Travel budgets and discretionary spending are likely to suffer as global markets fluctuate amid fears over international tariffs. Tourism Economics’ recent report has already shown that travel from abroad to the US will decline by 5.5% The optimistic predictions for this year have turned out to be wrong. 9% Growth by 2025
Hoteliers in APAC are concerned about the rising cancellation rate. This is due to the possibility of softer conditions for bookings. A recent study showed that cancellations of hotel reservations made through third-party online booking agencies (OTAs), reached a significant level in Asia. 40% of revenue on Booking.com and 24% of booking revenue on Expedia.
Why do hotels cancel bookings?
While a possible increase in cancellations in hotels may be attributed in part to more economical consumers, the industry is moving toward more flexible policies for cancellations, largely driven by competition among OTAs. The same platforms (Booking.com, Expedia), which have high cancellation rates, emphasize consumer-friendly policies in order to attract bookings. This makes cancellations easier and more common.
It has never been easier for travelers to make informed decisions. Sites like these allow users to easily compare and find the best option for them. This also allows them to identify any hotels that are not in line with current market conditions. Hoteliers in the APAC region are challenged to not only attract guests at the best price but also keep their original booking. The travel industry is a flexible one, and travellers are actively seeking it. Statista reported that the research indicates that younger travellers are prioritising flexibility, and they’re willing to pay more for the cancellation option. 66% of Gen Z adults and 64% of Millennials Actively seek flexible cancellation options.
Rebooking and cancelling is on the rise
This practice, where guests cancel and rebook the same hotel at a reduced rate, is creating a problem for hotels. Digitally savvy travellers often use automated technology to alert them to price changes, allowing them to cancel and book the same hotel at a better rate. This practice is second nature to many and they are willing to save money if it means they can.
This practice is beneficial for the traveler, but it has significant implications on hotel revenue. Hotels lose revenue when guests rebook their bookings at lower prices. In addition, frequent cancellations may also cause a hotel’s own forecasting model to be distorted. Hotel demand forecasts often factor in initial bookings, but fail to account for customers who “shop around” for the best rates. These guest behaviors inflate the demand and make revenue management professionals struggle to accurately forecast and develop pricing strategies without advanced analytics.
How can hotels minimize the impact of cancellations on their business?
Hotels should balance flexible cancellation policies and incentives for confirmed reservations to limit the impact of cancellations. Hotels can offer discounts for bookings made in advance, or for partially pre-paid reservations. This will help lock in revenue. If priced and promoted correctly, these non-refundable rates can reduce cancellations while not alienating price-sensitive travelers. Strategically promoting last-minute offers through non-public sales channels or private sales, such as a hotel database, can help convert cancelled bookings into new ones and maintain occupancy rates. This strategy helps hotels fill rooms that would otherwise be left empty by late cancellations.
The hotels should also concentrate on increasing direct bookings. Bookings made directly with hotels have a lower cancellation rate than bookings through OTAs. Travellers who make direct bookings often show a greater commitment to a brand or property by taking extra steps on the hotel’s booking platform. Direct bookings can be encouraged by hotels using targeted promotions and value-added package deals.
Retargeting is an effective way to increase direct sales. Guests usually research multiple travel websites, including OTAs, before making a decision. Hoteliers can stay top-of-mind by leveraging technology which customises ads based on previous website behaviour. This strategy not only increases return visits to the website, but also the chances of getting a direct reservation.
Use the power of advanced revenue systems
Leading revenue management systems (RMS), which help hotels to address the increasing challenge of cancellations and rebookings, incorporate data about cancellation and rebooking trends, which can vary greatly based on factors such as market, property type and seasonality. IDeaS G3 revenue management systems, for example, help revenue managers predict and mitigate cancellation risk through the analysis of segment-level price elasticities and evaluating potential rate changes.
Traditionally, a hotel would lower the rates to fill rooms if a group of large guests cancels their reservations just before they arrive. However, with an RMS, revenue managers are able to take a more strategic approach. These solutions allow revenue managers to validate if a rate reduction would generate additional revenue or simply encourage flexible booking guests to cancel their reservations and rebook them at lower rates. The ability to analyse cancellations and predict their financial consequences in real-time gives hotels powerful tools to maximise occupancy and revenue.
Business security is a priority.
Addressing hotel cancellations requires a proactive, data-driven approach. Hotels need to balance flexible booking options, targeted policies, and advanced analytics in order to minimize the financial impact of cancelations. Hotels that can adapt quickly to changing consumer behavior are better positioned to not only secure immediate bookings but also foster guest loyalty over the long term and sustain revenue growth.
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