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Rate Parity to be outlawed in France

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Rucksack Brian started this discussion 9 years 6 months ago

The French National Assembly accepted a new bill on 16 June to outlaw all Rate Parity clauses in contracts between OTAs and accommodation providers.

The practical details of the “Macron Bill” still have to be arranged, but the final vote will take place on 14 July 2015.

This move is particularly welcomed by the hospitality industry, especially after the recent decision by French, Swedish, and Italian competition authorities regarding Booking .com’s proposed rate parity concessions. That recent decision allowed Booking to continue their practice of forcing hotels to give them the same prices that we sell on our own websites and only abolished rate parity requirements with regards to other OTAs.

That decision only served to strengthen Booking’s position against competitors and accommodation providers alike. It was a particularly damaging blow to the industry because the European Commission will still apply those conditions all across Europe as of 01 July.

Conversely, the Macron Bill will force all OTAs to remove ALL rate parity clauses from their contracts and give accommodation providers in France the freedom to set their prices as they see fit. This overthrows the previous decision by the competition authorities. After being signed into law it would take effect as early as August this year.

Fines of up to 150,000 Euros can be applied if the clauses are not removed from the contracts.

As if that weren’t good enough, the Macron Bill also says that the selling price will be determined by the hotel. OTAs will not be allowed to undercut the accommodation providers by offering lower rates than those set by the hotel. This serves as protection for hotels in order to ensure that they maintain control of their own pricing.

With any luck other countries will decide to follow suit and outlaw this abusive practice as well. Rate Parity clauses have already been outlawed in Germany.

The OTAs stand to lose too much control in this arrangement to just accept it, so there is sure to be backlash for the French hotel industry. Booking remains committed to their Best Price Guarantee despite the new bill, which suggests that they already have a plan in place to shift the power once more and maintain their dominance.

Booking’s Regional Director Carlo Olejniczak responded with a warning that the elimination of rate parity would lead to a deregulation of prices, which risks staring an intense price war that would affect the margins of hotels and in the end the quality of the offer.

Quoted in hospitalityInside.com (by subscription only), Booking .com’s Managing Director EMEA said that in a world without rate parity many independent hotels in France will not be able to compete with the major hotel brands and search engines, and this will have a negative effect for tourism to France as a whole. (Source)

This could simply be an attempt at fear mongering to throw hotels into a panic over the prospect of a price war. Or it could suggest that the costs associated with listing on Booking (and possibly other OTAs as well) are likely to go up to a point where independent hotels cannot compete with the budgets of big chains for placement on the site. This would not be a price war, but rather a commission war where all hotels lose and OTAs continue to win.

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Rucksack Brian

9 years

The Bottom Line

Permitting OTAs to continue to impose rate parity restrictions is detrimental for competition and unnecessarily expensive for travel consumers.

OTAs charge commissions, and those costs ultimately have to be paid by consumers in one of two ways:

The customer pays a higher price directly to the OTA, or
The customer pays more to the hotel, which then gives the money to the OTA.

In either case, the customer has to pay a higher price due to the increased cost of business.

But that’s only the cost of business when booking through that OTA. When booking directly on an accommodation provider’s website there are no commissions to pay.

Rate parity requirements forbid accommodation providers to offer lower prices on their own websites despite the lower cost of business. This is simply to prevent hotels from being able to compete with the OTAs for their own customers.

Consumers are therefore forced to pay an artificially inflated price for their travel, even if they do not choose to book through an OTA.

Requiring price parity between an OTA and the accommodation provider’s own website eliminates the possibility of competition in a free market, artificially inflates prices for the consumers, and ultimately increases the cost of travel.

Following the lead of France and Germany, rate parity clauses in OTA contracts should be universally abolished for the benefit of travel consumers.

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Rucksack Brian

9 years

The OTAs have been quick to disseminate propaganda against the Macron Bill, hoping to convince legislators that restrictive price parity policies are actually good for travel.

OTAs see chaos when rate parity ends

Consumers will be the biggest losers if hotels are granted unprecedented control to dictate prices across all online channels when the French government commences implementing its proposed "Macron" Bill in August this year, says OTA association ETTSA.
…
"There will be no price competition if hotels determine all prices. Hotels will unfairly favour their own channels for the lowest pricing and availability, which will substantially reduce competition and consumer choice. It will lead to higher prices as there are no incentives for hotels to discount if they can eliminate all competition across distribution channels," said Christoph Klenner, Secretary General of the European Technology and Travel Services Association (ETTSA), adding: "Control over pricing and the ability to restrict supply will undoubtedly lead to anti-competitive behaviour."
…
"This is an unsustainable situation where the consumer will lose out in the end," concluded Mr Klenner.

For anyone unaware that there was a lobby group for OTAs:

The European Technology and Travel Services Association (ETTSA) was established in 2009 to represent and promote the interests of global distribution systems ("GDSs") and online travel agencies ("OTAs") to policy-makers, opinion formers, consumer groups and all other relevant European stakeholders. Its OTA Members include Expedia, lastminute.com, eBookers/Orbitz, Opodo, Go Voyages, eDreams, and Travellink, which represent the vast majority of OTA travel sales in the European Union.

This type of propaganda sends a message that rate parity preserves competition and keeps prices low for consumers. The fact of the matter is something very different entirely.

The competitors of OTAs are not accommodation providers, but rather other OTAs. That is precisely where they should focus their competitive efforts. Following the abolition of rate parity OTAs will be free to compete with each other based on the quality and variety of the services they offer and on the ways in which they benefit consumers. This change will foster innovation.

OTAs can also compete with each other based on value by offering the best trade-off of services vs. price. Price competition between OTAs will then become based on the commission levels that they offer to hotels. The value of their services to consumers will justify any difference in price between the OTAs and the website of the accommodation provider.

Outlawing price parity restrictions will promote healthy competition and result in a direct advantage to the travel consumer who will benefit from pricing options as well as a multitude of useful services. The end of rate parity will be the beginning of a boom in travel innovation, and the consumers will be the clear winners.

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