The Overbooking Strategy

Overbooking is an accepted hotel and airline practice. Industry executives argue that there is nothing more perishable than a vacant room. If it is not used, there is no chance to regain lost revenue. Hotels need to protect themselves because potential guests frequently make reservations at more than one hotel or are delayed and, therefore, do not show up.

The percentage of "no-shows" varies by hotel and location, but is often around 5 percent. In a 400-room hotel, that is twenty rooms, or an average loss of approximately $2,600 per night.

Therefore, it is not surprising that hotels try to protect themselves by overbooking. Overbooking a hotel is just one of strategies that hotel managers make to ensure all rooms are sold on a daily basis.

Case Study

Jill, the front office manager at a 4-star resort on South Beach, had known for some time that the 400-room hotel would be overbooked for a particular Friday night in November. It was a busy time of year for the hotel, and they had a large wedding group who were checking in on Friday for a wedding at the resort on Saturday. On this particular Friday, the house count indicated that the hotel was overbooked by thirty rooms.

Based on previous experience and industry statistics, Jill and her team figured that there would likely be 5% no shows, which equaled 20 rooms.Since they were overbooked by 30 rooms, they would need to "walk" guests who had reservations for the other 10 rooms. Jill directed the front desk associates to call nearby, comparable hotels and book 10 rooms.

Jill and her team then discussed which guests would be "walked" based on the following criteria, and made a list of ten guests who would be moved to other hotels if it became necessary. Jill also reminded her team of the hotel's policy and procedure on walking guests. The front desk associate would explain that suitable accommodations had been reserved at a nearby hotel and that transportation would be provided to the new hotel.

When Frank, arrived for the night shift at 11 pm, all of the rooms in the hotel were occupied and the 9 of the 10 guests on "walk" list had been transported to other hotels. Since it is already 11 pm, Jill suspects that the 10^thguest on the list will likely be a no show and leaves for home thinking that she had successfully handled the overbooking issues. However, at 1:00 am, an elderly couple arrives at the hotel to check in. The couple are in the seventies, and the woman is using a walker. They have flown from Russia and their flights had been delayed. They are exhausted and hungry and do not speak much English.

Frank sees that they are the last names on the "walk" list informs them that the hotel is full. They immediately become upset and cannot understand why the room they reserved months ago is not available. They show their confirmation which indicates they had reserved a suite at a rate of $500 per night and tell Frank they are here for the wedding.

Frank realizes a mistake has been made and they couple should not have been placed on the "walk" list. He tries to calm them down and assures them that the hotel has booked a room for them in a nearby hotel for the night, and will transport them back tomorrow for the wedding.

However, when Frank calls the nearby hotel, he is told that the room was held until midnight, and has is now occupied with a walk-in guest. Frank calls other hotels in the area, but it is a busy weekend, every hotel is booked. Around 2:30 am, Frank finally finds a hotel by the airport with an empty room and books it. It is an economy hotel and rooms are listed for $99 per night on Hotels.com.

Frank orders an Uber and explains to the couple that they will be staying at a hotel by the airport, but the couple are clearly confused and upset. The Uber driver gets lost and they do not arrive at the new hotel until 4 am. When they arrive, it is raining and the woman slips and falls as she is getting out of the car.

Frank's shift ends at 7 am. There is a group of business travelers checking out just before 7 am, and in the rush, Frank forgets to tell his replacement Maria about the elderly couple. The bride comes down to the front desk around 10 am searching for her "lost" relatives from Russia, but Maria has no information.

The couple from Russia misses the wedding as the woman broke her wrist from the fall and they spent over 12 hours waiting in the emergency ward. The bride is furious when she finally learns what happened to her elderly relatives, and immediately calls an attorney.

1. Identify where mistakes were made by Jill and her team.
2. Are there ways that Frank could have handled the situation more effectively?
3. List the potential issues that an attorney might include in the lawsuit.
4. Do you think that the lawsuit will be successful? Argue why or why not.