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How to reduce the cancellation rates?

Within that cancellation universe, there are some that have particularly increased these last few years and have the peculiarity of being “refundable” “non-guaranteed” or simply called “free cancellations”

One of the issues that many hoteliers face on a day to day basis is the cancellation of reservations. Within that cancellation universe, there are some that have particularly increased these last few years and have the peculiarity of being “refundable” “non-guaranteed” or simply called “free cancellations”. This practice was initially introduced by OTA’s in their Comercial war to try and attract more customers with less strict cancellation policies and it has continued to expand to more direct sale channels (Booking Engines on hotel’s websites) becoming a common practice on hotel’s booking engines and contact centers

The cancellation rate has increased on booking engines as well as on other channels, making the revenue manager’s job more difficult, increasing the operational work on reservation departments, congesting channel managers and even creating the “forecast ghost” phenomenon in some markets. This implies that hotels forecast a certain occupancy level just to realize that their “clients” are cancelling their reservations a few days prior to arrival and therefore these rooms run a risk of ending up empty.

“In some cases, hotels that have channel manager may reduce this risk by automatically putting rooms for sale on the market immediately “

These so called “clients” take advantage of these cancellation policies without restrictions, making several reservations on multiple hotels just to select one or even not a single hotel simply because they made a reservations “just in case” (using the online booking engine on the hotel’s website or through different OTAs). In some cases, hotels that have channel manager may reduce this risk by automatically putting rooms for sale on the market immediately but for those hotels’ that do not yet have a channel manager the risk is higher.

The difficult part for hoteliers is to define how strict or how flexible cancellation policies should be. Theory says that if they become too strict conversion rate reduces and if they are more flexible conversion rate increases. But, is this totally true? In most cases it will depend on the variables that we all know: hotel type, hotel’s size, competition, location, market, exchange rate, season etc. etc. A new question arises: are we measuring how much of this conversion is later being cancelled? Truth be said, hotels should put their efforts on clients who actually stay in their hotel and stop spending time on those who probably won’t. Maybe they should concentrate their efforts in generating incentives so that those reservations that came through the booking engine or contact center may pay in advance or buy “non-refundable” rate plans, always taking into consideration consumer’s laws of each state or country.

“There are many airlines that have implemented the possibility of blocking a certain rate for 24, 48 or even 72 hours with a minimum payment “

Should hotels follow some of the policies airlines have implemented? Why not? Hotels have followed airlines in the past on multiple occasions, for example “Revenue Management” or a calendar to check availability and rates by a booking engine. Why not follow airline cancellation policies? There are many airlines that have implemented the possibility of blocking a certain rate for 24, 48 or even 72 hours with a minimum payment, give flexibility to change itinerary linked to a certain fee to acquire that flexibility or even the possibility of a refund, not using money but bonds that may be swapped on the next visit. In this way “clients” that usually make a reservation “just in case” or make reservations on multiple hotels (using a booking engine or an OTA) will have to think it twice or eventually end up making a fully committed reservation.

Good Practice

  • Get close to your direct client from the moment they make a reservation and prior to their arrival. Generating a stronger bond between the hotel and the client will reduce the chances of cancellation.
  • Make sure your hotel pops up on Metasearch such as Tripadvisor, Trivago and Google Hotel. Proof shows Metasearch clients are less likely to cancel reservations. This type of connection can easily be made with no cost hiring a booking engine.
  • Publish your hotel professionally, with good and real photographs and clear cancellation policies which enhance the idea that a reservation implies a certain commitment that must be honored.
  • Forget about Request Forms on your website and always hire a robust Booking Engine that allows clients not only to choose dates for their stay but room type and different rate plans as well.
  • Don’t relay on a single OTA. We know that some are stronger than others, but if you develop dependency over only a few OTAs you will run out of options to allocate your inventory in case of cancellations. If the operational work of handling several OTAs is big, don’t hesitate to hire a channel manager to reduce this load and to connect to as many OTAs as you wish.

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