Contribution to Revenue and Profits
Given the previously mentioned changes in attrition and cancellation fee income, this source of revenue has fluctuated as a percentage of total revenue for hoteliers. In 2007, attrition and cancellation income equaled 0.7 percent of total revenue. This metric jumped up to 1.3 percent in 2009, but has since leveled off at 0.5 percent.
By property type, attrition and cancellation revenue has been most significant at resort hotels. From 2007 through 2014, this source of income averaged 0.9 percent of total revenue at resort hotels, followed by 0.8 percent at convention hotels and 0.5 percent at full-service properties. During the Great Recession, several corporate and association meetings scheduled to be held at high-end resorts were canceled to avoid the appearance of wasteful spending. This phenomenon became known as the “AIG Effect.”
And, while attrition and cancellation income has been a minor source of revenue for hotels, it can have a significant impact on profitability. Since a minimal amount of variable expense is incurred to earn attrition and cancellation revenue, it can be assumed that most of the penalty payments received by hotels drop right to the bottom-line. Accordingly, it is proper for hoteliers to analyze
this source of revenue as a percentage of their net operating income, or NOI.
As a percentage of NOI, attrition and cancellation fees have averaged 3.1 percent from 2007 through 2014. In 2009, this ratio peaked at 6.8 percent. Once again, resort hotels have benefited the most among property types from attrition and cancellation fees with an average NOI ratio of 4.2 percent.
Due mainly to the most current advancements in guest-booking technology, hotels have only recently started to adjust their no-show policies regarding the cancellation of transient guest stays. However, changes in group attrition and cancellation policies have occurred frequently over the years as managers have adapted to current market conditions.
About the Author
Robert Mandelbaum is Director of Research Information Services for CBRE Hotels’ Americas
Research. The firm offers reports that allow owners and operators to benchmark the financial performance of their hotel(s) to comparable properties
(https://store.pkfc.com/custom-financial-benchmarking-reports).
