Over the long term, the new limited rate-parity rules in Europe could help hotels generate more bookings from their own direct channels, including over the phone. However, don't write off the online travel agencies just yet. They still hold a lot of the cards.
Are the scales about to tip toward hotels in their frenemy relationships with online travel agencies in Europe?
Under pressure from the hotel industry and competition authorities in several European countries, Booking.com and Expedia have settled with regulators in Sweden, Italy, and France and have agreed to change their contract provisions with hotels pertaining to rates, availability and room types across Europe starting July 1 and August 1, respectively.
These new so-called limited rate-parity agreements, which run five years, mean in theory that hoteliers will be able to give Expedia a 286 euro ($259) rate for a room with a double bed in Paris and then turn around and give Booking.com or another booking site a 275 euro rate ($249) for the same room. They can also vary availability and room types offered among different online travel agencies.
Another way that hotels will be able to put a distance between themselves and the rate parity provisions that have been in vogue for years is that they will be able to offer the general public lower rates over the phone than they give to their online travel agency partners. Imagine hotels’ TV advertising offering travelers the best rates if they phone the hotel.
The whole idea behind the new rules in Europe is to give consumers more choice and spur competition, including pressuring online travel agencies to reduce the commissions they demand and offer better terms and conditions, including marketing provisions, in order to woo hotel partners.
One possible impact is that the balance of power between online travel agencies and hotels may shift somewhat toward hotels as their own booking channels pick up market share.
How will the new agreements work and what will be the impact?
FAQ on Rate-Parity Reforms
What are the rules for the new online travel agency-hotel relationships?
Booking.com and Expedia will no longer be able to have clauses in their contracts that prohibit hotels from offering lowering room rates to other online travel agencies. These contracts also can’t prevent hotels from offering lower rates offline to corporate, group and loyalty program members, and to the general public, perhaps through TV advertising, over the phone.
What will happen to hotels’ own websites?
Booking.com and Expedia can still insist in contracts that hotels do not offer room prices on their own websites that are lower than the rates that the online travel agency is getting from the hotel.
How would this actually work?
In theory, a hotel would now be able to give Expedia a 200 euro rate and provide Booking.com with a 190 euro rate but would have to maintain the 200 euro rate on the hotel’s website so as not to violate limited-rate parity with Expedia. The Booking.com rate would then be lower than the rate on the hotel’s own website — an impractical scenario.
Laurent Duc, the president of the French hospitality association UMIH, says hotels could get around this quandary by ending the offer with one online travel agency before entering into lower-rate deal with another. But this seems unwieldy, too.
What is more likely is that a hotel could give a 200 euro rate to an online travel agency partner, maintain the 200 euro rate on the hotel’s own website, and offer a lower rate to corporate, group or loyalty program members and to the general public over the phone.
Aren’t hotels already doing this?
Some have been giving lower rates to such closed groups at the expense of rate parity and sometimes the wrath of online travel agency enforcers but now it will be perfectly legal to do so in Europe. The general public could also find plenty of attractive deals by merely phoning the hotel.
How will the agreements affect hotels’ abilities to offer unpublished rates?
Expedia and Booking.com are prohibited from entering into agreements with hotels that limit their abilities to offer unpublished rates as long as the hotels don’t market these rates online.
Can Booking,com or Expedia retaliate against a hotel that gives a better rate, availability or room type to the online travel agency’s competitor?
Booking.com and Expedia have agreed not to tweak their algorithms for a hotel based solely on the hotel giving better rates or terms to competitors. It appears, though, that there is substantial wiggle room.
How will this limited rate-parity be enforced?
Booking.com and Expedia could be subject to hefty fines — to be determined by the courts — if they violate these agreements with competition authorities.
What will happen to online travel agencies’ best price guarantees?
Best price guarantees may undergo a metamorphosis. Online travel agencies will have to decide if they still want to guarantee best rates if competitors are regularly offering lower rates. Some are committed to retaining best price guarantees.
If Booking.com and Expedia came to terms with just three European countries — Sweden, Italy, and France — why will these agreements impact countries across Europe?
