Overbooking

Overbooking is a common practice used by service providers, particularly in the travel, hospitality, and transportation industries, where more reservations are accepted than the actual available capacity. The strategy relies on the statistical likelihood that a certain percentage of customers will not show up or cancel their reservations, allowing companies to maximize occupancy and revenue.

In the airline industry, overbooking is a widespread practice. Airlines sell more tickets than available seats, anticipating no-shows due to factors like last-minute cancellations or delays. When more passengers show up than there are seats, airlines must implement procedures such as voluntary or involuntary denied boarding, often offering compensation to affected travelers.

Similarly, hotels and cruise lines often overbook to offset cancellations or last-minute bookings. This can lead to situations where confirmed guests are unable to be accommodated, creating customer dissatisfaction and logistical challenges.

Overbooking carries both economic benefits and risks. It increases the likelihood of full capacity utilization, thereby raising revenue, but also raises the potential for customer inconvenience and negative reputation if not managed properly. Ethical concerns arise when customers are involuntarily displaced or face significant delays. To mitigate risks, companies typically develop overbooking policies, often incorporating alternative arrangements or compensation.

In summary, overbooking is a strategic practice aimed at optimizing capacity and revenue in service industries, but it requires careful management to balance profitability with customer satisfaction.