Could Hotel Cancellation Fees Be On The Rise?

The hotel industry has been doing quite well overall, with pretty high occupancy and room rates across most regions. Of course they’re always aiming to do better, and earlier this year we saw some of the major chains implement new policies to deal with room cancellations.

Changes in hotel cancellation policies

It started with Marriott, which earlier this year implemented a new global cancellation policy, whereby you have to cancel your stay by 11:59PM the day before arrival in order to avoid a cancellation fee. At the time, ~75% of Marriott hotels let you cancel stays until the day of arrival, so it was a pretty negative change for many members.

Marriott-Cancellation-Policy-2

Hilton followed with a similar policy shortly thereafter, and then Starwood followed as well.

I do sort of get the reasoning of what they were doing. On one hand they don’t want to be risky and oversell the hotel by too much, but at the same time when people are consistently canceling day of arrival and they can’t resell the room, it’s costing the hotels quite a bit of revenue.

Hilton trying to generate more in cancellation fees?

It’s always interesting to look at the ways in which the hotel chains are innovating. A policy change on the part of one hotel chain can quickly lead to industry wide-change, as we’ve seen with Delta, United, and American all copying one another (or really just United and American copying Delta).

It looks like Hilton is experimenting with changing their cancellation fees in quite a drastic way,whereby they’re charging $50 for any changes after booking, even on flexible rates.

Via Skift:

Hilton Worldwide is testing a  new cancellation policy at approximately 20 of its properties across the U.S., including at its Hilton, DoubleTree, and Embassy Suites brands.

“We are testing, in a small set of hotels, a $50 cancellation charge. In this particular test, Hilton HHonors members are exempt from the cancellation fee,” says Chris Silcock, chief commercial officer, Hilton Worldwide.

The test is a $50 charge when a reservation is cancelled any time after booking; however, if a cancellation is made after 11:59 p.m. the night before the stay begins, then the current policy of a charge of one night’s room rate and tax will still be in effect for all guests.

That’s quite a bold move. Hotels typically have both pre-paid/non-refundable and flexible rates, so this will sort of narrow the gap between the two in terms of benefits. That makes you wonder if Hilton is aiming for three tiered pricing long term:

  • Pre-paid rates (non-refundable from the time of booking)
  • Flexible rates (can be cancelled until day before arrival)
  • Quasi-flexible rates (there’s a fee to cancel after booking, which is less than the pre-paid rate and more than the flexible rate)

So why is Hilton pursuing this, specifically?

“With record occupancies, many rooms are being held, then not used, meaning other customers who want those rooms cannot book them,” Silcock says. “This is problematic for our customers because they do not always get access to rooms they want, because they are being held but are ultimately canceled.”

“But that’s for a whole bunch of reasons,” Nassetta said. “It’s not because we are seeing any short-term cancellation activities that’s outside of what we’ve been seeing. Obviously with all these new technologies and things over the last couple of years, there has been lots of different sort of ways people are trying to game all our systems with cancel and rebook. And when there is no cost to it, the system has risk of gaming.”

The point about new technology making it easier to book, and thereby leading to more cancellations, is an interesting one.

Hilton-Seattle

Bottom line

I’m not opposed to airlines or hotels charging fees which reflect the costs they incur. I think everyone hates when they book an airline award ticket 11 months out and then need to cancel it two days later, but are charged $150 to do so. It’s tough to justify that cost of $150.

I think Alaska Airlines has the right approach when it comes to change and cancellation fees. They charge nothing more than 60 days out, since they can likely resell the inventory, while they do charge fees within 60 days.

Mileage-Plan-Fees

I wouldn’t be surprised to see similar trends for hotels soon, which is also hinted at in this article:

“I believe a tiered scale is most effective, and inside of 30-45 days including cancellation on catered F&B (food and beverage) in addition to rooms revenue is a smart thing to do,” Plank says.

As of now it’s just a market test, and can be avoided just by being an HHonors member. I’ll certainly be keeping an eye on it to see if this “test” spreads.

What do you make of hotels potentially increasing cancellation fees more than a day out, even on flexible bookings?

Comments

  1. A lot of the discount economy fares from Australia are fully not refundable at the time of booking, even 11 months out. Can’t change anything even within 24 hours after booking. The entire payment is forfeit.

