Hilton Will Experiment With More Restrictive Cancellation Policies

Hilton Worldwide is testing a  new cancellation policy at approximately 20 of its properties across the U.S., including at its Hilton, DoubleTree, and Embassy Suites brands.

“We are testing, in a small set of hotels, a $50 cancellation charge. In this particular test, Hilton HHonors members are exempt from the cancellation fee,” says Chris Silcock, chief commercial officer, Hilton Worldwide.

The test is a $50 charge when a reservation is cancelled any time after booking; however, if a cancellation is made after 11:59 p.m. the night before the stay begins, then the current policy of a charge of one night’s room rate and tax will still be in effect for all guests.

The test is to roll out in the coming weeks and will carry on into 2016. Hilton will use information gleaned from the tests to see if the pace of its cancellations decreases.

Hilton’s current cancellation policy went into effect on January 1. Marriott, which made news Monday for its plans to buy Starwood, implemented the same policy, also effective at the start of the year.

While Marriott seems to have met some of its goals with the  new cancellation policy,  Hilton has not had the same results, as the company “continues to see a high number of cancellation rates,” Silcock says.

Rising Cancellations

Cancellation rates have been rising over the last several years and it is a problem that hotels across the Hilton portfolio are facing, Silcock adds.

“With record occupancies, many rooms are being held, then not used, meaning other customers who want those rooms cannot book them,” Silcock says. “This is problematic for our customers because they do not always get access to rooms they want, because they are being held but are ultimately canceled.”

In fall 2014, Hilton as well as Marriott announced their current cancellation policies that went into effect at the beginning of this year, lengthening their cancellation window from 6 p.m. the day of check-in to 11:59 p.m. the day before check-in. Failing to cancel before then incurs a fee of one night’s stay.

On a Q3 earnings call with analysts, Hilton Worldwide CEO Chris Nassetta agreed that cancellations at short notice are trending, driving Hilton to conduct tests in imposing new fees and requiring more notice of cancellations.

“But that’s for a whole bunch of reasons,” Nassetta said. “It’s not because we are seeing any short-term cancellation activities that’s outside of what we’ve been seeing. Obviously with all these new technologies and things over the last couple of years, there has been lots of different sort of ways people are trying to game all our systems with cancel and rebook. And when there is no cost to it, the system has risk of gaming.”

Nassetta added that “in terms of what we’ve seen in October or whatever, there is nothing new or unusual” and that Hilton should be re-evaluating its policies because “it’s the right thing to do in the new world order.”

Silcock says an uptick in cancellations “impacts room availability for other guests looking to book a stay.”

“Record high occupancies magnify that problem for customers,” he adds.

With the the U.S. lodging industry running at a record occupancy levels, hotel managers are in a stronger position to mandate new cancellation fees.

Justin Plank, director of sales, Atlantis, Paradise Island, says that a seller’s market provides hotel owners with a greater freedom to dictate contract terms, including cancellations.

“With the increased booking activity that hotels are seeing…hotels are able to charge for cancellation much further out, and one of the things they may do is keep the initial deposit,” Plan says.

Plank said he is seeing a trend toward a tiered cancellation policy, or the closer a customer is to arrival, the higher the penalty for cancelling will be.

“I believe a tiered scale is most effective, and inside of 30-45 days including cancellation on catered F&B (food and beverage) in addition to rooms revenue is a smart thing to do,” Plank says.