Guests Expect Flexible Refunds - Is Your Hotel Cancellation Policy Ready?

The Hoteliers Guide to the Post Covid Guest

Guests Expect Flexible Refunds - Is Your Hotel Cancellation Policy Ready?

The Hoteliers Guide to the Post Covid Guest

By Nathan Gawlik

Nathan Gawlik's experience includes being a General Manager of a Hampton Inn and other front line roles such as a Banquet Captain, Front Desk Agent, Housekeeper, Catering Event Manager, and Director of Sales

One of the most widespread worries of the new decade being felt by the traveling public is, "Will I get my money back if I can't travel?" While this concern is widely relatable to those considering a trip (or those forced to cancel one), hoteliers are left with a similar question: "Will I go out of business if people are forced to cancel?"

The debate around reimbursements is a tough challenge that was sprung on many hoteliers and innkeepers with little warning or guidance in the spring of 2020 due to the coronavirus pandemic. But these questions still keep causing challenges for hospitality businesses in 2021 and beyond.

There may be some insights we can glean from the What Travelers Want report. In this report, Expedia surveyed 16,000 respondents about their travel preferences in 2021. The report found over a third of travelers said they filter for refundable cancellation policies when searching for accommodations on travel booking sites. Providing a flexible cancellation policy can mean the difference between a guest booking with you over your competitor. Without a refundable rate, you will find it hard to compete online with today's guest expectations.

How can you reassure your guests to book with you?

Many small businesses in the hospitality space struggled to survive due to the pandemic. Many didn't make it and had to close their doors. Accommodation provides like hotels, B&Bs, campgrounds, and inns were among the hardest hit.

Guest rooms are perishable and hotels have fixed costs. If a room, campsite or unit sits unsold one night, that night can never be sold again and yet the property is still responsible for heating, cooling, and maintenance costs of that unit.

Last-minute cancellations can be devastating to small boutique hotels in particular. If a 10-bedroom B&B loses one of its guests a couple days prior to the stay date, it just lost 20% of its revenue that night.

Perhaps the most concerning question hoteliers are tasked with is how to respond to the desire guests have for a flexible cancellation policy (a trend that doesn't seem to be going away) while also protecting themselves from financial loss due to last-minute cancellation.

That leaves the question, what should properties do to protect themselves?

How to Increase Buyer Confidence, Entice Bookings and Address Worry

Hospitality professionals are the best at adapting to address the changing needs of their valuable guests. COVID-19 has presented an opportunity to show just how well hoteliers have listened to their guests and can increase traveler confidence. Very few properties offer terms and conditions that permit guests to receive their entire reimbursement on short notice when a legitimate emergency occurs.

Your pre-pandemic policies may be outdated and fail to meet the needs of the modern traveler. Whatever your cancellation policy, properties need to protect themselves financially but also ensure they don't lose a customer in the process.

If a reasonable person would no longer travel because of an unforeseen circumstance or changes to the travel environment, they could be given the option to move their trip to next year for the same price.

The airlines have used this tactic for years. Airlines often choose to provide vouchers for future flights instead of providing full reimbursements. This is seen as a win-win for both airlines and the traveler.

Should hotels and other accommodation providers lean into this tactic as well?

What Are the Benefits of Vouchers for Your Hotel Guests?

Whether it is the risk of wildfire, a global pandemic or even just emergencies that can spring up on the day of travel, properties need to have strategies in place to ensure they are meeting the needs of their guests while also not overleveraging themselves financially.

Small Properties, Big Financial Benefit
It can be particularly difficult for small businesses to provide full reimbursements if guests cancel last minute. On this point, it can be challenging to fill that vacant room on short notice. Smaller properties typically don't have a marketing budget so getting the word out about a vacancy to people interested in traveling can be difficult. This has left some properties to say they will only reimburse the cancelled guest if they can resell the room. This is less than ideal for all parties involved.

Instead, if the property managers chose to provide a voucher for a future stay in lieu of a reimbursement, then you get to keep the money and the guest is entitled to complete their stay at no extra cost at some point in the future.

Having those deposits in the bank to see you through a turbulent time may just be the difference that keeps your business afloat.

