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  • Writer's pictureMichail Tzouvelekis

Rise of free room cancelations shows no sign of slowing

The proliferation of free hotel cancelation policies has been one pandemic phenomenon that our industry is showing little sign of shaking off soon. Despite the optimism that travel and tourism could once again resume now that vaccines are being rolled out, our latest data shows a significant increase in the percentage of inventory being offered without contractual penalties for canceled bookings when compared to just 12 months ago.

Back in December 2019, just weeks before the pandemic began, we first ran the numbers to compare the split between inventory offered with free cancelations and those with non-refundable terms. We reviewed the room inventory of more than 200,000 hotels worldwide and found that the majority, 62%, came with a non-refundable clause. In June we took another look and found that 58% of rooms were offered on a refundable basis with just 42% being non-refundable.

Around the same time, Google improved its metasearch solution by adding a new “free cancellation” filter to both Hotel Ads and Google Travel, in order to only show rates that can be canceled without any penalty (for free). Increasingly through the summer, many more hotels and vacation rentals started offering free cancellations to give travelers more confidence when planning trips.

Jump forward to December 2020 and the mirror opposite to 2019 was true. Now, 68% of rooms were available without a cancelation penalty and just 32% of inventory was available with a non-refundable policy.

That’s an increase of 80% for rooms available on a refundable basis, as the table below shows:

A search of any Online Travel Agency (OTA) would give the impression that this percentage is even higher. Rooms with free cancelation policies are being given greater visibility than those without which are buried several pages in suggesting every room is refundable. For guests who are happy to take the risk and want to avoid paying a premium for the refundable rooms, they are going to have to look harder for those deals. The numbers are even more extreme when you take into consideration that our research suggests that refundable rooms are only offered on last-minute bookings which given the uncertainty in the market makes sense.

It makes sense, of course, that flexibility to cancel without penalties is key for travelers looking to book a hotel stay during the pandemic. All over the world, border closures and nationwide lockdowns have been imposed by governments as unexpectedly, frequently and interchangeably as each other, so naturally, the risk of losing money from sudden cancellations or changes looms large in travelers’ minds - as demonstrated in the findings of Phocuswright's research.

As Agoda’s, Andrew Smith, Regional Director for Partner Development, highlighted during a recent Fornova webinar, “It’s going to stay this way for a while, but as international travel opens up, airfares will not be fully refundable so people may become more confident in booking less flexible rooms… It’s difficult to see change during the next six months.”

This was a view echoed by Julius Robinson, Marriott International's chief sales and marketing officer for the U.S. and Canada, during a recent interview with Travel Weekly. When asked about what they have found most effective in encouraging guests to book travel, he said: “The two things that stick are providing guests with the knowledge that our hotels are exceptionally clean; and the other thing, I would say, is flexibility. We've done things like waive cancellation fees, and while that won't be forever, we continue to look at it on a regular basis.”

For hotels that are working hard to protect their margins, the free cancelation policy is a difficult balancing act between giving guests the flexibility they demand and setting commercially viable rates. Continuously monitoring your comp set and adjusting rates to remain attractive and visible is essential.

Discover how Fornova Competitive Intelligence can help you better understand how your property or chain is performing against the competition, and empower you to make smarter pricing decisions.

To find out more about FornovaCI, contact us today!


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