Austria’s government has submitted a change in legislation to ban rate parity clauses in contracts between hotels and online travel agents.
The government has followed similar moves by France and Germany, and came as the CMA in the UK reopened its investigation into the clauses.
In Austria, the government has submitted to parliament plans to ban rate parity clauses. Vice Chancellor and economy minister Reinhold Mitterlehner, said: “At issue is that companies do not have to offer the same price as they currently do on the (online) platform but have the opportunity to make other arrangements, which increases hoteliers’ room for manoeuvre.”
Peter Verhoeven, Booking.com’s managing director for Europe, the Middle East and Africa, responded: “If you want to be sure to get the cheapest hotel price you would be forced to comb through countless home pages to in the end only be able to compare a fraction of the possible offers.”
The proposal will be reviewed after the summer recess. If successful, Austria would join France and Germany in outlawing the clauses.
August last year saw the Macron Law became effective in France, making price parity agreements illegal, including the “narrow” price parity agreements agreed to by the French NCA in April 2015. Similar legislation prohibiting “narrow” price parity agreements has been proposed in Italy and currently is awaiting action by the Italian Senate.
The most striking decision to date has been that in Germany which saw the authorities rule that so-called Most Favoured Nation clauses violated German and European competition law. At the beginning of this year the country’s Bundeskartellamt ruled that Booking must change best price clauses in its contracts in German, labelling them “uncompetitive”.
In the UK, the CMA has confirmed that it had sent a questionnaire to a “large sample of hotels in the UK” as part of a joint monitoring project, in partnership with the European Commission and nine other competition agencies in the EU.
This project is looking at how changes to room pricing terms, and other recent developments, have affected the market. In particular, whether the Europe-wide removal by online travel agents Expedia and Booking.com of certain rate parity or ‘most-favoured nation’ clauses in their standard contracts with hotels in July 2015 has affected the market.
Ann Pope, CMA senior director for Antitrust, said: “Consumers benefit from lower prices and better service in a truly competitive market in which hotels and online travel agents compete for their business.
“The CMA is aware of concerns raised by a number of hotels about how this market is operating. This project is part of the CMA’s ongoing commitment to watch this market closely in order to ensure that consumers are benefitting from effective competition and we welcome responses to this survey, so that we can see how the market is developing in light of recent changes.”
The CMA said that hotels in the UK that had not been directly contacted by the CMA were also welcome to complete the questionnaire. The deadline for responses is 8 August 2016.
Neil Baylis, competition partner, K&L Gates, told Hotel Analyst: “Rate parity – everyone seemed to assume this would fizzle out with the European Commission’s remedy preventing restrictions on rival OTAs’ pricing but still allowing the major OTAs to prevent hotels themselves undercutting them. From what I have read, the impact so far of this remedy really hasn’t been very effective and so further work is now going on by all the relevant national competition authorities to seek further information from hotels – the UK’s CMA being one of those authorities.
“Some countries such as France and Austria and to some extent Germany are cutting to the quick and banning rate parity clauses outright. That does seem to be where the market is heading, but the major OTAs will hold out for as long as they can. It will clearly be a rather messy situation if different rules apply in different countries… especially given the internet is no respecter of boundaries.”
The noose tightens on rate parity, but the lever has yet to be pulled on the trapdoor.
HA Perspective [by Katherine Doggrell]: While the Austrian hotel market is likely to hold distinctly less interest than the French, the grind of legislation is starting to catch up with rate parity. With the CMA having yet another bite at the cherry – you may remember the CMA from last year when it ended its rate parity investigation because it had other things to do – it’s not looking good for those clauses.
For the hotels being surveyed by the CMA, it’s unlikely that the response will be anything other than negative when it comes to price parity. The CMA, however, is tasked with protecting the consumer and there is an argument that rate parity makes things easier for the consumer.
But this is to ignore the elephant, which is that legislation lags reality. The operators are pushing direct bookings by leveraging loyalty programmes – using previous changes to the law which allow for discounted rates for closed user groups. They would have you believe they are having some success too, although we wait for results season for the full picture.
The issue now is education, education, education. The marketing budget of The Priceline Group and Expedia keeps everyone in Google in gold cars and caviar. Hotels must use those loyalty programmes to drive not only bookings but also…loyalty. The kind that spreads the word, not the kind which wants a discount.