Overselling

"Overbooked" redirects here. For the episode of SpongeBob SquarePants, see Overbooked (SpongeBob SquarePants episode).

Overselling or Overbooking refers to the selling of a volatile good or service in excess of actual capacity. Overselling is a common practice in the travel and lodging industry. In telecommunications, sometimes the term oversubscription is preferred. The practice occurs as an intentional business strategy where sellers expect that some buyers will not consume all of the resources they are entitled to, or that some buyers will cancel, the practice of overselling ensures that 100% of available supply will be used resulting in the maximum return on investment.

Internet connectivity

ISPs regularly sell more bandwidth or connectivity than they have. One of the most successful dial-up providers America Online had an extremely high subscriber-to-line ratio of 20:1.^[1] When Internet bandwidth becomes overused, all customers' service tends to be degraded without necessarily failing completely.

A telephone company can experience problems when large numbers of callers attempt to use the system at the same time. This generally only happens in exceptional circumstances (such as a disaster or national emergency), but can result in some calls not going through at all. The United States has the Government Emergency Telecommunications Service and Nationwide Wireless Priority Service, and the United Kingdom has the Government Telephone Preference Scheme and ACCOLC to allow official calls to go through reliably in emergencies.

Building for typical rather than peak demand is considerably less expensive.

Web hosting

In the web hosting industry, the term is used to describe a situation in which a company provides hosting plans that are unsustainable if every one of its customers uses the full extent of services advertised. The term is usually referred to the web space and bandwidth transfer allowance. A hosting company may offer unlimited space and unlimited bandwidth, however, they put other restrictions in place such as CPU usage or inode limit. They may have onerous restrictions and one-sided contracts that lets them cancel the hosting of anybody that puts a strain on their system or fully uses their claimed allotments.

This practice usually incurs little ill-effect since most customers do not use any significant portion of their allocated share. If a customer has a small, low-traffic site serving static HTML pages, few resources will be used. If a customer wishes to run a high-traffic, professional, or business website an oversold hosting account can be detrimental. In these cases, a shared hosting provider that does not oversell, a virtual private server or dedicated server is a preferred option.

Transportation

An airline, rail, or shipping company can book more customers onto a vehicle than can actually be accommodated by an aircraft, train, or cruise ship. This allows them to have a (nearly) full vehicle on most runs, even if some customers miss the trip or don't show up (tickets are often rebookable afterwards). Business travellers often cancel at the last minute, when their meetings take more time than planned. If everyone shows up, at least in the case of airlines, the overbooking will cause an oversale. Airlines may ask for volunteers to give away their seats, and/or refuse boarding to certain passengers, in exchange for a compensation that may include an additional free ticket or an upgrading in a later flight. They can do this and still make more money than if they booked only to the plane's capacity and had it take off with empty seats. Some airlines, like JetBlue Airways, do not overbook as a policy that provides incentive and avoids customer disappointment. They have mostly tourists and their tickets are not refundable afterwards, so their passengers show up. A few airline frequent flyer programs actually allow a customer the privilege of flying an already overbooked flight; another customer will be asked to leave. Often, only economy class is overbooked while higher classes are not, allowing the airline to upgrade some passengers to otherwise unused seats.

In the EU, European Commission Regulation 261/2004 sets out compensation requirements for airlines that deny boarding to passengers due to overbooking. In 2007, Air Deccan, the Indian low cost airline was found by Directorate General of Civil Aviation to overbook even when they weren't permitted to do so. They were known to cheat passengers by tagging the confirmed tickets as no show for compensating the additional seats. The airline pocketed all the money made by overbooking, minus airport tax, without offering a later flight for overbooked customers. The passengers that arrive last, either on time or even a minute late, become the target.^[2]

Hotels

During times of high demand, hotel operations also practice overbooking and apply similar procedures to that of the airline industry in which an equal or greater service of that of which was booked must be provided to the customer, in the case of a hotel, most states have laws requiring accommodations to be provided at an alternate hotel referred to as a "walk" in hotel terminology. In the event that a hotel is overbooked resulting in no rooms remaining available, hotel management will often "walk" the customer to a neighboring hotel at an equal or complimentary rate depending on the situation, hotels often maintain partnerships or agreements with neighboring or competitor hotels to utilize as alternate arrangements for overbooked customers during walk situations.

Some hotel chains have specific company policies which determine which customers will be walked in order of priority, often customers who belong to the highest tier level of the hotel's loyalty program or are considered a VIP guest will likely not be walked or would be the last to be walked in an extreme situation. Customers with third-party reservations that were not made directly with the hotel or first time customers with a discounted rate may be at a higher risk of being walked.

Solutions

In the transportation arena a company can add forecast to additional air flights on future routes, add more cars or consists to a train, move to a larger ship or add ships or containers to a cargo transport. In the telecommunications industry a common carrier may be able to solve an overbooking problem by adding bandwidth—either by adding lines to an existing system, reconfiguring existing lines, upgrading existing lines to a higher speed line or greater number of time-multiplexed lines, or some other scheme to add bandwidth. In the hotel industry, while revenue management teams commonly practice overbooking, they also work to ensure that hotels are not excessively overbooked resulting in negative brand perception and loss in profit.

References

1. ^ "A Sure Bet on Access Fees: More Uncertainty". New York Times. January 28, 1997. http://www.nytimes.com/library/cyber/surf/012997surf.html. 
2. ^ Air Deccan taking people for ride

External links

• The Wiktionary definition of oversell
• The Wiktionary definition of overbooking