How to reduce high cancellation rate on OTAs
Today’s hotel guests are empowered and informed, which in some ways is very positive. However, it has also led to a trend of guests making multiple bookings far in advance, before cancelling ones they decide against just a day or two before their stay dates. High cancellation rates on OTAs or other channels can be a problem for your hotel if you don’t have a strategy ready to deal with them.
These high booking cancellation rates can lead to distorted demand levels for hotels.
This means guests book non-optimal rates and you lose revenue. Why does this happen, and how can hotels deal with the effects of these cancellation rates?
We’ve put together a quick guide to help you figure out what affects higher cancellation rates, followed by some tips to deal with them.
Our goal is to help you discover which channels cancellations are coming from, what kind of cancellation rates you should expect, and how to plan for them and turn cancellations to your advantage.
The first thing to realize is that your cancellation rates will be totally different for each channel, and whether they come from your brand website, an OTA, over the phone, etc.
Even if this is in reality the same policy your hotel has on its brand website (free cancellation, no booking fees), these messages have a natural result: long lead bookings through OTAs have a higher cancellation rate than short lead bookings and bookings from other channels.
Of course, every individual hotel will see slightly different trends. It’s vital that you evaluate your hotel’s own booking patterns. You may get a much larger percentage of cancellations from Expedia instead of Booking.com, or cancellation messages on your own site might be creating a spike of cancellations on your direct bookings.
Keep in mind that you need to evaluate your cancellation rates on each channel.
When you know where your cancellations are coming from, you can start planning for them. If you’re not sure about the source of cancellations, how will you know where to start? When it comes to cancellations, forewarned is forearmed.
Here are some tips to overcome high cancellation rates:
- Pay attention to what channels are booked and when. Monitor your lead times from each channel, online and offline. Figure out how many bookings you’re getting through each channel.
- Focus on the cancellation rate on each channel. How many guests actually stayed, compared to those that were forecasted to stay? Keep a record! This will help you track cancellation rates over time and develop a plan of action.
- Consider more restrictive cancellation policies on channels with larger numbers of cancellations. This will need to be reviewed against your OTA contracts, but if you’re able to reduce cancellations on channels with more restrictive cancellation policies, you’ll reduce uncertainty. Of course, you want to avoid decreasing the number of good bookings you get through these channels as well. To make sure a more restrictive policy doesn’t affect this, run a trial for a few months to consider and offer a suitable cancellation policy
- Use overbooking practices. Don’t give away the house too early and then close it out. You’ll likely be filling too fast, with bookings that are quite likely to be cancelled nearer to the date. Tracking the pace of cancellations by days prior to arrival enables you to determine how overbooked a given date in future should be. It’s not enough to have a fixed total number of rooms you overbook by.
- Review Allocation and Free-sale Bookings. If an OTA is operation on an allocation of rooms from you, are you topping this up too far in advance? Is the OTA selling the additional free-sale rooms and holding on to their allocation?
- Analyse Forecasted versus Actual Demand. Long lead bookings are distorting actual demand levels. When you track your cancellation rates over time, you can predict how many of these are likely to become actual bookings. This lets you adjust your demand levels from there. A forecast is never 100% accurate and will always have some variation from actual demand. The difference between the forecasted demand and actual demand is the Forecast Error. The goal is for your FE to be as low as possible. If you’re seeing a higher level of error, it may be attributable to the cancellations.
Follow these tips, and take a thorough look at your OTA cancellation rate. Cancellation rates that are too high can have a big effect on your revenue. There are techniques, like those outlined above, that you can use to control cancellation rates and recover from high cancellation rates.