Case Study on New Cancellation Policy at Hilton

Headquartered in McLean, Virginia, Hilton Worldwide on January 1 2015 implemented a new policy that requires customers to notify the hotel the day before their scheduled arrival to avoid having to pay for the room. This policy reverses a long tradition of allowing customers to cancel their reservation "up to 6pm the day of arrival without penalty." Bob Gilbert, CEO of the Hospitality Sales and Marketing Association International, a hotel industry group, said of the Hilton move, "It's not surprising. The hotel business is one of the last places where you can hold inventory with no commitment." Hotel demand in 2014-2015 has exceeded supply in many cities, giving hoteliers the upper hand. Another motivation for the new policy is that hoteliers desire to stile the use of apps that track hotel prices and whenever a rate dips, apparently a growing number of travelers rebook at a lower rate and cancel the costlier reservation, literally right up until check-in time. Penny-pinching travelers are increasingly using such tools, and Hilton is seeking to stifle this practice. Big rivals to Hilton are staying the course with traveler-friendly cancellation policies, including Starwood, Sheraton, Westin Four Points, Intercontinental Crowne Plaza Hotel Indigo, Holiday Inn, and others. Some customers now say they will avoid making a reservation at all if they will be charged for a room they did not use when, for instance, their plane pets delayed. Other customers say they will now simply use last day booking services. Other customers say they will just book with Sheraton or Westin. Yet, Hilton says the industry needs to prevent the rapidly growing practice of traveler booking a hotel at the last minute after checking online for last-minute deals in the area.

As Strategists, respond to the policy change questions:

1. Do you think the benefits will offset the costs of the new Hilton cancellation policy? Why? Or Why not?

2. Do you think the execution of new Hilton cancellation policy is practical? What would be a more effective cancellation policy for Hilton?