If your hotel’s revenue suffering because of cancellations?

Cancellations increase each year and have become one of the biggest problems faced by a hotel. Specifically, last year in Barcelona, they shot up by 50% in the last months of 2017. They have now begun to stabilise, but the figures continue to be critical.

One of the most common strategic errors, given this situation, is to assume a high level of cancellations and make decisions on that basis. Another is the contention that cancellations do not involve any problem for the business, either at cost level or organisational level.
It is not only important to take the consequences of a high level of cancellations on board. It is also important to implement strategies aimed at combating and preventing this kind of behaviour by customers.

What is the reason for the increase in cancellations?

On-line bookings are increasingly popular as they simplify booking and make cancellations easy. This pushes the customer to book impulsively or pre-emptively, which has a negative effect on hotels. Furthermore, the option of free-of-charge cancellation also tempts the customer to book several hotels and then, later, choose the cheapest one. In fact, the number of cancellations via OTA, such as Booking or Expedia, are much higher than those over the actual hotel web sites, and exceed them by some 104%.

Nevertheless, OTA are just a gateway for the customer. Bookings and cancellations policies are defined by the hotel. Therefore, in order to reduce them, it is important to adapt the policies to the context they will be implemented in. If we can predict the number of cancellations we will get on each channel, we will be able to set up attack strategies to control them.

OTA offer several cancellation policies, depending on dates and/or rates. However, even so, many hotels are in decline due to the excess of flexible cancellations, because of the fear of being overtaken by the competition or not meeting expected occupancy figures.

How to combat cancellations

Some techniques to minimise them would be as follows:

Measure all the variables involved, such as, amongst others, the percentage of cancellations and the differences on the various channels.

Identify future cancellations from false bookings.

Adapt bookings and cancellations policies on the OTA.

Reduce the number of cancellations by improving customer care.

Monitor the OTA to prevent pricing variations amongst them.

Put a Revenue Management strategy in place, to increase the price in line with occupancy and restrict the cancellations policy.

Put a “Non-refundable” policy in place on dates when the demand exceeds the number of available rooms, without giving any kind of discount. In this way, the probability of cancellation is reduced and more rooms can be sold at a higher rate, although the process is rather slower than usual.

It is important not to make the mistake of accepting a high number of cancellations and not doing anything about them. You have control over your hotel, and putting predictive strategies in place can improve your revenue and reduce the number of cancellations.