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Understanding the Necessity of Hotel Cancellation Policies

Hotel Cancellation Policies help hotels as businesses to minimize losses due to thoughtless bookings and cancellations. And, it offers guests a legitimate way out when there is a real need to cancel a booking. 

Impact on Hotel Revenue

Hotels sell rooms as their primary business. And, the rooms are perishable inventory, meaning if a hotel cannot sell a room today, it can never sell the room again once the day has passed.

A cancellation policy or a strategy increases commitment on the guests’ side to avoid guests taking this agreement for granted such as making ‘backup bookings’ to cancel at the last hour.

Importance of Guest Commitment

When you make a booking with a hotel, you enter into a contract with the hotel where the hotel promises to provide you with a room on a specific date for a specific price. And, you agree to the terms set by the hotel.

Why Do Hotels Charge Cancellation Fees?

The Scenario: Mr. Alan’s Dilemma

Imagine, Mr. Alan has a tiny hotel with 5 rooms. Mr Smith has made a booking for next week for a room, because of this Mrs Adele’s booking request was denied as there was no room available. Mr. Alan prepares everything and gets ready to welcome Mr. Smith. However, Mr. Smith cancels his booking at the eleventh hour. 

• Now Mr Alan is faced with a loss of income (including any potential revenue from the guest)
• Low room revenue (direct hit on the room revenue) affects his ADR (Average Daily Rate), a primary performance indicator for hotels.
• Mr Alan could have scheduled more housekeeping staff to help prepare more rooms.
• There is a lost opportunity since Mrs. Adele’s booking was denied.
• Distressed Mr Alan is left to search for a guest to fill the room at any rate to cover the cost.

 Now, the same situation applies to hotels of any size and type.

Mitigating Losses with Effective Cancellation Strategies

Let’s see how this could have been changed with an effective cancellation strategy in place:

• Had Mr Alan had an effective mechanism to predict cancellations, he could have accepted Mrs Adele’s booking and overbooked the hotel. He could have filled up the room without much effort when one booking was cancelled or walked one of the guests into another hotel if both bookings had been converted.
• A cancellation policy of 24 hours before arrival with a night room charge (or a full stay) could have made Mr Smith think twice before cancelling his booking unless there was a valid reason.
• Even if has a valid reason to cancel, the hotel would have made revenue through the cancellation penalty charges. 
• It would have given more time for the hotel to find a guest who would pay a reasonable rate for the room. And, avoid leaving room unsold or sold at the lowest price at the last hour.

A cancellation policy ensures that the guests are committed, and helps hotels to make a revenue if the guests have to cancel. Because of these reasons, hotels consider the best cancellation policy to protect their revenue loss, and at the same time, it doesn’t negatively impact their room sales.

hotel Cancellation Policy – Key Factors

Note: Below are some typical cancellation rules that may change from hotel to hotel as each hotel revenue manager will decide what works best for them.

Refundable vs. Non-refundable Bookings

Hotels offer refundable and non-refundable bookings (non-cancelable bookings) with a steep discount (usually at a 5% to 10% discount rate compared to a refundable rate). Also, hotels want guests to pay upfront for a non-cancelable booking.

Cancellation Windows and Policy Variations

Cancellation window: It is the time frame of commonly 24 hours, 48 hours, 72 hours, or many days before the scheduled arrival. If you can cancel a cancelable booking before this policy, the hotel will refund you or the cancellation fee is not applicable. Typically, a 24-hour, but hotels have different time frames based on their ability to rebook the cancelled reservation, and it depends on the hotel’s location, market demand, and the number of walk-ins they usually get. 

Early Bird and Promotional Bookings

Early bird and promotional bookings: During the off-season, hotels try to fill their rooms with early bird and/or promotional offers. These rates also come with discounts and bookings need to be made well in advance from weeks to months. These are usually non-cancelable or cancellation penalties apply.

Free Booking Cancellations

Free cancellation: Applicable if you’re cancelling outside of the specified number of hours before arrival. Some hotels charge a processing fee even if you cancel before specified hours (cancellation window).

Cancellation fee on change of booking dates: If not for this rule, a guest can advance the arrival date quite simply and cancel the booking outside of the cancellation window.

Understanding Hotel Cancellation Policies in Operations

Demonstrates Commitments

Shows commitments: A cancellation policy ensures commitments on the hotel’s side and guests. The hotels as businesses demonstrate that they offer their potential guests to cancel their booking at will. Similarly, it ensures that the guests’ cancellations do not incur business losses. 

Protects Business Interests

Business protection: Imagine the hotel industry without a cancellation policy. Cancellations alone can put the business at risk. Depending on the hotel’s demand, cancelling a booking before 24 hours, 48 hours, or 72 hours (or many days) as set by the management, gives the hotel enough time to sell the room to another guest. Or, make revenue for the hotel.

Covers Legal & Accountability Aspects

Legal & Accountability: When a hotel presents its cancellation policy as part of the reservation contract, it not only protects the hotel from a legal perspective, but it strengthens the agreement by ensuring the guest is accountable and responsible with the agreement.

Guest Perspectives on Cancellation Policies

Potential guests like the cancellation policy: A cancellation policy offers guests an option to book when the rooms are available at their destination, giving them peace of mind knowing that they can change the hotel or plans until the cancellation penalty period is reached.

Unveiling the Logic Behind Hotel Cancellation Fees

• For non-cancelable bookings, it is the entire cost of the booking. The hotels have limits on number of nights with these types of bookings.
• Usually, a percentage of the first night’s room plus taxes as stated in the confirmation letter.
• X number of days as stated in the confirmation letter.

How Is A Hotel Cancellation Fee Handled by Properties?

