Online travel booking agencies Expedia and Booking.com have agreed to amend their price clauses in their contracts with accommodation providers, increasing competition and allowing hotels to offer lower fees to consumers who contact them directly.
Most travel agencies or online booking platforms have agreements in place with accommodation providers so that they can pay lower fees to hotels and charge competitive prices to their consumers. If you are running a travel agency or considering setting one up, you should be aware of common practices among booking platforms and a recent agreement that affects price competition in the travel site industry. We explain the ACCC’s Agreement below as well as its effects on consumers.
Before the Agreement with the ACCC
Travel agencies have previously used price and availability parity clauses to guarantee that the booking agency would have the most competitive price – discouraging the consumer from negotiating a lower price directly with the accommodation. Parity clauses also refer to the accommodation provider offering the best availability to the booking agency. Under the contract, accommodation providers would be prohibited from offering lower prices directly to customer or through other channels.
After consumer law watchdog, the Australian Competition and Consumer Commission (ACCC) investigated this practice, booking agencies like Expedia and Booking.com have agreed to amend the clauses so that now the hotels can still offer lower prices to phone bookings or walk-ins. The amendment will not allow hotels to display cheaper prices on their own website.
The ACCC hopes that this agreement will remove the barriers to price competition by undercutting the significant advantage that booking websites like Wotif.com have against direct providers.
Effect of the Agreement
From 1 September 2016, Expedia and Booking.com amended their contracts with Australian accommodation providers. As a result, accommodation providers can now provide rates less than the price of other online travel agents or offline channels (phone or walk-in).
The ACCC sees this is an opportunity for accommodation providers to quote prices according to the needs of their customers and to offer competitive rates – special deals will no longer be limited to online travel sites.
At first glance, this appears to be a step in the right direction to promote price competition. Unfortunately, not everyone feels the same way. Since the ACCC announced the agreement with Expedia and Booking.com, it has faced criticism and backlash from the groups it has tried to help – Accommodation Association of Australia and Tourism Accommodation Australia.
Both groups are frustrated that the details of the agreement have not been revealed to the public, and are of the opinion that the agreement does not go far enough to protect the hotel and accommodation industry.
A particularly contentious point is the fact that while hotels can now offer the same or more competitive prices to phone bookings or walk-ins, the hotel cannot display lower prices on their own website despite more than half of bookings made online.
Tourism Accommodation Australia believes that the agreement will not have as much of an impact as the ACCC claims it will. Their concern is that agencies like Expedia and Booking.com, which are offshore companies who hold about 80% of the online travel agency market in Australia, will be able to set the prices for Australian accommodation, and everyone else will have to fall in line.
As representatives of the Australian accommodation industry, the groups have highlighted the fact that small regional motels are often struggling to stay afloat as it is – let alone having to compete with large companies who control pricing.
As part of their investigation, the ACCC conducted a number of inquiries including through questionnaires from accommodation providers so that they could identify the key issues. It was this investigation that revealed the accommodation industry’s concern with the price and availability parity clauses. It is possible, however, the ACCC did not gauge how significant the concerns were. The ACCC is currently consulting Australian accommodation providers about the price parity clauses to obtain a better understanding of the impact that these clauses have.
The agreement with Expedia and Booking.com is certainly a step in the right direction to promote price competition in the travel and accommodation industry. It is, however, not a conclusive step and accommodation providers should get involved if they want to have their voices heard.
Travel agencies should also be aware of the ACCC action in challenging common practices. Until now, it has been standard for travel agencies to include parity clauses in their contracts with accommodation providers. Businesses should check their current contracts to ensure that they are compliant with the latest arrangements as of 1 September 2016.
If you have any questions or need assistance reviewing your agreements, get in touch with our contract lawyers on 1300 544 755.