Hilton Worldwide has decided against enacting a $50
cancellation fee at its hotels, for now.
Hilton launched a
pilot in November at a handful of its hotels, charging guests a $50 penalty
if a reservation was canceled anytime after booking. CEO Christopher Nassetta
said the company implemented the program in "a really blunt-force way"
to gauge customer reactions. "Customers hated it, but that's not really
surprising," he said during the company's fourth-quarter earnings call. "We
knew they would, but we did get some nuanced intelligence out of the experience."
Cancellation penalties have become the new frontier for
hoteliers looking to recoup costs from last minute-cancellations and to change how
the industry does business. "For almost every other product out there,
when you've purchased it, you've committed to buy it," said Patrick
Bosworth, co-founder and CEO of revenue management company Duetto, "whereas
hotels have historically had an incredibly flexible cancellation policy. In
many cases, even if you just no-show without telling the hotel, they wouldn't
charge you."
Nassetta said hotel players are willing to tie up inventory
for potential customers at no cost, "which sounds illogical and is
illogical." In 2014, both Hilton
and Marriott International enacted a stricter, 24-hour policy, charging one-night's
room cost for guests who fail to cancel before 11:59 p.m. the day before
arrival, and the industry followed suit. But hoteliers are considering even
tougher terms.
"The consumer should be given some freedom to be able
to cancel, but at the same time, we need to protect the downside for our
hotels," Best Western Hotels & Resorts CEO David Kong told BTN. The company is reexamining its own
cancellation policies, but he said it doesn't want to be as aggressive as others.
"It needs to be a win-win arrangement."
Nassetta said Hilton's pilot gave the company a better idea
of what opportunities are out there to change its business, including pricing flexible and inflexible rates differently, similar to the airline industry. "What
we want to do is make sure that, on behalf of ourselves and our owners, we're
not tying up inventory unnecessarily without customers having to take any risk
or any cost. We have to migrate behavior from where it is to where we want it
to be, and there are some really intelligent things that you'll see us start to
do later this year."
Booking and rebooking engines like tripBAM and Yapta, which
allow customers to take advantage of hotels' frequent rate changes, are among
the factors driving hoteliers to strengthen terms. "By changing
cancellation policies, it allows you to limit the ability of sites like tripBAM
to do what they do," Bosworth said.
Not immune to hoteliers' shifting mentality, corporate travel
mangers had to fight much harder in the 2016
hotel negotiation season than in previous years to get same-day cancellation
guaranteed in their contracts, according to consultants. "But based on the
experiment by Hilton and just based on what we saw as part of the negotiations,
we feel that this upcoming [requests for proposals] season might be the time
that other chains might start experimenting with different cancellation
policies," said Marwan Batrouni, senior director and global hotel practice
area leader at BCD's Advito consultancy.
TripBAM founder and CEO Steve Reynolds said doing
away with the flexible rates typically afforded to corporates, though, would "alienate
higher-margin business travelers." Better solutions, he said, would be for
hotels to modify their policies on when they drop rates or for them to provide
loyal corporate customers solid rate assurances. "Punishing a loyal
corporate guest that booked a higher rate in advance doesn’t seem right."