Once the hotel charges a cancellation penalty and/or fee, the agent posts the charges to the guest billing/folio or moves the charge from the guest’s deposit account to the hotel’s ledger account. It is when the cancellation-related charges become the hotel’s revenue and usually, it is considered part of ‘room revenue’.

Types of Hotel Cancellation Policies (Cancelation fee vs penalty, and refunds) 

1. Non-cancelable: booking is non-refundable if cancelled.
2. Cancelable: Booking can be cancelled if confirmed outside of the cancellation window. A processing fee may be charged as mentioned in the confirmation letter.
3. Free cancelable: Booking can be cancelled if confirmed outside of the cancellation window without a processing fee.

Efficient Handling of Hotel Room Cancellations and Rebookings

Whenever a guest calls to cancel the booking, modern systems can set up rules to post a cancellation penalty automatically depending on the date/time a cancellation number of generated (when the agent cancels). 

In case of guests request an extension or refund, the agent might consult the FO manager before taking a decision, in which case, the agent will get back to the guest.

In case of a cancellation of a non-cancelable booking, the hotel has already charged the guest for the entire stay and that amount is lying under the deposit of the guest’s reservation. The hotel agent will first transfer the amount from the deposit account to the front office ledger, to retain the amount as the hotel’s revenue and continue to cancel the booking and provide the guest with a cancellation number.

When the guest receives the cancellation number, it confirms that the guest is relieved from the reservation contract with the hotel.

Rebookings of Canceled Rooms

For a busy city hotel filling up the cancelled rooms is not a challenge, unlike remote hotels that require bookings well in advance.

Hotels do expect cancellations and use a mechanism to predict their cancellations. With the assistance of this prediction, they follow an overbooking strategy. So, if the number of rooms is 100, they overlook by 5%, which is to take in 105 reservations. If they have 4 cancellations, they would happily walk that one guest into a different hotel.

Hotels do waitlist guests when a suitable room type or rate is not available if the guests are willing to be considered later. Hotels revisit the waitlist queue to see if a potential guest is still available to take up the booking. 

Walk-in guests, as a last option, hotels can accommodate walk-in guests. There are also advantages and disadvantages to accepting walk-ins; hotels sell the highest available room rate to these guests, and on the other side, these guys usually book for a night.

Strategically Navigating Hotel Cancellation Fees

Hotels do want to see you arrive at the hotels. And, they do expect cancellations and they respect force majeure. They would prefer an early cancellation to a late cancellation as they would be in a better position to resell the room. However, the least they would expect is a no-show.

So careful planning with a commitment to the hotel reservation agreement is advisable.

Hotel Cancellation Policy After Check-in

There are times you might want to cancel your check-in immediately after the check-in process has been completed due to personal circumstances or the room the hotel blocked is not up to your expectations. We have a page that explains how you can deal with this exact situation: How to cancel your reservation after check-in.

Tips for Successfully Waiving Hotel Cancellation Fees

Note: Even though we often refer to hotels, remember, if you are making the reservation at an OTA (online travel agency), the cancellation policy might be determined by them.

Read the confirmation letter carefully and understand the hotel’s policy on cancellations. If you know you have to cancel the booking, do it as early as possible. Even if you happen to cancel your booking just around 24 hours prior, be aware of the hotel’s check-in time and time-zone differences between your home and the hotel. 

If you happen to cancel a non-cancelable booking or a regular booking within the cancellation window, your best option would be to email them any supporting documents followed by calling the hotel and speaking to a manager.

Remember, here the hotel is legally covered by the confirmation letter clauses on their policies. Offering you a full or partial refund is at the sole discretion of the hotel management.

Look for force majeure clauses in the confirmation letters that allow for more flexible cancellation policies when there is an unavoidable circumstance such as a natural disaster due to which one of the parties or both parties cannot go by the booking agreement.

Dealing with Non-Refundable Bookings: Tips and Options

A non-refundable reservation is a non-cancelable reservation; an option, hotels offer the potential guests to book as early as 30 to 60 days in advance for a discount. The trade-off against this discount is that the guests cannot cancel these bookings and pay the entire stay’s cost upfront, no matter if the guests show up or not.

Avoid booking these rates as you never know what might happen at the last moment with our travel plan and the hotels aren’t obliged to offer a refund even if you have a valid reason to cancel the booking. However, having travel insurance, you will be able to get your refund, at least a portion of it.

Change Your Reservation Dates

If you are with a non-refundable reservation, try changing the date. Changes on a booking date are also considered a cancellation. Therefore, advisable to talk to the hotel about changes in dates.

Reasons For Cancelling Hotel Reservation And Appropriate Instances to Engage with Hotel Management

When you have a valid reason for your last-minute cancellation or cancellation of your non-refundable booking, it is advisable to email the hotel any supporting doc soon after you cancel the booking. Give them enough time and call them, especially speak to the manager.

Leveraging Credit Card Protections and Travel Insurance for Hotel Bookings

Another best move is to avoid a non-refundable room is to buy travel insurance. This way at least you can cancel your trip and get at least 75% of your money back.

Navigating Hotel Cancellation Fee Disputes: Legal Insights and Consumer Rights

Hotels come under the jurisdiction where they are located; therefore the regional legal regulations apply to their business activities, including their cancellation & refund policy.

Some jurisdictions prohibit unfair contract terms, so if the hotel’s cancellation policy is deemed one-sided or unfair to guests, it may be challenged legally.

For any additional information related to legal and jurisdiction, your best bet would be to get in touch with a qualified lawyer or a legal firm — If the dispute is worth that effort. 

Helpful pages:

• Booking.com cancellation page
• Expedia cancellation page

The post Understanding Hotel Cancellation Policies first appeared on e360 hospitality.