There have been seismic moves in the
ongoing saga of “rate parity” – whereby online travel agencies (OTAs) are
preventing B&Bs and hotels from offering a lower price on their own
websites to that offered via the OTA (who demands a commission of typically
15-23%). The B&B association and other bodies, including the British
Hospitality Association (BHA) are strongly against OTAs being allowed to impose
“rate parity” clauses on properties’ own website sales. However, OTAs are fighting
this to the last, as their business model depends on being able to claim they
offer the best available rates.
In Europe, OTAs and metasearch websites
drive 70% of bookings (much higher than in the USA).
In April, Booking.com (in their words) “reached
agreement with national competition regulators in France, Sweden and Italy, that Booking.com would drop price,
availability and booking conditions parity provisions with respect to other
OTAs”. This concession was made by Booking in order to retain their
ability to impose price parity on hotels’ own websites.
On 25 June, Booking “decided to extend
these commitments to all our accommodation partners throughout Europe
from July 1”.
A Booking spokesman told the
Association: “I respect that the Bed & Breakfast Association represents the
views and interests of many B&Bs and guest houses in the UK, and by that
virtue there will be a number of different opinions in relation to this
decision. But I want to stress at Booking.com we
remain resolute in our objectives in the UK:
·
“To bring transparency, choice
and value to consumers;
·
“Help drive business for our
accommodation partners; and
·
“Constantly innovate our
platform to ensure that we are reaching the widest customer audience (helping
our accommodation partners realise increasingly higher occupancy levels)”
Under the new provisions, Booking.com will abandon its price,
availability and booking conditions parity provisions with respect to other
OTAs, but will retain its “narrow MFNs” [“most favoured nation” clauses] for
prices and booking conditions which will ensure hotels & B&Bs offer the
same rates and booking conditions on Booking.com as
they do through their own direct website.
With the implementation of the new
parity provisions, Booking.com will
continue its Best Price Guarantee and match any lower price that may be found
on another booking website
Does
the UK regulator accept the changes?
Booking said its June decision is “in
line with its commitment to a new Europe-wide standard to keep competition
healthy, driving value for consumers and hoteliers”, and stated that it “is a
direct result of feedback from many European national competition authorities indicating
that they would welcome Booking.com implementing the commitments
in their jurisdiction”.
This seems to imply that the UK’s
Competition & Markets Authority (CMA) may have tacitly nodded through the
change (ie accepting OTAs ability to enforce “rate parity” here) – but the CMA
has so far said nothing to support this, and the B&B Association and BHA
are seeking clarification and stressing their opposition to rate parity,
maintaining that OTA “rate parity” clauses increase prices for consumers, by
forcing hotels and B&Bs to always charge their guests a price including
commission (typically from 15-23%), even if the property is not paying that
commission (eg where the guest books directly on the hotel’s website).
Jackie Grech, BHA Legal and Policy
Director said: "With both German and now French governments setting
precedents we encourage that UK regulators and government will
take up the issue to put the power back into customers hands as they shop
around online for the best deals.”
Many are questioning the CMA’s
priorities, as it has seemed to be vehemently against a hotel setting the price
of its own rooms sold via agents (which it calls “retail price maintenance”,
and says is illegal), whilst seeming to be unconcerned by market-dominant
global intermediaries preventing small B&Bs and hotels from lowering their
prices to their direct customers. Yet the latter practice (OTA “rate parity”
clauses) in effect builds in the OTA’s commission to every price paid by the
consumer, even where the booking is not through the OTA.
Booking.com,
with an eye on the European Commission, said its move meant “standard terms
will be the same for all of its European partners – helping to build a single
European digital economy”.
“The commitments agreed with the French,
Italian and Swedish [competition authorities] promote competition in a way that
supports innovation and investment. We think that all of our European
partners and consumers booking at European hotels should benefit from the
commitments… which is why we have decided to amend voluntarily our parity provisions
right throughout Europe to be consistent with those commitments,” said Gillian
Tans, President of Booking.com. “We
welcome and encourage fair competition and hope that our fellow online travel
agencies follow Booking.com’s lead as part
of a shared commitment to support best pricing for consumers.”
Booking.com added
that it “trusts that these changes will set the tone for an industry wide solution”.
Expedia
falls into line a month later
Sure enough, within days Expedia took up
Booking’s invitation to follow its lead, and announced that from 1 August it
will bring itself in line with the rate, conditions and availability parity
clause commitments offered by Booking.com. It hopes that the move “will bring
to an end further investigations into competition issues in Europe”.
“The changes announced apply to all
hotel properties in Europe and affect consumers booking via Expedia’s sites
worldwide.
