Well, think of this from the Hotel's perspective. And the employees' perspective.

Hotel is full so they can raise the room prices by A LOT. All of that is profit. So there is a huge inventive for the hotel - and probably employees - to cancel bookings. Someone, somewhere, is making money off cancelling your reservation. The owner primarily. And they could / probably did put in some incentives for employees to "maximize" room rates.

So Joe Line Manager is instructed to cancel some bookings. Now most people would just walk away and book somewhere else. And the few that do complain can get their booking back. Boom, more profit for the hotel.

Yes, this is how they operate. I have been on the inside from the hotel (property) owner's perspective to know. I had property owner clients. Keep in mind for 99% of properties there is a property owner and they are a franchise. They are the ones making the final decisions.