Overbooking is a strategic revenue management practice very common in the travel industry, especially among airlines and hotels. Basically, it is when a supplier accepts more reservations than can be served with his physical inventory. This calculated approach uses statistical forecasting to make up for expected cancellations and no-shows and ensures the asset is maximally occupied for maximum revenue.
To the average traveler, the practice of overbooking may appear as an error or a greedy inconvenience. However, from a travel technology and business point of view, it is an advanced way of managing perishable inventory.
Since a hotel room or a flight seat is an indivisible commodity that cannot be stored and later sold, all seats or rooms that are empty represent lost revenue that can never be recovered (known as spoilage). Historical data demonstrates that a percentage of travelers will invariably cancel at the last minute or simply not show up (no-shows). Overbooking is the buffer to fill those gaps bound to happen.
Overbooking is not a guess; it is a data science capability that is driven by a Revenue Management System (RMS).
These systems use complex algorithms to analyze huge amounts of historical data, including
The RMS calculates an “overbooking profile” or authorization level, which tells the reservation system exactly how many units it can oversell (e.g., selling 105 tickets for 100 seats), which will statistically guarantee it a full house without displacing guests.
The risk of overbooking is that the algorithm’s prediction might be incorrect and more guests would arrive than there are units available. This comes at a cost, both financially and in terms of reputation.
Yes. In most jurisdictions, overbooking is a legal business practice. However, it is subject to severe regulation. Airlines and hotels are required to give specific compensation and care to customers who are displaced due to overbooking.
It is common to see tech systems scoring passengers according to Customer Lifetime Value (CLV). Factors include loyalty program status, the fare class paid (full fare vs. discount), and the time of check-in. High-value customers are rarely displaced.
Wash is the industry term for the net reduction in the number of confirmed reservations as the date of arrival approaches (due to cancellations and no-shows). Revenue managers want to “forecast the wash” well enough to know how to set the overbooking limit.
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