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OFT bookings probe to have industry wide implications

20 August 2012 by
OFT bookings probe to have industry wide implications

The Office of Fair Trading's investigation into allegations of room rate price-fixing could lead to tightening-up of law. Rosalind Mullen reports

If proven, the Office of Fair Trading's (OFT) recent Statement of Objections alleging that hotel giant InterContinental Hotels Group (IHG) and online booking agents Booking.com and Expedia.com have broken competition law by agreeing a minimum room rate price is likely to have long-term repercussions for other industry operators. Not least, because it looks as if the OFT is taking this opportunity to tighten up the law.

"Although the OFT's announcement concerns only a small number of companies, it has taken the unusual step of stating that the issues may be industry-wide," said Susan Hankey, a competition partner at law firm CMS Cameron McKenna.

The OFT's argument in this case is two-fold - that the trio are not allowing discounts to be passed on to consumers and that by limiting competition they are creating a barrier to entry and expansion among new online booking agents. The penalty for such a transgression is a fine of up to 10% of global annual turnover.

It is fair to assume the OFT will have been thorough in the case, wanting to avoid a repeat of the tobacco retail pricing decision that was overturned by the Competition Appeal Tribunal last year due to lack of evidence. Conversely, this showed the OFT can't always prove any misdeed.

"A Statement of Objections is just a provisional case; it does not prove that the parties have committed any offence," said Miles Trower, partner in the competition team at national law firm TLT.

The statement is not publicly available and Trower added that the nature of the offence is not clear from the OFT's press release.

"The suggestion may be that the parties are involved in illegal resale price maintenance. If they are suggesting this, it will not be an easy case for the OFT to bring," said Trower. "It relies on a resale taking place as opposed to an online booker acting as an agent."

While it's possible the investigation could broaden out, it would strain resources and be even more difficult to prove that these three players are part of an industry-wide, price-parity agreement.

Nevertheless, it's a wake-up call for other hotel companies, who will no doubt be tidying up their own agreements with online bookers. Indeed, this is probably the OFT's aim.

By deciding to home in on a giant such as IHG, it would seem to be not just making an administrative efficiency, but looking to make an example.

Hotel chains might feel it is time to take back some of the control over room sales to ensure they comply with competition law, because chances are that in a year or so the OFT may decide to take another look around.

"It could be a general warning to other hotel companies to get their house in order," agrees John Markham, associate at law firm CMS Cameron McKenna.

Booking.com and IHG have denied any wrongdoing, but Expedia.com is co-operating with the OFT under "conditional immunity". This puts IHG in a difficult position. Although Expedia may just be looking to protect itself from fines, it will have to co-operate fully with the OFT's investigation to get any relief.

"If they offer to adjust their behaviour, they may avoid fines," Trower said. "But at this stage fines are still a long way off."

Jason Logendra, a solicitor at Watson, Farley & Williams, added: "If it's the online agents that have pushed for parity, rather than the hotels, the hotels may get a lesser fine."

Whichever way you look at it, it is bad publicity and undermines consumer trust. UK hotel bookings through online travel agents totalled about £849m in 2010 and they are arguably set to lose the most if customers are turned off.

Looking ahead, hotel companies may either have to withdraw their allocations from agents - which could be detrimental to their business - or have to agree to let agents sell rooms at a discount to the rate on the company website, forcing down rates generally. "As an operator, I'd want to review my agreements looking at where there is any possibility that terms can be perceived as restricting price," Trower said.

By Rosalind Mullen

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