Monday, June 25, 2018
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Thoughts on the major chains’ cancellation policy change

The slew of recent announcements that major chains including Marriott, Hilton and IHG will now require a minimum notice (48 hours for the first two and 24 hours for the other) to cancel a reservation and avoid a penalty should come as no surprise to anyone.

There are a few exceptions to this rule, of course, but overall the policy is fair and appropriate given the current business landscape and the ever-vital need to maximise revenue.

Taken together, these three chains dominate the largest segments of the hospitality marketplace and one should anticipate that many additional hotel companies operating in other niches will soon follow suit. And for good reason, too! But first, you must understand why policies have been undertaken at this particular moment in time rather than, say, ten years ago or even five decades ago when they were equally applicable.
It all has to do with the sweeping changes related to how technology has affected consumer behaviour. The rise in whimsical last-minute and mobile bookings – with a plethora of websites and apps to facilitate this form of conduct – means that cost-conscious travellers can easily find cheaper accommodations (sometimes even within the same property!) in the short timeframe prior to their arrival.

Hence, a customer might book in advance on a hotel’s brand.com then rebook at the last minute through a third party at a much lower price. Some of these ‘get it cheap’ sites are so proficient that they can even be set up to notify the booker of cost savings, thus eliminating the need for the user to regularly check up on availability. While this behaviour has existed since the creation of the first website that allowed for last-minute bookings, it has only now reached a critical mass whereby it’s forced the largest companies to act.

A 24-hour or 48-hour cancellation policy will help to seriously reduce some of this arbitrage. It will also work to alleviate some of the stress on revenue managers who want to push leftover inventory to these third parties without cannibalising their pre-existing reservations. I anticipate, though, that the discount sites may adjust their own rules to stay in stride with what has been dictated by the world’s largest hospitality companies.

So, what does this mean for the business and independent hotel consumer? Putting aside the last-minute savings focus, the obvious risk is cancellation penalties resulting from changes to business plans. Large businesses with travel policies will probably collaborate with their hotel account managers to add some degree of flexibility to these rulings into their corporate plans during any renegotiations. For smaller businesses, it may mean that they too should consider joining groups or negotiating directly to secure a workaround to this potential constraint.

For the independent traveler, it will eventually lead to a minor shift in how individuals approach their planning. For most, it won’t matter at all as last-minute re-bookers hardly represent the majority of hotel customers, even though this niche has grown large enough for the major chains to take notice and update their policies.

For this rebooking subset, however, they may simply become more conscious of the time restrictions now in place and adjust their ‘deal making’ to fall just outside of the penalty window. Worse, they may be more hesitant to reserve a room in the first place – thereby giving hoteliers less information about future occupancy – or they may decide to only give their money to hotels that do not have this type of strict cancellation policy.

Alternately, I would expect that some of the larger, traditional travel agencies will have the clout to negotiate some exceptions for their preferred clientele. It is interesting to note that these three companies’ actions may swing the pendulum back towards this third-party ‘old guard’ of the industry. Concurrently, since most OTAs already have similar cancellation policies in place, this could be a small but important bonus for them.

Unfortunately, there will be some travelers who will be disadvantaged by this move. For example, suppose you have a late change in plans that’s outside of your control such as a meeting running late or a flight alteration. Under the current rules, you could call up until the afternoon of the arrival date to make the necessary adjustments. Such changes would now be impossible without incurring a penalty, although I suspect that the top tiers of Marriott, Hilton and IHG’s loyalty programs will have some exemptions from these cancellation polcies.

Overall, though, I see this as a step in the right direction insofar as ensuring that travels don’t take our fragile product for granted and I’m glad to see these chains leading the way.

About Larry Mogelonsky

Larry Mogelonsky
Larry Mogelonsky is the founder of Toronto-based hospitality consulting agency LMA Communications Inc.

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