Cancellations are a fact of life in the hospitality business. Hotels are making it harder for guests to cancel consequence-free by requiring at least 24 to 72 hours notice to change a reservation, but even so, plans change and dropped reservations are often unavoidable. With the right strategy in place, however, cancellations can also be lucrative.
When the hotel is at 100% occupancy it seems logical not to book any more guests—unless you’re able to forecast how many will cancel. If you can accurately predict that four people will drop their reservations, you can confidently overbook four rooms and still accommodate everyone. This is known as an overbooking strategy, and it’s crucial for keeping every room occupied and revenue as high as possible.
An overbooking strategy is ultimately an educated guess, so the more data you have the less of a gamble it becomes. Predicting how many guests will cancel on a busy Saturday compared to a slow Tuesday requires a very close analysis of all your data, both past and present. In order to get the most accurate estimate possible, factor all these different data points into your cancellation estimate:
Your overbooking strategy will only kick in when the hotel has a realistic chance of reaching 100% occupancy. That’s typically within reach once the hotel reaches 95% occupancy. Until then, hoteliers can focus on other things knowing that full-occupancy is unattainable, and continue to collect, store and organize data, using a PMS to automate the process. Once that threshold is attained, hoteliers should begin diving into the data to forecast cancellations. Until it’s reached, however, hoteliers can focus on other things knowing that full-occupancy is unattainable.
Before you can estimate how many guests will cancel tonight you need to know how many canceled yesterday, last month and five years ago. This is known as the wash factor, and it gives you a reliable estimate of how many guests will cancel plus when, where, why and how. Compare data from the distant past against data from recent memory to factor in how cancellation rates have evolved over time. Be sure to pull out data that might corrupt a graph. Was there a huge upswing in cancellations last May because a local conference was canceled, and all the attendees dropped their bookings? If so, that data should be removed from the pool.
Some guests are more or less likely to cancel than others. For instance, business travelers in town for a three-day conference are almost guaranteed to stay for the duration of their reservation. Alternatively, someone in town for one night at a highly-discounted room rate has a much higher chance of canceling. Hotels that plan to leverage an overbooking strategy need to take a close look at the guests arriving, staying over and checking out each day to understand where double-booking rooms could create conflicts and opportunities. After all, there’s always a risk that you will wind up with more guests than beds, and you need to know who will be easiest to relocate (or “walk”) to a different property.
On that note, when it comes time to walk a guest, it’s important to have in-depth insights into who is the best option. You don’t want to turn a loyal guest away, but at the same time, you don’t want to promise them a room you can’t deliver. Looking beyond the facts and figures at who will be impacted by your overbooking strategy is important because you could be sacrificing your reputation for a brief boost to the bottom line. Building profiles on everyone who has stayed at the property keeps your overbooking strategy from compromising your guest engagement efforts.
When you do end up overbooked you will need to have another room available for the guests you can’t accommodate. Vacant rooms are hard to find in compressed hospitality markets like urban centers or vacation destinations, which could leave you with an extremely disgruntled guest. As you’re fine-tuning the overbooking strategy, figure out exactly how many guests you can accommodate at another property if your estimates aren’t accurate. Consider that number to be the upper limit of the number of rooms you can double book.
Overbooking is just one part of a broader revenue management strategy built on data. Hotels can now take control of their bottom line and maximize value across the property—as long as they’re acting on information and insights rather than assumptions and expectations.
RoomKeyPMS puts data at your disposal. Our technology collects inputs from across online channels and in-person touch-points. Afterwards, it organizes the data so that it’s easy to explore and analyze. If you’re ready to end uncertainty, contact us.
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