Free hotel cancellation policies are now the new norm

As hotels around the globe do whatever it takes to survive the Covid-19 crisis, a fundamental shift is taking place in hotel cancellation policies with hotels increasingly offering free cancellations in a bid to convert bookings.

In December last year, we ran a research initiative across over 200,000 hotels around the world to understand the cancelation policies in the market. We found that around 38% of hotels had free cancellations and 62% had a non-refundable policy in place. At that time, we had no idea about the looming coronavirus pandemic and the impact it would have on the hospitality industry.

Last week, we ran the same research. The difference couldn't be clearer, with a 50% increase in the number of hotels now providing refundable room bookings.

We found that 58% of the hotels now offer free cancelations, with 42% continuing to refuse to offer a refund. Crucially though, the rooms offering a free cancelation policy are the ones converting browsing into bookings. As a result, we expect to see the percentage of hotels providing refundable options continue to increase.

What's driving this seismic change?

Guests are demanding flexibility. With so much uncertainty out there, people are reluctant to take the risk of being tied-in to their booking. They worry that restrictions might return or that they might still fear traveling as the check-in date gets nearer which might force them to cancel.

What does this mean for hotels?

Hotels have little choice but to offer free cancellations. It's expected and is now the norm for almost all hotels worldwide.

This, coupled with low occupancy, poses a major challenge to hotels. Hotels are already having to reduce their rates to secure occupancy.

One of the outcomes of this new policy norm that we expect to see is a significant rise in re-booking activity where guests cancel their existing booking and rebook the same room but for a new, lower rate as hotels cut their prices to boost occupancy. Re-booking, could cause cash flow issues with many bookings for Q4 actually just being moved bookings from the lockdown period which means there's little new cash coming in.

In addition, online travel agencies (OTAs) will retarget potential guests and showcase price drops across a hotel's comp set - increasing the risk that a traveler may decide to cancel their booking with one hotel and book with a competitor.

There's little action hoteliers can take right now. We don't expect to see any significant changes to policies soon and a return to non-refundable bookings will probably be very gradual.

But, when the change does start to happen our clients will know about it. Changes to comp set cancellations policies will be flagged in our competitive intelligence solution FornovaCI. When your competitors change their cancelation policy you will have the right information at the right time to make the right decision for your hotel.

As always we're continuing to monitor the market closely and will keep you up-to- date. You can arrange a free demonstration of FornovaCI.

Keep on top of the cancellation policies of the major hotels here.