Hotel Overbooking – The Necessary Evil

Do You Overbook Your Hotel?

Early Days

Hotel booking

In my (pre-internet) days as a boy hotelier overbooking was normal.  If you wanted to fill your hotel, you had to do it.  People have their plans changed, people cancel.  If you didn’t overbook you were left to underwrite everybody else’s fate with your own.  In some of the places I worked in London the front office and revenue managers really knew their craft and often as a Night Manager I was expected to “walk” anticipated late arriving guests.  It is testimony to their skills and judgement that I didn’t have to do it very often.  Or maybe I delegated that job to reception?  It was a long time ago.  Times were tough.  You overbooked or you lost revenue.

When I first became a general manager I learned about overbooking groups.  Very quickly as it happens.  It came as a bit of a shock to the system to sit down at my desk and find the whole hotel sitting at 300-400% overbooked for the whole summer, thanks to the work of our wonderful groups department.  Very good at taking bookings, not always so quick to help out if they all confirmed.  Bless them.

Of course they didn’t all confirm.  They didn’t all run full.  If you work your overbooking regularly you can make sure everything washes down to solid business for your hotel.  Even if you do occasionally have to book entire groups out to the strangest of places.  The tour operators despise you for this of course, but if they’re going to book 45 pax and turn up with 20, as a hotelier, what are you going to do?

Along Came The Internet

An empty room.

Then along came the internet – and with it companies that have grown into the behemoths we know today, such as Booking.com and Expedia.  And the hotel industry made what you might call a balls of it.  There’s a concept associated with the internet – and it was there right at the start, I first became aware of it in a textbook in 1997.  That concept is “disintermediation”.  Which means customers can go straight to suppliers, and vice versa.

Instead of using the internet to get right up close and personal with their customers, the entire industry allowed, indeed encouraged Online Travel Agent (OTA) websites to get in the way.  Websites such as Laterooms promised to get rid of “distress stock” at knock down prices.   All well and good until some hotels made such websites the main source of their online bookings.  The hotel industry even insisted upon “rate parity” to try to prevent these operators from selling rooms cheaper than the hotels could.  A move that came back to haunt the industry.

Nuts.  Utterly bonkers.

Up To Date

So now we have a booking environment where OTA websites control not just the “unqualified” business on which they built their businesses, but much more besides.  They control the route to the customer for your hotel.  You have to work really hard to maintain a decent presence on search results.  And if you wanted any business from these OTA sites at all, you had to agree to their terms and conditions, pay them commission and make sure you didn’t book out their customers.  That’s right, their customers – not yours.

So Here’s The Problem

These OTA websites kick up one helluva stink if you book one of their customers out.  But here’s the problem:  Some of them now offer penalty-free cancellation right up to the date of arrival.  Even for heavily discounted rooms.  The OTAs have a lot of power and they know it.  They’ll bully the unwary hotel team if their customers are booked out.  That’s not the way it’s supposed to work if you want to run a profitable hotel business.  Discounts come with conditions attached, one of which is prepayment.  If you’re going to offer discounted rooms on these OTA sites you’re now hit with a two-sided problem that favours everyone but you.  If the guest turns up for their discounted room, you’ll still pay a commission on it.  If the guest cancels, you’re left with an empty room and lost revenue.  So without a credit card guarantee in the event of a “no-show” you’ll get duffed over – mugged for the selling price of your room night.

The defence against such a mugging?  Is overbooking.

I’ve seen reports suggesting that cancellation rates on some OTA websites can be as high as 30%.  It might be even more than that.  If the guest is not committed to staying at your hotel, they’re not confirmed.  If they can cancel up to the date of arrival, they’re not confirmed.  If they’re not confirmed you, as the hotelier are almost obliged to overbook.  You have banking covenants or targets to meet.  And you won’t meet them if you can’t fill your hotel at the right prices.  Cancellation rates of 30% are not compatible with profitable business.

So what are you going to do about it?

 

 

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