World Panel
Viewpoint20 May 2019

Is Rate Leakage a problem for hotels?

Digital Marketing in Hospitality

— 7 experts shared their view

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This viewpoint was created by
Max Starkov, Adjunct Professor NYU Tisch Center for Hospitality and Hospitality & Online Travel Tech Consultant
Simone Puorto
Founder | CEO | Futurist

Whether we like it or not, hotels' associations should be held accountable for the current European rate leakage issue. This is, I am aware, an unpopular opinion, but it's not so far fetched. First of all, the lack of unified European legislation on the matter creates too many grey areas. Italy, France, Austra, and Belgium (and, next in line, Switzerland), for example, prohibit OTAs' parity clauses "en toto", while Germany and Sweden only apply this rule to specific OTAs. Why? Who knows? 

I remember when, back in 2017, the Italian Senate approved the "Competition and Market Law", and how Federalberghi made a big fuss about it. The demonization of OTAs is -at best- populism, but it's a strong political statement. " is evil" is an elementary concept, but it can be exploited easily. Problem is that populism is the recipe for disaster, with no exception. NONE. I am not sure what hotels associations had in mind when they imagined a post-rate-parity-clauses industry: 100% direct revenue? Intermediaries cut-out? Unicorns and rainbows? Sounds like naivete to me. 

Truth is that intermediaries simply started taking countermeasures, re-gaining their competitive edge by commission-undercuts or by distributing wholesalers/bedbanks static rates at hilariously low markups. The approval of competition and market law created a Maelstrom of rates, discount, opaque offers, B2B2C rates, and contributed to the rise of metasearch engines (that, in a world where hotels offer the same rate to all of their distributors, would have no reason to exist... Jawrdop!) and the consequent rise of direct guest cost-per-acquisition, and so on. In a word: chaos. 

Can this be fixed? Unlikely. Adding more rigid contract clauses for OTAs and wholesalers produce little to no effect, narrowing the number of intermediaries makes no difference. In a nutshell: with the current cached-data based distribution model, there is no hope. 

My two cents? Save the antitrust cases money and spend it in what could really (re)create a trustworthy distribution system: immutable distributed ledger technology. Am I optimistic about it? Hell, no! Why? Because -as I said- the industry -at least in Europe- is way too politicized, obsolete, lazy, tech un-savvy and, again, populist. Saying "We'll sue and Expedia!" sounds way sexier than "Let's invest in a proper, immutable, trustworthy new rate/inventory distribution system, so we fix the issue at the point-of-sale", doesn't it? But, until our industry is represented by lawyers and politics, well... we're f____d.

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