title: "The Real Cost of Cancellations" description: "How cancellation policies affect revenue, occupancy, and guest trust — and what the data says about flexible vs. strict approaches." date: "2026-02-06" author: "Alveriano" category: "revenue" tags: ["cancellations", "revenue", "policy", "risk management"] featured: false draft: false
A cancelled booking doesn't just remove revenue. It creates a chain reaction: the dates go back to inventory, often at short notice when they're harder to fill, and the marketing cost to acquire that booking is lost.
For luxury properties, where average booking values run into thousands, the impact per cancellation is substantial.
What cancellations actually cost
Consider a €6,000 week-long villa booking cancelled 30 days before arrival:
| Cost component | Impact | |----------------|--------| | Lost revenue (if not re-booked) | €6,000 | | Marketing cost already spent | €200–400 | | Staff scheduling wasted | €100–200 | | Re-listing and remarketing | €150–300 | | Price reduction to fill gap | €500–1,500 |
Even if you re-book the dates, the replacement booking is typically at a 15–25% lower rate because last-minute availability signals desperation to price-sensitive bookers.
Flexible vs. strict: what the data shows
Flexible policies (full refund up to 7–14 days before arrival):
- Higher initial booking conversion rate (15–20% more bookings)
- Higher cancellation rate (12–18% vs. 3–5% for strict)
- Net revenue impact: often negative for luxury properties
Strict policies (50% refund up to 30 days, no refund within 14 days):
- Lower conversion rate (guests hesitate more)
- Much lower cancellation rate
- Higher revenue certainty
- Attracts more committed guests
The nuance for luxury: Budget travellers value flexibility because their plans change frequently. Luxury travellers are planning significant trips — they're less likely to cancel and more willing to accept strict terms if the property is worth it.
The middle ground that works
The most effective approach for luxury properties combines firm terms with reasonable exceptions:
Moderate-strict policy
- 60+ days before arrival: Full refund minus a small administrative fee (€100–200)
- 30–59 days: 50% refund
- Under 30 days: No refund, but dates can be transferred to new dates within 12 months
- Extenuating circumstances: Case-by-case review for medical emergencies or travel restrictions
The date transfer option is particularly effective. It removes the financial loss fear without giving up revenue certainty. Most date transfers result in the guest rebooking at equal or higher rates.
Travel insurance recommendation
Recommend travel insurance at the time of booking. This shifts the cancellation risk to the insurer without requiring you to offer a lenient policy. Luxury guests are accustomed to purchasing travel insurance for high-value trips.
How cancellation policy affects booking behaviour
Guests who book under strict policies exhibit different behaviour:
- Higher deposit compliance — They're committed from the start
- Earlier booking — They secure dates further in advance
- Less price sensitivity — They're focused on the experience, not the deal
- Higher likelihood of rebooking — They've invested more emotionally
This creates a virtuous cycle. Committed guests become repeat guests, which reduces your acquisition costs over time.
Platform-specific considerations
Airbnb: Offers Strict, Firm, Moderate, and Flexible policies. Luxury villas should use Strict or Firm. Airbnb's Extenuating Circumstances policy can override your choice in some cases.
Booking.com: Allows custom cancellation policies. Be explicit about non-refundable vs. flexible rate options. Non-refundable rates at a 10% discount can attract committed guests while maintaining pricing.
Direct bookings: You have full control. Use your policy as a selling point — clear, fair terms that protect both parties.
Measuring cancellation impact
Track these metrics monthly:
- Cancellation rate by channel — Direct bookings vs. each OTA
- Re-booking rate — What percentage of cancelled dates get re-filled
- Revenue impact per cancellation — Average revenue lost per cancelled booking
- Lead time of cancellations — Are cancellations clustered at certain timeframes?
If your cancellation rate exceeds 10%, your policy is too lenient for your property type. If it's below 2%, your policy may be discouraging bookings.
The right cancellation policy protects your revenue without creating friction for serious guests. For luxury properties, err on the side of firmness — the guests who value your property will accept clear terms.