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Where does OFT investigation into online rates leave hotels?

20 April 2011 by
Where does OFT investigation into online rates leave hotels?

As the Office of Fair Trading steps up its investigation into parity between rates at hotel websites and online agents, Emily Manson examines the likely outcomes and their implications

The Office of Fair Trading's (OFT) announcement that it is to continue its investigation into rate parity has delivered a warning to operators that far-reaching reform into online booking is possible.

It is not clear exactly where the OFT's investigation has got to, nor how deep it is planning to delve, but one thing is for sure: its verdict could prove to be a game changer for hotels and online booking agents alike.

"The outcome could be very important for the development of online bookings and hotels' relationships with those sites," said Martin Couchman, deputy chief executive of the BHA. "If the OFT finds evidence of a cartel then anyone participating can be fined quite heavily."

So what is the OFT investigating? Following a complaint from independent online agent Skoosh (see box), it is looking into rate parity and rate integrity between hotels and online resellers.

Couchman accepted the issue needed to be monitored given the growth of the market. "It's obviously important, given the rising prevalence of internet bookings, that the market develops in a sustainable way which is fair to both operators and customers."

Martin Philips, managing director of Recommended Hotels, a specialist in increasing business from online travel agents, admitted that as hoteliers have become increasingly reliant on online bookings to fill rooms, so online travel agents seem to be becoming more dogmatic in their demands for parity.

He added: "What started out as rate parity has moved into room parity, package parity and last available room parity. It's all got very complex.

"Hoteliers don't want to upset the cart too much as they are dependent on these sites for anywhere between 40-80% of their business, but they don't like being pushed into a corner of having to do everything the online travel agents say or face being penalised."

What are the possible outcomes? Although it remains unclear when the OFT will return a verdict, there are several possible outcomes of the investigation: case closure, formal statements of objections against parties, early settlement opportunities and demands for commitments.

If it does find there has been an infringement, the OFT can issue penalties of up to 10% of worldwide turnover and could impose a competition disqualification order against directors or even bring criminal charges under the Enterprise Act. It could also refer the case to the Competition Commission for an in-depth market inquiry and make recommendations to government and regulators about changing laws, regulations or policies.

So what can hotels do to protect themselves in the meantime? Hoteliers must make sure they do not consult with anyone outside the business on pricing policy, warned Martin Rees, partner at law firm DLA Piper. He also suggested that existing pricing agreements with online booking companies are reviewed and that companies avoid any kind of correspondence that could be construed as threatening the supply of hotel rooms to retailers.

Rees added: "If you are aware of problematic agreements you should take action as leniency applications are increasingly frequent and can result in a significant reduction in penalty if the OFT is minded to impose a fine."

In April 2010, the Office of Fair Trading (OFT) began an investigation into online rate parity prompted by a complaint from Skoosh.com, a small independent online reseller of hotel rooms.

Skoosh said it had received demands for the site to match room rates on hotels' own websites and those listed on other online resellers or remove the stock from the website or risk the supply of rooms to Skoosh. It also complained that hotels only allowed significant discounts on rooms for "opaque hotels" where the hotel's identity was unknown.

On 4 April 2011, the OFT announced that further to its initial investigations under the Competition Act 1998, it will continue its formal investigation into suspected breaches of competition law in the hotel online booking sector.

A statement from the OFT said: "The investigation remains at a relatively early stage. However, after a preliminary review of the evidence gathered to date, the OFT continues to consider this matter as an administrative priority and is pursuing the investigation further."

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