New hotel cancellation policies: companies should review their hotel contracts
Latest HRS analysis shows 17 percent of business trips are cancelled, five percent within 48 hours of travel +++
Companies could be faced with over three percent additional charges on their global booking volume +++ 82 percent of surveyed travel managers note strong intention to steer business travelers to properties with flexible policies
Cologne, 23 August 2017 – If hotel chains increasingly adopt 48-hour advance cancellation policies, companies will have to budget for additional charges totaling millions. HRS, a global hotel solution provider, drew this conclusion after an in-depth analysis of the booking data of its largest corporate customers over the past twelve months – cancellations in particular.
For business travelers, flexibility is one of the most important criteria when booking a hotel, as business appointments change frequently. That said, HRS certainly understands that hotels have every right to maximize their room inventory and generate revenue. As rate shopping and revenue management technologies improve, optimized supplier relationships – and fairly-negotiated contracts - between hotels and corporate hotel program managers are critical to mitigating the financial impact of these new policies.
HRS’ survey of 100 corporate travel managers found the majority of respondents expecting higher costs due to the new cancellation policy. Sixty percent of survey participants envision the new policy will put them at risk of not achieving their travel management objectives. Consequently, almost one third of companies have already engaged with hotels to negotiate special conditions. When choosing between two hotels with the same star rating, service, and comparable location, 82 percent of travel managers would strongly favor the hotel offering more flexible cancellation policies.
Nearly one of every six bookings (17 percent) is canceled, according to HRS’ research. But short-term cancellations are less frequent. Five percent of bookings are canceled up to 48 hours before arrival. The more stringent cancellation regulations recently introduced by major chain hotels could cause companies to see hotel program costs rise. In many cases, the late cancellation charge equals one overnight stay. Factoring in these potential costs across actual cancellation patterns over the past year, the companies surveyed would incur two percent additional lodging cost.
In the event that shortened cancellation windows are adopted by more hotels around the world, additional costs could rocket into the millions for some firms. One proof of this is provided by a key HRS client with total hotel spend of more than $82 million USD. If all cancellations made by this company within 48 hours of arrival were subject to this charge, the budget impact would be $600,000 USD a year. If all chain hotels globally implement this policy, this same company could see additional costs of up to $2.7 million USD, corresponding to three percent of the overall booking volume. These developments are most impactful in countries dominated by chains, such as the USA, where independent hotels represent less than 30 percent of the overall market.
“Against the backdrop of more stringent cancellation conditions in individual chains, companies should review their hotel program and negotiated rates,” said HRS vice president of the Americas Suzanne Neufang. “We’re making this a priority topic for all of our client negotiations this RFP season. Corporates who fail to address this issue in their 2018 negotiations risk absorbing unplanned fees that can negatively impact planning and actual expenditures. Companies can also mitigate the potential fiscal impact of these fees by better educating travelers and travel planners on the costs of last-minute alterations to both air and hotel bookings.”
As part of its hotel procurement service for corporate programs, HRS casts its eye over the overall market. This includes independent hotels as well as hotel chain organizations that may offer more flexible cancellation policies for business travelers. Free-of-charge cancellation up to 6 pm on the day of arrival is a “must” for almost all companies – correspondingly, hotels stand to gain more corporate room nights if they offer guests this flexibility.