The Real Cost of 'Free' Cancellations - Triptease

Excerpt from Triptease

Last-minute cancellations are logistical and financial headaches for hotels, but ones that have always been a necessary evil within the industry. After all, plans can change with no warning, volcanoes can spontaneously erupt, and other unavoidable occurrences mean that flexibility can be a deciding factor for prospective guests choosing your hotel. However, cancellation policy has evolved in recent years from a footnote on the booking confirmation to the basis of entire OTA marketing campaigns, designed specifically to position agencies as the most risk-free option for guests.

A recent study by D-EDGE into reservation revenue has shown that the overall cancellation rate across all channels has risen by 6% over the past four years, reaching a peak of almost 40% in 2018. That may sound like a death knell for predictable occupancy - and indeed it may be, for hotels who generate a large majority of their bookings through OTAs. The 40% average is heavily skewed by the high cancellation rates on reservations from and other OTAs. In comparison, the study found that only 18.2% of direct bookings were cancelled in advance.

These statistics are unsurprising given the vastly different approach taken to cancellation policy by hotels and OTAs. While cancellations affect a hotel’s ability to forecast revenue and impact their income in real terms, they are used by OTAs as a marketing tool - one that benefits their growth, rather than hinders it. Flexible reservations are at the heart of how sells rooms to its users, and a year-on-year increase of their cancellation rate is proof that their message is clearly resonating. How did we get to this point, and what can hotels do to take back control of not only guest acquisition, but also guest confidence?

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