Moves by Marriott International and Hilton to break the 24-hour cancellation barrier might signal the beginning of some bigger changes down the road for how customers book – and sometimes re-book and re-book – hotel rooms.
Most airline customers already are trained to expect fees and other penalties when they change or cancel a flight, but the decision to implement a 48-hour advance cancellation policy is rankling customers such as business travelers, who experience last-minute schedule changes and flight delays that now will be even more punitive: Marriott’s policy took effect in mid-June, and Hilton expects to roll its change out at the end of this month, with a few exceptions at each company.
Chad Crandell, managing director and CEO of CHMWarnick, a hotel asset management and owner advisory services firm, broke the news on his blog for HOTELS on Marriott’s decision to change its cancellation policy, which he said was tested in markets including Boston and New York. (Here’s his subsequent blog post on Hilton’s change in policy.)
“Cancellation policies are just one of the many issues that we [asset managers] have been advocating for on behalf of the owners we represent,” Crandell said. “To their credit, several brands have recently employed strategies aimed at improving control over inventory, lowering the cost of acquisition and increasing bottom line profitability. We certainly have many more items on the wish list, but this is a start.”
He added, “For us, it boils down to profitability, and the opportunity to be more strategic about the way we sell our inventory and optimizing pricing power. In a climate where expense growth continues to outpace revenue growth, rate is the single most impactful lever to improving bottom-line margins. This may only shrink the cancellation window by one more day, but the impact could be meaningful if properly managed. We’re optimistic and have already been strategizing with our operating teams on how we can move the needle in light of these changes.”
What took so long?
“I think it may be more of a herd mentality,” said Michelle Russo, CEO of hospitality asset firm HotelAVE. “We have seen in the past where restrictive cancellation policies limit short-term bookings, so I think maybe there was a concern that if nobody else was doing it, I don’t want to do it.”
In some markets, Hilton is taking it a step further with a 72-hour cancellation policy. Russo thinks that could become the norm in major markets where short-term discounting of hotel rooms is pervasive. “Testing will quantify if the policy is limiting short-term bookings or not, and how that affects the overall RevPAR,” she said.
The most immediate impact on the hotels affected might be the ability to better manage short-term occupancy, and the ability to override software that monitors hotel room rates in a certain area and automatically cancels and rebooks whenever a better rate pops up.
“Right now (revenue managers are) spending so much time managing short-term, if you have a really high cancel-rebook issue, even 20%, even 10% is big one or two days out, or the day of. So now all of a sudden the revenue manager has to overfocus on the short-term to drive volume rather than spending more time being strategic on pricing strategy longer-term. This will enable them to spend more time strategically versus scrambling to try to fill the rooms for the night of.”
Money grab?
Alas, easing up on the poor revenue manager isn’t top of mind for business travelers. The Business Travel Coalition surveyed 216 travel manager and management company executives from 12 countries and deemed them “deeply disappointed” about Marriott’s policy change: 59% said business travelers will likely book other properties besides Marriott, “especially after they get burned by cancellation fees a couple of times as many travelers do not read the fine print on travel documents.” And 30% say they are considering a travel policy change that restricts travelers from booking Marriott properties.
“The revised policy allows us to make rooms available to guests that would have otherwise gone unoccupied due to a last-minute cancellation,” a Marriott spokeswoman said of the policy, which extends to hotels in the the Americas and at all brands, excluding Design Hotels and Marriott Vacations Worldwide. “While cancellation policies vary by hotel, hotels whose policy is to allow guests to cancel their room reservations on the day before arrival without incurring a fee are faced with a significant number of unsold rooms due to last minute cancellations. Guests will now be required to cancel their room reservation by midnight 48 hours prior to arrival in order to avoid a fee. This will allow hotels a better chance to make the rooms available to guests seeking last minute accommodations.”
Respondents to the Business Travel Coalition survey seem to see the writing on the wall: 53% think other hotel companies will follow Marriott’s lead. “With weeknight room occupancies high in business markets, and with Marriott’s forecasting and booking capabilities enabling it to replace cancellations, many feel the new policy is merely a money grab,” the coalition said.
One survey commenter said, “This will open the flood gates, next we will have total pre-payment required.” Way ahead of you, commenter.
“Why don’t we just do exactly what the airlines do – you buy a room, it’s not refundable, you want to change it, you have to pay 25 or 50 bucks, and you have to pay whatever rate is available next,” Russo said. “And this would therefore eliminate all this cancel-rebook nonsense that has become a real challenge.” While hotel accounting systems can’t handle that change right now, “they’ve been working really hard to overhaul their accounting systems in order to be able to take prepayments,” she said.
