How to combat the soaring rate and cost of Cancellations
We Asked Hoteliers How They Combat Cancellations - Here’s What They Said
The phenomenon of the just in case booker, the “maybe” booker who books multiple hotels to make their final decision on one (or none) of them later is covered in Part 1 of our cancellations. Providing the option to cancel a room later for free can often convince people to book with you, though they clearly do so with less commitment.
But this growing practice has sent cancellation rates through the roof, particularly from OTAs (>40%) who initiated and aggressively encourage the practice. Hotels have followed OTAs to focus more on “free cancellations” for direct bookings, but the net result is a lot of wasted valuable time and resources spent on trying to convert “maybe bookers” who go on to cancel as they had no real intention to stay.
Hotels need to focus their efforts on “converting to stay” and forget about wasting time on converting those who have no real intention to stay and will most likely go on to cancel. Hotel inventory is perishable, and bookings made in advance that cancel close to arrival make it much harder for revenue managers to yield revenue.
Convert to stay, don’t convert to cancel
Converting “free cancellation” bookers far up the funnel, the just in case bookers who are still shopping around, is more like opening up an “I’m interested” list. It should not be viewed in the same way as a booking from someone who has made a firm commitment to stay. Don’t fool yourself with good conversion rates if a good chunk goes on to be cancelled.
Focus your efforts on offering decent direct booking benefits and incentivise early bookers to commit by paying in advance or at least paying a non-refundable deposit.
In this regard, hotels can learn a lot from the airlines. Rather than a free cancellation policy that ties up inventory for a long period, some airlines allow you to cancel a flight within 24 hours of booking it provided it’s made 7 days before take-off! It’s the same free cancellation concept but their inventory is not locked down for weeks or in some cases months as it is with hotels. If you are going to lose a booking, lose it early!
Learning from the Airlines
Aer Lingus for example allows you to lock-in a price for 24 hours. This is designed to allow those who are not quite sure of their plans to hold a booking for 24 hours for a small fee. Bookings must be confirmed with a full payment before the expiry time/date specified, otherwise the booking is cancelled, and the fee is forfeited. British Airways also offers the option to hold a flight price for 72 hours for a small deposit.
Why do hotels offer early bookers a free cancellation period up to 24 hours before arrival? That’s potentially months and months of that room being tied up only to be cancelled last minute.
Using another approach, American Airlines sell fare add-ons that let you change your flight for free at any time, you pay extra for that flexibility. And some other airlines, like Southwest, let you change and cancel fares almost whenever you like, but instead of a refund, you get credit toward a future flight within a year of the original reservation. All Ryanair flights are changeable, but they cannot be cancelled so all “just in case” bookings become “use it or lose it” bookings.
Lots of great ideas there to consider from the industry that masterminded yield management!
Chains like Marriott, the largest hotel brand in the world, and Hilton are well known for their direct booking programs - It Pays to book Direct (Marriott) and Stop clicking around (Hilton). They combine a very strong direct booking strategy with a smart cancellation policy
Direct champions Marriott and Hilton lead the way
In 2017 Marriott famously revised its free cancellation policy from 24 hours before check-in time to 48 or 72 hours before check-in if cancellation fees were to be avoided. Other hotel chains such as Hilton soon followed suit.
“We regularly review guest booking and cancellation patterns across our 5,000+ properties and have seen cancellation rates rise over the last few years,” Hilton spokesman Nigel Glennie said in a statement. “These insights have led to the proposed update, which will allow us to maximize the number of available rooms for guests seeking accommodation.”
The changes that Marriott and Hilton made reflect an industry shift in the way hotels are approaching cancellations. It makes good business sense and removes a lot of volatility and headache around occupancy and forecasting.
Bookassist surveyed hundreds of hotels across our network in April and the general feedback (unsurprisingly) was that OTA cancellation rates are significantly higher than direct cancellation rates. This supports general industry findings that report an increase in cancellations across the board, especially via OTAs.
Direct Cancellation rates below 15% for over half of respondents to Bookassist’s survey
Just over 42% of all respondents to the Bookassist survey reported OTA cancellation rates of between 30% and 50%, while more than half said their direct cancellation rates were below 15%. At Bookassist we see a huge variation across hotels largely due to the strategy they employ. What’s really obvious is that hotels that fail to adopt a strong direct booking policy suffer higher rates of direct cancellations, some of which can exceed 30%.
