A practical guide for managing last-minute cancellations and bookings

It’s an unfortunate reality that, sometimes, you’ll need to sell rooms quickly, just days before your peak season. For example, you’re likely to receive at least one sudden cancellation and be left with an empty room. 

With the rise of OTAs and free cancellation policies, cancellations have become more prevalent than ever. 

On the other hand, voluntarily leaving rooms unsold can allow you to take advantage of the “scarcity effect”—in essence, the fact that people are willing to spend more money on desirable products with low availability—and increase profit margins.

A good room that’s available during high season is unusual and, with the increased demand, is likely to fetch an above-average rate. It is therefore normal for room prices to increase as the busiest dates of the year approach.

In recent years, however, we’ve seen the opposite: the prices of rooms in certain locations drop just before, or during, peak season. 

Why would that happen? 

Doesn’t supply and demand mean that room prices should always increase as the busiest dates approach?

Unfortunately not, for two main reasons. 

The first has to do with dreaded free cancellations offered by OTAs. Many guests take advantage of this policy and will book multiple properties so that they have a range of options to choose from, nearer the time. 

And why wouldn’t they? After all, it doesn’t affect them! 

Within a few clicks, soon before departure, they pick one and cancel the rest. Hotels and B&Bs suddenly find themselves with a bunch of free rooms and need to drop prices to quickly fill them.

The second reason is similar to the first.

Applications like Pruvo have similar functionality to OTAs, allowing customers to monitor the price of a property even after booking there.

What happens when a property lowers its prices at the last minute, therefore, is that guests that have already booked their stay will cancel (for free!) and rebook at the lower rate. This means you haven’t managed to fill the empty rooms; you’ve simply lost a little more profit from existing bookings. 

The reality is that sometimes it’s best to hike your rate up, and other times you need to slam them down. If demand is high and you happen to have spare rooms, then definitely put the prices up! But if your whole local area suffers a sweep of cancellations, say, then competitive pricing may be the best strategy. 

Whatever situation you find yourself in, we have some practical tips on preventing major problems and making the most out of last-minute offers.

The key to managing last-minute bookings without going absolutely stir-crazy is automating everything you can.

Starting with price management.

A software revenue manager allows you to set the best rates without spending hours studying competitors and filling in excel sheets. 

It’s also important to set up your last-minute promotions (the ones that will appear on OTAs) well in advance. 

On the major booking portals, you can choose date after which a promotion will automatically become active.

Last but not least, you need to have a channel manager that integrates all of your booking channels and updates them with the availability of your rooms in real-time. 

This serves both to avoid overbooking (i.e. selling more rooms than you actually have) and losing bookings due to administrative errors. It would be tragic, for example, if you got a cancellation over the phone and forgot to relist the room on Booking!

According to research by Criteo, 70% of last-minute bookings are made via smartphone.

OTAs already offer well-optimized mobile experiences, making it easy to browse and book on smartphones—but can you say the same about your website?

Having a site and an online booking procedure that is easy to use on mobile is an absolute prerequisite for today’s consumer.

When you have a room to sell last minute, don't just change the prices on Booking or AirBnb. 

It’s crucial to actively promote your offer in other ways, including to any past customers, those on your email lists and social media followers. 

This is because those who already know you are far more likely to book than cold leads. 

Not to mention the fact it’s famously much cheaper to sell to a previous customer than to acquire a new one.

Selling all your property’s rooms far in advance—that is the dream for all inexperienced hotel managers. In reality it’s a move that’s likely to reduce profit. 

The main problem is that when demand is low, you can’t put out your highest price. That means you’re selling all your rooms…but at a lower-than-ideal price. Better to wait, leverage the scarcity effect and cash in on the higher prices closer to arrival. 

Also consider that those who book far in advance are more likely to cancel their reservation compared to those who book closer to the day of arrival. 

That’s why selling rooms progressively (i.e. slowly, little by little as time goes on) you’re putting yourself in a doubly advantageous position. 

First of all, you leverage the growing demand to sell at increasingly high prices. Beautiful. 

Secondly, you can reduce the overall number of cancellations and last-minute bookings, giving yourself more time to handle them and prevent your team from being overwhelmed.

Whenever you sell a last minute room, make sure your cancellation policy has you covered.

What does that mean? 

You cannot afford for last minute bookings to have free cancellation, so make sure there is always a cancellation fee.

Crucially, when posting a last-minute offer, you should also make sure that those who have already booked are beyond the free cancellation period. 

As discussed, it would be a nightmare if previously-booked guests started canceling to leverage even more advantageous offers.

Even if you take every reasonable precaution, sometimes you’ll still end up with a bunch of cancellations or unsold rooms. It’s just part of the business. 

The first thing you need to do is stay calm and avoid acting on impulse.

Starting by looking around and observing your competitors: what are their occupancy levels like? 

If they’re all fully booked (and therefore demand is still hot) you can probably afford to raise the prices for your last few rooms.

If, on the other hand, your competitors also have also experienced a rise in unsold rooms, the situation is more delicate. You could increase rates, but then there’s the risk of being undercut by the competition. 

So you lower your own rates. But what if you’re undercut again? It’s very easy for a price war to start raging, where properties disproportionately slash their rates and the one with the lowest fixed costs wins, since they can go lower than everyone else.

While it may seem like the only way to go, this practice is actually devastating for your property, for 3 reasons.

You lose your identity

Your property loses its identity if it’s selected on a purely economic basis. 

Everything you’ve done to show that your hotel or B&B is different from the others becomes worthless when rock-bottom pricing becomes your only weapon for last-minute sales.

You lose money in the long run

It is possible that, by sharply lowering prices, you will be able to sell your remaining rooms.

But what about the longer-term repercussions? 

How will you go back to selling at higher prices once potential customers know that you’ll slash them again in a tight spot? 

Even worse, selling at the lowest possible price only attracts guests for whom price is the only concern. Not the quality, or the experience. These are not guests you can rely on to rebook again in future—unless you never raise your prices again.

You lose credibility with existing customers 

Imagine what guests that paid full price will think when they learn that identical or similar rooms were sold off for pennies at the last minute.

Surely it won’t make a good impression. Do you think they’ll happily come back again the following year, booking in advance and paying full price? 

If your property has a bunch of rooms available at the last minute, it’s usually worth lowering the price—but by no more than 10-15% compared to your normal rate.

In the long run, it might be better for your business to suffer the empty rooms than to risk the perils of massive last-minute discounts. But learn your lesson and try to create more accurate forecasts for the future!

By following these tips, you should be able to manage last-minute offers more successfully and avoid being overwhelmed by them.

But if you're looking for a service that can help you manage last-minute rates more efficiently, and with considerably less effort, then Smartpricing may be the solution for you.

Smartpricing is a dynamic pricing and revenue management software that continuously analyzes your establishment's internal and external data and helps you increase the effectiveness of your pricing strategy.

Contact one of our consultants and try Smartpricing for free!