Stick to your policy. They had time to cancel and they should have taken advantage of any goodwill while they could. However, let me add my experience with the recent hurricanes.
During Hurricane Harvey, I had a rash of cancellation requests. I had a total of 6
cancellations over a week period (ouch). I gave them full refunds despite having a Strict Cancellation Policy and I contacted airbnb to make sure all those guests got all their fees returned also.
I did contemplate whether or not I should uphold my policy, but knowing how airbnb is with guest satisfaction, I agreed to cancel and fully refund them. Figured what's the point when in the end Airbnb was going to refund them anyway. It would just make me look greedy.
Airbnb CSR sent me a gift and it seems they bumped all my listings up in search. I can't really confirm the bump, but all of a sudden my listings were on the 1st page of search results and I received tens of thousands in new bookings for months that are normally very soft for me. It's anecdotal evidence, but it worked out very positively for me.