Operations

Hotel Contracting, why overbookings can occur, and how operators manage supply and demand

Regrettably, hotel overbooking very occasionally occurs. This section explains how tour operators contract rooms, how they work to protect their customers - and why it is not true that, say, German holidaymakers fare better!

Hotel costs are a substantial proportion of the brochure price of a holiday - usually around 40 - 50 per cent for a typical holiday to Spain.

Negotiating with hoteliers begins over a year before customers arrive. There are two types of contracts used. With the so-called allocation or sale and return contract, tour operators only pay the hotelier for the beds they use. For example, they may contract 100 beds weekly but use and pay for 80 beds one week, 70 beds another and 100 the next week. An alternative is the fixed (or “guaranteed”) contract, where the tour operator pays for a fixed number of beds throughout the season, irrespective of how many are sold. With a fixed contract the risk to the tour operator is obviously increased.

Typically, 50 per cent of contracted beds are fixed, but this can rise to nearly 100 per cent when a destination is in very high demand.

Allocation contracts however are also popular with hoteliers. They usually do business with several tour operators from different countries, and - using judgement based on experience over many years - normally they contract for slightly more beds than they have available. This is also common practice amongst business hotels and scheduled airlines. As tour operators vary in their success in selling an individual hotel, the hotelier is able to have a very high occupancy rate, which keeps prices competitive for the customer.

Tour Operators do not overbook.  Once a holiday is booked, it is taken off the market.

Allocation contracts usually include a clause requiring the tour operator to confirm the number of beds sold several weeks before the customers arrive. This enables the hotelier to sell off any beds not required, or to stop the tour operator from taking late bookings if the hotel is full.

Overall this system works well for holidaymakers, hoteliers and tour operators. Problems can occur however, when there is an unexpected increase in demand from the main despatching countries - principally Germany and the UK. Even then, hotels should be able to avoid overbooking problems.

At its quarterly meetings the International Federation of Tour Operators (IFTO), compares booking trends for each of the major resort countries. Where there is a particularly strong demand for one destination, that country is alerted so that adjustments can be made to the beds allocated before the majority of bookings are taken.

Occasionally, and regrettably, there are some isolated instances where hoteliers have excessively over contracted and/or do not heed the early warnings of unusually strong demand.  Where this occurs close collaboration between IFTO, the national and resort tourism authorities - but principally between hoteliers and tour operators, can establish a clearing house for those hoteliers who have over-contracted. In this way rapid and practical action is taken to resolve immediate problems, and avert others arising.

In some countries, hoteliers who persistently seriously over-contract face fines and disciplinary action from the authorities. Equally, FTO members will not wish to contract with hoteliers who let down their customers - so bringing strong commercial pressure to bear.

Consolidation

Each February tour operators have to ask themselves questions such as - how many people will want to fly with us from Birmingham to Rhodes every Tuesday from May to October next year? Clearly not an easy question to answer more than a year in advance but they must try to get it right or they will have to make expensive adjustments later.

Inevitably when brochures go on sale some of these estimates will prove to be wrong. Prices may be too high or too low in comparison with competitors, the UK may experience a boom or a recession, Rhodes may receives good or bad publicity. Increasingly some customers now book late, which further complicates the situation. In some cases adjustments can be made: for example, contract another aircraft - larger, smaller or additional – increase or reduce the number of beds contracted.

On rare occasions however it may become clear that it will not be possible to meet the forecast by a wide margin. In these cases "consolidation" is carried out. This means that, for example, two planned flights of one tour operator to Rhodes from Birmingham and East Midlands are "consolidated" on to one flight from one of these airports or two tour operators will share a flight rather than operating separately as they originally planned.

Flight delays

Airport delays for both scheduled and charter airline services are a concern to passengers, their tour operators, and airlines alike. In summer 2003, the average delay from UK airports was 20 minutes, with 8 per cent arriving or departing more than an hour late. By comparison, in summer 1997, the average delay was 38 minutes, with 18% being more than one hour late.

FTO members work with other international tour operators to avoid congestion at popular holiday airports by staggering flight arrival times. They are also working with airlines and airports, in the UK and overseas, on a range of measures to lead to improvements. In addition the FTO is lobbying for increased investment in a modernised air traffic control system across Europe and more airport facilities.

Furthermore, in the event of a significant flight delay, FTO members ensure that their customers are looked after. Customers will receive food & drink, as well as accommodation and other support, dependent upon the length of the delay.