How to combat last-minute cancellations
21 SEPTEMBER 2015 8:24 AM
Last-minute cancellations can cost hoteliers time and money. Here are some ways to maintain each booking.
GLOBAL REPORT—With last-minute cancellations having the potential to wreak havoc in the revenue management arena, hoteliers from Los Angeles to London are opting for a range of solutions that include tightening the rules on refundable bookings and turning to more sophisticated algorithms to forecast.
Last-minute cancellations have been on the rise in recent years amid an emergence of online tools and platforms that make it easier for consumers to shop and compare hotels, explained Bjorn Hanson, a hospital industry expert and professor with the New York University Preston Robert Tisch Center for Hospitality and Tourism.
“It’s an increasing problem that needs to be addressed,” he said.
“People are always looking for a better deal, and most cancellations happen when they see another hotel lowering their rate,” said Jamie Pena, VP of global distribution and revenue strategy for Omni Hotels & Resorts.
She and many of her fellow industry colleagues are taking action.
Hilton Worldwide Holdings is among the chains that have changed their cancellation policies. Guests must now cancel bookings by 11:59 p.m. local hotel time the day prior to arrival to avoid being charged for one night’s stay. The cancellation policies, though, might vary depending on the property and date of reservation.
Historically low vacancy rates are driving some of the changes, Hanson said.
“Hotels are becoming tougher because the industry is thriving,” he said.
But approaches vary, and managers don’t always see late cancellations as a bad thing—especially as hoteliers often overbook.
Bob Rauch, president of RAR Hospitality, whose 15 hotels in California and Arizona fly a number of flags from various hotel chains, is among those with a glass-half-full approach.
“We use cancellations as an opportunity to try to book the room at a more profitable level,” he said. “Oftentimes you’re facing a situation where someone booked at a lower rate and has decided to cancel, so now we have an opportunity to book the room at a higher rate, and we also have an opportunity to try to get the customer to book at a later date.”
Those who want to discourage last-minute cancellations have a variety of methods at their disposal.
One is using Google calendar more effectively to remind guests of their upcoming reservation and imminent deadlines to cancel without penalty.
Another solution is discounted, non-refundable bookings, which can be an especially effective option for customers traveling to family reunions, graduations and other life events where their attendance is all but guaranteed.
According to Adam Anderson, managing director of industry relations at Expedia, the cancellation rate with non-refundable bookings is seven times less than the cancellation rate for standard reservations made directly through a hotel or agency.
Packaged deals that bundle the cost of hotel rooms, airfares, meals or tickets to popular amusement parks is another effective method. They allow customers to save money without seeing where the savings are occurring, Anderson added.
What’s more, he noted that customers who book packaged deals stay at a hotel twice as long as the typical guest and book twice as far in advance as someone who is not signing up for the packaged deal. And the cancellation rate is one-fourth that of an agency booking.
Finally, when guests aren’t required to pay up front, reminding them that they can often pays dividends. Anderson said Expedia has seen a huge drop in cancellations since launching its Traveler Preference Program two years ago, in which guests can choose to pay for the room when making the reservation or pay at the front desk. While upfront payments are refundable, Expedia says this model results in half the cancellation rate of an agency booking, and 61% of its travelers paid up front when the choice was made clear.
Accommodate, don’t hate
And if someone still calls to cancel at the last minute?
“If it’s one call from a regular guest who has to cancel at the last minute because of extenuating circumstances, that’s not a problem,” Rauch said. “Our goal is to protect and grow our revenue. But at the same time, we have no desire to have guests hate us. The last thing we want is for someone to badmouth us on social media because of how we handled their cancellation.”
That’s a view shared by Omni’s Pena.
“If you plan properly and have a strong, accurate forecast, you can price so that you can raise the rate the closer you get to the date,” she said.
Pena added another key component in reducing last-minute cancellations:
“We want to deliver a great service and a great experience, and if you do that successfully, people are going to be less willing to cancel.”