Mirai blog for hoteliers

Non-refundable rates: everything you need to know

There are all kinds of cases: hotels that don’t offer them, hotels that let you choose, others that only have them on certain dates… Is there a criteria to go on? Any specific guide of what to do? What does it depend on? Here are a few ideas that may help you.

The option to cancel is a SERVICE to clients

Payment at the hotel and free cancellation, a generous and attractive action. However, like all services, it comes at a cost to the hotel: operational logistics, uncertainty and empty rooms, especially when occupation could reach 100%.

The client is used to it… Both to paying more for having the cancellation option and, looking at it from the other side, to paying less in exchange to committing to the booking. This action is now employed in other services of the travel industry, such as airlines, trains, etc. Even elite and corporate hotels, which would normally be open to offering this service, have made non-refundable rates commonplace (and they are thinking about being more restrictive with their refundable-rate conditions).

A service that includes everyone? Some hotels always allow you to cancel up to the last minute. In the end, this means that all clients are going to pay for it, whether they enjoy the service or not. These services come at a cost and the general price will go up in order to carry these costs.

  • It is not a simple matter of eliminating the cancellation option on all of them, since that would reduce the standards of service. If it also includes prepayment, it could put some clients off, clients who would not be prepared to pay in advance and who may have been prepared to pay a higher rate.

 

  • It is also not about “lowering” the price by creating non-refundable offers at a lower price. That would have an impact on the price.

For those hotels that start with a single option, the vision would be to charge more to the group of clients who would be ready to pay for it and, on the other hand, compensate the increase by reducing the prices for the rest. A good compromise seems to be to let the client choose. You will be giving them more options and the hotel would have another tool to play with. Most of the hotels are already doing this.

Deciding when and with what conditions is what everyone should focus on and perhaps some of these ideas will help to decide how to do it:

Objective: having a large number of non-refundable bookings

While still offering refundable rates (for those who will pay for them), a large amount of confirmed bookings has many advantages for the hotel:

  • More efficient revenue management, by reducing the impact of cancellations.
  • Less overbooking. A few decades ago, when last-minute cancellations were the norm, hotels used to force overbooking in order to compensate for cancellations. Today, the more confirmed bookings the hotel has, the less need there is to overbook.
  • Better cash flow. “Non refundable” is synonymous with prepayment, or at least with the option for the hotel to pre-charge (some hotels just need the credit card to guarantee the booking without charging it). If you are a hotel with need for cash, this high number of confirmed bookings will help you.
  • Fewer arrears. There is a huge difference between the tranquillity that comes from having a large number of prepaid bookings and, as an extreme case, a hotel that is trapped due to what it’s owed by Orizonia, Marsans or Transhotel.
  • More profitable CPC investments. Measuring the return of online marketing is complex. CPCs are twice as complicated since they are paid for per click, without taking currency conversion into account and on top of that not having discounts for cancellations (something which does not happen with CPAs, which come with an adjustment to deduce cancellations). The fewer the cancellations, the more secure the return of your CPCs will be.
  • Less damage if you lower the prices. Last-minute offers, or price reductions in general, are not recommended, but sometimes it is inevitable to resort to them since predictions can fail us. One of the disadvantages is that clients that already have a booking find out and, as well as going through the bother, have their booking price reduced to match the lower one.

The probability of that cannibalisation effect decreases with the more non-refundable bookings that have been made. It is not because they will get annoyed if they find out about the price lowering but rather because it’s less likely that they will discover it. They have already paid your hotel and cannot cancel it: they will no longer monitor your hotel and have given up looking, and are only looking forward to the stay. However, those who can still cancel have their eyes wide open, proof of which is their high cancellation ratio.

If the overall cancellation percentage of channels such as Booking.com reaches 30-50%, which is the percentage of their refundable rates? 60%? 70%?

When to offer them and at what price

They don’t always have the same value for the hotel. Two variables will show you the way to design them:

1. The further in advance, the more value. A booking made months in advance is a gem for the hotel and a blessing for the revenue manager. On the other hand, a last-minute booking has little chance of cancellation.

2. During low season, it doesn’t matter. If you are going to have spare rooms, the “unattended demand” effect disappears. Cancelled bookings will be less damaging because they will have not left clients out who would have stayed in them but had no availability.

Once again, it’s not about launching non-refundable offers during high season when you need them the least. The focus should rather be on pushing to charge the refundable rooms during those key dates at a high price.

