What is Overbooking?

Overbooking is the practice of selling more bookings or goods than can be accommodated. The intent is to offset the negative revenue effect of no-shows. This is a common practice in businesses where the service being offered is time-sensitive and therefore perishable. This approach maximizes the return on investment, but must be used with care, since it also annoys customers, who may take their business elsewhere.

Examples of Overbooking

Here are several examples of situations in which overbookings can arise:

An airline overbooks a flight in expectation of a certain number of passenger no-shows.
A restaurant overbooks its seating reservations, since some patrons never show up for their reservation slots.
A hotel overbooks its available rooms, in the expectation that some customers will never show up. If they do, then the hotel will arrange for them to stay in a room at an adjacent hotel.
A retail establishment may engages in overbooking when it promotes a product at a discounted price, and does not keep a sufficient number of units in stock to satisfy demand, leading to the use of rain checks.

Impact of Cancellation Fees on Overbooking

Some businesses minimize the need for overbookings by charging cancellation fees or making payments non-refundable, thereby providing an incentive for customers to follow through on their commitments.