-tuning your reservations and internal teams. You need several things to make overbooking a successful practice – just ask some of the front desk staff who have to deal with poor overbooking management and they will tell you tale after tale of guests screaming, crying, threatening, refusing to move and even punching staff because they have been out-booked (I still remember ducking to avoid a coffee table that flew across the reception at head height – that guy was out-booked to the police cells!).  So here forthwith I shall dispense ye olde secrets of overbooking effectively – I have NEVER told anyone before about how I managed overbookings effectively, so please feel privileged as I dispense my common-sense guide and golden rules to overbooking properly!


 Understand your business base

- Seem simple?  Surely just run a report and get statistics on market segments and booking sources etc…? No! A spreadsheet does not tell you your true business base.  Remember that even in the best of establishments, profiles for guests do not get linked properly, or people book online for one night, then as part of their event for 2 nights, then over the phone for the next 3 nights – they have 3 bookings but effectively only one stay for 6 nights!  A spreadsheet cannot tell you all this.  You need to spend time with your bookings system and spend time running through the non-arrivals you have had etc.  Here are some general rules of bookings that will assist with understanding your business base:


  •  Use other websites-


      • - Promotional rates – If your hotel has 30 people on promotional rates, generally 1 or 2 of them will not show up.  the one who doesn’t show is generally the one who booked 3 or more months ago.  This generally only applies on a standard night

      • - Advance Purchase Rates – If the rate is a low advance purchase and the guest has not contacted you since booking, and has not shown by 9pm, usually they will not show up.  If they are a high advance rate, they generally will turn up.

      • - Groups – If all except one has turned up by 6pm, that one generally will not show up unless you have been told they are a late arrival.  Generally group bookings will arrive in a short time-span, if not all together.

      • - Flexible Rate Bookings – Can be difficult to master this one as they can sometimes be very unstable – one minute guaranteed, next they no-show.

        Understand your hotel.
          

        How many people have now thought ‘But I do understand it’… really? The point being made here is you need to fully comprehend your clientele and markets.  Understanding the hotel is about understanding the clientelle you receive.  Do you have clientelle who are akin to last minute change-of-plans (such as celebrities, business owners etc), or are your clientelle more leisurely and travel based so less likely to drop plans suddenly.  You need to really understand whether it is likely you will get non-arrivals or not as starting to overbook when you have little chance of non-arrival is dangerous.
        IGNORE LAST YEAR.
          

        Bring on the wrath of revenue managers all over the world!  There is a reason I say this – hospitality moves and fluctuates on a daily, monthly and even hourly basis – what is in-fashion and on-trend today, might be bankrupting you tomorrow!  Unless you are having exactly the same guest, exactly the same conferences, exactly the same weather and exactly the same local events, then these statistics are little more than a generic guideline of how you did last year.  Unfortunately, saying that last year you averaged 3 no-shows on a friday, so setting an overbooking limit of 3 for every friday this august, is incorrect. By doing this, you have ignored all the variables – what about the no-shows that were 2am arrivals, so arrived after end-of-day routines had been run on your system?  What about the no-shows that were duplicate bookings? or for the wrong dates? or simply were not checked in? or were not cancelled?  And then you have the no-shows that were part of conferences and events that did not arrive, and should not be included because they do not form a real indicator of anything except for anticipated no-shows for that event – you could have distorted your figures because you had 20 no-shows on one night because of heavy snowfall in the area as a result of a freak blizzard… the list goes on.  Last year has gone, it can do little apart from show you how you did on no-shows.  You could have an entirely different set of clientelle this year, or a totally different business strategy or even revenue model…. let last year stay as last year!
      • Know your non-arrivals 
        So I have said ignore last years statistics – that is true for the main.  But you should actually look at non arrivals in detail and see why they did not arrive.  I know hotels that will call a non-arrival and find out why they did not turn up, and log the results – this helps you build up pictures of why people do not show up; and that is a useful statistic!  This way you can truly see what drives people to stay or not at the hotel and helps you anticipate people behaviours based on their activities.

    Keep an open dialogue
    Many larger hotels have a great divide between sales and operations, and even more so between revenue and front of house.  that is because often one is not really seen as helping the other – the very low rate that launched last night, that revenue forgot to tell front of house about has caused a telephone queue and lots of bewildered queries on how long it’s running for and when does it apply etc? The walk-in that was offered a room at half price has just slashed the average room rate and revenue want to know what reception are playing at?  Sound familiar?  Well these problems will never go away; they just have to be accepted and everyone move on – but when it comes to overbooking I have heard many a hotel employee griping and complaining (and I am by no means innocent with that!), but does it really take that much to contact revenue and relay your concerns?  Or does it take much for revenue to ask front of house how they coped with being overbooked last night – who got moved and how much did it cost?  Pretty simply – TALK TO EACH OTHER!

- This seems a bit weird, but sites such as Laterooms, Expedia, Booking.com etc are all useful tools that will tell you demand for an area.  All allow you to search a specific area for availability, so do this and look at who is selling and at what rates (also use this for rate parity!).  If there are less than 50% of hotels in the area selling, look at restricting overbooking as generally you will find the rooms fill quickly.  The use of other sites also means you can see what your options are for outbooking and the associated cost for doing so – meaning you can predict any out booking costs


Know the area

 Everyone knows their way to and from work, but do you know what is happening in the theatre down the road tonight?  Do you know what is happening in 3 months at the local stadium or arena?  Many a hotel has lost important revenue by not anticipating demand – generally, as demand increases in an area, so does the room rate of surrounding hotels.  I have even once had 3 rooms left selling at £200 each in a hotel that normally charged £70 a night.  They sold at £200 a room – bearing in mind this was new ears eve in Blackpool and there were no hotels with availability within about 50 miles!  Except us!  Yes, it was risky but the fact that we had hundreds of calls for rates for that night, we could easily drop on the night to £150 and fill if necessary with walk-in guests, but we sold out a week in advance.

Prepare to remove over-booking last minute

.  
Generally you should be prepared that overbooking will need to be stopped last minute – do you have any controls for this?  A lot of hotels will stop overbooking by entering multiple ‘ghost’ reservations and this is a common overbooking control – astonishingly there are thousands of front office managers out there with no access to overbooking controls!  But if you are an airport hotel, or there is a major disaster?  You could end up with every room full in less than 5 minutes, or every departure not being able to leave… anything can cause your hotel to fill in an instant and not being able to stop overbooking can be disastorous!

Never over-book special events

.
Big stadium tours from celebrity singers or boxing matches, big-name football teams playing at nearby stadiums, large arena tours from boy-bands, Public holidays and Bank Holidays, and especially Christmas and New Year, in-house party nights/weddings – just a few examples of when NOT to overbook.  The reason here is that it is generally much harder to find space to out book to when there are busy local events on, and when you do find space, the rate is triple that of the day before!  In-house events nights should not be overbooked either because you could end up having to outbook someone attending one of the events.  Christmas and New-Year are ‘hot holidays’ – they are times when out booking is not only mo likely to cause a huge complaint from the guest, but is likely to ruin any festive spirit the guest had left.  It is also generally very difficult to find a room over these holidays, and if you do, the expense will be huge!

About Matt Shiells-Jones

Matt Shiells-Jones

Matt Shiells-Jones is International hospitality writer, industry contributor and specialist; Author of ‘How to be a Hotel Receptionist’ and the upcoming ‘Big Book of Hotel Standards’, available on 

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