Every year camps and outdoor program operators have to deal with cancellations. This may be due to severe weather events such as fire, flood, storms or high winds or it may be due to local issues with the hirer. Sometimes this is unavoidable but occasionally there are spurious reasons for late cancellations. The challenge for operators is be in a position to respond in a way that is best for the business, not only in the short term but also in the medium to long term.
With the introduction of “Code Red” fire danger days in Australia and increasing severe weather events including fire, floods, storms and high winds it is likely that there will be more instances of schools and other user groups seeking to cancel their camp when severe weather events are forecast.
In the case of Code Red days it is likely that school groups will have no discretion as the State Department of Education will almost certainly have issued a directive that camps and excursions must be cancelled if a Code Red day is declared.
Therefore it would be sensible for camp and outdoor program operators to have carefully thought about how they will respond to cancellations due to severe weather well before such an event occurs.
Four points to consider are:
- Revised Booking Agreements,
- Contingency Planning,
- Review of Insurances, &
- Review of Fees and Charges.
1. Revised Booking Agreements
The principle here is to be fair but to negotiate from a position of strength. It is then much easier to negotiate win/win outcomes. Your Booking Agreement should take account of costs you will incur if a group cancels at short notice. These might include the cost of food that has been delivered, salary costs as well as the opportunity cost of the lost booking.
Of course you still have to make judgements about the impact of enforcing your agreement on your reputation and on the good will that might exist between your business and a valued client as well as the impact it might have on repeat business.
Any approach should be based on good communication with your clients to ensure you become aware of any issues or potential cancellations as early as possible. This includes regular contact with your client in the weeks and months leading up to the camp or outdoor program to check that their planning is on schedule and to give them an opportunity to raise any issues with you that might impact on the program.
In reviewing your Booking Agreement you should consider the length of notice you require for cancellations and the cost to the client of cancellations outside these periods. Typically school camps are booked 12 months or more in advance and require a deposit. You should consider a requirement of a minimum of three or four months notice of a cancellation.
You should also consider including a minimum numbers clause in your Booking Agreement. This would protect you against a group arriving at your camp with significantly lower numbers in the group than they had booked for and that you have catered for with staffing and food.
It would also be sensible to consider in advance the circumstances in which you might waive cancellation fees and what compromises you might be prepared to offer. For example if the group makes another booking for a similar program (same number of days, participants) within 12 months on a date that you have available. Perhaps you might ask for a 50% deposit for that future program to help you cover unavoidable costs you have incurred for the cancelled camp or program.
Note: A number of issues over the recent past including some natural disasters and the Victorian Teachers Industrial Action last year prompted us to get some advice in relation to reviewing the Template Booking Agreement we provide to ACA Members. Of course we recognise that there are a number of factors that also impact on your decisions in relation to cancellations including good will towards your clients and the reputation of your camp. However we have sought to revise our Template Booking Agreement on the basis that it is better to be able to negotiate a suitable outcome based on having a Booking Agreement which protects your rights and provides you with a strong position from which to negotiate.
Please find links below the Australian Camps Association (ACA) Revised Template Booking Agreement that we (ACA) have had prepared by Moores Legal along with some advice from them about how to treat Deposits in relation to GST. Please feel free to utilise this template for your own purposes.
This is the advice we have received and if members need further clarification they should seek their own legal advice.
2. Contingency Planning
In many instances the school or group will have a degree of autonomy in deciding whether a camp is going to go ahead when a severe weather event is predicted. Their decision is likely to be based, at least partly, on the level of confidence they have in you as an operator and your preparedness to deal with severe weather events and other issues that might arise – in other words your contingency planning.
Again the key to this is your communication with the group long before they ever arrive at your camp. How well have you communicated to them that you have contingency plans if the weather is too hot or if storms or floods are forecast? How well have you communicated your hazard management plans to the group and your emergency management plan?