Expedia echoed Booking in implying a
measure of acceptance from European regulators, stating: “A number of European
competition authorities are currently investigating rate, conditions and
availability parity clauses in certain OTA agreements with hotels. Expedia has
worked closely and constructively with these authorities and the European
Commission and today announced that it is waiving its rate, conditions and
availability parity clauses with its hotel partners for a period of five years
in line with Clauses 1.1, 1.2 and 2.1 of the formal commitments offered by
Booking.com and accepted by the national competition authorities in France,
Italy and Sweden in April 2015.”
Expedia also echoed Booking in arguing
that its move helped the EU’s digital market, saying: “The pan-European scope
of Expedia’s announcement is also an important contribution to the European
Commission’s Digital Single Market objective”.
It had to acknowledge, though, that
individual countries (perhaps starting with France) can overturn rate parity,
saying: “To the extent that individual countries’ regulatory or legislative
developments may in the future cut across Expedia’s change of commercial policy
announced today, Expedia naturally reserves the right to adjust its revised
approach as appropriate”.
French
parliament votes to kill rate parity in France
Meanwhile on 18 June, the French
National Assembly moved to cancel rate parity clauses in contracts between
hotels and online travel agencies (OTAs), in the “Macron Bill”.
Instead the legislation gives hotels a
“mandate” contract where they will control all pricing and availability for all
online reservation platforms and OTA’s sales channels.
The new French law would apply
regardless of where the online booking platform is headquartered in the world.
Booking.com and other OTAs may challenge
the law via the Constitutional Council. Otherwise hoteliers in France will soon
be able to display on their online and offline channels lower rates than they
offer to online booking channels. The parliamentary move particularly stung
Booking.com, which commands two-thirds of the online market in France. The
banning of rate parity would seem to negate the agreement reached six months
ago between Booking.com and the French competition authority, which did not ban
rate parity.
The French Hotels Association says the
Bill will promote discounting of hotel rooms by ending price parity – echoing
the stance of the BHA and B&B Association in the UK.
Some small OTAs doubt that even ending
rate parity will level the playing field, given the market dominance of the
biggest OTAs. Uwe Frers, owner of Berlin-based OTA Escapio, says:
“Sometimes Escapio gets a rate for a hotel that is lower than what is available
on Booking.com. When that happens, within about six hours, Booking.com calls
the hotel demanding parity. Given that Booking.com has 50% market share in
Germany, hotels listen and match the rate. That makes it harder for us to
compete on price.” Frers said that he hopes that the European Commission ends
rate parity because the practice is wrong. But he is sceptical that things
will change for small OTAs as long as Booking has such enormous market power.
Price
war or price inflation?
The OTAs seem to be sending
contradictory messages as to whether ending rate parity would lead to lower or
higher prices for consumers.
Carlo Olejiniczac, Booking.com’s
regional manager for France, Spain & Portugal told French media that the
end of rate parity might lead to an “exacerbated price war. Hoteliers are
likely to suffer…. This will cause unbridled price pressure.”
However Christoph Klenner, secretary
general of the European Technology and Travel Services Association describes it
as “a licence for the hotels to increase prices”, saying “There will be no
price competition if hotels determine all prices.
“Hotels will unfairly favour their own
channels for the lowest pricing and availability, which will substantially
reduce competition and consumer choice.
“It will lead to higher prices as there
are no incentives for hotels to discount if they can eliminate all competition
across distribution channels.”
It must be pointed out that OTAs are not
trying to stop hotels from offering a higher price – their “rate parity”
provisions are designed to prevent hotels from offering a lower price to
consumers than the price through the OTA. B&B Association CEO David
Weston took issue with Klenner’s statement, saying:
“Firstly, why is it “unfair” for a hotel
or B&B to ‘favour their own channels for the lowest pricing’? – and
secondly, why would allowing our members to use ‘their own channels for the
lowest pricing’ lead to higher prices?
“The common-sense truth is, of course,
that (as hotels and B&Bs everywhere say) if we had the freedom to sell
direct without commission when we are not paying it, the consumer could pay a
lower price for the same product. The OTAs could never admit that, though, as
it would undermine their business model, which depends on their controlling the
prices hotels & B&Bs charge, and preventing our discounting to our own
customers.”
The B&B Association will continue
its campaign for commercial freedom for B&Bs, and the right to offer guests
a lower price via the B&B’s own website.
UPDATE: Since the above was written, the Association has been assured by the CMA that it has not given any indication to Booking or Expedia that it would accept their new unilateral change of terms in the UK; the CMA also says it will be studying the market carefully as the new terms bed in, and looking at any evidence which might indicate whether OTA "price parity" clauses are increasing the price consumers pay. If the CMA were to be convinced that the workings of the market (with "price parity" imposed by OTAs on hotels) is anti-competitive and/or driving up consumer prices, it will take action.
The above article was originally published in the B&B Association's member magazine, B&B News (July-August issue); the Association wanted to make it more publicly available as part of our campaign against "rate parity" clauses which prevent B&Bs from reducing prices directly to their guests via their own websites.
