Airbnb just rolled out an Extended Cancellation Option (ECO).
Here's how it works: a guest pays a fee at checkout, and in return they can cancel for any reason and get a full refund up to 24 hours before check-in, no matter what your cancellation policy says.
Most hosts have already been auto-enrolled. You have to opt-out if you don't want your listings to participate.
Why Airbnb is doing this
Selling "cancel for any reason" refunds is one of the most profitable products in the travel industry. Americans spent a record $5.5 billion on travel insurance last year, and about 95% of that was trip-cancellation coverage, which is exactly what this is.
It's a classic insurance model: Airbnb collects a fee every time a guest buys ECO, but they only pay out on the guests who actually cancel. So guests pay in, a few cash out, and Airbnb keeps the difference.
One analyst estimated Airbnb’s insurance products will generate around $500 million in high-margin revenue over the next few years.
What this means for hosts
Let's say you have a “Moderate” cancellation policy. A guest books a 4-night stay at $250/night (a $1,000 booking), and they buy the Extended Cancellation Option when they book.
Fast forward, and 3 days before check in, the guest cancels.
Here’s how that plays out:
- Without ECO: The guest only gets part of their money back ($375), so they have a reason to think twice before cancelling. If they do cancel, you're paid $625.
- With ECO: The guest gets 100% back, so there's nothing to think twice about. You're still paid $625, and the date reopens on your calendar.
- The catch: Your payout is the same $625 either way. What changes is the guest’s behavior. ECO removes the guest's reason to think twice before cancelling, so cancellations like this happen more often. And every time one happens, you're out the other $375 of a stay that would have been completed if the guest didn't have an easy way out ($375 is the gap between the $625 payout on the cancelled stay and the full $1,000 payout on a stay you no longer get to complete).
Now, the real question is whether that $375 actually hurts, and that comes down to one thing: can you get another booking to backfill the cancellation?
If you run a one-bedroom in a busy city, last-minute bookings are normal and you have a decent chance to backfill the booking. If you run a 6 bedroom house in a destination town that books months in advance, a cancellation 72 hours before check-in is almost impossible to replace. Same feature, very different sting depending on your place.
My take
This is a brilliant, high-margin business for Airbnb. But it doesn't help us out as hosts. And in some cases, it can really hurt.
It's the latest example of how Airbnb keeps shifting cancellation risk onto hosts (Reserve Now Pay Later, then killing the Strict cancellation policy, now this).
Further reading
