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Cancellation changes give owners inventory control

Column: industry Tag: new standard cancellation policies,cancellation policies,Marriott Published: 2017-08-24 13:51 Source: Author:

REPORT FROM THE U.S.— Hotel brands, such as Marriott International, InterContinental Hotels Group, Hyatt Hotels Corporation and Hilton, have recently rolled out new standard cancellation policies to either formalize a 24-hour policy or impose a stricter 48-hour window, which could help properties better manage room inventory.

Reactions to the revisions from industry experts and executives have been mostly positive.

Chris Nassetta, Hilton’s president and CEO, told investors and analysts on the company’s second-quarter earnings call that in some markets, last-minute cancellations have skyrocketed, which is why the company initiated the change within the company.

“It’s not good for anybody; it makes it very hard for us to manage inventory,” he said. “And the net result of that is it costs everybody, because if we can’t manage the inventory, there is ultimately a cost to that, (which) at some point gets borne by the consumer. And so the idea is we’ve got to be able to understand what people want to do a little bit earlier, a little bit closer in.”

What brands are doing

Effective 15 June 2017, Marriott launched its 48-hour cancellation policy at hotels in the Americas, including the United States, Canada, Caribbean and Latin America, and policies will vary by hotel, according to a company statement. Marriott Vacations Worldwide and Design Hotels are exempt from the policy change.

Arne Sorenson, president and CEO of Marriott, said during the company’s second-quarter earnings call that feedback on the new policy has been encouraging.

“We did some beta testing in some markets before rolling it out as a brand standard, to see how customers responded to it,” he said. “Nobody likes incremental restrictions on the flexibility of reservations, but I think most customers understand that we've got a need to manage our inventory and avoid walking people and doing those sorts of things. And as a consequence, the response has been just fine, and we think really (there has been) no impact on the business.”

Nassetta added during Hilton’s call that about 10 or 20 markets around the country in Hilton’s portfolio will go one step further and implement a 72-hour cancellation policy where appropriate.

For Hyatt, revenue-management teams at the corporate office in Chicago have the final call on the cancellation window, said Mark Hoplamazian, president and CEO of Hyatt, during the company’s second-quarter performance call.

About 40% of Hyatt’s full-service hotels in the Americas have already moved their cancellation policies to 48 hours or more, he said; however, a large portion—more than 60 properties—have cancellation policies in excess of 48 hours.

“With respect to whether we look to establishing a change in corporate policy, it’s something that we will evaluate over time, but please note that we’ve been already active in the marketplace,” he said.

IHG’s previous cancellation policy was not uniform across the company, but a new, formalized policy of guests having 24 hours prior to arrival to cancel without penalty will “provide greater consistency for our guests when managing their reservations and will offer more certainty for owners,” Andrew Rubinacci, IHG’s SVP of global distribution and revenue management strategy, said in an email statement.

The revision is in place at the majority of IHG’s hotels, he added, and with support from owners. The changes, however, do not apply to its Kimpton Hotels & Restaurant brand, which will keep a 48-hour cancellation policy.

Owners’ perspective

The policy revision is long overdue, said Thomas Baltimore, president and CEO of Park Hotels & Resorts.

“I’m really pleased to see Hilton and Marriott. … If you look at New York as an example, cancellations have been averaging 30% to 40% (particularly in mid-July). That has impacted rate. It’s impacted certainly corresponding profitability,” he said during the Park’s second-quarter earnings call.

He added that the hotel industry is the only industry that essentially is given a free option.

It’s the right first step, he said. And in his opinion, it will lead to figuring out how to provide flexibility for travelers who want it, while also gaining control over inventory—whether it’s change fees or advance purchases.

Raymond Martz, EVP and CFO at Pebblebrook Hotel Trust, said via email that his company also is pleased Marriott and Hilton are showing leadership with their announced changes to cancellation policies.

“This is a positive for the hotel industry as over time, this should improve pricing integrity and lengthen booking windows,” he wrote. “We are very supportive.”

What other industry experts are saying

Bjorn Hanson, clinical professor at the Tisch Center for Hospitality and Tourism at the New York University School of Professional Studies, said he thinks major hotel companies are looking to raise the level of awareness to the travelling community about cancellation fees.

As for the guest and possible fees they might face, Hanson said there could be many times where cancellation fees could be waived, such as for loyalty members and events related to unforeseeable emergencies.

“Those are not promoted, but if someone calls with a certain list of reasons, then the fees will be waived. So I think again this is more about raising awareness than a rigorous enforcement period,” he said.

He further explained that some guests remember the “old days” when one could cancel at 6 p.m. on the day of the arrival, and there could be some pushback from that. He added that although many fees and surcharges, such as resort fees, are generally visibly disclosed, the cancellation policies aren’t necessarily “in big print, (or) near the top of confirmation emails.”

Both Hanson and Dexter Wood, SVP of real estate and portfolio management at Park Hotels & Resorts, mentioned the airline model.

“There has to be a penalty (for cancelling last minute). Airlines have adopted it … and now everyone knows about change fees and people just live with it,” Wood said during a panel at the 2017 Hotel Data Conference. “You have to do something that changes behavior.”

Hanson said the hotel industry is not currently offering a change fee; it is a cancellation fee. He thinks it’s interesting that the hotel industry hasn’t begun to follow that airline model, which travelers might understand better than the cancellation fee.

One size doesn’t fit all

Hanson said he has talked with Nassetta about the policy for about a year, and a policy that many executives assume will work in New York, where occupancy could reach about 86%, might not work in other markets where it’s difficult to recover occupancy.

“In other lower-occupancy cities, hotels (might) be less likely to enforce a cancellation policy because it’s a negative to guests or corporate travel managers,” he said. “… So one cancellation policy (might) not be appropriate; in fact, it is not appropriate for all markets at all times.”

His understanding is that although this is the stated national policy, individual hotels are permitted to establish their own cancellation policy. For instance, some properties in the Marriott portfolio have policies other than 48 hours, even before the revision occurred.

Rubinacci added that any adjustments to IHG’s policy to “regional or market-based considerations will be made as appropriate.” And each IHG hotel is able to determine if a penalty occurs following the cancellation policy.

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