Why the CMA’s verdict on OTA hotel pricing could be a game changer

Two years after the launch of an investigation into Expedia, Booking.com and Intercontinental Hotel group (IHG)’s non-competition agreements, the Office of Fair Trading (now CMA) decided to accept formal commitments by the three firms to open discounting from room-only accommodation.

Under the agreement, which put an end to the investigation​​, Expedia, Booking.com and IHG allowed deeper discounting, but only to closed user or loyalty groups of previous customers, and only after they had made one full price room booking.

Furthermore, the level of discounting cannot exceed the amount of commission paid to online travel agents.

Skyscanner appeal​

This past Tuesday (29 July), metasearch site Skyscanner appealed the decision, saying the commitments allowed ‘residual’ competition restrictions and introduced a new obstacle to the advertisement of available discounts.

“With regards to the hotel closed user groups, we were one of six travel companies that had written collectively to the OFT (now CMA) in mid-March to raise serious concerns that their decision relating to online hotel room bookings would have an anti-competitive effect and will in fact result in a worse deal for consumers.

“The requirement to make a full price booking before benefiting from discounts, and the low frequency of purchases of hotel rooms means that it would take considerable time to recoup the cost of making a single booking at full price on a number of travel agency sites in order to access each of these sites’ discount groups.

“To find the best price customers will also need to visit multiple websites with separate logins, making it difficult to identify and compare the best price. We therefore feel that this is a large backwards step in online travel and reduce transparency of pricing in the market.

“We want the CMA to reopen its investigation so that the industry can work together to find a transparent and competitive means of comparing the best prices offered by hotels and online travel agencies,” Skyscanner head of communications Europe Victoria Bailie told BigHospitality.

The final hearing took place on 28 and 29 July, and verdict from the Competition Appeals Tribunal is now awaited.

Hotel consequences​

Although Skyscanner’s action is largely focused on consumer benefits, a full investigation could bring positive effects to the hotel industry as a whole. At the moment, hotels are required to offer exactly the same rates to all the OTAs they work with, giving the latter room to compete against each other by cutting their own commission profits, but little incentive to compete on commission to gain hotels’ custom.

The hotel sector welcomed the announcement of the investigation back in 2012, and news that it would be cut short came as a disappointment, according to Umi Digital CEO Steve Lowy.

“When it came out, the decision was disappointing, and it didn’t really solve the problem. If this was in any other industry, the public uproar would be crazy. But for some reason, it has just not been taken seriously.

“The main issue of why the whole complaint started was that every hotel has to sign a contract that says they will give rate parity to every single OTA, so all the prices are the same. Some of the contracts don’t even allow hotels to sell the best price on their own website.

“[With the current agreement] the only competition is between the OTAs marketing themselves to get their commission, which doesn’t help the hotels, particularly the smaller ones,” he told BigHospitality, commending Skyscanner for leading the way.

More weight in the balance​

Making OTAs’ price parity contracts illegal would give hotels more weight in the relationship​​, by allowing them to give more favourable prices to the OTAs that give them the best service. As a result, OTAs could start competing on commission to differentiate themselves.

“OTAs are great for smaller hotels to get visibility, but I think the stronghold they have on the business is a little bit too much, and it should be more balance. This could make a little more level playing field,” Lowy added.