Interestingly 26% of all hotels surveyed said that their cancellation rates on OTAs had decreased in the last year, with 28% saying that direct cancellations rates had decreased. On closer inspection we see that respondents with a reduction in both OTA and direct cancellations are hotels that have implemented a strong direct booking strategy that is reflected in their rate and cancellation policies. It’s great news for these hotels who are actively implementing successful strategies to reduce cancellations.
When it comes to trying to understand why people cancel, over 50% of hotels reported they are not tracking the reason and a further 10% responded that they just “don’t know”. Just 37% of hotels surveyed said they are tracking why people cancel. But if you don’t know the reasons, you can’t address the issue and assumptions can be misleading.
We also asked hoteliers what they are doing to address the issue of rising cancellations and here are just a few of their nuggets!
We asked hoteliers for ideas and got lots!
- “The best option is always to present the best rate and best conditions in the direct channel all the time” (Spain)
- “Take a 50% non-refundable deposit” (Gambia)
- “Engage with the guest once booked” (Mexico)
- “Present last minute and discount deals as non-refundable only” (Czech Republic)
- “Raise cancellation policy on OTAs to 3 days” (Italy)
- “Use non-refundable rates on OTAs only for certain dates - close off standard offers” (Czech Republic)
- “Offer a free change of date but not a cancellation” (Czech Republic)
- “Make non-refundable conditions more attractive” (Austria)
- “It’s very important not to lower rates on dates more than a few months into the future, to avoid cancellations and rebookings” (Spain)
- “Propose non-refundable benefits.” (France)
- “Credit cards are all tested, and reservations canceled in case of wrong cards” (France)
- “Bookings of 5 nights and more are automatically non-refundable” (France)
- “Pre-authorize the cards a week in advance in order to resell the rooms. Boost non-refundable bookings.” (France)
- “We try to avoid lowering rates as much as possible, starting always with lower rates to begin with. If the market forces us towards lower rates, we try to do it only very last minute and outside the free cancellation window” (Spain)
- “We now have a non-refundable night in Booking.com for high demand months and kept our own website more flexible to incentivise direct bookings.” (Spain)
- “Set stricter rate policies for bookings that have longer lead-in times” (Spain)
- “Make the customer commit in advance by paying a deposit” (Spain)
- “We fill out a no-show report every day. This allows us to over book where we know we might get rooms back. We also do weekly calls for arrivals especially on the weekends, this cuts out a lot of cancellations at the last minute.” (Ireland)
- “The client has the option to transfer the reservation to another date within one year of arrival.” (Czech Republic)
- “We offer unique benefits and room types only available through the official website.” (Spain)
- “Remove the cancelation option for short lead in times e.g. 48hrs before arrival.” (Ireland)
And one response that doesn’t exactly surprise…
“We would like to remain anonymous as this can negatively affect our relationship with Booking.com” (Spain)
Our own pointers
- Adopting a strong Direct Booking Strategy.
- Working with a direct booking partner who can help you to focus on your strategy.
- Engaging with metasearch - these are higher-intent bookers.
- Ensuring you offer direct bookers a strong mobile experience to avoid pushing would-be direct bookers onto OTAs.
- Building a deeper connection with your customers to be more resilient to cancellations.
- And most importantly, give people reasons to book direct, not just reasons to book…
In our previous article on cancellations we stated that there are basically three reasons why people cancel. One of these is because they found a better deal for your hotel elsewhere. For a hotel to allow this to happen is totally unacceptable and it is totally avoidable. The only place a customer should ever be able to get the best deal should be hotel direct. Knock this one on the head by offering direct booking benefits that bookers actually value, and by making sure you actually tell them!
Stop giving useless Direct Booking benefits
Free wifi, complimentary parking and no booking fees are not direct booking benefits if you can also get them via an OTA. They’re just hotel benefits! If you want to encourage bookers away from OTAs then you need to offer “real” value that is not for OTA bookers, such as those in the example. Your website needs to highlight what’s in it for them if they book on your website, not just what’s in it for them if they book anywhere. Take a look at some winning examples that have proven direct booking uplift in figure 1.
Cancellations rates are rising and are a thorn in every hotelier’s side. They cost heavily and often mask and artificially boost hotel conversion rates. To effectively address cancellations, hotels need to: