LONDON—The U.K.’s Office of Fair Trading on Tuesday issued preliminary results of its investigation into price fixing by hotels and online-travel agents, saying in a statement of objections that Booking.com, Expedia and InterContinental Hotels Group have infringed competition law.
The statement of objections alleges that Booking.com and Expedia each entered into separate arrangements with IHG that restricted the OTAs’ ability to discount the price of room-only hotel accommodation. The OFT said the infringements “are, by their nature, anti-competitive in that they could limit price competition between online travel agents and increase barriers to entry and expansion for online travel agents that may seek to gain market share by offering discounts to consumers.”
Dorian Harris, founder of startup OTA Skoosh.com, raised the issue to the OFT after he claimed Skoosh was being prevented by various hotel chains from offering discounted room rates. A formal investigation by the OFT was launched in September 2010.
Harris told HotelNewsNow.com on Tuesday that he considers the preliminary results a win.
“It’s very rare that the Office of Fair Trading backtracks after they issue a statement of objections … it normally continues on with an official ruling,” he said. “The ‘best rate guarantees’ are a very strong proposition, and I suspect (hotel brands and OTAs) will have to stop doing that. Hotel companies like Skoosh will be free to discount again, opening up the market.”
Booking.com, Expedia and IHG will have opportunities to respond to the provisional findings before the OFT decides whether competition law has in fact been infringed.
In a statement to HotelNewsNow.com, an Expedia spokeswoman said, “Since September 2010, the OFT has been investigating certain general commercial practices between hotels and online travel agents in relation to stand-alone room reservations made on U.K. websites by U.K. travelers, and the (statement of objections) is a further procedural step in this case. The (statement of objections) does not establish that any laws have in fact been broken. Expedia will now review the (statement of objections) and provide its response to the OFT in due course.
“Expedia remains committed to ensuring that it provides consumers with the widest possible choice of travel options at competitive prices and will seek to safeguard its ability to continue to do so in relation to the current regulatory process."
IHG issued a similar statement on its website, saying the franchisor “considers its arrangements with the online booking agents to be compliant with competition laws and consistent with the long-standing approach of the global hotel industry. IHG is cooperating fully with the OFT's investigation, which commenced in 2010.”
Clive Maxwell, CEO of the OFT, said the OFT’s “provisional view” is that Booking.com, Expedia and IHG have infringed competition law, but no official ruling has been made and no fines have been levied.
“We want people to benefit fully from being able to shop around online and get a better deal from discounters that are prepared to share their commission with customers,” he said.
Harris has argued all along that smaller start-up OTAs are put at a disadvantage by not being allowed to discount rooms.
“Skoosh doesn’t have the same operating costs (as big players such as Expedia and Booking.com), we don’t have shareholders, so we can share our margins with the customer,” he said. “Why would someone want to enter an industry when their prices are dictated by the bigger players?”
Although the statement only names three players and the OFT oversees consumer interests in the U.K. only, Harris said implications will be widespread.
“I know a lot of Americans take a different opinion on this, but the point about rate parity—it either has to be abided by worldwide or not at all,” he said. “I think this will have bigger implications on both sides of the Atlantic.”
In its statement, the OFT said it only investigated a small number of major companies “with a view to achieving a swift and effective outcome,” but warned that rate-parity practices are widespread in the industry.
Messages requesting comment from IHG were not returned by press time Tuesday.
Harris said, rather than fight the ruling, Expedia has applied for leniency, meaning the company would receive a smaller fine.
Late last month, before the OFT issued its statement, a number of U.S. hoteliers interviewed by HotelNewsNow.com dismissed the idea that rate parity practices equate to price fixing.
“My sense of price fixing is when my competitor and I collude on price,” said Stephen Field, president of Synergy Hospitality. “I don’t have to offer inventory with (third-party intermediaries), I choose to do so.”
“In my opinion I don’t think there truly is any validity (to arguments that rate parity is price fixing),” said Paul Wood, VP of revenue management for Greenwood Hospitality Group. “Price fixing is collusion, and I don’t see that happening. It’s just additional channels, and you can’t treat every channel the same.”
“Price fixing is when Expedia, Orbitz and Priceline sit together in a conference room and decide our rate. That’s collusion,” said Max Starkov, president and CEO at Hospitality eBusiness Strategies. “In this case the rate comes from the property itself. It’s you enforcing a singular market rate then providing discounts to whoever sells your product.
“There’s no collusion; whoever came up with this doesn’t understand,” he said.