UK OFT weighs revised commitments in the online hotel accommodation bookings

by Gabriele Accardo

On 20 December 2013, the United Kingdom’s Office of Fair Trading (“OFT”) opened a consultation on the revised commitments proposed by Booking.com B.V. (“Booking.com”), Expedia Inc (“Expedia”) and InterContinental Hotels Group plc (“IHG”) to address concerns that Booking.com and Expedia have each entered into separate agreements with IHG which restricted Online Travel Agents’ (“OTAs”) ability to discount the rate at which room-only hotel accommodation bookings are offered to consumers, allegedly in breach of the UK Competition Act 1998 and of Article 101 of the Treaty on the Functioning of the European Union (see Newsletter No. 6/2012 for additional background).

Following a previous consultation of last 9 August 2013 concerning the original commitments proposed by the undertakings under investigation, the OFT received a number of queries about the extent to which the original commitments have an impact on hotels’ ability to offer discounts.

It may be recalled that the OFT’s investigation did not include a specific issue pointed out by an independent OTA, which is the impact of so-called Most Favoured Nation provisions (“MFN”) on competition. Pursuant to a MFN provision a hotel agrees to provide an OTA with hotel accommodation for offer to end-users at a booking rate which is no less favorable than the lowest booking rate displayed by other online distribution outlets. In practice, MFN guarantees the OTA the lowest booking rate at least in relation to its distribution channel, i.e., the OTA cannot be undercut.

Under the original commitments an OTA would have been able to offer discounts, in respect of rooms at hotels located in the EU, but only to members of so-called “closed user groups”, i.e. members who are UK residents and who have made at least one prior booking with that OTA. The discount would be funded with the OTA commission revenue/margin (the “commission cap”). OTAs would be free to publicise information regarding the availability of discounts, through, among others, price comparison websites and meta-search sites, but they cannot publicise to non-members information regarding the specific level of discounts for any IHG hotel room (for example, the amount/percentage discount offered which would allow a discounted rate to be calculated). Similarly, other (non-IHG) hotels may prevent OTAs from publicizing to non-members information regarding the specific level of discounts for a particular hotel room.

The revised commitments clarify that hotels will be allowed to offer discounts in an equivalent manner to OTAs, i.e. they may provide discounts to the closed user groups without publicising information regarding the specific level of discounts for a particular hotel room. To this end, OTAs shall not enter into or enforce any MFN or equivalent provisions in respect of reductions off headline room rates offered by hotels to their closed group members. Yet, unlike OTAs, which under the proposed commitments may only use their commission revenue/margin to fund discounts, discounts offered by hotels to closed group members would not be subject to such a commission cap.

The public comment period expires on 17 January 2014.