Around 20% of all hotel reservations are canceled. One in every five bookings. It’s an incredibly high number and one that every hotelier should be taking action to mitigate.
However, as so often happens in hospitality, our industry has simply accepted this as a given. A necessary evil to get more guests into the funnel. It’s time for another mindset shift – one that can have huge benefits for bottom lines and for guest experiences.
Hospitality is an outlier
Offering refundable rates as standard is not normal. At least, it shouldn’t be. Think about any other industry. When you book a flight, you don’t do so speculatively, knowing that you can cancel it without penalty a few days before departure. You don’t buy tickets to a show months in advance and then pay on arrival. The idea of ordering a coffee at a Starbucks on your app and then deciding that you don’t want it once you’re supposed to come pick it up is something that we wouldn’t accept. Why should rooms be any different?
A hotel reservation is an options contract for the future, but it should never be offered for free and without penalty obligation until the day before. No other commodity is treated like this, and every customer understands this in every other sector. Your future guests will accept and adapt faster than you think.
The benefits of going non-refundable
Part of the reasoning for using flexible rates is that it makes booking a more frictionless experience. But it doesn’t eliminate the need to ask a customer for payment, it just kicks it down the road. Eventually, you’re going to have to ask: can you complete your payment? Often, hotels send multiple messages to instigate a response, at which point the relationship with the guest becomes purely transactional rather than human.
Paying at the point of reservation can provide a much better guest experience. It crosses off the transactional part of the relationship immediately and allows you to engage with them more meaningfully for the rest of their journey.
It’s also a boon for hotel cash flow. If you can capture payments at the point of reservation, businesses will receive their money faster and at a steadier rate. This can make a big difference, particularly for properties who rely on high season or peak periods to provide a large portion of their revenue. Oh, and you’ll also have to spend much less time scrambling to fill late-notice cancelations with new bookings.
Mews Payments opens up the ability to change the way hoteliers think about revenue management. It’s seamlessly integrated throughout the PMS at key payment points like online check-in and kiosk check-in and, most pertinently for this discussion, with the booking engine. That means hoteliers can securely automate payments at the moment of booking, with no need for manual intervention by hotel staff. Guests get a seamless payment experience (through a method of their choosing) while hoteliers bank the income.
Another great benefit is that though Alternative Payment Methods (APMs – think ApplePay, GooglePay, WeChatPay, SEPA, Ideal, or even Bitcoin) have some basic pre-authorization logic, they are largely instruments that should be used for instantaneous transactions. If you ask any website developer, this usually means that hotel booking engines have two flows for APMs and another for standard credit cards. This causes quite complicated user journeys and added costs, including missed opportunities. It’s a lot simpler to go with one route, and to plan accordingly.
The challenges of prepaid rates
If you’re not using a PMS that has integrated payments to automatically process reservations at the point of booking, you won’t feel the full operational benefits. Your team will still need to spend time on payment reconciliation, where errors can and do happen.
There will always be a small portion of guests who will try to buck the system. They’ll book a non-refundable rate, need to change their plans, and then react by raising a chargeback.
Make sure you’re upfront about your rates and T&Cs. If a guest contacts you directly, have a standardized process in place so your team knows how to react. For instance, you could allow the guest to rebook for different dates, paying any price difference if necessary, so you keep the revenue on your books.
That said, even when you’re in the right, chargebacks can be a time-consuming process, so choose a PMS partner that helps you to dispute them. Here’s how to handle – and avoid – hotel chargebacks.
The future of standard rates
I’m not suggesting that every hotel should offer one, non-refundable rate. Flexible rates have value, but they shouldn’t be the default, and I would argue that they are best used for your loyal customers and for corporate contracts. Ideally, for most of your customers, the refundable portion of a rate would be dynamically priced as an insurance policy for the customer.
In other words, factors like availability, date of stay, lead time and even customer profile can be used to automatically price in the added cost of choosing a refundable rate. If the risk of cancelation is higher based on what the data says, the reservation price should reflect this accordingly.
There’s some positive movement in the data, albeit small. In 2024 to date, 22% of rates at Mews-powered properties were sold as non-refundable – up from 20% the year before. There’s no question that the 2020 pandemic caused a big shift to more flexible rates – in 2021, the proportion of non-refundable reservations dropped to under 15%.
But those circumstances were unique. Travel has rebounded, but attitudes here are lagging behind. In 2019, the year before Covid hit, non-refundable reservations made up 29% of all bookings through Mews. Hoteliers are still playing catch-up, risking money on the table.
Conclusion
The evidence is there in our data: hotels that make the move to non-refundable as default don’t see an impact on revenues. Whilst customers are more likely to book fully flexible rates, they also unsurprisingly carry much higher cancellation rates (we see them consistently above 35%), and because of this their desirability is often magnified at the expense of the more prudent non-refundable option.
As always, the mindset shift is key. It’s about shaking off old assumptions about what guests expect and putting revenue first. About offering a flexible reservation as a benefit as opposed to a standard. Making the change is simpler than you think; what’s stopping you?
