Having a cancellation policy
The legal framework
When is a refund required
When can you charge cancellation fees
Can you deduct a cancellation fee from a credit card
What if you have to cancel
What alternatives can you offer
Credit notes
Transferring the booking
Transferring with in a group of businesses
Good will and flexibility

• If an emergency incident hits your business unexpectedly, e.g. a chemical spill or a severe storm, contact people to cancel or postpone their visit if your business is not operational, or access routes are closed off, etc.
• Expect that some people cancel their booking rather than postpone even if your business is open and transport routes are clear after an emergency.
• How do you deal with cancellations? Remember that a customer who cancels now may be a customer in the future, so part on good terms if you can.

Having a cancellation policy

Your cancellation policy should explain what happens if either you or a customer cancels a booking. This policy must comply with the law. If you don’t have a cancellation policy in place, it may be something you should consider preparing as it avoids any confusion about a cancellation.

Having a written policy that customers agree to at the time of booking also makes it considerably easier if you want to make a claim for losses from cancelled bookings. Your ability to claim cancellation costs from a customer will depend on the circumstances described below.

The legal framework

If you or a customer cancels an accommodation or tour booking, the following advice may assist you.

An excellent guide is Consumer Affairs Victoria’s, Holiday accommodation - A guide for providers and booking agents. This guide is available from consumer.vic.gov.au, or phone 1300 55 81 81.

What happens if you or a customer cancels due to a bushfire or other life-threatening emergency?

To answer this question, it is useful to think of two scenarios. In the first example, the tourism business has been destroyed by a bushfire or the authorities have closed roads and/or issued explicit advice not to go to certain areas due to safety concerns. In this scenario, both you and the customer are released from the contract and the customer is entitled to a refund of any deposit paid, less any expenses reasonably incurred by the operator before the customer cancelled.

If your business is still open for business but there is a lot of smoke, which might make it uncomfortable for customers and they choose to cancel, the contract is still valid and your cancellation policy can be applied.

The best solution in both of these circumstances is to talk to the customer to see if you can negotiate something to suit you both. For example, hold the deposit over to be used at a different time. This is a frequently used strategy by tourism operators who have been through an emergency - a postponement or a deferment of a booking means you can hold onto the deposit at a time when every dollar counts.

When is a refund required?

You have to refund a deposit paid if:

• A customer tells you they have a specific requirement that you agree to but then do not fulfil.
• You make other claims about the tourism product or service which you cannot fulfil or are untrue, for example, ‘no water restrictions apply’ at an accommodation property if they do.

When you enter a contract with a customer, certain conditions are implied into the contract. These are set out in Part 2A of the Fair Trading Act (1999). Essentially, accommodation, or a tourism business, must be fit for purpose and as represented.

If you make claims about a tourism service which cannot be fulfilled, this may also be considered misleading conduct. This is prohibited by the Fair Trading Act 1999.

When can you charge cancellation fees?

Where a guest cancels a booking or checks out early (and there is no booking condition) you should apply your cancellation policy. However, as noted previously, it is preferable for you to talk to the customer to negotiate alternative arrangements, especially if there is a real threat of bushfire or other emergency.

If you charge a customer a cancellation fee, booking fee or administrative charge (including any held deposit or advance payment), the fee should not be excessive and should be limited to the costs of booking the product and the costs of making the product available to the customer.

A cancellation fee should be based on the principle of fair compensation for real costs incurred by your business. In setting cancellation fees, you should take into account the likelihood that you can re-book the product or service, e.g. a room at a hotel, with another customer. While the opportunity to re-book the room diminishes as the booking date gets closer, you must make reasonable efforts to attract another booking. However, the extent and level of the loss depend on each business’s circumstances.

Can you deduct a cancellation fee from a credit card?

Accommodation and tours booked on the telephone will often be confirmed by credit card. It is important that customers are advised at the time of booking, that their card will be charged in the event of a cancellation, and that the client accepts this condition. Otherwise it may be considered an unauthorised transaction under the Australian Securities and Investment Commission’s Electronic Funds transfer Code of Conduct.

To protect your position, it is best to give staff a script to follow or to issue a written confirmation. This will provide proof to the credit card company that you have met their conditions.

What if you have to cancel?

If you cancel a booking that you have already accepted, you are in breach of contract The customer is entitled to claim damages from you to compensate him for any loss. This might include the cost of taxi fares to find alternative accommodation or coaches to transfer guests to another venue. The customer has a duty to keep their losses to a reasonable level and may not claim for a 5 star hotel if they originally booked a 3 star motel.

What alternatives can you offer?

Resorting to legal process will probably be expensive in time and money so it is always better to find an outcome that satisfies both you and your customer.

Credit notes

If the customer is entitled to a refund, they may be persuaded to accept a credit note. This has the advantage of keeping cash in the business and allows you to keep your relationship with your customer. You will need to decide some basic issues:

• Validity of the credit note
• Any special condition e.g. is it transferable?
• Can it be used for other services than those originally booked?
• What will your accounts system need if the credit note is valid in a new financial year?

Transferring the booking

Your customer may be willing to postpone their visit and wish to book for some new dates. The issues you need to think about are:

• What is my policy if the new date is in high season and more expensive?
• How will I handle repeated requests for different dates?

Transferring within a group of businesses

If your business is part of a group, for example a motel chain, you may be able to offer the customer an alternative location. A hotel may be able to offer rooms in a different hotel in another location; an attraction could offer a different venue for a function. The key here is to ensure that you are offering a good alternative to the customer so that they feel that they are getting good service and not being ‘shunted around’ or penalised.

Goodwill and flexibility

You and your staff will be operating under pressure. Try to remember that this crisis situation will not last forever and your business is for the long term. If you can keep the goodwill of your customers in these difficult times, it will pay dividends in the end.

TIP
If you work with the domestic or international travel trade, it’s likely they’ll be concerned about the impact of the emergency on their bookings with you, both short and long-term. Make contact with your trade partners to inform them about what’s happening. Together you may even be able to work out some alternatives if your business is out of action, which means they can continue to bring tourists to the region.