Cancellation Policy
Cancellation Policy is the set of rules defining when and at what cost a guest can cancel or modify a reservation. It typically specifies a free-cancellation deadline (for example, up to 24 hours or 7 days before arrival) and the penalty after that point, such as the first night's charge or the full stay.
Common types
- Flexible: free cancellation until a short time before arrival.
- Moderate / semi-flexible: free cancellation until several days before arrival, then a partial penalty.
- Strict / non-refundable: no refund once booked, usually in exchange for a lower rate (see NRF (Non-Refundable Rate)).
Example
A hotel offers BAR with free cancellation until 48 hours before arrival at €150, and a non-refundable rate at €135. A guest booking the non-refundable rate saves €15 per night but forfeits the full amount if plans change.
Why it matters
Cancellation policy is a core revenue management lever. Flexible terms lift conversion, especially on OTAs where guests compare many options, but raise cancellation rates and forecasting uncertainty. Stricter terms protect revenue and improve forecast accuracy but can reduce conversion. Policies are usually set per rate plan and must be mapped correctly across channels, since OTAs may display or override terms (for example through programs such as Risk-Free Reservations or Smart Flex Reservations). Consumer-protection rules in some markets also constrain how policies must be disclosed.