Also worth noting

Non refundable = Prepayment? The two concepts go hand in hand but are not exactly the same and there is no reason why they should be linked.

For a non-refundable rate, all that is needed is the guarantee that the hotel will eventually charge for the room, although it won’t necessarily do it as prepayment.

On the other hand, charging prepayment could also not be linked to a non-refundable. In this case, refunds should be anticipated.

The Riu chain, for example, allows clients to prepay voluntarily, thus keeping flexibility in their cancellation option.

Be careful with payment gateways. A virtual TPV system that charges during the booking process is the most comfortable and secure way for a hotel. However, it could affect the conversion rates. Virtual TPVs are restrictive when it comes to accepting charges, even more so than the charges made subsequently at the hotel TPV. It could be refusing bookings without the hotel knowing.

Sometimes, the operation can be conditioning. Funnily enough, some hotels have problems when it comes to organising prepayments or charging for penalties. These limitations end up conditioning their decisions. If it’s the case, perhaps they should consider whether something is going wrong.

Waiving penalties? A strategy for non-refundable rooms must think about what answer to have for this subject. Judging by the pressure exercised by Booking.com, it doesn’t seem easy to find the balance between a good service and coherence.

  • Waiving penalties would make the non-refundable concept pointless and it would be unfair towards the clients who did pay more for having the right to free cancellation.
  • Never waiving penalties requires being ready to holding out to the pressure from Booking.com. Even though the hotel has the last word, sometimes it’s Booking.com itself who pays for the penalty costs in order to keep the client happy, making it seem like Booking.com is the good guy and the hotel is the bad guy.
  • Waiving the penalty only if Booking.com requested would be discriminatory towards other channels.

Although most hotels have found an answer to these topics and have defined their policies throughout the years, it’s not always easy to make the right choice. At least, by taking into account everything that must be anticipated, hotels are closer to doing things properly.

Available rooms for the Mobile World Congress? Get the maximum return from them

Tomorrow February 15th, the Barcelona Convention Bureau will release rooms for the Mobile World Congress. You will sell them at a great price, we have no doubts about it. However, will you sell them with the minimum distribution cost? We provide a few ideas
According to Booking.com, today Feb-14th Barcelona is almost fully booked (93%) for the top days of the event (Feb 22-23). Only 35 hotels are available (we have removed both youth hostels and apartments from the list).

booking en

At Mirai, we confirm the lack of rooms for these days. Our data reports an important peak of demand for the event. Unfortunately, 71% of this demand is lost as hotels are fully booked. A missed opportunity to sell, not only expensive rooms, but also through the most efficient channel, which is the direct one (official website).

demand mwc englis

You still have X rooms available. What to do with them?

You probably know our philosophy. If you can sell your rooms by yourself, do it! (and do not use intermediation whatsoever)

  • If you can sell these rooms by phone or email, do not think about putting them on OTA nor even your own website. The MWC is an important and a very international event so it sounds a little complicated to sell everything by phone but we leave it up to you.
  • If you feel like adding these rooms only on your website, make sure your clients get to it (otherwise you’ll have the risk of not selling them!). Connect your web to metasearch sites such as Trivago, Tripadvisor, Kayak and Google hotel price ads (HPA). Your costs will rise, although they will keep below those of OTA.
  • Consider adding restrictions: minimum stay, enforce checkin or checkout dates, etc.
  • Always non-refundable cancellation policy. MWC is the best date for this strategy.
  • If you still need more visibility or you have too much inventory left, you should gradually open OTA, always from those most profitable (higher net ADR) to the least one. Two comments if you do so.
    • Demand will be very high. Forget the rate parity mentality and go for a NET rate parity thinking. Let’s set 200€ net price. Your website (assuming 6% cost) would have 212€ price. Booking.com would go to 243€ (assuming 18% commission) and Expedia 263€ (assuming 24% commission). No matter what channel you will get the reservation, you will always get 200€ net price.
    • Additionally, you can also add more restrictions to OTA compared to your direct channel.

A case study

Let’s say you have 10 available rooms, at 200 € ADR, the average OTA commission is 20% and your direct channel cost is 6%.
We can see how GOP (gross operating profit) improves as we sell more rooms through your own website. This improvement can get up to 13% increase in the case of all rooms sold through your web.

case study MWC

MWC is not the only hot date in the calendar. There are many events and congresses in Barcelona in 2016. You should play a more aggressive distribution strategy in order to maximize GOP.

