Spillage, spoilage, overbooking and oversale: how confusing!
Spillage and Spoilage: how to manage them
Spillage basically means that we have sold the rooms available in our facility much too quickly, and are therefore forced to stop sales well in advance of the date of interest. This case occurs frequently, especially during high season, in facilities that most likely do not implement revenue management strategies and are eager to be fully booked months in advance, for fear of finding themselves close to stay date with many rooms left to sell and therefore with a large number of unsold units to record at the end of the day.
The most common issues related to Spillage are:
- Lack of control over online quotas, through TO’s and various allotments
- Incorrect or absent rate dynamization
- Lack of sales monitoring and control on booking window
- Failure to account for probable events on a specific date
Conversely, the phenomenon of Spoilage might arise; namely, ending up with a large number of unsold rooms close to stay date. This, too, should be viewed as a mistake, as one finds oneself in the position of having to do everything possible to sell the remaining rooms: such as, setting up a last-minute rate which, as we know, if not covered by a cancellation policy could lead to a consistent number of cancelled reservations (which would probably turn into new bookings at a new rate lower than the previous one).
Also in this case, for the sake of example, we could mention several hotels that start off with a high rate and miss out on sales in the meantime because the rate was not aligned with the market, thus running the risk of losing potential clients.
What are the common issues associated to Spoilage?
- Incorrect or absent rate dynamization
- Lack of booking monitoring
- Possible stay restrictions (Minimum Stay – High Bottom Rates)
- Lack of statistical analysis
In both scenarios, therefore, we are faced with a loss of revenue: in the first case, sales are completed too hastily, failing to maximize the potential earnings of the facility as we have not had the opportunity to drive the rate upwards; whereas, in the second case, we are forced to decrease the rate at the very last minute, losing out on possible revenue also in this situation.
What’s a hotelier to do?
Consider implementing revenue management strategies in your hotel management.
There are two more ways a hotel can lose revenue too.
Denials and Regrets: Or, More Ways to Lose Revenue
While these might sound like lyrics from a pop song, they’re firmly entrenched in hotel revenue management. Denials occur when the property cannot accept guests’ requests for a certain date because it is already fully booked. On the surface, that sounds like a great problem to have. Unless it’s too early, and then it can be a problem of “spillage.”
Denials are usually offline requests (e.g., phone calls or emails). When you track and record denials on your PMS or RMS, then you can review your pricing for the next weeks during peak season or for the same time next year and use that as a guide for your revenue management.
If the hotel fully booked out three or even six months in advance at a low rate through offline and online requests, this is a typical sign of spillage combined with denials. Rooms sold too fast at too low rates, leaving loss revenue potential. If you have data from previous years, you can use that information to implement a different approach.
Regrets happen when guests have started the booking process (online or via phone, email, etc.) but do not finalize it because the price is too high (in the vast majority of cases) or for other reasons (sales restrictions, guarantees required, etc.). As described for denials, regrets should be logged as well through the proper tools so you can compare them in the future.
As you know, an excessive number of regrets can indicate potential spoilage. Both denials and regrets offer an opportunity to improve your revenue management approach. Yet, it’s critical that you know which problem you face, so you know how to adjust.
Two more common problems hoteliers face are overbooking and oversale.
Overbooking and Oversale
Hence, the need to provide an accurate definition of two other terms relevant to the subject matter and somehow also connected to Spillage; as previously explained, this term is used to describe an uncontrolled, hasty sale, which in some cases can lead to Overbooking, which should not, however, be confused with Oversale.
Overbooking: it basically means that we have more rooms booked than the ones actually available in the facility. Please note, overbooking is not always a mistake, as sometimes the person in charge of bookings – or the Revenue Manager itself – pays particular attention to distortive variables which should never be underestimated (no show, early check out, last-minute cancellation, weather).
Precisely because these distortive variables must be accounted for, there can be tendency to sell more rooms than are actually available in the facility, as they could compensate for bookings that might potentially be canceled. Overbooking is, therefore, a moment of transition between going over or under current inventory.
In this case, it is particularly important to check the guarantees submitted by customers, such as deposits received, credit cards (often invalid) in order to keep the reservations under “control”.
On the contrary, if we find ourselves in the situation of having to “reprotect” guests – that is, rebooking customers with confirmed reservations at another hotel – then Overbooking turns into Oversale, as we have sold more rooms than are actually available in the facility.
This is just like Overbooking, however, in this case we haven’t screened the reservations or, more particularly – as previously explained – we haven’t performed an advance check on credit cards (which have all turned out to be valid) and we now find ourselves having guaranteed all incoming room reservations, due to an improper management of overbooking.
Ways to Forecast Hotel Revenue for the Coming Months
After Covid many hotels had to deal with such problems. Maybe yours is one of them.
Leisure travel has skyrocketed thanks to the warmer weather and pent-up desire to travel. Even city hotels have found themselves facing these situations during the week with some of their business travelers. This is likely to continue through the peak summer travel season.
Here’s an example: Several resort hotels booked up in May for August – during peak season. These hotels stopped their online sales early without maximizing their revenue. So, they have “spillage.” Of course, you want to book up. But you want to fully book out by selling rooms at the best rates you can from a revenue perspective.
As seen in last summers, the best reservations regarding ADR (average daily rate) for leisure hotels came in very close to the check-in date. People were booking a hotel within days of their decision to travel.
Those hotels with high online review scores and effective revenue management and marketing strategies in place were able to capitalize on those reservations. Their OTA visibility rewarded them with bookings. Their smart revenue management practice ensured they booked the rooms profitably.
These approaches allowed them to outperform their results for the same months as the previous summer.
To reiterate, the hotels with strong revenue management strategies in summer exceeded their previous year.
There are dates with excess demand when everyone wants to travel. When this happens, the goal is not only to get 100% occupancy, which is super easy but to do that at the highest possible ADR and net margin. That’s the most challenging and fun part of the game.
Boost Your ADR with Data-Driven Decisions
With the right tools, you can achieve the highest possible ADR. For example, when you can review the historical booking window and related ADR, you have a snapshot of the past. You can use past data to inform your actions in the days and weeks to come so you can avoid spillage or spoilage.
As you review your data, consider your cancellation statistics. They’ll guide you to the most suitable cancellation policy and penalties to apply for each period.
It’s also crucial to analyze data about cancellations and no-shows with an invalid credit card. That way, you can apply the proper overbooking strategy and check all the credit cards in due time for peak dates. This helps you avoid last-minute no-shows. If you have no valid credit card or another guarantee for late cancellations and no-shows, then you may be forced to resell the empty room at a low rate. Obviously, you don’t want this loss of revenue.
While the summer travel season tends to focus on countryside, mountain, and beach hotels, these approaches apply to city hotels too, especially during Autumn. City hotels are gearing up for big events, concerts, and conventions in major international cities like Milan, Barcelona, or Amsterdam. Such events are driving a lot of corporate and leisure demand at stellar rates.
All of this to say, it’s not too late to put the right revenue management strategy in place. You need the right approach for your situation with the right tools. They’ll help you avoid spillage or spoilage events that turn into huge revenue losses.
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