What hoteliers should know about overbooking
 
What hoteliers should know about overbooking
13 MARCH 2017 8:28 AM

An overbooking strategy can help drive revenue at hotels, but that means a guest might need to be walked from time to time.

REPORT FROM THE U.S.—Overbooking hotel rooms can play a big role in a hotel’s revenue management strategy. With a few best practices for overselling and walking guests, revenue managers can ensure they don’t leave money on the table for their owners.

Brian LaPlante, regional director of operations for Driftwood Hospitality Management, said a best practice for overbooking at a hotel is what he considers preventive medicine.

“When a hotel has been up and running for awhile, you have a certain clientele and a mix of business and you tend to know about how many rooms you tend to wash on an average basis,” he said.

For example, he said that if a hotelier knows that the property has a history of overbooking by three or four rooms that tend to wash down, then it’s a good practice to overbook those rooms to maximize revenue at the hotel.

Wendy Norris, corporate director of revenue and e-commerce at the Valencia Group, said that coming up with an overbooking strategy can vary by market, but there are some overall best practices to keep in mind.

“What you want to make sure is that you’re looking at your day-by-day wash factor and factoring that in as your percentage of your arrivals for the day so that way you can come up with an actual oversell number,” she said.

Norris said revenue managers need to look at the hotel’s business mix to determine the best plan of action for overbooking. For instance, if the hotel has a lot of group business coming in or negotiated contracts that have a no-walk clause, then that needs to factor into the oversell number. Likewise, hoteliers should look at the reason guests are visiting a hotel. It might not be wise to walk customers who are visiting for special occasions such as honeymoons.

Cancellation policies also play a role in determining how many rooms to oversell. If a hotel has a 24-hour cancellation policy, it can help revenue managers determine what the oversell number should be for the next day, Norris said. However, if the cancellation policy is 6 p.m. day-of, then there will be a lot more movement. In that case, more rooms should be overbooked based on the property’s history.

Additionally, sources said it’s important to look at market compression.

“If you have a big citywide (market), you don’t want to oversell as much because the market is compressed enough,” Norris said. “You don’t want to oversell and have nowhere to walk a guest to.”

Katherine Steed, VP of sales and marketing for The Hotel Group, agreed.

“If we know we’re in a market where, say, the Super Bowl is going on that has zero capacity and should we miscalculate rooms there would be nowhere to walk them, then we’d be more hesitant to overbook,” she said. “But with the majority of properties we have historical data to track the average no-show rate, so we have it fine-tuned.”

Knowledge of market is always essential, according to Jon Galloway, director of revenue management for The Hotel Group.

“There are technology tools available to determine the wash factor of any given segment of any given day,” he said. “But those tools don’t replace what a person familiar with the market knows on their own.”

For example, Kansas City hosts the Big 12 Men’s Basketball Tournament, which causes a citywide sellout Wednesday through Saturday from 10 teams and fans visiting the city. However, only two teams advance to the final, which causes a significant amount of check-outs and wash.

Galloway said in a case like this he can look at where guests are coming from and the probability of which teams might win over other teams to help determine his overbooking plan.

“The more information you have, the better suited you are to oversell strategically,” he said.

Additionally, midweek bookings are usually from business travelers who are reliable to show up, he said, because they tend to be more determined in travel and expectations of hotels. If a hotel were heavily booked with these types of guests and the team oversold rooms that caused business travelers to be walked, it could be more disappointing to the traveler and the company he or she represents than a weekend leisure traveler.

The location of the hotel can play a large role in the overbooking strategy, Galloway added. An airport hotel might have a different oversell target than another type of hotel.

“If I’m at an airport property, I follow the Twitter feed of the airports looking for delays,” he said. “If Chicago shuts down it affects arrival patterns, so I can oversell there to offset.”

Walking guests
The reality is that overselling rooms can be unpredictable. Maybe the hotel was overbooked based on decisions made from historical data but all guests showed up, or perhaps a guest or two didn’t check out as planned. In those cases, arriving guests will need to be walked to another hotel. But in that instance, it’s important to keep some best practices in play to recover the service.

First and foremost, sources said hoteliers should already have a partnership with another hotel before the need to walk a guest even arises.

“Everyone should have a go-to for walk scenarios,” LaPlante said. “Make sure that it’s the same quality level and price point at least.”

Not only is a partnership with a similar hotel important for guest expectations but also when it comes to the bottom line, Norris said. A best practice for walking guests is to foot the bill at another hotel, and if a partnership exists it can lead to better rate than the best available rate.

“Sometimes a partner hotel will offer you a walk rate if the market is uncompressed,” Norris said. “Of course, if it’s compressed, you’re going to pay BAR. If you’re walking a $150 rate and the cost is $300, it just doesn’t make financial sense.”

Timeliness also is key for a successful walk, sources said.

“No one wants to be caught off guard if they show up at midnight,” Steed said. “We have an excellent revenue management team who can predict if we overshot. At that point, we’ll start to alleviate the issue by finding someone who is agreeable to be walked.”

Galloway said that process starts early in the morning to determine the guest mix. For example, business travelers and those guests with higher reward status need to stay. Many brands have rules on what status tiers can’t be walked.

“You can get an idea of guests that are staying and pick through and determine which guests might be more amenable to a walk and some might even like it,” he said. “It’s certainly a vetting practice.”

Beyond determining which guests to walk, LaPlante said it’s important to always be courteous when the situation happens.

“It comes down to showing them you really care, sincerely apologize and try to make up for it in any way you can,” he said, adding that if guests seem to be angry it might help to upgrade them to a nicer hotel.

“We try to get them to appreciate the efforts on the walk,” he said.

In the end, Norris said overbooking rooms and the risk of walking guests is something that must be done to ensure money is made for owners.

“If you’re not walking, you’re not being aggressive enough and there’s more money to be made,” she said. “You shouldn’t be walking 10 to 20 people, but one-to-two a month shows you’re doing a good job on the revenue management side.”

1 Comment

  • Kari March 14, 2017 7:54 AM Reply

    Interesting reading. As mentioned in the article, there are quite many factor to take into account and since the markets are different and leadtime for reservations vary a lot there are different strategies that can work as well.
    Especially on busy times you can be the hotel that have rooms left and take the overflow and overbookings from other hotels. Usually they don´t complain about the rate as long as they get a room. With the experience of more than 20 years, we have more often got the last room sold when we have had a few rooms to sell in the morning. If we have overbookings the reception refuce all requests and walk in guest and end up with a NoShow by the end of the day.

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