Major hotel chains’ recent expansions of their
advance-cancellation penalties reflect a lack of understanding of the potential
costs for corporate hotel programs. These changes bring yet another new element
to the hotel sourcing process: Now buyers need to better track their programs’
metrics on hotel cancellations, when they take place and the costs/pain
threshold of their specific program objectives. Back-of-the-envelope
assumptions rarely satisfy CFO queries; travel managers need to have answers
ready for their bosses as the impact of these changes on 2018 budgets comes
into focus.
Hotels have the right to maximize room inventory and
generate revenue. That said, optimized supplier-buyer relationships are a
priority for hotel chains—big and small. Armed with metrics from verifiable
travel data, HRS believes travel programs can leverage their relationships and
proven performance to mitigate these fees and keep most policies at the
historical level: free-of-charge cancellation up to 6 p.m. on the day of
arrival.
Incremental Increase in Hotel Program Costs
A study of the booking data and cancellation policies of
HRS’s largest corporate customers over the past 12 months leaves no doubt that
these new fees could drive millions in new, travel-related expenditures. Some
takeaways:
- 17 percent of business trips are canceled.
- 5 percent of those cancellations are within 48 hours of
arrival.
HRS looked at a multinational client that spends $82 million
a year globally on lodging:
- If all cancellations made by this company in North America
within 48 hours of arrival were subject to this charge, the budget impact would
be US$600,000 a year.
- If all chain hotels implemented this policy, this company
could see another US$2.7 million in costs, equal to 3 percent of total booking
volume.
Real money is at stake. While most of the changes so far
impact properties in the Americas under a few global chains, corporations need
to be vigilant on this issue as the traditional RFP season unfolds: Once a new
revenue stream proves sustainable, it’s conceivable that others will follow
suit, including an extension of such policies to properties on other
continents.
Increased RFP Complexity
Hoteliers typically have a keen understanding of a corporate
hotel program’s threshold for transient rate increases. The new cancellation
fee gives hoteliers one more element to negotiate; one can easily see a
hotelier, in the course of negotiations, offering more flexible cancellation
policies in exchange for a particular percentage increase on room rates. Just
as travel managers have savings targets, hoteliers have revenue targets they
are shooting for every year.
The buyer needs to be armed with his or her hotel data and
evidence of the program’s capability to shift share. What’s more, as buyers
gain from the transparency of ongoing rate auditing, they should engage with
their rate-auditing provider to ensure that their cancellation policies, which
may vary from property to property, are monitored at all times. Sourcing
experts also should wrap in protection from future fees.
HRS’s survey of 100 travel managers showed that
most travel buyers value cancellation-policy flexibility, as appointments often
change on short notice. We encourage travel managers to get sound and
transparent data, showcase the true value their volume provides and restate the
importance of business traveler flexibility. With these elements in place and
an expressed commitment to extending successful relationships, we’re hopeful
that preferred hotel supplier partners will be open to prolonging historical
policies that best serve today’s business traveler.