Saca el máximo partido a fechas calientes: un caso real

La gestión de los días en los que la demanda del destino supera ampliamente a la oferta tiene un impacto grande en la cuenta de resultados de un hotel. Son momentos de apostar fuerte por llenar al mejor precio y menor coste. Lo primero es por todos conocido. Lo segundo, a priori, también pero pocos se atreven a llevarlo a la práctica.

Hemos escogido un evento pasado, la final de la copa del Rey de fútbol de 2015 celebrada en Barcelona el 30 de mayo, para analizar la demanda, oferta, evolución de precios, y lo que han ganado pero también lo que han dejado de ganar los hoteles.

Adelantamos tres conclusiones:

  • Cada minuto cuenta. Esencial estar atento a los anuncios de eventos en tu ciudad. Reacciona rápido o perderás dinero.
  • Apuesta por el precio. Calibra la demanda y juega con el precio desde el primer minuto. Cuestiona el famoso “colchón”.
  • Optimiza canales. Aunque quede mucho tiempo (6 o incluso 12 meses) ya sabes que llenarás. Lo has hecho otros años. Gestiona los canales priorizando los más rentables (como el teléfono, email, la web y algunas OTA) en detrimento de los más, normalmente, caros (TTOO, bancos de camas –hotelbeds, restel, tourico, etc.- así como OTAs tipo Expedia) a los cuales puedes subir precio, aplicar estancias mínimas de 3-4 noches o simplemente cerrar.

Volvamos a nuestra final de la copa del Rey de fútbol en Barcelona el 30 de mayo de 2015, sábado, que enfrentó el FC Barcelona y al Athletic de Bilbao. ¿Cómo fue la gestión de esta fecha por parte de los hoteles? ¿Ganaron todo el dinero que podrían haber ganado?

Antes, algunos datos para ponernos en contexto.

  • Mayo es un buen mes para Barcelona y fin de semana más aún por lo que la fecha ya era potente de por sí.
  • Se esperaba la asistencia de unos 50.000 aficionados (principalmente del Athletic) más grupos de peñas y aficionados de todo el mundo que se desplazan para estos partidos tan especiales. De haber jugado dos equipos de fuera de la ciudad se hubiesen juntado 100.000 personas. Es normal que los hoteleros (incluso los más forofos) nunca quieran que su equipo llegue a la final si se celebra en su ciudad.
  • Tras unos días de incertidumbre, el anuncio de que la final se jugaría en el Camp Nou se realizó el 25 de marzo a las 19:00, algo más de dos meses antes de la fecha del partido que fue el 30 de mayo.

football

El tiempo de reacción es clave

Por obvio que parezca, hay que recordar que la localización y fecha de los eventos siempre se anuncia en algún momento. El equipo de revenue managers debe estar muy pendiente en todo momento del día e incluso hora del anuncio de conciertos, eventos deportivos o grandes congresos en su destino.

La comprobación

Como ya sabemos, la fecha del anuncio se hizo el 25 de marzo. Veamos qué pasó entonces.

  • Hasta ese día, el precio se mantiene estable.
  • Tras el anuncio los primeros en reaccionar fueron los asistentes al partido que el mismo día y los tres siguientes realizaron muchas reservas con todavía un precio bajo. Los hoteles se habían dormido perdiendo mucho dinero con ello.
  • Poco a poco los hoteles reaccionan y empieza la escalada de precios hasta el mismo día de la final.

precio medio y demanda hoteles barcelona final copa del rey 2015

Anticipa bien la demanda y juega con el precio

Los grandes eventos disparan la demanda. Adelantarse a ese pico de demanda y anticipar el pickup de la misma es esencial pero también complejo. Es ahí donde los buenos revenue managers marcan la diferencia y consiguen optimizar el revpar vendiendo no caro sino muy caro (y probablemente a última hora).

La comprobación

Hablando con los hoteles en Barcelona todos estaban contentos porque llenaron el fin de semana de la copa del Rey a “buen” precio. Pero, ¿se pudo vender más caro sin pillarse los dedos? Es la eterna pregunta. Para responderla podemos analizar los datos de demanda y precios medios durante esos días.

