How to get a handle on high cancellation rates on OTA bookings

Hotels and travel agents actively encourage their customers to make bookings far in advance of their trip, with the promise of free cancellation if their plans change. However, this can lead to high cancellation rates on online travel agencies (OTA).

Booking.com and Expedia are two obvious examples of travel websites who promote free cancellation. Your travel business may also offer this too, in order to stay competitive.

This sees guests reserve a room even if they are not very far down the buying process, meaning there is a higher chance of them having to cancel for some reason. Often they do cancel too, sometimes just a day or two before their trip.

So, what can be done to negate high cancellation rates? 4Hoteliers' Maeve Walls has come up with six tips which she believes will help you plan for higher cancellation rates and even turn them to your advantage...

1. Evaluate your own booking patterns

By figuring out what channels are booking and when, you'll be able to decipher where the majority of your cancellations are coming from, meaning you can start planning for them. If you know that a booking has a high chance of being cancelled, you can start to think about how you could turn the reservation back around, should you need to.

2. Track the cancellation rates on each channel

Similarly, you should keep a record of how many guests fulfilled their booking, compared to those that were forecast to stay. This will help you track cancellation rates over time and come up with a plan of action.

3. Restrict your cancellation policy

Once you've deciphered your main sources of cancellations, consider introducing a more restrictive cancellation policy on the channel that yields the most unfulfilled bookings. However, you've got to balance this with the potential for a reduction in the number of good bookings you get through these channels. Also, you need to be careful not to breach any OTA contracts.

4. Use overbooking practices

Overbooking is a common tactic used by travel firms, on the basis that not everybody is going to come good on their booking. For it to be most effective, you should be tracking the pace of cancellations by days prior to arrival – this will enable you to determine how overbooked a given date in future should be, as opposed to just overbooking by a fixed number of rooms.

5. Review free-sale and allocation bookings

If you're using an OTA to sell hotel rooms then you'll often have to choose between selling rooms on free-sale or allocation. If an OTA is operating on an allocation of rooms from you, are you topping this up too far in advance? It could be worth holding some back for release closer to the availability dates. Or maybe the OTA selling the additional free-sale rooms and holding on to their allocation?

6. Reduce your 'Forecast Error'

The Forecast Error is the difference between the forecasted demand and actual demand. However, with long-lead booking distorting actual level demands, hotels are prone to seeing a higher level of error. Walls says this "may be attributable to the cancellations" and suggests that every effort should be made to reduce the Forecast Error.

If you've been experiencing high cancellation rates on OTA bookings, put these tips into practice in an attempt to get a handle on them.

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