Written by NCL Intern Trang Nguyen
Hotels used to let customers cancel their reservations up to 6pm on the day of arrival. This was the accepted norm for more than a decade. But this policy, which allowed flexibility for travelers, took a blow in 2015 when two big hotel chains, Marriott and Hilton, put into effect a penalty for last-minute cancellations. According to the new rule, cancellations later than 24 hours before the scheduled arrival date would result in a fee of one night’s room rate. There is no umbrella rule for cancellation fees for the hotel industry, which allows hotels to arbitrarily determine the cost. Depending on the destination and star-ratings, hotels are known to have charged up to three-night rates for resorts—or even allow no refund at all for the entire reservation.
Now, Marriott has announced a terribly anti-consumer policy: a three-day cancellation fee. In other words, if a consumer’s plans change within three days of travel, they get slammed with paying a full overnight stay—even if the hotel is able to re-rent the room and recoup all the money it would have lost from an empty room. Cancellation fees are punitive for both businesses and tourists. In 2014, the hotel industry collected $2.25 billion in fees and surcharges. These fees include in-room wifi, “resort fees,” and cancellation fees.
We did a little research and found some interesting information. The cancellation rates for online travel agencies (OTAs) (like Orbitz, Expedia, etc.) are significantly higher than those of reservations made directly to brand websites (i.e., Hilton.com or Marriott.com). The cancellation rate from brand websites hovers at 19 percent, while the rate for popular OTAs run from 25 percent (Expedia) to 39 percent (Booking). A possible explanation for the difference may be that customers who book directly through brand website are more likely to be loyal customers, who are set to travel according to the planned booking. Bookings through OTAs can be more whimsical. OTAs send rigorous marketing campaigns to their subscribers, urging them to make reservations for limited, discounted offers even if they have no existing need to travel. Since OTAs often have flexible, free cancellation, and no booking fees, many subscribers end up making the reservation and cancel them later.
We think this new rule ought to be illegal because hotels can double dip, just like the airlines are currently allowed to do. We think fair is fair. If the customer cancels a booking and the hotel is able to re-rent the room, the hotel should be required to refund the customer’s payment. We ask Marriott executives: is it really fair for hotels to punish customers who might have to cancel their reservation because of an emergency or a change in the location of a business meeting or family event when you’ve been able to re-rent the room? Or is this just another way to gouge consumers whose plans change (often through no fault of their own)?
Hotels can also mitigate this problem by measuring the cancellation rate for each channel they distribute to, and giving lower quota and higher rates to sites with high cancelation rates. They can offer different payment options to discourage arbitrary booking behaviors or send reminders to fickle customers to reduce risk of last-minute cancellations. Hotels can also up their last-minute reservation game by investing and giving special deals on their mobile apps. Right now, OTA mobile apps dominate the industry when it comes to last-minute booking, with 70 percent of the market. If hotels can tap into that segment through their own apps, it could surely relieve them of higher commission to the OTAs.
Clearly, limiting the main source of cancellation, not upsetting loyal customers, and attracting more last-minute reservations through direct booking would be a win-win for hotel chains and consumers. And refunding canceling customers for a room that is ultimately is rebooked is only fair.