Esta es la demanda en el área de influencia del Camp Nou (Barcelona capital, Hospitalet y Castelldefels) para los meses de mayo y junio. Los días 29 y 30 de mayo casi duplica la demanda del resto de fines de semana.

demanda hoteles barcelona final copa del rey 2015

Con el doble de demanda, ¿cómo fue la evolución del precio? ¿se vendió al doble de precio? Ese fin de semana se vendió a un precio medio un 16% superior a los dos fines de semana anteriores y posteriores. El precio de las reservas una vez se anunció la final sería en Barcelona fue un 26% superior. ¿Con el doble de demanda en la ciudad se podría haber subido el precio más que este 26%?  Parece que sí.

Optimiza canales – no pienses sólo en RevPar sino en GopPar

Vender (y llenar) a buen precio es sólo parte del objetivo. La otra es minimizar el coste de distribución. En fechas de alta demanda los hoteles tienen una oportunidad de oro de conseguir ambos. ¿Lo consiguieron en la final de copa del Rey en Barcelona?

La comprobación

Para analizarlo mediremos la respuesta que los hoteles tuvieron a este pico de demanda en su canal más rentable que no es otro que su propia web. Si las webs de los hoteles se quedaron sin habitaciones muy pronto nos dirá que llenaron con demasiada antelación por lo que su web desaprovechó una gran oportunidad de generar la venta de última hora (la de mayor precio).

Como vemos a continuación, hasta un 50% del total de demanda de esos días se desaprovechó por no haber habitaciones a la venta (el hotel se llenó pronto). En otras palabras, a uno de cada dos clientes que querían reservar esas fechas la web de los hoteles respondían con el mensaje “lo siento no hay habitaciones; estamos completos”. Ese porcentaje en fines de semana anterior y posterior oscila en cambio entre el 18% y el 23%.

demanda perdida por falta disponibilidad hoteles barcelona copa del rey 2015

No sabemos el índice de denegación en otros canales. Probablemente fue similar. Nuestra experiencia nos dice que el hotel cierra todo al mismo tiempo. De ser así, hubo clientes que se quedaron fuera al no encontrar cómo reservar. No hablamos de eso, que es inevitable. De lo que hablamos es de cerrar otros canales antes.

Estos datos y análisis nos hacen sospechar que:

Al llenar tan pronto, además de hacerlo a precio no óptimo, tampoco se acertó con la elección de canales. De haber cerrado canales (los más caros, o mejor dicho, los canales que menor precio medio neto dejan) con mucha antelación, el resto de canales con precio neto más alto (donde está la web) habrían dispuesto de habitaciones para llenar igualmente ese fin de semana pero con mucho mayor margen.

Recordemos que por cada habitación vendida en Expedia por ejemplo a 200€ (y asumiendo una comisión del 24%) nos deja un neto de 152€. Esta misma venta en Booking.com (y asumiendo un 18,7% de preferente) nos dejaría 162,6€. Por último si se vendiese por la web (canal normalmente más rentable y asumiendo un 8% de coste soportado) se quedaría en 184€. Por tanto hablamos de un ahorro de 30€ en el caso de Expedia y de 22€ en el de Booking.com. Cantidades que van directas al GOP.

Somos conscientes que estas gestiones no son fáciles. Las principales complicaciones serán:

  • Cupos. “No puedo cerrar porque tengo cupo de seguridad”. Alternativas:
  • Mover el cupo a otra fecha previa negociación con la OTA.
  • Fijar estancias mínimas de 3 ó más noches.
  • Subir mucho el precio y bienvenida venta que entre a ese precio.

Para el año que viene trata de eliminar los cupos de tus contratos. Sólo alteran y condicionan tu distribución dejando en bandeja venta en temporada media-alta.

  • Podrías recibir presiones de la intermediación en aras de la paridad de inventario y precio (que de nuevo sólo beneficia a la intermediación).  Paridad que curiosamente está no sólo cuestionada sino eliminada en la mayor parte de Europa y que tendrá los días contados en España.

Será habilidad de cada revenue manager seguir una estrategia u otra con el fin de maximizar el GOP (que no Revpar) del hotel.

En vistas al 2016, ¿tienes bien previstos los eventos detectados y reaccionarás a tiempo ante los inesperados? Semana Santa, feria de Sevilla, puente del Pilar o de la Constitución, el orgullo gay, Conciertos de Madonna, U2, Coldplay o los Rolling, ferias importantes, congresos médicos, etc. Todo vale.

Desde Mirai estamos trabajando en aportar un calendario de los eventos más importantes en cada destino. Por ahora tenemos Madrid y Barcelona aunque estamos trabajando en otros destinos. Si quieres que incluyamos el tuyo háznoslo saber.