1 November 2022, London Marriott Hotel County Hall
21 November 2022, Hilton London Metropole
12 December 2022, etc.venues Monument, London
WHEN THE FRENCH PARLIAMENT VOTED IN LATE SUMMER to reform the country’s laws governing business competition, much focus was on the wide-ranging reforms introduced by France’s new young (he is 37) economic minister Emmanuel Macron, who promised to shake-up the French economy via such measures as extending Sunday trading and liberalising parts of the transport system. But within the controversial new legislation was also a surprise addition: a ground-breaking law to end alleged ‘price-fixing’ agreements in France covering the way in which hotel rooms are sold online.
France has become the first country in Europe to outlaw the system known as ‘rate parity’ between hotels and online travel agents (OTAs), such as Expedia and Booking.com, which for a decade or more has become widespread throughout the hospitality industries in Europe, the US and many other countries.
‘GUARANTEED BEST RATE’
Rate parity is essentially an agreement between hotels and OTAs to ensure that the ‘guaranteed best rate’ available on a hotel’s own website must be made available to those OTAs entering into an agreement with the hotel, with no official discounting on the rate by either party.
For hotels, such agreements are attractive because of the OTA’s huge marketing budgets and ability to reach new customers: Expedia, according to hotel consultancy HVS, accounts for 70 per cent of online hotel bookings in the US while, in Europe, Booking.com (via parent company Priceline) has an estimated 62 per cent share.
France’s law to ban rate-parity agreements – they will be replaced by ‘mandated’ contracts which give French hoteliers the opportunity to offer discounts to their customers – only adds to the pressure from competition regulators across Europe in recent years to curb the practice. Germany’s Federal Cartel Office, for example, last year banned rate parity agreements undertaken by Hotel Reservations Service (HRS) in Germany, a move upheld in the German courts at the start of this year. It is now taking similar action against Booking.com.
Moreover, regulators in up to a dozen European countries – including Belgium, Hungary, Poland and Sweden – have also been reviewing whether they should take similar action, with the issue also on the European Commission’s (EC) radar.
But in the US efforts to reform rate parity agreements have stalled. A major consumer class-action lawsuit in California to sue leading hotel chains and OTAs for damages over alleged price-fixing was defeated in the courts last year, although as the rate-parity agreements could be deemed to be in breach of consumer protection laws in many states, action could still be taken against them at a local level.
Yet the regulatory pressure on rate parity comes amid a wider flux in the online hotel distribution sphere, as the big OTAs get even bigger – Expedia, for example, this year has added smaller rivals Orbitz and Travelocity to its portfolio. And the rise of accommodation bookings made on mobile devices is also changing the game, particularly as many of these will probably be outside corporate travel policy and via an OTA.
The origins of the rate parity saga stretch back to the early years of the 21st century, in the wake of 9/11 and the subsequent global recession. Hoteliers, desperate to fill empty rooms, turned to the emerging OTAs to reach customers, allowing the agencies effectively to arrange bookings at a discount with little control over the terms and conditions of the deal.
But in 2004 hoteliers started to retake control of the distribution process. UK-domiciled Intercontinental Hotels Group (IHG), the world’s biggest hotelier in terms of room numbers, accused Expedia in an acrimonious dispute of carrying out “confusing and potentially unclear marketing practices” online. It banned Expedia and associated websites from access to its room inventory (although it continued to work with rivals such as Travelocity) until relenting in 2007, when it restored access after agreeing a deal which included ‘best price guarantee’ clauses. These ensured direct rates offered by IHG hotels were consistent with those offered by Expedia – in other words, rate parity. IHG also entered into similar arrangements with Booking.com at the same time.
These agreements attracted the attention of the Office of Fair Trading (OFT), the UK’s main competition watchdog at the time, which recognised the potential anti-competitive effects of rate parity deals on prices and choice. But the regulator was unable to act until evidence emerged.
Enter Dorian Harris, the founder of a small UK hotel-booking website called Skoosh. In 2010, he complained to the OFT that Skoosh was being refused access to hotel room inventory because he wanted to offer lower rates than on the hotel’s website and other online channels. His allegations enabled the OFT to formally begin an inquiry which, while focusing specifically on IHG’s deals with Expedia and Booking.com, made clear it could have implications for the whole online booking sector.
Two years later the OFT’s initial judgment was that such rate-parity agreements did indeed infringe both UK and EU competition laws, although it was unclear how far this had actually harmed end-users. Nevertheless, this prompted IHG, Expedia and Booking.com to offer to vary their agreements to allow some rate discounts to be offered, albeit in very limited circumstances. Eventually the OFT, in 2014, accepted the changes and closed down its inquiry.
But metasearch travel website Skyscanner was unhappy with this decision as it, too, claimed it was unfairly hampered by rate parity agreements, subsequently launching a legal appeal against the OFT’s decision (a protest joined by Harris). Embarrassingly for the regulatory authorities, the appeal was upheld, forcing the new Competition and Markets Authority (CMA) which last year replaced the OFT, to re-open the inquiry.
