Overbooking is a situation when the total
number of rooms reserved for a certain period of time exceeds the total number
of rooms available for sale for the same period.
In
other words it is the number of additional reservations need to achieve 100%
occupancy. Overbooking for hotels is a revenue management strategy that helps
to maximize the total capacity and increase the Room revenue.
But
on the other hand overbooking for guests means waiting and inconvenience that
result in their dissatisfaction with the services.
Below statistical and historical data
should be stored and processed by the reservation
manager or revenue
manager to calculate optimum overbooking levels.
·
Total number of rooms available.
·
Confirmed reservations vs no-shows based on historical data.
·
Credit Card / Guaranteed reservations vs no-shows based on
historical data.
·
Expected cancellations.
·
Predicted stay overs and predicted under stays.
·
Predicted Walk-in guests.
·
Room
type wise overbooking levels.
1.10
Advantages of
Overbooking:
·
Helps the hotel to achieve 100% occupancy by hedging against
guests who do not arrive or cancel their reservations.
·
Maximize expected revenue.
·
Optimizes the operations efficiency by increasing profitability.
·
Long term revenue and profit increases
·
Overbooking is a Low risk and the oldest most commonly used
method to increase profitability.
·
Widely used strategy in hotel revenue management.
·
When overbooking done based on past statistics then chances of
miscalculation decreases.
·
Compensation are normally cheaper than keeping a room empty.
·
Rules of refusing are predetermined and also acceptable.
·
Because hotel rooms are considered as perishable products,
overbooking yields considerable impact on hotels revenue.
1.11
Disadvantages
of Overbooking:
·
Do not justify the guest expectations which result to bad
experience and reputation.
·
Additional financial loss for example guest staying at the hotel
might have used other hotel facilities.
·
Guests can be negatively effected by it and therefore it is not
good long-term strategy for hotels.
·
Negative reviews on internet eg. Social media, Tripadvisor, and
OTA's reviews.
·
Requires professionally trained and experienced staff to reduce
risk of miscalculation.
·
Guests need to be walked to other hotels in case predicted
overbooking is more than actual availability.
·
Some times Overbooking decisions can be very expensive eg. to alternate arrangement / higher cost.
·
All possible service recovery efforts should be followed.
·
Reservations must be closely monitored to control overbooking.
·
Loss of room and other potential revenue.
·
Decreased customer loyalty.
·
Loss of hotel reputation.
·
Potential risk of denied services.
·
Lost future business from walked guest.
·
Negative word-of-mouth publicity.
·
If communicating compensation and process is not appropriate
there is a risk of significant financial loss.
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