Travelskills writes about Hilton testing a $50 fee for cancelling cancellable reservations:

Hilton has started to market-test a new $50 fee for those who cancel at any time after they make a reservation…

Members of Hilton’s HHonors program are exempt from the new test fees. (For now at least.)

Hilton officials told Skift.com that the test is being conducted only at 20 U.S. properties in the Hilton, DoubleTree and Embassy Suites brands. The properties were not identified.

View from the Hilton Colombo, Sri Lanka

Skift attributes this to a stronger position on the part of hotels with high occupancy rates, suggesting that “a seller’s market provides hotel owners with a greater freedom to dictate contract terms, including cancellations.”

Hilton’s CEO suggests it’s about hotels lowering rates closer-in, and customers who booked higher rates cancelling and rebooking. He considers that type of perfectly reasonable behavior (wanting to pay less when a hotel will charge less) “gaming.”

“It’s not because we are seeing any short-term cancellation activities that’s outside of what we’ve been seeing. Obviously with all these new technologies and things over the last couple of years, there has been lots of different sort of ways people are trying to game all our systems with cancel and rebook. And when there is no cost to it, the system has risk of gaming.”

Hilton Toiletries

Hilton won’t say what hotels they’re doing this test with. And since the test “is to roll out in the coming weeks” it’s not clear how good the disclosure is, that booking a cancellable rate and then cancelling incurs a penalty. The rest of my analysis presupposes that consumers are aware of the restriction rather than taken by surprise by the fee when they go to cancel.

• No doubt Hilton would love for other hotel chains to follow. They aren’t going to want to be ‘out there’ all alone, while competitors have more consumer-friendly policies. Hotel policies are usually pretty similar in terms of cancellation rules (although individual rates may vary and types of rates may vary, in material terms each different type of rate tends to be similar across chains).

  So there’s an equilibrium where everyone charges cancellation fees and one where no one does. But it’s hard to stand out as the most restrictive. Standing out as most generous may not accrue sufficient benefits (because consumers assume that standard policies in the industry apply everywhere and don’t realize the benefits of booking with the outlier).

• Regardless, imposing a cancellation fee discourages making early bookings. The key with hotel reservations it to get the reservation made, most consumers lock in once they’ve made their choice. If they keep shopping instead, odds on they will book somewhere else — either via another booking site (and thus the hotel may have to pay a big commission to an online travel agent) or to another hotel (and thus lose the sale entirely).

  The tendency among consumers is to book later and later, rather than earlier. “Hotel Tonight” is one example of the model. As consumers go mobile they go last minute, often landing in a city and coming up with lodging plans.

• The main reason to book early becomes, more or less, out of fear that a given hotel may sell out. But that’s not hard to monitor, and outside of peak demand dates hotels rarely sell out far in advance.

  A hotel chain might further discount advance bookings and pair that with a cancel fee in order to get consumers to lock in for the savings. But they do that now… it’s called a prepaid, non-refundable rate.

Hilton New York JFK

It’s interesting that this is a ‘test’, my suspicion is that if consumers are made reasonably aware of the fee then the test won’t work out well especially to the extent that the Hilton property remains an outlier.

This could be quite bad for Hilton hotels relative to their competitors, and could be quite bad for Hilton booking channels relative to online travel agencies… unless other chains quickly follow with similar policies of their own.