Hotel cancelation rate at 40% as online travel agencies push free change policy

One in four hotel guests are canceling their booking ahead of a stay - an increase being driven by the sales tactics of online travel agencies.

The trend is causing problems for hoteliers who are unable to accurately forecast occupancy within their revenue management departments and creates headaches when organizing distribution across various channels.

This is one of the key findings from a major study carried out by D-Edge, the Accor-owned hotel technology group that includes the AvailPro and FastBooking platforms.

The company analyzed the online distribution performance of more than 200 different channels for 680 properties in Europe, pegging the data each year between 2014 and 2018.

The average cancelation rate in 2014 was 32.9% and increased to 39.6% in 2018. It reached a high of 41.3% in 2017.

Booking Holdings (owner of Booking.com) has the highest cancelation rate of the OTAs, coming in at 50% in 2018 and at an increase of 6.4% over four years.

Expedia Group (Hotels.com and Expedia) is markedly lower at 26.1% in 2018 but still up by 6% since 2014.

Cancelations from direct bookings on a property's website are the lowest at 18.2%.

The report from D-Edge says: "Guests have become accustomed to free cancelation policies that have been made popular (and encouraged) by mainly Booking.com and channels and apps," all of which are designed to cancel and rebook hotel rooms at each drop in rate.

"Other factors come into play with cancellation rate increased but we believe none are as pervasive as the increased behavior and marketing of 'Free Cancelations'," it claims.

Hotels are being urged to favor nonrefundable rates with OTAs or ensure their channel management tools can feed back canceled bookings in real-time.

Market share data

Booking Holdings, according to the report, has a 48.3% portion of web-based bookings and a 68% of all sales coming via OTAs.

This figure is up only 4.3% over the 2014 to 2018 range and is down from a peak of 52.2% of all web bookings in 2016.

Direct sales on hotel websites are down by 6.3% over the same period but have started to claw back some ground in recent years, D-Edge says.

D-Edge's chief marketing officer, Jean-Louis Boss, says: "Even though there is undeniable value in focusing on more profitable channels, we recommend reviewing the market share at least quarterly, in order to avoid some channel(s) cannibalizing the others and keeping a healthy and profitable distribution mix."

Lead time, average booking value, length of stay

Hotelbeds Group was found to have both the highest average lead time for bookings and average reservation value of the intermediary channels.

In the case of lead time, it was significantly higher than other providers at 60 days and almost twice as high as Booking Holdings (35).

The average lead time across all channels is 39 and website direct pegs the closest at 41 days.

Website direct bookings come in the highest at an average of €454, with Hotelbeds Group at €422.

Booking Holdings and Expedia Group channels were €339 and €342, respectively, in 2018. 

Boss says: "Monitoring the average reservation value of each channel is a key factor when it comes to rooms and rates allocation. Focusing on revenue volume alone can be misleading and create a counterproductive cognitive bias, eventually mining one’s profit."

Hotelbeds Group also has a small lead in the length of stay table over other channels at an average of 2.75 days.

Food for thought

Boss says there is unlikely to be an adjustment or reversal to the status quo in terms of the "control" that the large OTAs have over the hotel distribution landscape.

Any change will only come about if other brands with "different business models," such as Google or Airbnb, manage to disrupt the sector to a greater degree.

The eventual emergence of Amazon as a player is also cited as a possible challenger, the report claims.

Boss says: "The 2018 positive trend of website direct revenue is encouraging and with further adoption of frictionless, facilitated booking methods (such as Book-on-Google) and the right technology partners we see this trend continuing.

"Nevertheless, hotels should always keep diversifying their risk, either by adding consortia agreements, empty-for-full wholesalers deals, GDS, coupon sites or niche, highly specific OTAs."