Aussie jet setters are no longer confined to searching on Booking.com and Expedia to guarantee the best price for their holiday. The Australian Competition and Consumer Commission (ACCC) has reached a deal with the online booking giants to amend their price parity agreements with Australian accommodation providers. This agreement will allow hotels to provide cheaper rates to customers, putting a stop to the anti-competitive behaviour of the online travel sites.
What is a Price Parity Clause?
Price parity clauses, in a contract between online accommodation providers and hotels, generally require the hotels to offer their best price to the online sites. This type of clause guarantees the online agents will have the lowest rate, preventing the hotels from offering or negotiating a better deal with other online booking sites or directly with consumers. Price parity provisions have long been a controversial subject in the hotel industry due to their inherent anti-competitive nature, by precluding hotels from giving guests discounts over the phone or in person.
Any agreements that limit or prevent competition or heighten the barriers to entry into the market may be seen as anti-competitive. Section 45 of the Competition and Consumer Act (CCA) prohibits such anti-competitive behaviour, stating:
A corporation shall not make a contract or arrangement that has the purpose, or the likely effect, of substantially lessening competition.
The reason for this is that reducing competition:
- Increases barriers to market entry, restricting the development of new or smaller businesses;
- May result in an abuse of market power, allowing larger companies to dictate price;
- Reduces innovation by those who are successfully controlling the market; and
- Makes it more expensive and less convenient for the consumer.
The legal test to consider in reaching a decision of whether an agreement has breached section 45 and is, therefore, anti-competitive, comprises of the following:
- Is there an agreement, contract, arrangement or understanding between two parties?
- What is the market (including location, target audience, level of function, and period of operation)?
- Has one party engaged in conduct that substantially lessens competition in that market?
Understanding these basic elements is important to appreciate why price parity clauses have raised concerns with the ACCC.
ACCC Agreement with Expedia and Booking.com
The ACCC conducted an investigation into online booking agents after accommodation providers complained that parity clauses were preventing consumers from receiving different offers from competing online sites. As part of their investigation, the ACCC conducted a range of targeted market enquiries, including an online questionnaire to Australian accommodation providers and consulting with industry participants.
The ACCC identified the parity clauses as the main problem, which was restricting accommodation providers and lessening competition. As a result, the ACCC has reached an agreement with Expedia and Booking.com, and their subsidiary companies, Wotif and Hotels.com, to remove price parity clauses from their contracts, which require hotels to provide them with the best rates and deals. The new agreement encompasses the following for accommodation providers:
- They can now offer cheaper rates through telephone bookings and walk-ins;
- They may offer special rates and deals to customer loyalty groups;
- They can make all remaining room inventory available rather than reserving availability for online booking agents; and
- They cannot offer a price on their websites that is lower than the rate they have offered to online travel agents.
This last point, in particular, has raised concerns with representatives of the Australian accommodation industry, Tourism Accommodation Australia and the Accommodation Association of Australia (AAA). Although the new agreement allows hoteliers to offer cheaper rates via offline channels, they are still restricted by their online travel agents’ contractual “lowest price guarantee” which prevents the hotel from undercutting their travel agents’ prices on their websites.
With the new arrangements, consumers can now ‘shop around’ to find the best deal for their next holiday. Hotels have more flexibility to offer lower rates to customers. However, there are still concerns that the new arrangement has not sufficiently loosened the tight leash the online booking giants hold. In particular, the AAA has criticised the ACCC for overlooking that the internet is consumers’ go-to for booking accommodation – and the fact that hotels are still restricted from providing cheaper rates on their websites, effectively means that the online booking agents still control the market.
1. A message to consumers
The online booking giants are no longer the only channel to obtain the best deal for your next holiday. While hotels will not be able to advertise a cheaper rate on their website, they may be able to provide you with a better deal via telephone enquiries, on a walk-in basis or through loyalty group offers. So go back to basics and pick up the phone and negotiate a better price for your next holiday with the hotel directly.
2. A message to hoteliers
If you are concerned that booking agents are stifling your business or taking all your customers, they may be contravening the CCA. Make sure that your contracts and agreements with online travel agents comply with the newest ACCC ruling.
For more information on anti-competitive behaviour or advice on how to protect your business, get in touch with our specialist consumer lawyers at LegalVision on 1300 544 755.