Hotel Cancellation Policy : Types & How to manage cancellations

A couple booked your hotel for 2 nights but on the check-in date, they neither arrived nor did they inform you. But when you login to your dashboard (PMS in this case) to see how many people are arriving on that day, you saw 2 more cancellations.

Is that a coincidence or what? Lost bookings = Lost revenue.

But when you figure it out, one guest cancelled it because of bad weather and for the other guest, you didn't know the reason.

And now they're asking for a full refund. Your hotel staff had a word with them and explained to them that not all bookings are fully refundable.

But the guest replied – where was it written? There was no such clause in your cancellation policy, and they read it from A TO Z.

That's why as a hotelier; a clear cancellation policy can help you to roll the dice and get the things working in your favour.

Let's discuss what this policy means, its types and how BOTSHOT can help you manage your cancellations.

What Is a hotel cancellation policy?

A cancellation policy is when a hotelier gives a certain timeframe for guests within which they can cancel bookings before check-in.

If guests don't appear within the specific timeframe, they have to pay a cancellation fee which can be a cut of the total booking amount or the full booking amount.

Every hotel has a different cancellation policy, depending on factors such as seasonality, the deadline to cancel the booking, and the type of reservation.

Hilton offers a free cancellation policy to guests, but they're required to cancel within 2-5 days before their check-in date. However, the cancellation rate differs depending on the room rate also.

Ritz Carlton specifies guests to inform the hotel 7 days beforehand so they can manage their inventory and deal with last-minute cancellations.

To prevent any revenue loss, they specified clearly in their cancellation policy that if any guest cancels the booking after the grace period (which is 7 days in their case), then they've to pay the cost of a 2-night stay.

Some hotels might have tighter cancellation policies which means if the guests ghost them for any reason, they will not refund their amount or charge for the full stay. It all depends on the size of your property and where it's located.

Why cancellation policies matter?

A clearly defined cancellation policy is important for hotels so they can avoid last minute revenue loss and reduce the no-shows.

Consider a cancellation policy as the legal document that every guest should read at the time of reservation. It includes details like the timeframe within which guests can cancel, fixed cancellation fee and other terms and conditions that they should be aware of.

Types of hotel cancellation policies

Cancellation policy in a hotel is of different types. The most popular cancellation policies are as given below-

1. Free cancellation policy

Every hotel owner wants to attract more guests for their property and the best way is to have a free cancellation policy.

It has nothing to do with refunds, which means if a guest books a room at your hotel and pays a certain amount in advance, then the hotelier won't charge any cancellation fee from them.

This doesn't mean they would return the refund. Go with free cancellation policies to maximize your occupancy and fill more bookings during the low season.

2. Non-refundable policy

If guests cancel the reservation at any point of time, then the hotel can keep 100% of the amount with them, meaning it can charge the full amount from the guest.

Travelers rarely choose hotels that have a non-refundable booking policy but the ones who choose your property are confirmed bookers. They wish to stay at your property because it has a high brand value.

Usually, budget size and boutique properties go with a non-refundable cancellation policy.

While some hoteliers clearly specify that bookings made during festivities or long weekends are non-refundable as shown in the example below.

3. Partially refundable cancellation policy

This means that hotels charge a certain percentage of the total booking value and if a guest cancels a booking after a specific period, then hoteliers can partially charge the amount.

Hotels rarely use this cancellation policy.

For instance – Some hotels allow guests to cancel their reservations free of cost if they cancel it 7 days before check-in.

But the condition would be different if they inform the hotel staff about cancellation from 7 to 3 days before check-in, then the hotelier can charge 50% of the booking value.

The scenario would be changed if the guest cancels from 3 days till check-in, then the cancellation penalty will be 100% of the total reservation value.

4. No show policy

The other type of hotel cancellation policy is no-show where the guests simply neither show up nor do they cancel the booking.

The hotelier can either charge a certain percentage of the booking, can retain the whole booking amount or charge a no-show/cancellation fee.

Jharipani Castle is a boutique hotel located in Mussoorie that provides a comforting stay experience for travelers no matter whether they're planning for a romantic getaway or wanting to make a family trip.

They have a clear cancellation policy which specifies that if a guest doesn't show up on the check-in date, they will keep their whole booking amount.

5. Fully refundable policy

The hotel will refund the amount fully, but the only condition is that the guest has to cancel the reservation within a specific timeline.

For instance – if a cancellation policy has a T&C like if the guest cancels the reservation 24 hours before arrival, then the hotelier will refund the amount fully. The hotel is required to refund the entire amount.

6. Seasonal cancellation policy

Seasonal cancellations mean when a hotelier tries to tighten their cancellation policy to get more bookings and increase their revenue.

Here, hoteliers adjust their policies during peak season or when guest demand is higher (such as holidays or any special event).

For instance – Neemrana hotel located in Alwar has made different terms for cancellation policies. Like if the hotel receives a group booking during a special occasion such as long weekends or Christmas, then they have different policies.

If a guest cancels the booking before 21 days from the check-in date, then the hotel will retain 5% of the total booking amount made.

While if he/she cancels the reservation within 21 days, then the hotelier can keep 100% of the total amount.

7. Natural calamity policy

In case of natural disaster and any unforeseen circumstances such as world war, then hoteliers can become more flexible implementing the cancellation policy. There is no cancellation fee charged for the same.

What should a hotel cancellation policy include? (With an example)

You should have a clear and consistent cancellation policy across different channels (website, social, and OTAs) so that guests won’t be confused seeing different rates.

The terms and conditions of the cancellation policy should be clear when they make a reservation.

If they cancel the reservation because of a sudden change in plan, how much cancellation fee they are required to pay should be defined (0% of the booking amount or 100% of the booking amount).

Along with that, the cancellation policy should mention a deadline as to when the traveler can cancel it.

Tell the guest if they paid an advance deposit upfront, how much the hotel owner can refund and to what extent.

There are high chances that hoteliers will refund 100% of the booking amount if the traveler cancels the booking due to natural calamity or any unforeseen circumstance.

Radisson Hotels and Resort has a clear cancellation policy, and the cancellation charge will depend on the type of reservation and its rate. Additionally, they've specified that a guest will be charged the total amount of the first night in case of no-show.

How BOTSHOT can help you manage your hotel cancellations?

No matter how strict a cancellation policy you make, if the guest wants to cancel it for whatever reason, they'd do it. But to avoid losing money occasionally, some large-scale hotels create a free cancellation policy for guests 24 hrs before they check-in.

So, you can do the same and tweak your policies a bit like offering a free cancellation to guests within a specified timeframe or creating a flexible policy with varying terms based on season. This keeps guests coming back.

The other way to lock-in guests and turn them into your long-term fans is to issue a credit note instead of refunding the amount. But being vigilant with your guests by having a strict cancellation policy doesn't sustain your hotel business in the long run.

At BOTSHOT, we help you update your cancellation policies on your website using our smart booking engine. With an online booking engine, you can add multiple cancellation policies that gives them more options to reconsider their booking-

Flexible policy (guest can cancel reservation before 24-72 hrs of check-in)

Strict cancellation policy (reservation amount is non-refundable)

Moderate (You can refund a certain % of the total reservation value only if the guest cancels within that specified timeframe).

On top of that, our website booking engine allows you to get direct bookings on your website. This means less reliance on other third-party channels (OTAs) = less revenue cuts = More profits.