With the ever-changing world, one thing we can be sure of, the plan will be subject to many changes and will oblige us to adapt it. A carefully planned trip may undergo several changes or even be cancelled, whether for personal reasons or beyond our control.
In the hotelier's point of view, we always receive these changes with a little bitterness, but we can only thank them with a sincere smile. No-shows and cancellations are on the agenda and part of the hotelier's routine. These changes often represent a hidden cost to the propriety, cause a huge revenue break apart from causing a major impact on day-to-day management. This impact goes beyond Revenue Management, Human and System Resources.
It is impossible to live without this reality, however, there are in fact some corrective measures that can be taken that will make your life easier and lessen the harmful effect of these realities.
Where to start?
First of all, it is a good idea to define what is a cancellation and no-show. Usually, the guest cancels the reservation through the same channel where the reservation was made. If it was direct with the hotel, the contact will be direct. If the reservation was made via OTA, the cancellation will have to arrive by the OTA, same thing for the other available channels. Please note that we shall not accept cancellations requested directly if the guest has not booked directly, otherwise the hotel will have to pay the reservation fee.
In the event that the cancellation process is complicated and extensive, the guest will quickly abandon the process and simply will not appear at the hotel, without actually having informed this intention in time. This gives rise to a no-show, which consists in the non-appearance, without prior notice, of a confirmed reservation. The client did not release the room and we no longer have the opportunity to sell it, implying an opportunity cost.
It is one of the consequences of free user experience that must be given to all digital channels. This user experience, with little restrictive cancellation policies leads us to significantly increase the number of no-shows in the propriety.
How can we minimize the no-shows?
The beginning of everything starts with the correct establishment of booking conditions and a clear and effective cancellation policy, taking into account the strategic goals of each hotel. These conditions will form part of the reservation agreement, with the client assuming responsibilities contemplated in the agreement. The transparency of booking conditions is essential, it is here that the customer has the opportunity to read in detail all the conditions of the reservation and end accepting it.
How and when can we charge no-shows?
To minimize the effects of no-shows and reduce the negative effect associated with them, we must include in the booking conditions some of the barriers that we can use as revenue management tools.
The inclusion of a deposit or cancellation fees are measures that prove effective in some types of hotels and set a time limit for cancellation after which we allocate a cost to the customer clearly.
The limit for cancellation without costs varies from one hotel to the other, and can go from 24 hours to one week. Whatever the hotel's choice, they all effective and reduce the risk of no-shows. However, we must bear in mind that when establishing deposits and cancellation fees we may lose some potential customers. Many hoteliers choose not to apply these barriers taking the risk of the no-show.
We believe that the most fair will be to create several levels of fees and create a mix with different time limits for the collection once they are broken. This is one of the basic principles of revenue management, which consists of creating several price levels (and conditions) so that the probability for booking increases, creating the best possible result for the hotel or business in cause.
There is also the practice of offering insurance in case of cancellation, this is a relatively recent practice in the hotels but little used. It consists of offering the customer the option of during the reservation process paying an additional amount, which covers the fee in case of cancellation, and may opt for different coverage, due to more or less comprehensive reasons for cancellation. This practice implies a service provided by third parties that will represent a cost that should be lower than the cost usually borne by the hotel with the no-shows.
One of the most used practices in the industry is favoring and use of non-refundable rates that by their nature are always charged and represent a significant advantage for the customer who does not intend to cancel and have immediate access to a discount for the same type of accommodation.
What is the impact of no-shows and cancellations?
Deepen the analysis of these headings in the PMS[1] reports and assess their impact on the multiple performance indicators (KPIs). Confirm which channels or offers where this behavior is most evident and check if there is a failure that requires your intervention. For a reliable analysis, reconfirm if everything is correctly identified with proper targeting and distribution channel. Here we underline a good communication with the Front Office and the Reservations Department.
Bet on technology
Customer relationship management tools for future guests (CRM) are precious on several levels. Using these software associated with the PMS or even the Booking Engine, we achieve an increased contact and break down barriers, minimizing some inconveniences, providing an effective reservations tracking almost in real time.
By establishing an automatic booking confirmation system, sending emails and/or reminder SMS before free cancellation period ends, we become within a click of a button away with a simple email or SMS button. When shortening the cancellation process we decreased the odds of No-Show incident. This technology works in an aggregating way, because it communicates whether the booking was made through the website, by telephone, email or social networks. This interaction can add value, we can take the time to suggest booking a table in the restaurant or even a spa treatment. Establishing contact points and optimizing them is crucial, confirm the visit and bet on cross-selling.
Why not question
Do not be afraid to get in touch and question what might have gone less well to lead to cancellation or even to a no-show. Be clear and firm when explaining why you will have to charge the fee but leave an invitation for a future visit, offering an extra service or a discount.
Overbooking Management
A point that has positive and negative results and therefore must be managed with much attention and cunning. We can use the famous American method created by airlines as a good way to compensate cancellations and no-shows. It is planned to create overbooking situations based no-shows and cancellations history, however, we will always be subject to overbooking that require us to Book-Out, where we will have to reaccomodate one or more guests who had confirmed bookings in their hands. It must be noted that this practice has as main objective - the increase of revenue and not the other way around. In this way we should have some elements in attention and proceed to calculate them as accurately as possible.
Although it is not the priority of this article to deepen the practice of overbooking, it seems pertinent to approach it getting a deeper analysis for a future article.
Elements for calculating accommodation units in overbooking:
$${\text{Q}} = {\text{N x }} \frac{\text{OC}}{\text{OC x CC}}{\text{ x PNS}}$$
Q - Number of sales in overbooking
N - Number of available rooms
OC - Opportunity occupancy cost
CC - Consequences Cost (in overbooking situation)
PNS - Probability of no-show (historical data)
An overbooking situation poorly managed will affect image and destroy value, especially in a digital environment where reputation building is something long, complex and arduous.
Whether or not you use overbooking as a way to insure and optimize revenue with no-show and cancellation situations, it is important to prevent overbooking situations caused by errors or failures. A responsible and careful channel management, based on reliable and efficient tools, limits large inventory and communication failures that can lead to overbooking. Technology has advanced significantly and offers solid software that gives us security and speed when distributing our inventory. Automate the flow of inventory and iys distribution to the maximum.
This is a game based on probability in which we must strategically assume what risks we want to take and what our favorite tools will be taking into account the reality of the hotel and the historical data.
Walk-ins can also help offset last-minute cancellations. It is advisable to have a well-structured pricing policy in order to not detract from the ADR, even if you want to privilege the opportunity and the guest. There is also a relationship between the online/mobile presence and the walk-in, the online presence in various channels helps the tourist chose our hotel, gives him the push and the security that it needs.
Considerations:
Inevitabilities such as no-shows, cancellations, walk-ins and overbooking are the hotelier's day-to-day life. The focus should be on ensuring revenue optimization when faced with threats that lead to a large revenue leak. In this way we list some points to keep in mind and work them efficiently:
- Clear, simple and objective cancellation policy
- Multiple fees and conditions of booking cancellation
- Integrations between PMS, CRM[2] and a secure and robust CM[3]
- Create and promote internal procedures
- Strong and achievable strategy
