Increasing cancellation rates are hurting hotels

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The major Online Travel Agencies are masters in conversion. They create a sense of urgency, but at the same time convince guests that they can always change their mind after making a reservation. Book now, decide later. It’s a great way for converting users into bookers, but it also has its downsides. Users might book multiple hotels and decide last minute on which reservation to keep, cancelling the other reservations. Or they might even decide to not undertake the trip at all and cancel any reservation they have. This behavior leads to empty rooms and revenue loss for hotels, while OTAs lose commission revenues. Not exactly a win-win situation.

We recently noticed insane cancellation rates of up to 40%-50% via a major OTA. You can bet that OTAs are working on new ideas on how to solve this industry problem and protect their commission, but then again these exact conversion techniques made them so successful.

As an independent hotel it’s impossible to change the booking behavior and expectations of a guest, so how can you deal with this trend on a micro level?

–       First of all it’s important to understand how increasing cancellation rates impact your data. Based on historic data and recent trends a hotel can determine what percentage cancellations they can expect per distribution channel. Forecasting reports, Business on the Books etc. should account for such expected cancellations for a more realistic view.

–       Secondly hotels could better anticipate on last minute cancellations by using data to tactically and cautiously overbook the hotel. You would not want to deny high value reservations when you could accommodate them anyway in the near future. Acting once reservations get cancelled last minute, means last minute selling for probably much lower prices.

–       For more pro-active actions you could make a deeper analysis of each distribution channel and offer different pricing, availability and cancellation terms for specific channels in certain periods. Empty rooms, due to last minute cancellations, in high demand periods are opportunity costs, which should be taken into account when evaluating your distribution!

–       Cancellation rates from the hotel’s website tend to be much lower than other distribution channels. One more business reason to invest in your direct channel

–       It’s absolutely not a quick fix, but it ‘s the best cure for high cancellation rates: A strong positioning and unique highly valued selling points. When there’s no alternative, guests would not give up the reservation that easily.

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