Overbooking

Overbooking is the deliberate practice of confirming more room reservations than a hotel's physical inventory allows for a specific date. Revenue managers use historical cancellation, no-show, and early departure data to sell anticipated vacant capacity, maximizing occupancy and revenue yield.

How it is used

Operators establish overbooking limits based on risk tolerance, booking curves, and historical wash rates. Done correctly, it protects against revenue loss from last-minute cancellations. Done incorrectly, it forces walk costs, where the hotel must pay for a guest's alternative accommodation, transportation, and goodwill compensation, damaging reputation. Revenue managers continuously adjust overbooking caps as the stay date approaches, lowering limits if cancellation velocity drops below projections.

Worked example

A 200-room property expects a 5% no-show rate and 5% last-minute cancellation rate for a peak Saturday, totaling 20 anticipated rooms dropped. The revenue manager sets an overbooking limit of 15 rooms (7.5% over capacity), selling 215 rooms. If 18 bookings wash out, the hotel achieves 98.5% occupancy with 197 rooms occupied, avoiding 15 empty rooms.