Industry Update
Opinion Article30 October 2013

By taking on Expedia and Bookings.com, are smaller hotels biting the hand that feeds them?

By Peter O’Connor, Chaired Professor of Digital Disruption at ESSEC Business School

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This isn’t the first time that online travel agencies (OTAs) like Expedia and Bookings.com have been in hot water. Only last year a lawsuit was launched in the US accusing Expedia, Starwood Hotels and InterContinental Hotel Group of price fixing. This time, it’s the French-based Union de Métiers et des Industries de l’Hôtellerie (UMIH) who have flagged the situation to the European competition watchdog Autorités de la Concurrence.

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What’s clear is that most hotels offer the same rates on their own sites as are offered

on the major OTAs, which would suggest that they are working together to fix prices. Independent hoteliers are saying that this price parity is imposed by the OTAs. However, they also benefit from it as it means that the prices shown on their own direct website cannot be undercut. So while the OTAs are being cast as evil for insisting on price parity, in fact both parties benefit equally. Some might even claim that the hotels benefit more as they lack the marketing power to compete effectively with the OTAs, and that having price parity at least gives them some level of protection. That being said, if price fixing is indeed going on, this is clearly illegal in European Union law.

The big problem: A Rising Commission Nightmare

Price fixing by the major hotel chains and OTAs means that commissions have been

steadily rising, driving up room rates. By consequence, there is a growing disconnect between the price the guest actually pays and what the hotel receives.

The Transport Research Institute’s (TRI) figures showed that in London in the past 10

years, room rates have grown 54% while commissions have grown more than twice as fast, increasing by 123%. This means that the bulk of profits incurred through room rate increases are being swallowed up by the OTAs. And according to TRI, the proportion of each room’s revenue being paid out in commission continues to grow year after year. This is clearly a concern for hoteliers and explains why the OTAs are now being fingered by the European competition authorities.

The Bigger Problem: The Limited Marketing Capabilities of Many Hotels...

Click here to read the full story on

france24.com.

Peter O’Connor

Peter O'Connor, Ph.D. is Professor of Information Systems at Essec Business School, where he also serves as Director of the MBA in Hospitality Management (IMHI). His research, teaching and consulting interests focus on technology, distribution, e-commerce and e-marketing particularly applied to the hospitality sector.

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