Hotels move, cautiously to follow the airlines’ cancellation policies

    Beginning 1-Aug-2017, Hilton Hotels will apply a 48 hour cancellation policy in the US and Canada. In some selected markets, it will be 72 hours. Although the  airlines have long applied cancellation policies – and, in the US particularly – made a large amount of ancillary revenue from steep charges for any change, hotels have generally been much more generous.

    But with the torrent of online booking, among other factors, cancellations have greatly increased. Marriott International introduced the same policy in Jun-2017.

    At Hilton’s second-quarter earnings call this week, CEO Christopher Nassetta explained, “The reasons, I think, are obvious for why we’re doing that…it’s not just because of new technologies but because customers, many of them ultimately have been trained to do multiple bookings and do things that have created a scenario where cancellations have, in some markets, skyrocketed.” The result, he argued was ultimately higher prices for consumers and great complexities for hotels.

    Hilton CEO Christopher Nassetta, “It’s not just because of new technologies but because customers, many of them ultimately have been trained to do multiple bookings and do things that have created a scenario where cancellations have, in some markets, skyrocketed.”

    Mr Nassetta also indicated that Hilton was exploring other “initiatives” that could be rolled out later in 2017. Managing inventory more effectively, for example with pricing tiers of flexibility and associated cancellation and booking change conditions are standard fare in the airline business.

    On 15-Jun-2107 Marriott International announced a similar cancellation policy in the US. Both hotel groups were among the first to move to a 24 hour cancellation policy in 2015, applying a one night charge unless the 24 hour notice was given.

    As Marriott’s new cancellation policy states: “While cancellation policies vary by hotel, hotels whose policy is to allow guests to cancel their room reservations on the day before arrival without incurring a fee are faced with a significant number of unsold rooms due to last minute cancellations. Guests will now be required to cancel their room reservation by midnight 48 hours prior to arrival to avoid a fee. This will allow hotels a better chance to make the rooms available to guests seeking last-minute accommodations.”

    In many ways it is surprising that hotels have not moved along rate fencing lines before. Perhaps it is a largely result of the greater competition that exists in the accommodation sector that has restricted the willingness to act. This is undoubtedly influenced to some extent by the transparency provided by the powerful online intermediaries like Booking.com.

    The large hotel groups are constantly seeking ways to encourage direct bookings, while not rocking the boat too much, and numerous small devices are used, especially for loyalty members, such as free internet for direct bookers. The cancellation charges are one tool that impliedly moves in that direction.

    There is certainly a concern that guests will buy away from any hotel that applies such policies, but they don’t have to look far in airline practices to see too that there are ways around this. For example, as many hotels already do, offering a higher price where cancellations will be allowed.

    In the constant readjustment process as hotels adapt to buying practices and intermediary adaptations, many see the challenges – as airlines have largely done – more as opportunities to generate ancillary revenue than as threats.