Hotel Rate Parity in 2015: what you need to know
Over the last decade, online travel agencies, such as Expedia, Travelocity and Booking.com, have gained enormous market power.
Up to 50% of bookings in the United States originate from customers who find hotels through OTAs or aggregator search engines, and in Europe that number can be as great as 70%.
Accompanying the rise of OTAs is the practice of rate-parity agreements, but, recently, rate-parity agreements have come under attack through both legal challenges and erosion, as hoteliers exploit loopholes to offer lower rates without breaching the agreement terms.
These agreements allow hoteliers to take advantage of the large advertising budgets of the OTAs, ensuring that the huge group of consumers who research bookings through OTAs will see their properties.
On the other hand, rate-parity agreements prevent hoteliers from offering lower prices on their own hotel websites, and it prevents them from freely negotiating other rates and terms with competing OTAs.
In the United States, rate-parity agreements came under heavy scrutiny last year.
Approximately 30 lawsuits were filed in multiple states against major hoteliers and many of the biggest OTA.
The plaintiffs alleged that an actual conspiracy had been formed between the defendant hotels and OTAs to set booking prices, however, they were unable to establish that there was an actual conspiracy between the defendants.
Given the plaintiffs’ failure to establish the existence of an actual conspiracy, the court dismissed their antitrust claims.
Although rate parity has thus far survived its legal challenges in the United States, European antitrust laws are stricter, and vertical price maintenance agreements are subjected to more scrutiny. As a result, there has been heavy regulatory pressure on OTAs in Europe to loosen their rate-parity restrictions, and OTAs are beginning to bend.
Booking.com announced in April of this year that it would transition to new parity agreements in Europe.
While these new agreements will still require rate parity with a hotel’s own website, they will no longer require parity with other OTAs.
Whether these changes will be enough to satisfy some of the regulatory agencies in Europe remains to be seen, and additional changes might still be required.
In France, for example, the National Assembly took an important decision by adopting in the final vote of the ‘Macron Act’: the deletion of any rate parity clauses from contracts between hoteliers and Online Travel Agents and qualifying the term of the contracts as "mandate contract”.
This is the first decision at legislative level in Europe to ban explicitly rate parity clauses from such contracts.
The French decision allows hotels in France to set lower prices both on their online and offline direct distribution channels.
Compared to the decision of several competition authorities of 21 April 2015, including the French one, which only allowed setting prices freely through offline (or, in other words, 20th century distribution channels, like telephone, fax, letters, etc.), this voted amendment follows the realities of current times.
Susanne Kraus-Winkler, President of HOTREC, commented:
"France is opening a potential new way forward through the legislative process ”
Pricing restrictions in Europe are already loosening, and that is likely to have a follow-through impact on the U.S. market. The United States could follow suit via legislative action. Even if it does not, the increasing availability of different booking rates in Europe will at the very least train international travellers to use meta-search engines to locate and compare different OTA rates. These travellers will soon want and expect to be able to employ the same type of online rate-shopping in the United States.
These changes may signal a relaxing of rate parity restrictions across the board, and decrease the OTAs’ strong market power overall. Hoteliers should be prepared to take advantage of the changes in this evolving landscape. In particular, in-house and outside legal counsel negotiating agreements with OTAs should be ready to flex their bargaining power, and negotiate for preferred marketing terms.