“People have always liked flexibility; it’s a market law that whenever you impose a restriction, you reduce your target market. The fact that the non-refundable rate is very popular in the hotel industry does not mean that guests like it. Rather, it always creates some friction. The non-refundable rate is more appealing to hoteliers than to guests, because it provides liquidity and a vague sense of security from last-minute cancellations. However, hoteliers often don’t realise what they are losing. For non-refundable rates to be accepted by guests, a discount is required. But what would happen if the hotel abandoned the non-refundable discount and sold the room with a flexible policy at a higher rate? It would most likely earn more.
Therefore, the illusory sense of security of the non-refundable rate or the desire to generate liquidity during the low season still leads to significant revenue losses in the medium to long-term due to the discounts that the non-refundable rate requires. If the goal is to protect against cancellation risks, then it is better to differentiate the cancellation window and penalty based on the stay period (low, shoulder, or high season) and implement the necessary checks/pre-authorisations on credit cards, weighing all risks and benefits. During high season, a longer window and stricter penalty will still provide more time to resell rooms, minimising risk in a period of high demand where revenue loss is not affordable.
Conversely, a shorter cancellation window before check-in during low season will stimulate demand, allowing a greater market share versus competitors. So it can be useful to check the average cancellation terms in the area to make informed decisions. The risk of last-minute cancellations during low season will concern rooms that would likely remain empty anyway, so it’s worth taking the risk. The cancellation policy significantly affects visibility due to related search filters. The more flexible the policy and the shorter the cancellation window before check-in, the greater the visibility of the hotel, increasing booking opportunities.
As always, it’s essential to find the right balance, but eliminating the non-refundable rate and working with flexible rates, although statistically increasing cancellations, also leads to more bookings. The balance between bookings and cancellations remains positive and generates incremental revenue, which is what really matters.”
