Coronavirus and the Repercussions for the Hotel Cancellation Policies

Mar 13, 2020 | Revenue Management | Reading Time: 8 minutes

International travel is expected to fall by 1.5% this year and the effect of this global crisis goes beyond tourism, hurting different businesses as well. The coronavirus, or COVID-19, is impacting the travel industry. From new procedures to changes in hotel cancellation policies, hotels not only have to adapt to the crisis but also find ways to minimize the damage.

The rapid spread of the COVID-19 has taken a toll on the travel and tourism industry, which accounts for more than 10% of global economic growth. Undeniable, the hotel industry is suffering from the coronavirus symptoms. In some countries more than in others. Consequently, lodgings around the globe are doing what they can to minimize the impact on guests whose travel plans have changed.

People (hoteliers included) are scared, understandably. In the chaotic wave of emotions, hotels still need to handle practical issues, like financial health. That’s why we ask four Hotel Revenue Experts to help hotels minimize the financial stress in such difficult times to hoteliers and guests.

1. Should hotels strictly follow their hotel cancellation policies now that we are facing the Coronavirus? How would you advise hotels to handle cancellations?

profile picture hotel expert Max StarkovMax Starkov, Hospitality & Online Travel Tech Strategist – New York, USA

“An important action step, part of the property coronavirus strategy, is the adoption of a no-penalty cancelation policy, for both transient and group business. Transients and SMERFs: Hoteliers should adopt a “No Penalty” cancelation policy and should handle non-refundable bookings via rebookings, credits, refunds, etc.

Corporate groups: Unlike citywide conventions and exhibitions, corporate meetings pose very little risk for the communal spread of the coronavirus. The risk of catching the virus at a corporate meeting is actually lower than catching the flu. Yet, if a meeting planner decides to cancel a meeting, hoteliers should adopt a “No Penalty” cancelation policy. No questions asked!

The coronavirus crisis will be over sooner or later and hoteliers would once again start chasing these exact corporate and leisure transients, SMERF organizers, tour operators, meeting planners and corporate groups. Guess whether the property would be able to bring back transients and groups if the property has been inconsiderate and refused to refund, rebook or issue a credit, citing contract clauses/rate terms?”

christop Hutter revenue consultantChristoph Hütter, Revenue Strategy Consultant – Ontario, Canada

“Hotels need to show flexibility in times of crisis. Not just because everyone is suffering and being flexible is just the right thing to do right now. But also keeping your customer lifetime value in mind. It is essential to help our customers now as this crisis will pass and at some point, guests will return. Provided they were treated well.

Instead of canceling try to see if you can rebook them for a future date or at least try offering credit instead of a refund. Some hotels started offering a 20 or 30 percent bonus credit for groups not asking the deposit be returned. If that makes sense fiscally and in terms of cash flow is something you will need to decide for your specific case. It may be better to look at alternate methods of short term financing and many governments promised bits of help to small businesses.

Don’t spend too much time and energy on cancellations and how to handle them. They are inevitable and hotels and customers alike are hit hard by this crisis. Instead, focus on what you can do to minimize the impact of these cancellations and prepare for the time after the crisis.”

Angelo Castro hotel revenueAngelo Castro, Cluster Revenue Manager – São Paulo, Brazil

“During ordinary situations and normal days, hoteliers must strictly follow hotel cancellation policies, because it will avoid revenue losses. However, in cases such as Coronavirus, there are some laws that prevent any charge from the guest, classifying this event as a “major cause”. My advice during this períod is trying to negotiate with the guest/client, postponing the confirmed booking/group or let the credit to be used in a future stay/event.”

david mignano hotel revenue managerDavid Mignano, Revenue Manager – New York, USA

“As most hoteliers will tell you, cancellation policies are never black and white. This goes doubly for extreme scenarios like this one. We are in the business of people, but we are still in business. While an event of this proportion is never planned for, we do offer rates and discounts to lock in revenue for similar purposes. Each cancellation needs to be viewed on a case by case basis and by market.

In full disclosure, my answer to this question would have been very different a week ago. The situation continues to deteriorate at a dizzying pace which makes the answer to this question ever-changing. Hoteliers need to understand that everyone is hurting right now.

People are scared, their investment accounts/401Ks are in shambles, their jobs may be at risk so being understanding and flexible is of the utmost importance. At the same time, guests need to understand that the travel industry as a whole is also hurting. Revenues are in shambles and jobs are at risk.

Hotels need to hold on to as much revenue as they can. There is no perfect solution here for anyone involved and we all need to work together to find an answer that works for everyone. A rebooking clause seems to be the most common compromise being offered right now. At the end of the day, I think all hotel leaders need to be responsible to make whatever decision makes the best sense for the business as long as they are acting in good faith.”

