Bravo! The End of Rate Parity As We Know It

Freedom from online travel agencies - Reknown Travel Marketing

By Daniel E. Craig, Reknown

There’s a revolution happening in France that could send shockwaves across the international hotel industry.

If the French government succeeds in passing the “Macron” Bill in August this year, online travel agencies in France will no longer be able to enforce rate parity on hotels. The practice has been cited as anti-competitive behavior and not in the consumer’s best interest.

Nor has the practice been in the best interest of hotels. For years, hotels have been bullied by powerful OTAs like Expedia and Booking.com into giving heavily discounted rates and access to inventory at steep commissions ranging from 12% to 30%. If hotels want premium positioning in OTA search results, they must pay even more.

Travelers love OTAs because they allow them to compare pricing in a destination, as do metasearch channels. OTAs have also opened up markets for hotels they might otherwise not be able to reach. But they have become too powerful and too aggressive.

OTAs have grown exponentially in recent years, reaping huge profits on the backs of hotels. In turn, they use this money to aggressively advertise in order to lure travelers to them, often bidding against hotel brand names. Expedia and Priceline, which owns Booking.com, are two of Google’s top AdWords clients.

Fair game in a free market, and in many respects hoteliers have only themselves to blame. But this has not been a free market. OTA contracts have imposed restrictions that limit hotels’ ability to manage their own rates and inventory. 

Few hotels can afford to walk away from OTA business, though many would love to. Some fight hard against reliance on OTAs in favor of more lucrative direct bookings, whereas others have thrown up their hands in defeat and allowed themselves to be completely dependent.

Is the end of rate parity bad news for consumers, as this huckster for OTAs claims, among other ludicrous assertions? Absolutely not. Competition will still reign; it will just shift from hotels competing against OTAs to competing against each other. When more money lands in the pockets of hotels, they will invest more into enhancing the guest experience. That only bodes well for travelers.

Will chaos ensue after this bill is implemented? Probably. But it will be only temporary as the industry adjusts to a more equitable, free-market system.

France has been the most aggressive country so far to take the OTAs to task, but Germany, Sweden and Italy are not far behind. Bravo to the hotel associations and other individuals who have had the courage to finally take a stand against the abuse inflicted by OTAs for years. May this movement spread to North America, Asia and beyond.

Hotels, brands and hotel groups around the world should start preparing for this change. They must figure out how best to regain control of inventory and rates and how to communicate the benefits of booking direct to travelers.

At the same time, the end of rate parity could be a huge boon to metasearch players like Kayak, TripAdvisor and Google Hotel Finder. It may be time to start testing the waters on these channels if you’re not doing so already.

Above all, hotels must avoid repeating the mistakes of the past.

Update July 31, 2015. The French National Assembly has passed Law Macron, putting an end to rate parity clauses in OTA contracts in France. Now both France and Germany have banned rate parity clauses. Bravo to hotel associations in these countries and to HOTREC, the European umbrella association, for leading the charge. Who’s next? For details, visit the HOTREC site.  

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