Two thoughts.
Cancelling is fine, and running a substitute one-shot game for the other players is a great option too. Ask them if they are interested in such a thing, or if they would rather just take a break that week.
My other thought: Make sure you know what you are players like with regards to dealing with characters whose players aren't there.
As a player whose DM just makes characters go *poof*, I hate it! I never run it that way as a DM. It destroys my immersion. Its like the magically convenient horse that never seems to be around when it would be in the way (despite not actually being magical, and having no explanation for its absence). Now, that doesn't always mean the character has to be with the party. There are ways to concoct reasons for their absence that make sense in most situations. Maybe he/she came down with some mild ailment and didn't feel like adventuring. You might say that someone needed to stay behind and guard the camp this time (come up with a plausible reason!) and this character volunteered. If you're in the middle of a dungeon, perhaps they are kidnapped by monsters.
And not only does it destroy my immersion, but I feel like my character and the rest of the party is being punished because we are down a character through no fault of our own. It's a real pain and an imposition.
But honestly, I simply run the player's character myself as the DM. I'm already keeping track of all the NPCs, monsters, spell effects, etc going on in the game; I don't find it a major ordeal to track one additional creature. (I should mention that I keep a copy of each PCs character sheet, and have them open and available in my preferred format when I DM.) One thing you might do at the start of the campaign is, again, ask the players how they want you to handle their individual character. I gave them a few options:
1. Minimal interaction: If I can find reasonable excuse for absenting the character (see examples above), I will. Otherwise I'll play according to 2.
2. Cautious interaction: You play the character extra carefully. Avoid taking risks, etc.
3. Normal interaction: Attempt to play the character more or less how their player does. If they charge heedless into danger, then they do it when you run it too.
So far, everyone has pretty much just gone with #3. I found that a bit surprising, but there you have it. They were fine with me just running their character.
They also get full XP. The argument that convinced me for that was to the effect that missing out on the fun of the game is penalty enough, why further "punish" the player for it in addition? "Not missing XP" is a really crappy motivation for showing up for game--motivation should be that they actually enjoy the session. And in that case, no XP penalty needs to be levied to rub salt in the wound.