Expedia and Booking.com again thought it best to compromise and last summer introduced a unilateral variation of their rate parity contracts with hotels in Europe which, while aimed at creating more price competition, did not eliminate all restrictions. These new agreements effectively ensured rate parity continued between Expedia/Booking.com and hotels with rate parity clauses, meaning the hotels could not differ their direct booking prices from those offered by the two giant OTAs; but other, smaller OTAs could arrange bookings at lower prices if they wished.
This was sufficient for the CMA in September this year to again declare its inquiry closed “on the grounds it is not currently an administrative priority”, although it said it would continue to monitor the market in light of the Expedia/Booking.com changes. IHG welcomed the CMA’s decision, pointing out that the inquiry was closed “without any finding of infringement” by the hotel group.
LOBBYING FOR CHANGE
Some other European competition regulators – such as in Denmark and Austria – are now also considering whether to follow the UK's example and end their investigations; but others are not so sure and are pressing ahead with their individual probes, and lobbying the EC to take collective action.
Although it is too early to see what will be the result of the changes implemented unilaterally by Booking.com and Expedia, the most obvious implications are for rates. Some, such as British Hospitality Association chief executive Ufi Ibrahim, thinks rate parity clauses need to go completely to give hotels more power to discount rates though different channels. But a lobbying group for OTAs and the global distribution systems (GDSs), the European Technology and Travel Services Association, warns that the end of rate parity could lead to higher hotel rates for rooms booked online. “Hotels will unfairly favour their own channels for the lowest pricing and availability,” it argues.
Other industry observers believe that the two OTA giants have again blindsided some European competition regulators. “Given the domination of Expedia and Booking.com in the market, with their substantial resources, the changes still favour them as they prevent hotels from presenting lower rates on their own websites than offered by the two major OTAs,” says one veteran hotelier.
Yet the issue will not easily go away. Hotel distribution is clearly going through uncertain times and, not surprisingly, this is having repercussions throughout the managed and unmanaged business travel sector. “Every party involved in the procurement, provision and management of business travel accommodation agrees that rate parity is one of the biggest issues facing the industry,” warned Business Travel Insights: Hotels 360, a joint report last year from Amadeus and the Guild of Travel Management Companies.
It is not just the cosy rate parity deals between large OTAs and hotel chains that are vexing travel buyers. “As more and more routes to market have opened – including hotel aggregators, hotel chain websites and other third parties – complexity has grown and the number of rates on offer has multiplied,” the report added.
This also appears to be of concern to business travel agents who primarily book their corporate clients through the GDS networks. A survey published last September of more than 900 agents from 48 countries by Travel Click – a web-based business helping hotels manage their revenues – found that virtually all the agents (96 per cent) believed hotels should offer rate parity by making their best rates available on the GDSs. If the agents found a cheaper rate elsewhere for the same hotel, then over half those surveyed said they would penalise those hotels by actively booking with another hotel or chain.
The GDSs and OTAs also face a new challenge to their dominance of the hotel distribution world, which could eventually make the rate parity debate irrelevant: the moves by Google and Trip Advisor to take a slice of the hospitality pie with new hotel booking services linked to their strong brands. But Amazon’s surprise decision last month to pull out of the hotel and travel booking market after just six months clearly shows that the giant OTAs are not going to give up their power just yet.
RATE PARITY UNWRAPPED
WHAT IS RATE PARITY?
Rate parity is part of a legal agreement between an online travel agent and a hotel (either a chain or independent) that guarantees the hotel will maintain the same publicly available room-only rate across all its channels of distribution – be they direct with the hotel (via, for example, telephone or its own website), or via online or traditional travel agencies.
WHY DOES THE OTA WANT THIS?
OTAs do not actually ‘sell’ hotel rooms but provide ‘booking services’ to hotels: in essence they find the customers for hotels but do not control room inventory. In return the OTAs, which have invested heavily in building and marketing their brands, will either ‘mark up’ the net room rate offered by the hotel or take a commission based on the full room rate achieved (up to 30 per cent in some cases). To protect their investment, OTAs do not want to be undercut by either the hotel’s own direct rates or by other OTAs – hence the insistence of consistent rates across all channels for room-only bookings (discounts are allowed for other types of rates, such as packages which include air and car hire or for loyalty scheme members).
WHY DO HOTELS AGREE TO THIS?
Although hotels make most profit from selling direct to customers, they do not have the reach that the OTAs have built up. IHG, for example, has more than half a million hotel rooms to fill every night, so it needs OTAs to help fill them.
WHY HAVE COMPETITION REGULATORS TAKEN AN INTEREST?
They believe that artificially maintaining rates in this way could be anti-competitive, leading to less choice and higher prices than if no restrictive agreement was in place.
WHAT ABOUT THE CHANGES EXPEDIA AND BOOKING.COM HAVE INTRODUCED?
According to the UK’s Competition and Markets Authority, the new arrangements by both major OTAs allow hotels across Europe to offer cheaper rates through other online travel agents, as well as offline and to certain groups of customers. But rate parity continues to operate in relation to rates offered on hotels’ own websites and some other direct sales channels. The CMA admits it is too soon to tell if the Expedia/Booking.com move “will materially change how hotels rooms are priced on the internet”.