No Spare Customers
Businesses large and small can't afford to lose any of their customers. Each interaction is an opportunity to breed loyalty for life. Having policies in place that honor and value your guests can really enhance the relationship and provide for the intended experience you likely wish to convey.

Whether it's over the phone, in person, prior to their stay or after they have checked in: each interaction matters and could leave a lasting impression on your customers. The experience they have with you doesn't start at your front door; it starts long before.

Providing a voucher to your guest gives you an opportunity to win them over when they come to stay with you in the future. If you just reimburse that guest, that is like having a fish on the line that you failed to reel in.

Plus there is no reason those guests couldn't book with your competitor the next time they come to town.

More Control
Another benefit of providing your guests a voucher if they are forced to cancel is it gives you control. You can choose to provide them a comp stay in the same room in the future or just apply the value of their reservation to a future reservation.

You could choose to nudge these guests to a slower weekend when you need occupancy anyway. You could choose to incentivize them to make another reservation with you by sweetening the pot with a free upgrade to a larger suite if you wanted. I mean, giving away an upgrade is way better than having no revenue from that guest at all, right?

The options are endless and up to you. The fish is still on the line and you control the outcome.

Manage Expectations

Properties that choose to adopt the voucher tactic as an alternative to providing cancelled reservations a full reimbursement should keep a few things in mind.

Blackout Dates
Blackout dates are a must if you want to protect your business from lost potential revenue. If you know you can charge $300 a night on 4th of July weekend, don't let a guest that rescheduled back in March for $150 a night stay with you over that weekend. I've seen some hotels black out the entire summer. The choice is yours as long as it is amenable to your guests.

Expiration Dates
Be sure to limit the offer and stick to the expiration date within reason. Make sure the expiration date is clearly displaced. Don't hide it in the fine print, no one appreciates that. A safe tactic is a 12-month expiration date in print but be flexible if they want to book the following month of the expiration.

Limitations
Most properties provide details of how the voucher can be used and how it can't be used. Best practice is to state that the voucher can't be combined with any other offers and it is only valid for guest room stays not for spa treatments or other service offerings.

Accurate Record Keeping
Have a spreadsheet or PMS that keeps track of all of your gift certificates and vouchers for you. It can be easy to make a mess of these vouchers if you aren't organized. Many people forget when they sell their property, the new buyer is going to want to know how many vouchers are outstanding so having accurate record keeping is important.

Are There Other Solutions to Address Cancellations?

Vouchers or gift certificates are just one strategy properties are using. Many in the industry have the perspective that the non-reimbursable deposit is a thing of the past.

Some hoteliers have set themselves apart by updating their cancellation policy to be more flexible. Others have gone even further by providing Enhanced Reimbursement Terms, otherwise known as Worry-Free Bookings™.

In this Forbes article, Vice President of ResNexus Nathan Mayfield reviews how hoteliers can protect their business in greater detail.

Deposits

These Enhanced Refund Terms have the added benefit of requiring a full deposit. According to an article Net Affinity published, requiring a deposit is one of the most effective ways to reduce cancellations.

This study found cancellations increased from about 12% of reservations leading up to the pandemic to 35% of reservations being cancelled in 2020 and a surprisingly high 32% of reservations being cancelled in 2021.

With nearly a third of reservations being cancelled on average, property managers need to find a solution to meet the needs of their guests while also ensuring they can protect themselves financially.

Summary

Review your policies to see if they are in tune with today's traveler. Does your cancellation policy meet the needs of your valued guests? Does it incentivize lookers to turn into bookers? Consider going from cash reimbursements to vouchers. There are many benefits to both your guests and your business.

You get to keep the deposit
You don't lose the customer
You are in control

Just make sure you review what your competitors are doing and make sure you have an accurate tracking system in place.

This isn't to say that you can't offer reimbursements in some circumstances but you will be better off if you consider all the options available to you like Enhanced Reimbursement Terms, vouchers, deposits and otherwise. If you haven't updated your policies to allow for vouchers in place of refunds, it's time to offer it just like the airlines do.

Resources

Net Affinity | Cancellation rates: where do they stand and how can you overcome them?

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