CANCELLATIONS OF RESERVATIONS are not complete losses for hotels, thanks to the fees charged when the cancellation comes past a prescribed deadline. New data from CBRE Hotels Americas Research on U.S. hotels’ attrition and cancellation fees from 2010 to 2017 shows variances that measure the overall health of the lodging industry and the group demand segment.
CBRE’s Trends in the Hotel Industry survey of 308 hotels includes this data, said CBRE’s Director of Research Information Services Robert Mandelbaum in an article about the survey. For example, the Great Recession had an extremely negative impact on group demand, Mandelbaum said.
The fees became a significant source of revenue in 2009 and 2010, leading to 8.9 percent decline from the previous year in 2011. However, rooms revenue increased by 7.5 percent.
From 2012 through 2016 rooms revenue growth continued at a steady pace. Attrition and cancellation fee revenue increased at an average annual rate of 11.6 percent during this period.
The attrition and cancellation fee revenue declined by 1.8 percent in 2017, as rooms revenue growth slowed to 1.5 percent.
Irrespective of the previously mentioned variances, attrition and cancellation fee income remained steady as a percentage of total operating revenue.
Attrition and cancellation fee income equalled 1 percent of total opening revenue in 2010. It declined to 0.8 percent in 2011, but again rose to 1.1 percent of total operating revenue in 2016 and 2017.
As a percentage of gross operating profit, attrition and cancellation fees have averaged 1.7 percent from 2010 through 2017. It ranged from a low of 1.6 percent in 2013 to a high of 1.9 percent in 2010.
Among property types, convention hotels have benefited the most from cancellation fees with an average GOP ratio of 2.1 percent. This source of income averaged 1.2 percent of total operating revenue at convention hotels, followed by 1 percent at resort hotels.
“The consistent ratio of attrition and cancellation fees to rooms revenue shows how hotels and sales managers adjust to changing market environments,” Mandelbaum said. “When the economy is strong, and businesses and associations book more meetings, this increases the potential to collect more attrition and cancellation fee revenue, and empowers sales professionals to enact stricter cancellation attrition clauses in their contracts. Conversely, when the economy is soft and fewer meetings are held, attrition and cancellation fee revenue can either rise because of more cancellations or decline as sales managers provide leniency to meeting planners to maintain a long-term relationship.”
Read about Mandelbaum’s research on uncollected credit card debts here.