Hotels Consider More Cancellation Policy Tweaks

By | November 3, 2015

Hotel executives said they’re looking at how to combat price assurance systems, but leaders of the latter are undeterred.

“We are looking at and testing a bunch of different options on lengthening [cancel policies] and cancellation fees and other things to address generally tying up our inventory for lengths of time without people having to pay for it,” said Hilton Worldwide president and CEO Christopher Nassetta during the company’s Oct. 28 third-quarter earnings conference call. “It’s for a whole bunch of reasons. Obviously with all these new technologies over the last couple years there are lots of different ways people are trying to game our systems with cancel and rebook when there is no cost to it. That’s what we are really addressing.”

Hilton president and CEO Christopher Nassetta (c) 2015 Hilton Worldwide

Hilton president and CEO Christopher Nassetta
(c) 2015 Hilton Worldwide

Hyatt senior vice president and interim CFO Atish Shah said today that the company continues to look at the situation with “a closer eye.”

Hilton, Hyatt and some competitors announced a standard 24-hour cancellation around a year ago.

An executive at a smaller chain last week suggested tools like TripBam may usher in “the next evolution” in hotel pricing: nonrefundable rates and change fees.

“When tools constantly resell rooms and cancel, that is cost we need to absorb and watch out for,” said the executive. He requested anonymity because the chain only has held internal discussions on the matter.

Nonrefundable hotel rates already are in the market, but few corporate travelers use them.

Industry consultant Scott Gillespie expects “demand-driven price fluctuations” to cause “angst and confusion” in corporate travel.

“The hoteliers’ response of creating longer cancellation periods is really a sign of the shift toward airfare-style pricing of hotel rooms,” Gillespie added. “Yes, the price assurance systems may have accelerated the pace of change, but fundamentally, hotel rooms should be priced in response to the variety of customer segments out there.”

It’s a sensitive matter. Tinkering with these rules means playing with customer service expectations.

“As hotels change their policies, corporate customers will adjust accordingly to take advantage of greater savings balanced against the risk or being stuck with a one-night stay penalty,” according to TripBam president Steve Reynolds. “Corporate travelers need flexibility. The hotels that have the more lenient cancellation policies will obtain a greater share of their business.

“Fortunately for us,” he continued, “the vast majority of our savings is found way in advance of 24 hours before check-in. While the major chains may say they’ve made the change to a 24-hour cancellation policy, we’re seeing cancellation polices all over the map for the same brand or hotel. No real consistency in the application. Hotels offer some rates that require 24-hour cancellation and other rates that are more or less restrictive. Most corporate contracts are still day of arrival.”

Hyatt’s Shah acknowledged that there are different policies “at different properties in different markets.”

Price assurance systems have proven to be a valuable element of some travel management programs. They are among the few new tools buyers can use to keep a lid on lodging costs in a seller’s market.

Partnership Travel Consulting CEO Andy Menkes said hotel companies are pointing fingers in the wrong direction. “The fact that these products have grown in the marketplace is an indication there’s a flaw in the system,” he said. “If employees are being told they need to go through the TMC/GDS system and then there’s a third-party tool that can debunk that system — and say, ‘There’s a better rate at the same property’ — then instead of hotels trying to figure out how to stop these tools, they should figure out how to better serve their corporate clients.”

According to Yapta president and CEO James Filsinger, “What the hoteliers appear to be concerned about is losing customers to late cancellations or having to walk customers, which impacts occupancy rates and planning.” Yapta’s RoomIQ “keeps the traveler at the same property, but ensures they get the best rate. So there’s zero impact to occupancy.” He said the product enables clients to account for any change fees hotels may impose, ensuring that “should hoteliers enact such an unfavorable fee, our clients will still be net positive on actual savings achieved.”

One outcome of stricter cancellation policies is better clarity for each property, said Marriott president and CEO Arne Sorenson last week. He noted that Marriott “followed most of our competitors” at the beginning of this year in moving to a 24-hour cancellation window from a same-day window.

“What we have seen that is particularly gratifying is a reduction in the number of folks that get walked,” Sorenson explained. “In the past, with same-day cancellations, you didn’t know who would show up at your hotel until the day ended. As a consequence, you had hotels all over the place saying we know some percentage of our customers won’t show because they have the free ability to cancel last minute, so let’s do some overbooking to make sure we have guests to fill those rooms in case someone cancels. Because of the 24-hour cancellation rule we got a lot of that walk business down.”

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