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Chain reaction

Cancellation policies

While globally active companies are up in arms regarding the more stringent cancellation policies introduced by US giants Marriott and Hilton, noted hotel industry experts are calling for others to follow suit. The conclusion: those who want flexibility should pay for it! What does that mean for companies? We take stock.

The hotel giants from the USA probably hadn’t reckoned on such a fierce headwind. They had barely announced that, in the future, last minute room cancellations 48 hours or less before arrival would result in fees amounting to the cost of an overnight stay, before they were bombarded with protests and threats of boycotts from many parts of the business travel world. Cancellation up to 6 p.m. on the day of arrival is a must in corporate travel; hence the feeling that anything else is an attack on traveller flexibility.

But Hilton and Marriott/Starwood are not the only ones waging war on this. Dissatisfaction with what’s seen as a limited ability to plan is such that, shortly after their US competitors did so, the British Intercontinental Hotel Group also announced that booking cancellations would only be free of charge 24 hours or more before arrival. Industry giants such as ex-Dorint boss Elke Schade are appealing for the “super example” set by these chains to be followed, so that these “financially unreasonable cancellation conditions” are finally revised. Gabriele Schulze, head of consulting firm Marketing4results, seconds this, saying it is the only way to make it clear to people “how much money the hotel industry loses due to this”.

Christoph Carnier,  Merck: “These restrictions have no place in corporate rates.”
Christoph Carnier, Merck: “These restrictions have no place in corporate rates.”

Travel managers such as Benjamin Park have a certain amount of sympathy. At the same time, for any potential concessions when it comes to the flexibility of their business travellers, they expect a service in return. The Director of Procurement & Travel at Parexel knows that “if a cancellation is made just before 6 p.m., it’s hard to sell the room elsewhere. I think that if hotels come down a little in price, then 24 hours in advance would be OK for the majority of corporate clients. That's usually manageable.”

A review of the booking behaviour of the largest HRS corporate clients in the last twelve months shows that the proportion of bookings cancelled within 48 hours of arrival is actually only around five percent. It sounds insignificant, but can quickly amount to large additional costs if the volumes are correspondingly high. As a result, many of Park’s colleagues also expect specific services in return for accepting alternative cancellation conditions. In a survey of over one hundred HRS corporate clients, a third of those questioned planned to negotiate “corresponding special conditions” in the current sourcing season.

“These restrictions have no place in corporate rates!”
As the HRS survey also very clearly demonstrates, when it comes to restricting their flexibility in travel planning, corporate customers are no longer taking things lightly. 82 percent of those surveyed said “when choosing between two hotels with the same number of stars, same service and comparable locations, the hotel with the more flexible conditions is strongly favoured”.

Graphic: Kirsten Semmler | Vector data:

Schulze, who was head of Best Western Hotels Germany until 2010, is outraged by this. In her opinion, the hotel industry is much too lenient. Her appeal to the corporate clients is as follows: “If you want flexibility so much, then pay for it!”

Christoph Carnier thinks the desire for planning security is quite understandable. “I grew up in a hotel, I understand that, given my background”, says the travel manager at science and technology firm Merck. Nevertheless, today he works for a large company. “And now that I’m in this position, I'd say, I would prefer that the 6 pm rule remains for guaranteed bookings.” And of course, it’s about those guaranteed bookings. “If I opt for the best-buy rate, then I have to expect some restrictions. But these have no place in corporate rates.”

Benjamin Park even goes one step further, saying that the hotel industry itself contributed to this situation because of a lack of transparency in its pricing policies. “With airlines, they let you see exactly how many seats are left. But that’s not how it is with hotels. They have gambled away a great deal of trust, because it’s not transparent for anyone,” comments the expert, in particular pointing at the US market which is dominated by chains. Last-minute rates are often introduced that are better than the negotiated corporate rates. So it’s no wonder that a real trend of cancellations and rebookings has set in. Park: “If hotel chains gave a ‘best buy guarantee’ and negotiated rates were more attractive, no one would need to rebook and we wouldn’t need the cancellation policy.”

Will independent hotels follow suit?
Following the Starwood deal, there was an expectation on all sides that sooner or later, Marriott would make use of its market power to recover the costs of the takeover – whether that was through higher rates or more stringent cancellation conditions, as we are now seeing. And it’s hardly surprising that Hilton, number two in the world, is following in the same footsteps in the chain-dominated US market; and the new 48-hour regulations are currently still limited to the USA and Canada. However, the big question remains as to whether the rest of the industry – and in particular, the independent hotel sector – will follow the lead of these large companies.

Wilhelm K. Weber, SHS: Chains think one-size-fits-all? Think again!
Wilhelm K. Weber, SHS: Chains think one-size-fits-all? Think again!

Wilhelm K. Weber, partner at consulting firm Swiss Hospitality Solutions (SHS), is entirely relaxed when it comes to this. He thinks that the “dogmatic, one-size-fits-all approach which the US chains are currently driving forward is completely misguided”. At the same time, he points out that there has always been a “conflict of interests between hotels and corporate clients”. Weber: “The customer wants maximum flexibility; the hotel wants maximum certainty. Each has an entirely opposite interests, but that's normal. I don't believe that it will strain the partnership.”

Even within the hotel industry, things are not as extreme as they appear at first sight. In fact, even ex-hotel bosses Schulze and Schade are aiming less for a strict end to the 6 p.m. cancellation policy and more for a wake-up call for their colleagues. Unlike the global chains, where pricing has long been the main objective, regional chains and privately-owned hotels are still holding back when it comes to this issue.

This is why solution providers such as HRS are recommending a focussed discussion of the topic. A hotel partner may opt for the 6 p.m. cancellation policy or may not, if it doesn’t bring any particular advantage to the hotel, says Björn Nilse, Director of Hotel Solutions at HRS. What is crucial, however, is that individual hotels take this decision consciously, and only when they have taken their own pricing and services into account. In order to do so, Nilse advises private hotels to see the more stringent cancellation policies being imposed by chains as an opportunity. The conclusion? If corporate clients want flexibility, then offer them it!

In the end, this could even result in a win-win situation for the independent hotel industry and corporate clients, believes Christian Temath, Head of Sourcing Solutions at HRS. This could be the case if one or two corporate clients restructure their hotel programme and no longer simply turn to the chains. Temath is firmly convinced that this will happen, because free-of-charge cancellation up to 6 p.m. on the day of arrival is a must for almost all companies when sourcing hotels. At the end of the day, the corporate client could then not only retain flexibility in travel planning but also – as demonstrated by countless studies – reduce accommodation costs by up to 15 percent. And still get the same level of traveller satisfaction. Boycotting the big names explicitly is not necessary for this. 

Graphic: Kirsten Semmler | Vector data: