The UK’s Office of Fair Trading may be on the verge of changing the game in hotel chain-online travel agency dynamics.
Picking on the world’s largest hotel company, InterContinental Hotels, and the two largest OTA hotel resellers, Booking.com and Expedia, the OFT provisionally ruled that the trio “have infringed competition law in relation to the online supply of room only hotel accommodation by online travel agents.”
The OFT, which began its investigation in September 2010 and whose rulings cover the UK only, decided that Booking.com and Expedia entered into separate contracts with IHG that restrict their abilities to discount hotel rates for standalone bookings.
The three companies have engaged in such activity since 2007 and their practices are “ongoing,” the OFT said, adding that revenue for all hotel rooms in the UK amounted to about $15.6 billion in 2010.
The OFT tentative finding, which the parties can object to and submit further information to counter, strikes at the heart of the way that hotels and OTAs conduct their business in many parts of the world.
Undercutting hotel websites
Under rate parity procedures, OTAs such as Expedia and Booking.com as a rule can’t offer discounts on their sites that are cheaper than what hotels offer guests on their own websites.
Exceptions happen all the time, and rate parity is a nightmare for hotels to police.
But, rate parity basically means that Expedia, Booking.com and other OTAs can’t compete against one another on price in hotel-only bookings. (Rate parity rules generally don’t come into play in the same way for vacation packages.)
It was the hotels that insisted on rate parity about a decade ago as they became extremely angry that Expedia.com and Hotels.com were becoming so powerful and undercutting rates on the hotels’ own websites.
An issue of power and control
Rate parity tilted control back toward the hotels, although the OTAs, because of their marketing clout, remain very powerful.
If the OFT eventually is able to force a change in the way large chains and OTAs do business in the UK, it undoubtedly would provide impetus to new investigations and possible changes around the world.
And, it could lead to a whole new competitive dynamic if Travelocity or Orbitz can begin to tell travelers that they each have the best rates for Hilton or Marriott, respectively, for example.
If OTAs today haven’t been able to obtain much loyalty from consumers, throwing out hotel rate parity would leave to a wave of discounting and travelers would be able to shop around for better deals willy-nilly.
The OFT’s ruling, however, raises many questions.
It calls into question whether hotels have the right to set their own pricing when intermediaries offer their rooms.
Laws on these issues undoubtedly vary country to country, but the OFT provisional ruling could inspire regulatory authorities to take another look at these hotel-pricing issues.