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Is it time to review your cancellation policies?

2018 is a new year and perhaps a great time to review not only your rate strategies but also your cancellation policies.

There has been a lot of hype in industry blogs and news feeds recently about how the giants like Hilton and Marriott are reviewing their cancellation policies. If we take Hilton as an example, it is well known that in the latter half of 2017 they changed their cancellation policies and changed them quite aggressively.

In my days of working at Hilton, guests could cancel up to 2pm on the day of arrival!  Okay, that was 20 years ago but until recently, most policies were still 24 hours.  Hilton have now moved this to 48 hours and some to even 72 hours. There are many reasons for doing this but for Hilton, they have openly announced that their main reason was to stop guests booking, then cancelling at short notice and booking on OTA’s.

This new strategy of lengthening cancellation times has had a massive impact on their business – in a positive way – and they are considering moving cancellation times to 7 days or more. Their aim is to move to a flexible, semi-flexible and fully restricted rate strategy.  Let’s look at the positives:

  1. This immediately leads to fewer cancellations
  2. Fewer bookings move to expensive OTA’s
  3. Leads to an increased RevPar
  4. Guests ‘fence’ themselves and choose a rate by the policies they are prepared to adopt
  5. Improved rate strategies as there is no need to re-act to a mass cancellation of rooms in the last few days before arrival. Imagine how much stress and grey hair you would save your Revenue Manager!!!
  6. Inventory is easier to manage as everyone has a much clearer overview of business
  7. And of course the big advantage is that you can add only your most flexible rate to the OTA’s and your semi-flexible and restricted rates can be kept on your own site, therefore you can always advertise that it is cheaper to book direct.

We are all used to this flexible v non-flexible strategy with airlines, so isn’t this something we should consider?

The rules of course are that you need to make this very clear to your customers and your booking engine should be your first level of support. Consider perhaps adding 3 different rate levels: Fully Flexible with a 24 hour cancellation policy / Semi-Flexible with a 72 hour cancellation policy and Restricted Rate with a 7 day cancellation policy. Of course your guests will pay for more flexibility with the most restricted rate being the cheapest.

So what does this mean for you?

Well, you will need to ensure that your cancellation policy on the OTA’s match just one of your rates.  I often see hotels where due to poor contracting, OTA’s have access to more flexible cancellation policies than the hotels have on their own site.  So you choose…

Do you want to give the OTA’s access to the Fully Flexible Rate so that you can shout about your cheaper rates if a customer books direct? Or do you only give them access to your Restricted Rate that carries a 7 day policy, allowing you to restrict these expensive OTA’s and offer your guests more flexible cancellation policies?  That is up to you do decide.  You may feel that you rely too heavily on the OTA’s to potentially turn off their business or restrict them or you may feel that by giving them access to the Flexible Rate, you can market yourself as ‘Direct is Best’. This is your call.

But no matter what you decide, the main focus of your decision is not how this will affect your relationship with the OTA’s but more importantly what more structured cancellation policies might do for you business.

My advice is to take a leaf out of the airlines book and give your customers the opportunity to decide just how restricted or flexible they want their buying decision to be.  And lets face it, we all know that what the industry giants do now, we will all be doing in a year anyway, so why not introduce for 2018 – it might just invigorate your business!

(and for all things revenue, just ask@rightrevenue.wpengine.com)