I would say you should always honour a previous booking.
It hurts sometimes but your reputation will remain intact. I know many working musicians who are in demand to play with an assortment of different bands. Whenever I've asked one of them to do some work with my band they check the diary and, if it goes in, I know they will be there whatever is offered subsequently.
If I've ever been forced to cancel, which can happen to any of us, I usually make a couple of calls to see who else is available before ringing the venue, so that I can at least offer an alternative.