The two online travel agencies are trying to simplify all of the inquiries they are subject to across Europe and have pledged to roll out these changes throughout Europe in a quest to find a pan-Europe solution. Some European countries may not go along with the whole thing. While it isn’t law yet, the French parliament approved a measure that would eliminate rate-parity agreements, a move that is expected to supplement Booking.com and Expedia agreements with France’s competition authority.
Does limited-rate parity impact U.S. travelers booking hotels in Europe?
Yes, there will be more pricing disparity site to site and travelers may be able to find lower rates offline or by phoning the hotel.
How do these new agreements impact rate-parity clauses between online travel agencies and hotels outside Europe?
Expedia and Booking.com are honoring these commitments in Europe only — for now.
Are these new commitments good or bad for hotels?
The jury is out. Much of the hotel industry argues that the agreements will give them new flexibility and might elicit some more-hotel friendly financial terms in a more competitive environment. The counter-argument is that the online travel agencies will still control a hotel’s sort order on a page and a hotel that doesn’t play nice with the online travel agency will see their listing relegated to the boondocks.
The agreements could lead to hotels getting an advantage in shifting more bookings to their own channels. But hotels will continue to partner with online travel agencies as they are powerful marketing machines that often provide a lift for hotels, putting heads in beds.
The Hotel Industry Reacts
From Accor hotels to the Steigenberger Hotel Group and the French hospitality association, UMIH, the hotel industry in Europe generally welcomes these limited rate-parity agreements.
It was the hotel industry — ironically — that demanded rate parity agreements more than a decade ago from online travel agencies, including Expedia.com and Hotels.com, which were getting net rates from hotels and selling rooms to travelers at lower rates than the hotels were offering on their own websites.
The hotels still don’t want online travel agencies to undercut them and now are getting new flexibility to offer discounts and availabilities to the hotels’ own advantage.
“This measure clarifies each party’s role (the hotel is indeed the party that sets the price and the sales conditions) and above all is a move towards greater transparency for guests,” says Accor’s Vivek Badrinath, deputy CEO, marketing and digital solutions. “As a key hotel player in Europe, this gives us responsibility for the price of our rooms.”
Complicating matters in terms of how everything would play out, the French parliament is close to abolishing rate parity agreements altogether, and violators would be subject to 150,000 euro ($167,000) fines.
Laurent Duc, the French hospitality association president, says the new agreements have the potential to change the relationships between hotels and online travel agencies and turn them into real partnerships instead of take-it-or-leave-it contracts, especially for independent hotels.
A hotel can offer an online travel agency the best rates, room types or availabilities in exchange for lower commissions and better terms and conditions such as to make the hotel “more readable on the first page,” Duc says.
“It will be a real partnership at work,” Duc says. “It wasn’t until now.”
Some big chains and hotel groups are reluctant to offer an on-the-record comment about the new agreements, seemingly fearing the repercussions from online travel agency partners or not wanting to reveal their strategies.
Others are taking a wait-and-see attitude publicly.
“At the moment we are observing the current development with the greatest attention and interest,” says Mona Wattendorf, a spokesperson for Steigenberger Hotel Group. “We are always happy about a strong and fair competition on the hotel market and every development towards this direction. Online marketing and online sales are very exciting fields for the whole travel industry and we are also working with them. As soon as we have completed our next goals we will let you know.”
Not everyone thinks the new rules will benefit hotels.
“OTAs still control the sort order for default search results and the ability to direct sales to their most obliging partners,” says hotel consultant Robert Cole of RockCheetah.com. Hotels that are good partners (those that offer he most attractive rates and inventory at the highest compensation levels) will be moved to the top of the sort order (assuming they are in demand by travelers) even if not contractually compelled to do so. Hotels that insist on cutting off inventory availability to OTAs or offer lower public rates on their own websites will get jettisoned to the lower echelons of the sort order — booking no new or incremental guests.”
Although Expedia and Booking.com seek to introduce these measures across Europe, there is no certainty that each country will go along with the framework. These changes — and the fallout — will certainly take years to play out.
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Photo Credit: Under new limited rate-parity rules going into effect in Europe, hotels such as Accor would be able to offer lower rates to the general public on TV and over the phone than they give to online travel agencies. Pictured is screenshot from Accor TV's 'Latest Openings.' Accor
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