2. How can hotels minimize their financial loss due to multiple cancellations?

profile picture hotel expert Max StarkovMax Starkov, Hospitality & Online Travel Tech Strategist – New York, USA

“Analyze where your guests are coming in this time if the year and develop a robust Feeder Market Channel Strategy vs the usual market segmentation channel strategy. Focus on your short-haul feeder-markets and especially on your drive-in feeder markets.

Why? People are better informed about nearby destinations and can better assess the coronavirus situation in these destinations, and continue to travel on shorter trips to nearby destinations if they believe the situation is under control. Therefore focusing on your property’s short-haul and drive-in feeder markets in the midst of the coronavirus scare makes all the sense.

Short-haul and drive-in feeder markets can really save the day! Analyze carefully all short-haul/drive-in feeder markets and identify the ones that matter. Ex. For an NYC hotel, these are PA, NJ, CT, Upstate NY, as well as Boston and Washington DC. Do you have a hotel product to sell in these feeder markets? Are there weekend specials, family, museum, special occasion packages, “Gas Refund” promotions on the website, F&B packages, etc. targeting the drive-in feeder markets? Launch SEM, GDN, GHA, CRM marketing campaigns, multi-channel campaigns, etc., all of these geo-targeting the short-haul/drive-in feeder markets, important to the property.”

christop Hutter revenue consultantChristoph Hütter, Revenue Strategy Consultant – Ontario, Canada

“Don’t drop your prices! Discounting doesn’t work in a downward economy. It won’t create additional demand. And with modern rate shopping technology dropping rates it is pretty pointless. The moment a hotel drops prices, the entire compset will know and follow suit. What follows is a downward spiral with shrinking margins and profitability.

The reality is that in the short term, your options are limited. Not even the best offer would convince someone who doesn’t want to (or cannot) travel right now to change their mind. That said, some people will be ready to travel (or have to) and you need to target those people.

Marketing is one of the first expenses many companies (and hotels) will cut in times of a crisis. And with a reduction in ad spend, prices for many keywords will drop. Here is a huge opportunity for hotels. Most of your competitors and even OTAs will leave the playing field to you. And while it probably doesn’t make too much sense to market overseas, geotarget your driver markets.

Rethink your upselling and cross-selling activities, develop new products and revisit your pricing architecture, use it as a renaissance for your room service. And make sure you switch off any campaigns or offers that don’t make sense right now (e.g. museum package in a destination where museums are closed, non-refundable rates as you’ll refund cancellations anyways, etc.).

The most important thing of all is that this crisis will pass. And you have to prepare for this moment now. Because as soon as this is over, the competition will become very tough and with demand returning, your competition will want to make up for the losses. Marketing cost will undoubtedly go up substantially.

This means you have to put your strategy in place now, develop and produce your content and be ready. People might not travel right now but they will keep researching and exploring (especially when confined to their home for the next few weeks). Target those people in your content marketing and social marketing.”

Angelo Castro hotel revenueAngelo Castro, Cluster Revenue Manager – São Paulo, Brazil

“The cancellation pattern of the coronovirus is been more aggressive in the Business and special corporate segments, with policies forbidding travels on the companies side. On the other side, in Brazil, we are noting positive pickup from local leisure, since Brazil does not have an emergency state yet and high exchange rate inhibiting any international travel. With these data, we are investing more in this local demand to avoid financial losses and improve food and beverage, spa and other products inside the hotel for the guests.”

david mignano hotel revenue managerDavid Mignano, Revenue Manager – New York, USA

“The best thing to minimize loss is to best understand the amount of risk the hotel has. Hotel leaders should have a good idea of their business mix already so knowing that they can get a better picture of how many cancellations to expect. A hotel that is driven heavily by business travel or international group will be at higher risk than a hotel that is sustained heavily by the drive market. Knowing this information can help develop an Operations action plan to cut costs and increase operational efficiency.

Revenue Management and Sales can start to adjust their strategies to sustain as much business as they can. Not sacrificing the future for today is important to minimizing loss. Not having flexibility with future value business and dropping rates to atypical levels will only alienate the guests we want to stay during moderate to high demand times. While this may seem like the right move in the short term, it will end up a Pyrrhic victory. ”

How is your hotel handling the cancellations? Share with us your thoughts and help the industry overcome this big challenge!

2 comments about "Coronavirus and the Repercussions for the Hotel Cancellation Policies"

  • Marian Langaigne says:

    Very informative. As a small hotel resently opened a year and a half we are affected greatly. The cancellation approach that I took was not the best inspite of me having some ideas to play around with similar to what was shared But this information has helped me a lot.
    I will continue to work with my ideas because the Corona virus will pass away and people will start traveling once more.

    • Paula Carreirão says:

      Hi, Marian!

      Thanks for letting us know that this material was useful to you. In these difficult times, we should come together and help each other the best way we can.
      Stay safe!

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