REPORT FROM THE U.K.—Rate parity agreements between hotel room suppliers and third-party distributors are inching closer to their demise, but the potential ramifications on how recent investigative findings will affect hotel pricing are still unclear.
As the result of a three-year investigation by the Office of Fair Trading in London, InterContinental Hotels Group, Expedia and Priceline Group have made commitments to no longer enforce rate parity agreements for certain types of bookings. Hoteliers in the U.K. will be able to offer discounts to “closed groups,” such as members of their loyalty program; third-party distributors will be allowed to reduce their commissions and margins in order to discount hotel rooms to certain “closed groups,” such as website members or travelers who download their mobile app.
Many hoteliers have been offering such discounts for some time now and third-party distributors like Hotel Tonight have been using the closed-group strategy to offer lower, last-minute rates.
The OFT will continue its investigation; the next step is to open the discussion up to the public, decide whether it will accept the commitments and then potentially implement them. The OFT is inviting the public to submit observations and evidence relating to the parties’ arguments, views on whether consumers are likely to benefit and views on whether the commitments fully address the competition concerns identified. Comments will be collected until 13 September.
The OFT has earmarked December for its decision and potential implementation and, if implemented, the rules would apply only to U.K. customers booking hotels in the European Union.
“It's a long way from the U.K. to this being implemented in the U.S.,” said Max Starkov, president and CEO of New York-based Hospitality eBusiness Strategies.
Both IHG and Expedia issued statements Friday saying they’ve been fully cooperating with the OFT investigation and are hopeful the commitments will excuse them from any potential fines.
From Expedia: “The Office of Fair Trading, the U.K. competition authority, has launched a public consultation on a set of commitments designed to close its hotel online booking investigation without any finding of infringement or penalties. Since September 2010, the OFT has been investigating certain contractual arrangements between a single hotel chain and each of two online travel agents in relation to standalone room reservations made on U.K. websites by U.K. travelers. Expedia welcomes these commitments which will enable the OFT to close its investigation without taking any action and to permit Expedia to focus on its long-standing commitment of driving global demand for its partners by providing the best online travel experience.”
From IHG: “InterContinental Hotels Group notes this morning's announcement from the Office of Fair Trading regarding its investigation into the online supply of room only hotel accommodation by online travel agents. The OFT has today commenced a public consultation on a series of commitments designed to bring an end to this investigation without finding of infringement or the imposition of any fine. IHG has worked closely with the OFT to agree these commitments, which are now subject to a consultation period ending 13 September.”
Pricing impact
Opinions on whether the commitments by hotel suppliers and distributors will have a significant impact on hotel pricing are mixed.
Dorian Harris, founder of online travel agency Skoosh.com who petitioned the OFT to look into the matter, said the fact that the concessions only apply to closed groups diminishes their effect.
“Hoteliers can undercut Booking.com and Expedia but only to members,” he said. “And the conditions for becoming a member include, but are not limited to, having made a previous booking at non-discounted rates. Booking.com and Expedia will still be allowed to practice rate parity for public rates.
“From a hotelier’s perspective, they can discount—they always could—but there’s nothing to stop Booking or Expedia exerting pressure and moving hotels further down the list when they don't adhere to their contract conditions.”
On the other side of the coin, OTAs will be able to undercut supplier prices via certain channels, but whether they choose to do so remains to be seen. Starkov said Expedia and the like are already seeing their commissions dwindle and therefore cannot afford to heavily discount rooms.
“IHG knows perfectly well that the OTA commission is being squeezed and quite soon there will be nothing left to discount,” he said.
Starkov said Expedia's cost-per-acquisition from online advertising is $22 per roomnight. At $100 average rate and at a 15% commission for an IHG property, Expedia is making $15 per room night, he offered as an example. Therefore taking the CPA into consideration, Expedia could actually be losing $7 per room night.
“Where would the discount come from?” he said.