• Hotels accused of ‘freeriding’ OTAs

Italy has become the latest country to move towards banning rate parity, joining Austria, France and Germany.

Expedia, Inc, responded that banning rate parity rules allowed the “freeriding of hotels on the investments made by online travel agents”.

Expedia, Inc, told us that it was concerned that the prohibition of MFN [most favoured nation] clauses encouraged hotels to discriminate against consumers.  It said: “We believe this prohibition is detrimental to consumer choice and transparency and will negatively impact Italian hotel bookings, especially for smaller hotels, as well as negatively affecting investment in Italian tourism.

“Travellers have the right to feel confident in the choice, quality and price of the travel they book online.  Legislation, such as Paragraph 167, places an unfair burden on consumers trying to understand if they are getting the right room at the right price and deprives them from the possibility of accessing the best deal for them on their chosen online booking platform.

“For the past 20 years, Expedia has helped hundreds of thousands of hoteliers compete for consumers’ business and has helped consumers discover these hotels quickly and efficiently.  The result has been a marketplace where hoteliers gain global exposure to consumers who find value and efficiency in shopping for travel through our world class travel brands and our significant investments in marketing and technology at no upfront cost. Hoteliers only pay for this visibility if a booking is made on Expedia’s websites. This MFN prohibition therefore allows the freeriding of hotels on the investments made by OTAs.”

The company said that the EC was currently assessing infringement complaints filed against France and Austria on similar laws, adding: “The MFN prohibition in the Competition Bill, in its current form, will equally infringe European Union law”.

In Italy, the country has moved a step closer to banning price parity clauses, after lawmakers in the Senate voted to outlaw the practice, as part of wider competition law which includes 20 sectors including energy and insurance.

Last year saw Austria ban the clauses, with Vice Chancellor and economy minister Reinhold Mitterlehner, commenting: “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.”

The prior August 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.  The most striking decision to date has been that in Germany which saw the authorities rule that the  clauses violated German and European competition law. At the beginning of last year the country’s Bundeskartellamt ruled that Booking must change best price clauses in its contracts in German, labelling them “uncompetitive”.

Charlie Osmond, chief tease, Triptease, told us: “Is this really progress? By all means, we applaud efforts to temper the oligopolistic powers of the OTAs, and removing MFN clauses is a gesture in the right direction. Yet it’s not the first time we’ve seen rate parity clauses banned and we’re a little sceptical about how far this takes us. How much has really changed for hotels?

“It’s easy to see how great the temptation is for OTAs to abuse their position as kings of the hospitality playground. The harsh reality is that OTAs exert enormous power over hotels and rarely need to resort to contracts to enforce anti-competitive behaviour; hotels still have little clout in negotiations.

“Anti-competitive contracts are not a prerequisite for change. In fact, in France, the first nation to ban certain contractual provisions, OTA pressure tactics are among the most aggressive, pushing hotels on pricing and resisting price transparency for consumers.

“True change means eliminating OTAs’ ability to ‘punish’ those bold hotels who hold back their best price. True change is cleaning out the market manipulation of predatory advertising and dubious panic messaging (“Only one room remaining! 70% off for one day only!“). True change is rebalancing the conditions for a fair negotiation.

“We need true change if we expect to see true price competition.”

Last month saw the European Competition Network comment that it would keep the sector under review, despite concluding that banning the clause led to better competition and more choice.

The ECN co-ordinated efforts across 10 member states – with the CMA leading the investigation in the UK – sending questionnaires to 16,000 hotels, 20 online travel agents, 11 metasearch websites and 19 large hotel chains.

The ECN said that the results suggested that allowing large online travel agents to use narrow parity clauses, and prohibiting online travel agents from using them altogether, had “generally improved conditions for competition and led to more choice for consumers”.

The ECN therefore agreed to keep the online hotel booking sector under review and to re-assess the competitive situation in due course. This, it said, would allow the sector more time to make full use of the measures that have already been taken.

The study found that 47% of the hotels that responded to the electronic survey did not know that Booking.com and Expedia had recently changed or removed their parity clauses. This figure was lower in France and Germany, at 30%. Of those hotels that knew about the changes, the majority said they had not acted upon them in any way.

The reasons most frequently given for not price differentiating were that the hotel saw no reason to treat its OTA partners differently; the hotel’s OTA contract did not allow it to price differentiate; fear of penalisation by OTAs to which the hotel did not give the lowest price; the difficulty of managing different prices on different OTAs, and not wanting the hotel’s website to appear as more expensive than the OTAs.

For those that did price differentiate between OTAs, the most frequent reason given was to increase the hotel’s visibility on a particular OTA. In France and Germany, a higher share of respondents said that they had price differentiated between OTAs, however this difference was not confirmed by pricing data scraped by the monitoring working group from OTA websites, which showed no significant variation between any of the participating member states.


HA Perspective [by Katherine Doggrell]: Like a kidney stone, it seems that Europe’s competition authorities are happy to let nature take its course, no matter how painful that might be. Italy, France and Germany may have chosen to act ahead, but, in the UK, the CMA said that it would be led by the wider Europe. And that’s probably the last time we’ll hear anything like that from our Brexiting isle.

Neil Baylis, competition partner, K&L Gates, told us: “The Commission’s report into the online hotel booking sector showed that the “concessions” from the major OTAs  (i.e. agreeing to allow hotels to sell rooms to different OTAs at different prices (“narrow price parity clauses”) had not yet had a dramatic effect on pricing  – most hotels said they saw no reason to treat different OTAs differently.

“The outright bans in France, Austria and Germany have not been properly tested.  One imagines that most hotel groups that use OTAs will probably not choose to price significantly lower on their own websites.  OTAs aren’t obliged to contract with hotels and might choose to give a lower ranking to a hotel that is pricing on its own website below the OTA rate.

“What is more interesting is whether Expedia and Booking.com continue to use parity clauses in some countries and not others in Europe (which could ultimately mean different prices in different countries). Post-Brexit the UK authorities may take another look at this – for now they are happy to let the European Commission take the lead.”


Additional comment [by Andrew Sangster]: We have been here before. Back in 2003, InterContinental tussled with the OTAs and, along with other hoteliers, insisted that OTAs stopped underselling them. A rate parity clause was asked for, and the OTAs agreed.

It turned out that the OTAs liked the rate parity clause. Now hoteliers are squealing, some even re-writing history by blaming the OTAs for inventing the idea. If the OTAs thrived before rate parity it is hard to see them suffering in the wake of it now being banned. Perhaps Expedia is protesting a little too much?

More interesting is where we are heading with the whole book direct campaign. It is noticeable that the big hotel groups have quietened down the rhetoric although the policies are still in place: during its first quarter results conference call Marriott confirmed that it was continuing the policy and, more importantly for owners, continuing with the discounts on offer to loyalty club members.

Marriott CEO Arne Sorenson said: “I think [the loyalty club discounts] is working and will continue for the foreseeable future.”

Sorenson said he wanted to make sure it was Marriott that had the relationship with the customer and Marriott had to reassure the customer in a way that “doesn’t require them to sit down and do a spreadsheet calculation to figure out whether it’s in their interest to be members of our loyalty programme”.

The problem for Marriott and other hotel groups pursuing the book direct discounting route is that owners will be getting out their spreadsheets and working out the value they are getting from the brand.

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