Research by Which? has suggested that 80% of hotel rooms can be booked more cheaply by going direct than through the OTAs.
The company blamed rate parity clauses, with UKHospitality calling for the UK to follow countries in mainland Europe by banning them.
Which? Travel said: “OTAs want the best deals for themselves, so they ban many hotels from advertising lower rates on their own websites. This small print is written into their contracts – a practice which is illegal in Austria, France and Italy, where it’s considered anti-competitive. In the UK, the Competition and Markets Authority stopped short of doing the same, despite a recent crackdown on unfair practices in the hotel-booking industry.”
UKHospitality CEO Kate Nicholls said: “This data reiterates what we have been saying for a long time. Parity clauses do not favour consumers and they take commercial power away from the hotels. They have been banned in other European countries and they should be banned in the UK.”
A spokesperson for Expedia told Which?: “We provide a global marketplace for chains and independent hotels alike to compete with their peer hotels, by making them visible and bookable worldwide.” Booking.com agreed, saying: ‘Our platform is a really cost-effective marketing channel. Hotels only pay if we do our job well and get them a booking.”
Following the bans in mainland Europe, in 2017 the European Competition Network co-ordinated efforts across 10 member states, sending questionnaires to 16,000 hotels, 20 OTAs, 11 metasearch websites and 19 large hotel chains, with the conclusion that allowing OTAs to use narrow parity clauses, and then prohibiting OTAs from using them altogether, had “generally improved conditions for competition and led to more choice for consumers”.
The study found, however, that 47% of the hotels that responded to the electronic survey did not know that Booking.com and Expedia had changed or removed their parity clauses. This figure was lower in France and Germany, at 30%. Of those hotels that knew about the changes, the majority said they had not acted upon them in any way.
The reasons most frequently given for not price differentiating were that the hotel saw no reason to treat its OTA partners differently; the hotel’s OTA contract did not allow it to price differentiate; fear of penalisation by OTAs to which the hotel did not give the lowest price; the difficulty of managing different prices on different OTAs; and not wanting the hotel’s website to appear as more expensive than those of the OTAs.
For those that did price differentiate between OTAs, the most frequent reason given was to increase the hotel’s visibility on a particular OTA. In France and Germany, a higher share of respondents said that they had price differentiated between OTAs. However, this difference was not confirmed by pricing data scraped by the monitoring working group from OTA websites, which showed no significant variation between any of the participating member states.
Charlie Osmond, chief tease at Triptease, a platform designed to help hotels drive direct bookings, said: “Hoteliers are growing much more aware of the extent of their parity problems and the link between those problems and their direct revenue. Leaky onward distribution, particularly of rates intended for wholesale, is a huge issue that will only be fixed by a fairly radical change of approach from the hotel industry. Moving to dynamic rates and taking a more active role in managing partners are two of the more important steps that hotels can take.
“Where we see a really positive relationship between hotels and OTAs is where the hotel takes a very proactive approach to working out the particular type of guest they want to attract through an OTA, and then ensures they have a robust strategy in place for acquiring the rest of their guests either through their direct channel or through other means. Hotels performing this kind of channel-by-channel analysis, who are constantly adjusting their inventory and availability in order to acquire their ideal revenue mix, are the ones we see working best with OTAs.
“Implicit in this though is the amount of time and effort that goes into maintaining a good relationship that doesn’t cannibalise the hotel’s direct revenue. What’s becoming clear is that OTAs are no longer a straightforward distribution channel for hotels. The major OTAs have global brands to maintain, and that means that they aren’t always going to act in a hotel’s best interests – from the hotel’s point of view – for instance, if we take the issue of unpackaged wholesale rates, where rates intended for inclusion in tours or packages are sold directly to consumers via OTAs, we can see that major OTAs are tending to exacerbate the problem for the hotels involved by pulling those cheap rates through to their own sites rather than work with hotels to solve the root issue.”
Insight: Ah, rate parity, it’s like the greatest hits of the OTAs all over again. It’s worth pointing out at this juncture that rate party was something that the hotel sector thought of all on its own, without any pressure from the OTAs, but never mind, that’s all water under the 25% commission now.
Is there something to be had in terms of banning rate parity clauses in the UK? It can’t hurt to have that clarity, but the sector has come so far since the great rate parity argument, as have the OTAs, who are under pressure themselves. At Expedia’s last earnings call chairman Barry Diller told analysts: “We're simplifying our strategy. We're stopping doing dumb things and starting to do what we think are good things.” And what’s spooking them? Google.
He told those on the call that he had been in touch with Google “and implored them to stop taking away the profits from businesses that are probably one of their main contributors to their advertising revenue”. The hotel sector looked on this with, one feels, something of a rueful smile and a ‘see how you like it’. But Google is likely to be a much greater issue for both hotels and OTAs than rate parity, with the search engine very much the dominant force. Diller hoped that government would step in and make the bad thing go away, but the chances of that are wildly limited. As we saw with the original rate parity investigation in the UK, government departments are so far behind the loop on technology they make your parents look like Steve Jobs.
Hotels have been working away on their direct strategies to counter the impact of the OTAs and cranking up their loyalty programmes, with owners keeping a gimlet eye on the cost. Results have indicated that booking direct is creeping up, but slowly. Google has yet to press the button on playing a direct role in booking, which provides time to work on a strategy to avoid the OTA debacle 2.0. Best hop to it.