Did you ever wonder why a hotel room search returns identical or near-identical results from all the online travel agencies (OTAs) and metasearch engines? One major reason is that hotels and hotel chains typically have "rate parity" agreements with OTAs: Hotels agree to give the same price to everyone who asks for a given booking. In some ways, rate parity benefits you; in others, it doesn't.
Rate parity is under challenge and most observers believe it will soon either loosen up or disappear. That will have a big impact on how you shop for accommodations. The center of the challenge is Europe, but whatever happens in Europe will almost certainly cross the Atlantic, and vice versa.
Who likes rate parity? The two biggest stakeholder groups generally favor price parity agreements:
• The big OTAs like them. Expedia doesn't want to be undersold by Priceline or some niche online agency. Priceline feels the same way. That's why the big OTAs created the idea and enforce it.
• Most big hotel chains favor or accept price parity agreements because they're obsessed about maintaining control over pricing, chain-wide.
Airlines and tour operators generally like parity agreements because they provide a price "umbrella" they use to get price concessions from hotels for air/hotel and tour packages -- concessions that are hidden to the public and exempt from price parity agreements and are available to airlines and opaque hotel agencies.
Who doesn't like rate parity agreements?
Some individual hotels don't like the fact that, with a parity agreement in place, they can't sell a room at a lower price on their website than through the chain's website or an OTA. Individual hotels pay big commissions -- 15 percent to 20 percent -- to OTAs. They're willing to give that much away because they know that a huge portion of their total room bookings -- as much as half in the U.S. and 70 percent in Europe -- originates from customers who find them through OTA and aggregator searches.
But managers of individual hotels, even within a big chain, have a lot of independent pricing power. Many would like to shave something off that 15-20 percent to give consumers who book directly a better rate. Some small niche OTAs would also like to undercut the giant OTAs to gain market share.
What do governments think? In the United States, a recent court decision in a class-action antitrust suit upheld the legality of parity agreements. The court held that they represented "rational business interests rather than anti-competitive behavior." Several European governments, on the other hand, are actively trying to loosen them, with some success. Booking.com has agreed to make its standard agreements less restrictive, and the pressure is mounting from several governments.
How would a weakening of price parity affect you? The primary question is whether individual hotels could avoid parity agreements and offer rates on their websites lower than those they give the big OTAs. If so, aggregators could search a hotel's website in the search process, as Kayak now does with airfares. Aggregators would then displace OTAs such as Expedia and Booking.com as your initial go-to source for hotel searches. TripAdvisor, which currently does not search individual hotel websites, could easily do so and, with its unparalleled base of customer reviews, could become a huge threat to the dominance of OTAs. Even with all the online searches, many travelers would be more likely to check with a hotel's website for better deals.
Major changes won't come overnight, but they will come, so be prepared.
Email:
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Travel on 05/10/2015