Non-refundable bookings have long been a dependable revenue source for numerous properties, offering a lifeline in terms of revenue stability. These bookings deter uncertain and unreliable travellers who might otherwise cancel or become no-shows, securing a more stable income for hotels.
While providing the flexibility to cancel without penalties can be an enticing guest offering, it comes with its own set of costs for properties, namely, unpredictability and unoccupied rooms, especially in situations where occupancy rates could potentially reach 100 percent.
Nevertheless, the hospitality industry is witnessing a shift, with more travellers expressing reluctance towards extra fees for flexibility. This shift is causing hotels to trend for less desirable reasons, making it imperative for property managers to reevaluate their options.
Why opt for non-refundable rates?
Both guests and hoteliers have become accustomed to the trade-off between flexibility and cost. Non-refundable rates come with distinct advantages that property managers cannot afford to overlook. A closer examination of the main advantages can aid in determining whether non-refundable rates are the right fit for your property.
Enhanced cash flow
Non-refundable bookings ensure a steady cash flow, reducing the unpredictability associated with fluctuating demand. Last-minute cancellations can significantly impact a hotel’s nightly occupancy, particularly in leisure-oriented markets. Non-refundable bookings help offset these losses and facilitate more predictable revenue planning.
Reduced vulnerability to price reductions
The likelihood of price cannibalisation diminishes with a higher volume of non-refundable bookings. This is not due to guests becoming disgruntled with price drops but rather because it becomes less likely for them to discover these reductions. Once a booking is non-refundable, guests are less inclined to monitor price changes, as they have already committed to their reservation.
The demise of cancellation fees
Nonetheless, the popularity of non-refundable bookings may be on the wane, mainly due to the challenges posed during the pandemic. Adapting to these changes is essential for hotels to thrive in this evolving landscape.
A shift toward flexibility
The primary drawback of non-refundable bookings has always been their inflexibility, and this aspect is now being questioned by travellers. While hotels enjoyed the upper hand for years, the balance is shifting. Modern travellers prioritise flexibility and may choose to stay elsewhere if they cannot find flexible booking options.
Pushback against fees
As travellers increasingly reject fees across the board, non-refundable fees have come under scrutiny. Many companies have imposed additional fees without providing clear value or explanations, leading to a backlash from customers and even government intervention.
A surge in non-refundable booking fees can lead to sticker shock for potential customers. Unexpected events can disrupt travel plans, and loyal customers may be dissuaded from booking if they face fees for missed stays, even in emergencies.
Relevance during low seasons
During off-peak periods, the impact of cancelled bookings is less significant, as spare rooms are typically available. This means that cancelled bookings do not result in turning away potential guests who would have otherwise been accommodated.
Are Non-Refundable Bookings suitable for your hotel?
While non-refundable bookings offer clear benefits, they also come with drawbacks. Deciding whether to adopt non-refundable fees or adjust your current policy necessitates careful consideration of your hotel’s offerings and target clientele. It’s not a matter of simply eliminating flexible cancellation policies. If non-refundable bookings include prepayment, it may deter clients who prefer not to pay in advance but may have accepted a higher rate.
An innovative solution I have seen in the realm of ticket sales, online ticket marketplace Ticketek has introduced a unique solution to address the concerns of both customers and event managers.
Ticketek offers a refundable upgrade option, allowing customers to pay a small fee for the opportunity to receive a full refund in case they are unable to attend their event. This approach not only provides flexibility for customers but also ensures that event managers do not face financial risks. Event managers receive payment for the ticket whether the customer cancels or not, offering a win-win situation for all parties involved. This creative solution exemplifies how flexibility and revenue security can coexist. We are seeing this also being provided in the accommodation sector.
I recommend having a conversation with your marketing company to see what will work best for your property. Providing multiple options to guests is the best approach for most, charging more for flexibility and reducing prices for non-refundable bookings. This gives guests greater flexibility while providing your hotel with additional tools for revenue management.
Sam Steel is a dynamic entrepreneur and the co-founder of Resly. His passion for management rights and commitment to innovation are reshaping the way we approach online travel and property management. Sam’s extensive background with global online travel agents brings a unique perspective to the industry and provides valuable insights into the ever-evolving world of travel and technology