Hotels Still Weary of Booking.com Pricing Dominance

Competition authorities in France, Italy and Sweden have reached agreements with Booking.com to ensure that hoteliers in Europe can offer lower rates to online travel agencies than they do to the hotel-booking powerhouse but some hoteliers believe the commitments don’t go far enough and there are plenty of questions still to be answered.

The agreements, in theory at least, restore competition among online travel agencies, which until now had rate parity and most-favored nation agreements with hotels guaranteeing that competitors and the hotels’ own websites couldn’t offer lower room pricing than available through hotels’ contacts with Booking.com.

The agreements announced April 21 extract additional concessions from Booking.com as compared with proposed commitment that Booking.com revealed last December.

“The revised commitments will also allow an accommodation provider to, among other things, offer different terms and conditions (e.g., free WIFI) and availability to consumers that book with on-line travel companies that offer lower rates of commission or other benefits, offer lower rates to consumers that book through off-line channels and continue to discount through, among other things, accommodation loyalty programs, as long as those rates are not published or marketed online,” Booking.com states.

Booking.com intends to implement these “narrow price parity agreements” — hotels still can’t market lower rates directly to consumers than they do to Booking.com — across Europe although Germany stands poised to insist on an even tougher commitment that would bar any price parity clause as anticompetitive.

InterContinental Hotels Group Wants More

InterContinental Hotels Group cooperated with the national competition authorities’ probe of Booking.com’s hotel rate practices, which included a two-month “market testing and consultation period”  but an IHG spokesperson said the proposed commitments don’t go far enough.

“We believe that the information provided by IHG and others during the market testing showed that the proposed commitments do not fully address the competition law concerns identified by the NCAs,” the spokesperson said. “Further, the proposed commitments restrict the ability of hotels to compete freely on price which acts against the best interests of consumers. We will continue to cooperate with the NCAs on this matter.”

Meanwhile, Paris-headquartered Accor hotels is taking a wait-and-see approach about the pacts with Booking.com in the three countries.

Vivek Badrinath, Accor’s deputy CEO for marketing and distribution, said “this decision by the competition authority partially meets our expectations. Hotels will be able to favor their loyal guests and take back control of their pricing policy in order to guarantee the consumers their interest to prefer a direct relationship with the hotelier.”

“However, this is just a first step: For this decision is to have a real impact and unleash a drop in online travel agencies’ commissions, Expedia and all the other online players will have to agree to the same commitments, allowing real competition between OTAs to develop,” Badrinath said. “We will be particularly attentive to the strict honoring of its commitments by Booking.”

Devil in the Details

Several observers noted that the fine print will determine the merits of the commitments or lack thereof.

“While Booking.com won’t have a contractual right to prevent hotels from giving better rates to a competitor, it should still have strong commercial leverage to punish hotels that are giving better rates to other sites,” said one U.S.-based online travel veteran, who declined to be identified. “This should drive greater price disparity across channels, which will encourage consumers to comparison-shop more than ever.”

Henry Harteveldt, travel analyst for Atmosphere Research Group, said consumers will benefit from the agreements.

“Ultimately, the big winner here is the traveler,” Harteveldt said. “Booking.com’s settlement means more price competition across and between channels and that benefits the consumer. Metasearch sites are the other big winner, since we’ll eventually see more price competition between online travel agencies, which will no doubt encourage more travelers to do searches on meta sites as they plan their trips.”

While hotels will get more control over their own pricing, a benefit that went by the wayside when rate parity agreements went into effect more than a decade ago, they will also face a challenge that third-party channels could undersell rates on hotels’ own websites and call centers, Harteveldt said.

Booking.com stated in a Securities and Exchange Commission filing, that it hopes the agreements with competition authorities in France, Italy and Sweden “will pave the way for an industrywide solution to the ongoing investigations across Europe,” adding that it can’t predict the impact of the agreements.

Financial services firm UBS sees it as a positive for Booking.com that it will be able to maintain rate parity with hotels’ brand.com websites under the new agreements.

“On the downside, Booking.com might lose consumer perception of best price availability, which could result in an increased value for metasearch,” UBS states. “Also, we do see some risk that smaller OTAs and/or new entrants could attempt to gain share by enticing hoteliers with lower commissions in exchange for rates below those shown on Booking.com.”

The New Agreements

Booking.com describes the revised commitments with the three European countries thusly:

“Under the revised commitments, Booking.com will replace its existing price parity agreements with accommodation providers — sometimes also referred to as ‘most favored nation’ or “MFN” provisions — with ‘narrow’ price parity agreements. Under the ‘narrow’ price parity agreement, subject to certain exceptions, an accommodation provider will still be required to offer the same or better rates on Booking.com as it offers to a consumer directly, but it will no longer be required to offer the same or better rates on Booking.com as it offers to other on-line travel companies.

“The revised commitments will also allow an accommodation provider to, among other things, offer different terms and conditions (e.g., free WIFI) and availability to consumers that book with on-line travel companies that offer lower rates of commission or other benefits, offer lower rates to consumers that book through off-line channels and continue to discount through, among other things, accommodation loyalty programs, as long as those rates are not published or marketed online.”