Yeah, new Booking's income strategy...
By Guilain Denisselle, Digital Hospitality & Innovation Expert | Advisor | Speaker | Author
Last week, the small world of French hospitality was the scene of a truly extraordinary earthquake: Booking decided to charge its commission on the crumbs that represent noshows and cancellations, and only when the hotel has indeed cashed. As nearly said Corneille in Le Cid "N'avons-nous donc tant vécu que pour cette infamie ? "
Crumbs, really ?
Let's be serious: the vast majority of the hotel's revenue is made up of real turnover, no cancellation fees.
If a hotel is doing more business on these "crumbs" than on its regular business, then there is a real problem. Unless its manager happily bills the rooms he has relet ... #chuuut
Some hotels routinely charge late noshows and cancellations. Others act with the necessary humanity.
Finally, a minority of hoteliers have an optimistic view of the world around them and do not charge for them or few, unless they are better organized and therefore more able to eliminate many.
Not possible ? You JUST need to engage the conversation with your customers! Still, it must be done in the right way and especially at the right time.
Has a service been delivered?
Euh... no. In fact, the hotel that has not delivered a service to the customer cannot bill as such.
Instead, he cashes an amount equal to the room reservation, which is intended to cover the loss of turnover: this is a compensatory indemnity accounted as exceptional profit, ie this is not turnover, and therefore no VAT applies.
Is Booking doing right?
Booking has rendered a service to the hotel and on a common sense, Booking's service deserves to be paid as soon as the hotel receives a sum covering part or all of the reservation.
If a hotel does not agree with this principle, does this mean that a guest can "forget" to pay for his room? Oh yes but no it's not the same. #dowahtIsaynotwhatIdo
One could argue that Booking decides alone, but which legitimate reason could prevent Booking from doing so?
So let's try to summarize
- a hotel and Booking are commercial PARTNERS: they have agreed that the second one will provide the first one with ready-to-use customers
- Booking has sent a reservation to the hotel, for example for 110 € tax included (100 € without VAT)
- the client does not show up or cancels late based on the rate plan rules
- the hotel debits 110 € from the customer's payment card
- these 110 € are accounted as exceptional profit, whereas the logic would like that the indemnity only covers the sum without VAT, ie 100 €
- the amount excluding VAT, 100 €, includes fixed costs that the hotel will assume anyway, for example its staff costs, however the hotel will save the cost of linen, bathroom items, electricity, water ...
- the € 10 VAT is a bonus. It is obvious that this amount compensates for a real prejudice, ie the fact of not having to return the VAT money to the French state!
- Booking finally bills (after almost 20 years) its commission on these sums, which seems rather normal
By the way, when you cancel a non-refundable airline ticket, the airline reimburses ... taxes. It is sometimes necessary to insist, nevertheless it is compulsory by law!
The two-fold effect of pre-authorization
To encourage hotels to insert flexible rates, Booking unreasonably pushes hotels to pre-authorize and one might wonder about its misuse.
By broadcasting the ad "you can cancel without charge", Booking pushes customers to book even if they are not sure to come, which drives to more cancellations. It's a great jackpot for Booking:
- more bookings means more more commission
- more noshow and cancellations means more commission too
Yet on a common sense, if a rate is flexible, the only thing the hotel can do before the free cancellation deadline is to check the validity of the card: for this there is a verification procedure that is not a debit nor a pre-authorization and for which the credit card terminal will say:
- the card is valid
- the card is invalid
Sir Booking, shame on you for pushing hotels to abuse pre-authorization without properly informing the customer (the client is not informed on mobile. On desktop the client is informed that a pre-authorization might happen, not of the exact amount) because in the end it is the customer who suffers all this.
On desktops, Booking says "you'll pay at the property" and if we position the mouse over credit card's logos we are warned that a pre-authorization is very possible, but without giving any amount:
On mobile, nothing! At all!!!
A doubt about pre-authorization? Please have a look at this 5 years old article "Du bon usage de la pré-autorisation" that is still up-to-date.
And how do other tourism actors manage?
Have we ever seen someone give a credit card as a guarantee to his airline and pay the ticket once arrived at the boarding gate? #Thisisnotthesame
Many tourist activities are also settled at booking time.
Once upon a time, we were used to asking for a deposit, this weird thing...
Would there be other solutions than pre-authorization? #impossible
Don't you think that the real topic should be about Booking charging commission on the full rate including VAT?
If a subject should really engage hoteliers at a regional level (VAT does appy all accross Europe), it would rather be the fact that Booking DOES charge its commission on the full amount including VAT instead of the rate without VAT.
Where did we see that a commission applies to VAT? In any case the French Economy Minister lets do so.
If one day hotels paid the commission on rates without VAT, then the customer could be entitled to pay compensation for his noshow / cancellation on his reservation without VAT, not on the full amount. #yesbutno
How beautiful is life of those whose only occupation is to complain. If the customers' fate was a real and deep concern of these "opérette" grumpies, it would be known!
Meanwhile, there is a majority of hoteliers who care more about their customers than the rest, and among them hoteliers who have understood that in order to sell it is necessary to make commercial efforts: have tools, be trained, have trained staff, question oneself, learn, try, make mistakes, ...
On the other end, should we see this decision of Booking as an attempt to bottom-feeding because growth is becoming "complicated" to manage in a context where a commission increase would light on Booking's behavior and this is something Booking doesn't want the general public to be aware... nor politicians.
Guilain Denisselle has been an international hotel consultant since 2001 with clients throughout EMEA and North America. Specialist in hotel technology, he regularly speaks at conferences and events in Europe. After a dozen years of operational experience, he has worked with numerous technology companies (PMS's, CRS's, Channel Managers, OTAs, business travel, VAT) and hoteliers (chains, owners, operators, etc.More from Guilain Denisselle