During the recent economic downturn, many hotels were dependent on no-show and cancellation fees to boost revenue as they struggled with occupancy and rates. However, as the economic recovery progresses, it appears some hoteliers are moving away from cancellation fee policies.

A 2102 American Hotel and Lodging Association survey found that 68 percent of hotels charged for late cancellations and no shows in 2011, down from 77 percent in 2010. This represents greater emphasis on customer satisfaction and retention.

Doing away with late-cancellation and no-show fees might work at some properties, such as hotels with a greater share of transient business, but hoteliers in resort destinations and convention hotels need to be more careful.  Unlike transient business, the group segment is a lot more difficult to recover from if there are last-minute cancellations or no shows. Group events and resort visits usually are planned as much as a year in advance, and there is little likelihood of someone arriving at the last minute to cover a cancellation for these types of guests.

Hotels are selling space and time, which means that once they are lost, they are lost forever. Most convention hotels were sticklers for cancellation policies during the recession. Transient properties, on the other hand, worked with guests regarding cancellations, and many hotels waived their fees.

In some hotels, including those in major airport markets, cancellation fees can be a lucrative source of revenue.  Guests are aware they will be charged for late cancellations and failure to keep a reservation. Online booking sites require users to check and agree that they have read the cancellation policy.

Although hoteliers need to stick to their policies to avoid losing revenue that could be difficult to recover, they need to be flexible during emergencies. Working with guests to reschedule them to alternate dates is often a good policy.

It is important that hotels follow through on their own promises. If guests fail to show up for a reservation, they should be held accountable, but if a guest shows up and the hotel does not have enough space for the guest, the hotel should act responsibly. The hotel  should be willing to pay for a guest to stay elsewhere, if necessary.

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MCB has over 35 years of hospitality accounting experience providing audit, tax, due diligence, and employee benefit plan audit services. Contact an MCB Adviser today at info@mcb-cpa.com or call 703.218.3600 to discuss your hotel accounting and tax needs, or to receive a proposal for your next financial statement audit.

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