Expedia and Booking.com are forcing price discounts on Australian accommodation operators in an aggressive new push condemned by industry leaders as immoral, damaging and akin to extortion.
The US online travel agents, which together control the vast majority of online bookings worldwide, are pressuring operators into either setting discounted rates or matching the lowest rates of competitor OTAs – and threatening to ‘darken’ those that don’t comply.
The Australian Resident Accommodation Managers Association (ARAMA), which has always maintained there is room in the market for OTAs, says the forced discounts are damaging member profits and “leaving a wake of confusion and distress across the management rights industry”.
“Forced pricing parity amounts to nothing but extortion and it should cease immediately,” said CEO Trevor Rawnsley.
“This is a brutal way to compete on price with competitor OTAs.
“Overseas based online travel agents may claim to be acting in your best interests, however forcing discounting and rate parity is clearly detrimental to the industry.
“Consumers will not be any better off. A race to the bottom on price just to beat up another overseas-based competitor is unsustainable and will affect service and quality in Australian tourist accommodation.”
Both Expedia and Booking.com are guilty of attempting to dictate the room rates set by operators, says ARAMA.
Booking.com has introduced Booking.basic, which seeks to always offer the consumer the lowest rate in the market – often using rates initially bundled as special deals for wholesale distribution and not designed as a standalone price. Booking.com then uses that rate as a guide for parity which an operator is contractually obliged not to undercut online, and which other OTAs use as a guide to demand parity from the same operator.
Booking.com’s early payment discount, often advertised without operators’ knowledge because the OTA funds the discount, similarly allows competitors like Expedia to demand rate parity.
Expedia will likewise set up discount campaigns which offer promotional opportunities to those operators who agree to lower their nightly rates and pay a higher commission. Those that don’t participate are given a lower profile by Expedia online, while those that do participate are opened up to competitor demands for rate parity.
Smaller OTAs also compete to offer discounts – like Agoda which offers upfront cash loans in return for discounted rates – creating more pressure for rate parity.
Operators not complying with these demands for parity are routinely threatened with ‘darkening’, which means decreasing the online visibility of a property which fails to comply with a ‘quality score’ set by the OTA.
The following is Expedia’s response to a Booking.com-advertised discounted rate for one property: “This discount is impacting your competitiveness on our channels and will begin to negatively impact your quality score (which we would really hate to see happen).
“As a result, this will decrease your visibility to our customers and impact their decision to book with your property.”
For operators with group clout, such as large hotel chains, there is an opportunity to negotiate with the OTAs for a better deal.
And for those with a high percentage of business generated and cultivated through direct bookings, the effect of darkening can be minimalised.
But for mum-and-dad operators, who generally rely on OTAs for online visibility, the consequences of non-compliance could be ruinous.
The Australian Competition and Consumer Commission (ACCC) has failed to act on regulation of OTAs in Australia, despite a long-running investigation into OTA practices and sustained industry pressure to end parity clauses imposed on operators.
Richard Munro, CEO of the Accommodation Association of Australia (AAoA), is among those pushing for ACCC action on rate parity and says he is “certain” of a positive response from the consumer watchdog this year.
“Banning narrow and wide rate parity in Australia must happen in 2019,” he said.
“The AAoA consider the disproportionate market power of OTAs to be the biggest challenge to our members who are paying extraordinary commissions to these foreign multinational companies.
“The AAoA have now formed a taskforce to deal with this issue and other impacts to rate distribution such as rate leakage from wholesale rates which is linked to OTAs.”
Carol Giuseppi, CEO of Tourism Accommodation Australia, is particularly critical of Booking.com’s approach to parity through Booking.basic.
She said: “We are very concerned at this latest development from Booking.com which contravenes hotels’ understanding of rate parity.
“It has been introduced without consultation and without transparency.
“Ultimately the move demonstrates that Booking.com are moving away from seeking to work in partnership with hotels to more aggressively pushing their own brand at the expense of hotels.
“We have provided the ACCC with the evidence base that shows that booking.com is often contravening rate parity with the above actions.
“The message for visitors to ‘book direct’ has never been more important to reinforce. Accommodation providers, as owners and operators of the asset, should be in control of their pricing.”
Trevor Rawnsley is urging ARAMA members to evaluate their marketing practices to limit exposure to OTAs and has produced a step-by-step guide for members on how to put a stop to forced discounting.
“Our operators, mostly mums and dads, are caught between these huge overseas-based OTAs who are duking it out for market share and the only way we can protect ourselves is to raise the nightly rate to try and cover the additional costs,” he said.
“This means the consumer is paying more so it is a lose, lose for the tourism accommodation provider, a lose, lose for the tourist and a win, win, win for the overseas based OTAs.”