Overbooking is often mentioned in the restaurant, travel and airline industry. This is a business strategy used by companies and businesses to maximize revenue. So what is overbooking? Learn the advantages and disadvantages of overbooking for hotel business.
What is overbooking?
What is overbooking? Overbooking is the term used to refer to the status of selling beyond the maximum level that suppliers can provide. For example: selling more rooms available in the hotel, selling more seats on the plane, selling more seats on the ship, …)
The purpose of selling over this maximum is to prevent the case of No-show guests to maximize revenue and profit for businesses.
What is Overbooking in the hotel?
Overbooking hotel is when the hotel sells beyond the number of rooms that can be provided to customers.
For example, when the hotel has 100 rooms and has sold out. However, as expected, there will be 5% of no-show guests. In order to prevent no-show guests from affecting hotel revenue, although the room has been booked, the hotel continues to sell 5 more rooms (5% of 100 rooms). This is overbooking in the hotel.
If the number of guests does not equal or more than expected, the hotel will have enough rooms to accommodate all guests. If the number of no-show guests is less, those without rooms will be compensated by agreement and transferred to another hotel.
Application of overbooking hotels
Like MinLOS, overbooking hotels are also applied at the start of the peak season or when there are events taking place and the administrator expects to run out of rooms during that time. The application of overbooking will help the hotel maximize the room usage capacity, thereby increasing revenue and profit from the sale of rooms.
However, for overbooking strategy to be effective, without loss for hotels, the number of no-show guests must be predicted correctly and accurately. This prediction should be discussed carefully by the hotel management department. The bases for predicting the number of no-show visitors can be mentioned:
- Booking history at the same time in previous years
- Total number of rooms available for sale by the hotel
- The number and rate of guests canceling the hotel at various times
- Predict the length of stay of customers
- History rooms are often placed much in the hotel
Benefits of overbooking strategy in hotel business
Why stand next to the risk of compensation, can cause discredited hotels, managers still apply overbooking? It is because of the benefits this strategy brings.
Overbooking helps the hotel maximize room occupancy. Avoid risks when guests cancel their room at the last minute, guests make a reservation without coming.
By increasing occupancy, hotels can increase sales and profit. Since then, the growth of revenue from many charged services in the hotel can be followed.
When accurate prediction, the risk ratio when implementing overbooking strategy is quite low. The amount usually paid to the guest is always lower than the amount of the living room to pay.
Rooms with the same facilities in the hotel are fixed assets, which will be wasted over time. Overbooking hotel strategy helps minimize that loss.
Disadvantages of overbooking implementation in hotel business
As mentioned, overbooking in the hotel has certain risks. These include:
If the predicted no-show number is incorrect, the customer does not have room when checking-in, they will find it uncomfortable and have a bad impression of the hotel.
The hotel may lose one or more guests in the future without skillful handling. Public assessments can adversely affect hotel image and business situation.