Europe regulators put pressure on rate parity
12 JANUARY 2015 9:17 AM
Rate parity agreements might be coming to a head in Europe, but few truly believe the situation will change soon.
GLOBAL REPORT—Antitrust legislators throughout the European Union are pushing major online travel agencies to amend their rate parity agreements to allow for more competition among suppliers and distributors.
The first resolution came to head on 9 January when the Higher Regional Court of Düsseldorf held up a court-imposed December 2013 decision against German OTA Hotel Reservation Service that it would no longer be permitted to use parity clauses.
At the time legislators first took action against HRS, it was Germany’s largest OTA. The decision represents another step closer to the demise of rate parity clauses, under which hoteliers must chart the same rate on brand.com as they do on third-party distributors. In January 2014, the United Kingdom’s now defunct Office of Fair Trading ruled hoteliers could circumvent existing parity clauses by charging discounted rates to “closed” or “fenced” groups, such as loyalty members or users of certain mobile apps like HotelTonight.
As with HRS, Booking.com is under intense scrutiny as well, with pressure coming from regulators in France, Italy and Sweden. The OTA responded 15 December with a pledge to modify its rate parity agreements with hotels in Europe, allowing them to charge discounted rates on other third-party suppliers. The notice was announced through a filing with the U.S. Securities and Exchange Commission. Priceline Group is listed on the U.S.-based NASDAQ.
In a 9 January press release following the Düsseldorf court’s decision, Andreas Mundt, president of the Bundeskartellamt (the court that made the December 2013 ruling), said the court would “now quickly pursue our current proceedings against the ‘best price’ clauses of Booking and Expedia, HRS’s competitors.”
Phone calls to Booking.com were not returned before press time.
The booking bluff
Sources said little would change as a result of the Booking.com amendment.
“New rules could see a downward spiral on rate, but no hotel would want to discount every price,” said Frank C. Braun, director of revenue management at the 278-key Hotel Palace Berlin, an independent that is under soft brand Leading Hotels of the World.
He did not believe any legislation that would force OTAs to change the way they operate would put more pressure on hoteliers, despite his fear that new rules would possibly lead to all sides needing to adopt increasingly aggressive business tactics.
“Revenue managers are in a situation where they need to better understand their segments and markets. It’s often as simple as that. We rely on OTAs, even though we would wish to stick to a system of rate parity price-wise,” he said.
Braun said there is a general view the larger OTAs do an excellent job and that a bigger argument is more one of having sensible commissions rather than stricter regulations on rate parity.
Smaller OTAs and revenue-management consultants also feel little change will result from antitrust legislation.
“The cynical side of me might believe they are playing the authorities off one another,” said Dorian Harris, the CEO of U.K. OTA Skoosh, which brought the original case to the attention of antitrust authorities in 2010.
Remko West, COO and co-founder of revenue and asset management consultancy Xotels, said under the new rules the pricing game will be more competitive. He doubted, however, hoteliers will utilize the opportunities to offer lower rates on OTAs other than Booking.com.
“Ultimately, this is a question about marketing, not legality. OTAs a long time ago instigated tactics to get better rates,” West said.
“And the OTAs will continue manually influencing ranking on their pages, which the hotels obviously will not be in favor of,” West added.
Harris compared the treatment larger OTAs were receiving to how banks were treated during the recession, as though they were too big to fail.
“It’s in Priceline and Expedia’s interest to drag this out and not cut into their margins. If they can do so for another two years and in that time reorganize, then they would have done a good job,” Harris added, who added he also does not believe the hotel chains wanted to put downward pressure on rates.