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Cancellation, no-show policies protect revenue
December 3 2012

Cancellation and no-show fees helped offset declines in RevPAR. But now hoteliers are becoming more lax with these policies to boost guest satisfaction.

  • In its 2012 Lodging Survey, the American Hotel & Lodging Association found the percentage of hotels charging for late cancellation in 2012 at 68%, a nine-point drop from 2010.
  • Gaylord Hotels’ attrition and cancellation fees peaked in 2009 at $27.7 million when Gaylord-branded properties’ occupancy hit a 66% low for the year.
  • In some hotels, including ones in major airport markets, cancellation fees can be a lucrative source of revenue, said Mike Marshall of Marshall Hotels & Resorts.

REPORT FROM THE U.S.—During the downturn, many hotels were dependent on attrition, cancellation and no-show fees to boost revenue as they struggled with occupancy and the ability to drive rate. However, since this year’s recovery, it appears some hoteliers are taking a more generous approach and are shying away from cancellation-fee policies.

In its 2012 Lodging Survey, the American Hotel & Lodging Association found the percentage of hotels charging for late cancellation in 2012 was 68%, a nine-point drop from 2010.

“I think that has more to do with customer satisfaction and retention than anything else,” said Mike Marshall, president and CEO of Marshall Hotels & Resorts.

Mike Marshall
Marshall Hotels & Resorts

Doing away with no-show and late-cancellation fees might work at some properties, more so at hotels with a greater share of transient business, but hoteliers in resort destinations or in a convention hotel need to be more careful, Marshall said.

Gaylord Hotels, for example, a chain that has a customer base of 78% group and 22% transient relied heavily on fee collections to offset declines in revenue per available room during the recession, according to Executive VP and CFO Mark Fioravanti of Ryman Hospitality Properties, the real estate investment trust formerly known as Gaylord Entertainment.

During a presentation at the Deutsche Bank 20th Annual Leveraged Finance Conference earlier this year, Fioravanti said attrition and cancellation fees peaked in 2009 at $27.7 million when Gaylord Hotels’ occupancy hit a 66% low for the year. In 2011, occupancy was at 72% and attrition and cancellation fees collected were only $9.2 million.

Unlike transient business, the group segment is a lot more difficult to recover from if there are last minute cancellations or no shows, said Gerry Chase, president and COO of New Castle Hotels & Resorts.

If a couple cancels a wedding two days before the reception was set to take place, they need to be charged penalties, Chase said. Weddings and major group events are usually planned a year in advance and the majority of people do not walk into a hotel the day before their wedding to book a space for the reception.

It’s a similar case with resort properties, Marshall said. “The prospect of getting someone to walk in at the last minute to cover someone who canceled is (minimal).”

Transient property fees
Unfortunately for the hotel business, hoteliers are selling space and time, which means that once it is lost, it is lost forever, Chase said.

Gerry Chase
New Castle Hotels & Resorts

While convention hotels were sticklers for cancellation policies during the recession, it was a different story at many transient properties. Rather than sticking to their established policies, hotel staffs worked with guests during the recession.

Guests would receive cancellation-fee bills for services they did not use, which especially didn’t make them happy during tough economic times, Chase said, so many hotels waived their fees.

“During the recession, we were more flexible with it because of our competition situation,” he said. As the industry moves on from the recession, however, Chase said hoteliers have to start holding guests accountable.

In some hotels, including ones in major airport markets, it can be a lucrative source of revenue, Marshall said.

Guests are aware they will be charged for late cancellations and failure to keep a reservation, Marshall said, meaning there should be no surprises when a bill arrives. “(With) most websites, if you’re booking online, you have to check and agree that you’ve read the cancellation policy,” he said.

“We’re clear as clear can be,” he added.

Showing flexibility during emergencies
While hoteliers need to stick to their policies to avoid leaving money that could be difficult to recover on the table, they need to be flexible during emergencies as well, Chase said.

“With (Superstorm) Sandy, a lot of hotels were affected, and people canceled. We didn’t charge (groups) for those meetings,” he said. Instead, staff members of New Castle properties in markets affected by the storm worked with meeting planners to figure out alternative dates for their events.

Some guests do lie to get out of a hotel reservation at the last minute, but “give them the benefit of the doubt,” Chase advised. Rather than just not showing up, that guest took the time to call and that should be appreciated.

“If they take the time to call,” he said, “usually there’s some good reason why they couldn’t make it.”

Hoteliers’ end of the bargain
Chase said it is important for hoteliers to follow through on what they promise as much as the guest does.

If guests fail to show up for a reservation, they should be held accountable, but if the guest does show up and the hotel does not have enough space for the guest, the hotel should also act responsibly.

For the 29 properties managed by New Castle, “we’re saying that if we don’t hold your room, we’re going to pay for you to stay somewhere else. So you’re going to have a free night on us,” he said.

Sometimes hoteliers have to give a little bit. Being in the business of hospitality, “that’s what we do, and I think that’s what the industry does,” Chase said.

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