Overbooking: A New Look At An Old Problem

ABSTRACT

Hotel managers overbook in an attempt to maximize revenues and profits and to protect against the inevitable last minute cancellations. This article takes a new look at the actual direct cost and indirect cost of overbooking. In addition, an analysis is made of the impact of the loss of future room nights and marginal profits that result from guests who are “walked” and vow to never return. All past studies on the cost of overbooking have not considered the impact of lost future business and marginal operating profits. The amount of the true cost of overbooking combined with the amount of lost marginal profits is significantly higher than what has been suggested. Strategic actions that management can take are proposed.