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Rate parity: What’s the next step to find balance?

In milestone decisions last winter and summer, legislators in Germany and France banned rate parity clauses from online travel agencies’ contracts with hotel owners, citing anti-trust concerns. Other countries in the European Union are moving in the same direction. For now, nothing changes for hotels in North America, where the OTAs and other distributors are intent on imposing rate parity across all channels. And ongoing skirmishes between hoteliers and “partner” OTAs continue.

For their part, owners and operators want to manage OTAs with as much flexibility as possible. “They want to be able to give one distributor a certain rate for excess inventory on a slow night of the week and another distributor a different rate for less inventory seven nights a week,” said attorney Greg Duff, a partner in Garvey Schubert Barer, where he chairs the firm’s national hospitality practice.

While all hotels seek to improve their distribution strategy, small hotel companies and independent hotels have a distinct disadvantage. “An Expedia is able to display and market a hotel’s rooms in different languages and different parts of the world. It can attract guests that the owner and operator could never attract on their own,” Duff said. They have no choice but to accept the OTAs increasingly restrictive contract terms.

“On the other hand, the major hotel companies have significant global reach of their own and various distribution channels they’ve developed themselves,” Duff continued. Hilton Worldwide, for example, used its size as leverage in negotiating a favorable deal with Expedia across all its brands last year. Similarly, Marriott International has said that one of the reasons it pursued a merger with Starwood Hotels & Resorts Worldwide this year was to give it even greater leverage in OTA negotiations than it already had.

That independent hotels find themselves at a disadvantage vis-a-vis the OTAs today is ironic, considering the situation when booking hotel rooms on the Web first became popular. Back then, the Internet was seen as creating a level playing field for independents; they’d have the same visibility as branded hotels. With independent hotels today paying some of the highest OTA commission rates, “those days are over,” Duff said.

While rate parity across all channels is still permissible in North America, many OTAs that operate globally have begun incorporating the same contractual concessions forced on them in Germany and France into their agreements worldwide, North America included.

Meanwhile, industry leaders like David Kong, president and CEO of Best Western Hotels & Resorts, would like to see rate parity clauses banished across the board. “They take away hotels’ autonomy to be relevant in their pricing and their marketing,” he said in a note to Best Western members early this year.

 


Contributed by Bruce Serlen

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