How to Manage Hotel Overbooking… Properly!

NB: This is an article written By : Matt Shiells-Jones – International hospitality writer

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!

Check, check, and check again;

this is front-of-house’s domain.  Each reservation should be checked time and time again – the guest contacted prior to arrival (at least 2-5 days before arrival) to confirm arrival times, requirements and visit purpose.  This then ensures that all bookings are confirmed and reservations appropriately guaranteed.  Even doing this you will get some non-arrivals, but it will help reduce them.  If you are required to outbook, at least with knowing why people are visiting, you can arrange accommodation that suits their needs – do not send the disabled guest to the top of a 3 story set of stairs in an old castle!

Let Front of House determine the overbooking levels

and negotiate this with them – okay, so the first time you ask Front of House this question, they will say a flat out zero – no overbooking!  I would! But the fact everyone must accept is that overbooking is a gamble and must happen to ensure revenue is controlled as much as possible.  generally, your reception team will be able to ‘give you the feel’ for a certain day – after years on the job, many managers and receptionist can accurately predict whether you will be worthwhile overbooking or not, just by knowing what is on, what your (and your competitor;s) selling rate is and how many rooms are left in the hotel….. you would be surprised at this seemingly ‘psychic’ ability – I have been known to accurately predict the non-arrivals from the arrivals list on the very day

Overbook when you can, and only when you can –

if it is quiet in an area, then overbook to your hearts content.  Just bear in mind that 90% of the time that you overbook, you will not even end up full enough for overbooking to pay off.  You need to target that 10% of the time that it will pay off and this can be very tricky to do efficiently.  Every hotel is different and you need to find what works best for you, but you need to ensure that you are overbooking when it is likely you will have non-arrivals – overbook when you have promotional room only rates (out booking BB or DBB guests are generally much more difficult) taking up most of the hotel as these are by far the least likely to arrive.  Overbook when you have a conference of 1000 delegates all wanting rooms – chances are some will no-show.  Overbook when you only have transient guests in – transient 1-night guests are easier to displace than 3 or 4 night guests pr VIP clients!

Ignore the maths

I have already said ignore last year.  But I have to stress that a mathematical equation cannot predict the behaviour of people.  Whilst maths and science have been able to predict how the universe will behave, they have not yet been able to determine with 100% accuracy how an actual living, breathing person will behave!  You can compare similar periods of time, similar promotions and similar events, but you cannot guarantee anything. So if you are going to overbook, then limit how many you overbook by to at least do some damage limitation, if nothing else!

Analyse your statistics correctly

I have said ignore the maths and ignore last year, and I stick by that, but if you absolutely MUST use statistics, please ensure you use them correctly.  Bear in mind that one of the greatest flaws in any statistic is that it can be twisted to however someone wants to portray or interpret it – For example, imagine the headline ’1 in 5 people HATE hotels’ – this is vastly different to ’80% of people LOVE hotels’ – this is the same survey, with the same responses, just results portrayed differently!  The same thing happens in any statistic you read – you may see 10 no-shows a night, but someone else sees that 5% of the bookings for that day did not arrive, or even that only 95% of guaranteed bookings arrive.

Unfortunately human nature causes a bias to whatever you want to see.  If you want to see a reason to overbook, the statistics will provide it!  When it comes to analysing no-shows, do you ever look at market segments they are linked to, rates and groups they are linked to, prices they were paying, why they didn’t arrive, what was going on in the area, flight delays etc….. you could go on for hours!  My point is that without actually figuring out a profile of a ‘typical’ non-arrival for a night, you cannot work out whether anyone is likely not to turn up – if you know historically that 10% of your advance purchase rate guests do not arrive, then overbook by 10% of however many advance purchase rate guests are in each night – if there are 100, overbook by 10, if there are 50, overbook by 5 and so on….

Right – enough jabbering, but I think I have covered almost everything I can think of.  I have always been honest with my dislike of overbooking, and have always been honest (in the most part) with guests who have been out booked – overbooking is a gamble, and you can never get it ‘exactly right’ as that is an impossibility without a really good time machine/future predictor!  I urge all revenue managers to spend one day with reception when the hotel is overbooked – you will see just how hard they work when dealing with moving people to alternate hotels.  To give you an idea they have to:

• – Check availability for EVERYWHERE locally – lots of phone calls
• – Negotiate rates with other hotels to get as close to your selling rate as possible
• – Decide if rooms are to be held, or take a chance that rooms will not sell in the other hotel
• – Decide who to potentially out book – higher rates cost less, lower rates less likely to start an argument
• – Review arrivals – make sure VIP’s and special requests are retained in-house
• – Decide whether to out book now or wait to see if everyone arrives
• – Ring everywhere and check availability again
• – Negotiate room release times at the other hotel
• – Arrange payment clearance for the other hotel
• – Contact and inform the guest (if guaranteed to need to out book)
• – Deal with any complaint and negotiate any compensation packages
• – Action refunds or compensation payments to the out booked guest

All this usually whilst dealing with telephone queries, emails, in-house guests, general administration and the 100 other things that pop-up during a shift.  The point I make here is that over booking is not just a statistic and should not be seen as such; it has a human impact on real people!  You can make a lot of money if you overbook accurately, and can lose a lot if you overbook incorrectly.