If a severe weather event is forecast while the group is already on site with you how do you communicate to the key stakeholders – in the case of school groups the Principal and teachers back at the school and the parents of the students at your camp – that you are aware of the forecast and have modified your program accordingly or that you have contingencies in place to deal with the forecast event?
Your website provides a great opportunity for you to demonstrate that you are well prepared and that you are focussed on the needs and safety of those at your camp. You could for example let the parents know your website address and that you will post any changes to the program on your website or even that you or the students at your camp will make a short posting on your website each night of the camp to let interested parents, the Principal and teachers know how the camp is going. Of course you should take responsibility for checking and editing those comments before they are loaded to your website but it provides a wonderful opportunity to communicate with and reassure parents and others and you might also find that it is a great marketing tool for your camp and leads to repeat business.
3. Review Insurances
Business Interruption insurance is like a personal accident policy for your business that protects your net profit. To do this the policy meets all ongoing business expenses such as financing and/or lease costs, salaries and wages of key staff, and the like. It can also meet any additional expenses that the business needs to incur to maintain turnover and or resume normal business operations. This could be additional advertising, hire to equipment or a myriad of other costs.
While the range of insurance products available in Australia are some of the widest and best covers in the world, not every business risk is insurable. Just as normal wear and tear/maintenance is not covered, not every disruption caused to a business can be insured against. Moreover, cases that are considered inevitable such as a run of hot days in the high 30’s or low to mid 40’s aren’t covered either. In other cases, the accumulation risk of every business making a claim for the same event is such that it would bankrupt the entire insurance industry. For example, if swine flu became a full blown pandemic, the world’s insurers could not fund the downturn in every business. As such it is simply uninsurable and smart businesses take other steps to protect themselves.
To protect themselves against unreasonable cancellation, prudent business owners have cancellation clauses included into their contract of service. This sets out the terms and conditions under which cancellations can be made and whether a penalty such as the retention of deposits will be enforced. Such terms are simply good everyday business practice and may well encourage a customer to continue with their booking rather than simply cancel with no penalty.
Naturally, having the cover afforded by your insurance program in mind when drafting the cancellation clause makes good business sense to avoid any gaps.
It should be noted that loss of revenue / profits arising out of Code Red days are typically not insured under standard Property policies. We highly recommend that Camp Owners/Operators consider clear cancellation terms as a way to mitigate any uninsured losses.
Whist this is representative advice for the industry you need to consider your own personal circumstances. For individual advice on your businesses’ insurance program, please contact Joel Treadwell at AB Phillips.
4. Review Fees And Charges
Following the Black Saturday bushfires in Victoria in 2009 the Department of Sustainability and Environment (DSE) suggested at a forum in Victoria that with climate change outdoor businesses should factor into their business plans an expectation of five days of lost business due to severe weather events each year.
Whether you accept this number or would prefer to base your calculations on the number of days your business lost the previous year due to cancellations you should factor some lost business into your business planning.
The following formula demonstrates that a very small increase in the daily fee you charge can give you some protection against cancellations.
Lost days per annum X $fee per night X average group size = total lost revenue due to cancellations ÷ Annual occupation rate = $fee increase per person per day required to cover expected losses due to cancellations.
This is a simple formula and a worked example is provided below based on averages in the ACA Prices & Occupancy Survey.
5 days X $80 X 70 = $28,000 ÷ 14,000 = $2 per person per day increase in fees to cover for 5 days lost due to cancellations.
- 5 days = DSE prediction for lost days per annum due to severe weather
- $80 = average fee per person per day
- 70 = average group size
- $28,000 = total loss if 1,2 & 3 above are correct
- 14,000 = average total occupancy rate per annum
- $2 = per person increase per day to cover total losses due to cancellations per annum.
Putting this extra $2 per person per day aside could mean that when a late cancellation occurs your are able to make decisions in the best long term interest of your business without the financial pressure of immediate cash flow issues forcing you to make a decision you would rather not.
If you have any questions about this advice or any other matter related to your outdoor business please do not hesitate to contact us at the Australian Camps Association.