UK Office of Fair Trading closes investigation into hotel online booking practices
by Gabriele Accardo
On 31 January 2014, the UK Office of Fair Trading (“OFT”) accepted the commitments from online travel agents, Booking.com B.V. (“Booking.com”, and its ultimate parent company priceline.com Incorporated) and Expedia Inc (“Expedia”), together with InterContinental Hotels Group plc (“IHG”), which will enable online travel agents (OTAs) and hotels to offer discounts on rates for hotel rooms. Such a decision closes a 3-year long investigation that was prompted by an independent investigation into complaints by OTAs in the UK and elsewhere in Europe and the U.S. alleging that they were being prevented by various hotel chains from offering discounted sale prices for room-only hotel accommodation (see Newsletter 5-6/2013 and Newsletter No. 4-5/2012 for additional background).
According to the OFT, the commitments address such competition concerns by allowing greater competition on prices between OTAs, and also between OTAs and hotels. They should also enable new online agents to enter the market or expand by offering attractive discounts.
In particular, all OTAs and hotels that deal with Booking.com, Expedia and IHG, will be able to offer discounts off headline room-only rates so long as customers:
- Sign up to the membership scheme of an OTA or hotel to be able to view specific discounts (i.e. become members of so-called “closed groups” to whom discounts are offered), and
- Make one undiscounted booking with the OTA or hotel in question to be eligible for future discounts.
It is worth noting that a “closed group” is a group which consumers must actively opt into to become a member, for which members must have completed a customer profile, and where any online or mobile interface used by members is password protected. This looks like a pretty cumbersome process and one may wonder how many consumers are ready to take these steps, and eventually become members of different closed groups.
The discounts offered by OTAs will be funded through their commission or margins. While OTAs should also be free to publicize discounts to members of closed groups, hotel owners can prohibit OTA partners publishing their discounts outside their closed groups.
However, the commitments do not appear to cover what is understood as being the crux of the complaint submitted by the independent OTA: rate parity provisions in relation to offers published outside of the closed groups. In this respect FAQs documents (here and here), also issued by the OFT in this case, inform that “…under the commitments principles OTAs should at least give hotels the freedom to discount freely to members of closed group scheme/s set up by you, who have made a single prior booking at full price. There should be no limit to the amount of discount a hotel can offer. As a [OTA/hotel], you should take advice to ensure that any rate parity provisions in place between you and your [OTA(s)/hotels] do not apply to discounts to such closed group members. Under rate parity provisions, a hotel agrees to provide an OTA with access to a room reservation (for the OTA to offer to consumers) at a booking rate which is no higher than the lowest booking rate displayed by any other online distributor.” (emphasis added).
Rate parity clauses would therefore be prohibited in respect to discounts offered to the closed groups. In this respect, the OFT states “…if we become aware that rate parity obligations are being enforced against hotels in a way that makes it very difficult for hotels or their OTA partners to give discounts to members of closed groups who have made a prior full price booking, we will consider our options carefully.”
Actually though, the FAQs documents referred to above explain that hotel owners can prohibit OTA partners publishing their discounts outside their closed groups, whereas the commitments do not prevent an OTA requesting a hotel to provide them with a matching discounted rate for publication, if, a discounted rate that the hotel or another OTA partners is offering to closed group members is published to non-members. Arguably, it appears as if rate parity clauses can indeed be included in agreements between hotels and OTAs and would be enforceable in respect to discounts offered to non-members, i.e. the general public, unless such enforcement “makes it very difficult for hotels or their OTA partners to give discounts to members of closed groups who have made a prior full price booking”.