What is the meaning / definition of Cancellation Clause in the hospitality industry?
The term cancellation clause refers to the terms mentioned in the hotel booking contract, in which the hotel states under which terms a cancellation can occur. The kind of cancellation clause differs depending on if 1.) only one/multiple room(s) are booked – or 2.) the customer is booking whole blocks of rooms (for Events/Conferences etc.). Make sure to align your Cancellation Clause with your Revenue Management Strategy
In cases of cancellations, hotels, which are normally aiming to satisfy their guests are in a situation of inner conflict. Event planners often have different objective than hotels, when it comes to assessing a fair cancellation clause. The aim is for both parties to be treated fair and reasonably in the case of cancellation. Trust in these moments can help achieve repeat business and therefore overall higher occupancy – while bad/ unfair cancellation clauses might have a strong negative impact on business.
1.) Room bookings:
In the first case, in which only a minimal number of rooms is booked, hotels generally set up a policy/ clause that gives the hotel the guaranteed ability to resell the room again if cancelled. How this clause is stated differs on the hotels location, market demand and supply. More remote hotels that generally are booked months in advance and do not get walk-ins, might have a very strict cancellation clause – in which case the customer must cancel way in advance, or a fee occurs which might be a percentage of the room rate, the whole booking price or a credit for a different day. For this please refer to the different cancellation fee options featured below.
2.) Room block bookings:
In the second case, when an event planner or company books a large number of rooms, the financial risk for the hotel for not incurring revenues is very high. In this case the hotel must make sure to protect itself appropriately for cancellations.
Sliding payment scale:
The sliding payment scale varies the amount that needs to be paid by the customer, depending on when the reservation is cancelled. Here applies: The longer before the reserved date the reservation is cancelled, the lower the fee. The closer to the reserved date the higher the incurred fee. This fee generally orientates itself along the lines of how likely it is for the hotel to fill the vacant spots, what costs occur to the hotel from the canceling etc.
The scale is generally incremental, meaning the fee might change in a month to month, week to week, day to day basis. This depends completely on how close the cancellation occurs to the reserved date.
Credit for resold rooms:
If the hotel is able to resell the rooms, event planners might expect to receive credit for the resold rooms, thereby reducing their cancellation fee.
Reduction for rescheduled reservations:
In the case that the event is not fully cancelled, but rather rescheduled customers might want a reduction in cancellation fees in exchange for rescheduling – instead of fully cancelling. Depending on the hotel and timing this might lead to no cancellation fee or only a percentage of the booking.
- Cancelation Charge
- Late Cancelation