  2. The Marriott policy sucks. Case in point, getting charged in state college when occupancy rates are very low due to PSU on break and lack of business travel due to holiday. It was no loss to them for a last minute cancel and sucky they did it to a plat. Member.

  3. As of now, fully flexible rate is often at least 10-15% higher and if I choose to select a fully-flexible rate, it means that I need flexibility. It is like an airline selling you a fully refundable ticket. As of now, many price conscious travelers are already purchasing discounted rates, and myself chooses to pay more for that flexibility. I have no issue paying more but if there is a $50 fee, it is no longer a fully flexible rate.

    Hilton is already bad enough, when it comes to elite recognitions, especially in the US. Some of the NYC hotels don’t even honor late check-out and upgrades are almost urban myths. This $50 cancellation fee makes no sense at all!

    Adrian

  4. WILL NOT BOOK WITH HILTON if this happens.
    If I am paying the higher flexible rate (like the more expensive flexible rate for airfare), I should have the advantage to cancel a day or a few days prior without any fees.

  5. Could just be a random selection of places I’ve been staying but I feel like I’ve been seeing a lot of tighter cancellation policies lately. A few hotels I’ve stayed at recently had a 2-day or even 1-week advance cancellation requirement even on the fully flexible rate, instead of the usual 1-day or even day-of. A lot of hotels seem to have also gotten more aggressive about having a larger price differential between the prepaid and flexible rates.

    I wonder if we’ll see hotel loyalty programs add airline-style cancellation fees for award stays.

  6. I’ve always been a little surprised that hotel cancellation policies allowed guests to cancel up until 6pm on the day of check-in. It’s been really helpful a few times, but I’m willing to give it up knowing that when the reservation book is full, it’s hugely unfair to the business and to anyone else who might be trying to get a room to cancel at the last minute like that.

    I think there’s a happy medium to be found. I would not be in favor of a $50 change fee for ANY change after booking (even if you can get out of it by being a program member), but a fee for canceling within a day or two of arrival? Sure.

  7. I suspect the reason is different. I see more and more hotels having dynamic pricing, with high ratesvtwo months till three weeks prior to the stay, then adjusting down if needed depending on occupation. For that reason, i do not buy adv purch rates anymore, with a flex rate and using, sa they say, new technology, i can cancel and rebook if rates drop, i can even get that done automatically by some sites. Installing av50 grant cancellation fee, no matter the time, will take away that opportunity ,in other words, will allow the hotels to go for dynamic pricing all the way, or should we call it opportunistic pricing…

  8. ” Obviously with all these new technologies and things over the last couple of years, there has been lots of different sort of ways people are trying to game all our systems with cancel and rebook”

    Clearly talking about people making a flexible reservation, then finding a lower rate later on, and canceling to rebook at the lower price. The $50 fee would make that no longer cost effective for the guest.

  9. I think this is just a way to get more people to join the loyalty programs and book directly with the hotel. Note it says “Hilton HHonors members are exempt from the cancellation fee”. Not elites, just members. That is a pretty easy hurdle. What I think would be a better idea would be to create a third tier of cancellation policy. Right now there are flexible rates where you can cancel the day before and prepaid rates where you can’t cancel at all. It would be good to have another rate with a policy halfway in between (like 30 day or 14 day cancellation and a fee within that window) and to be able to capture some of the savings that come from the prepaid rate.

  10. I used to be excusively Marriott till they changed their policy, now I almost never use them. When I am forced to I always use my BlueBird card as my card to put down to hold the room cause I never keep any money in that account for more than 5 minutes. They can try and charge me to their hearts content.

  11. I never book a prepaid hotel or car rental, as too many things can change with travel plans. I will also not book a hotel until I am in route if I can’t cancel without penalty on arrival date. Hotels may reduce the # of cancellations with these new policies, but they will also have more unreserved rooms that they need to discount to fill.

  12. @paul m

    I’d be careful, they can always send you to collection if they have the right info on you. That’s a battle I wouldn’t want to fight.

    For those with a Citi card, their virtual wallet lets you generate a number and place a dollar and/or time limit on it. I’m wondering if the merchant can pitch a fit with citi and get citi to push the charge through anyway.

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