Tuesday, November 16, 2010

Practice that holds rates steady among hotels, travel sites coming under fire

Congrats to our HSMAI DFW president, Kimberly Hutcherson, for making quotes for this article in the Dallas Morning News!

09:38 AM CST on Tuesday, November 16, 2010
By KAREN ROBINSON-JACOBS / The Dallas Morning News

If you were looking to book a room last weekend at the Grand Hyatt D-FW, you would have found a rate of $169 a night on Southlake-based Travelocity.com.

The exact same rate appeared on Orbitz.com. And on Dallas-based Hotels.com.

It's no coincidence.

For years, major hotels and the online travel websites so crucial to putting heads in beds have performed a dance known in industry circles as "rate parity."

That means the hotel agrees not to let any website charge less for a room than any other website, including the brand's own site.

Sites are free to charge more, but in a down economy there's been little appetite for that.

The effect, with a few exceptions, is that the online price for a room in a given hotel on a given day is the same no matter which major website you check – an approach that runs counter to the way most bargain shoppers use the Internet.

Now the owner of a tiny discount travel website in the U.K. has persuaded the country's Office of Fair Trading to look into rate parity. The move by the U.K.'s chief antitrust enforcer is expected to bring scrutiny to major hotels and websites, including many based in the United States.

Experts in the U.S said they know of no such inquiry here, and federal regulators aren't talking.

Many in the hotel industry say rate parity is needed to keep online sites from undercutting hotels' own prices. But the British discounter calls the program noncompetitive. He and others argue that consumers would be better off if parity perished.

"I don't know that there's been enough public questioning of this practice," said Ashwin Kamlani, founder of Hotel Internet Help Inc., which helps independent hotels get more sales via cyberspace.

"It's such a commonly accepted practice. I don't know why it hasn't reached a point where it's become a government issue."

$28 billion business

Booking hotels online is a roughly $28 billion business, said Carroll Rheem, director of research for PhoCusWright, a Connecticut-based travel research firm.

About 60 percent of online bookings are done directly with hotels, with the balance falling to online travel agents.

Rate parity, launched as a defensive move by hoteliers as online travel sites began gaining clout, dates back nearly 10 years, according to Hotel Marketing.com, a trade website.

Now, most major online travel sites have contract language that guarantees them rates as low as any online competitor. And they use website-scouring robots to make sure everyone toes the line.

The uniform requirement does not apply to special deals for rooms paid for in advance or for membership discounts with AAA or AARP. And it doesn't apply to so-called opaque sites, such as Hotwire, where the consumer agrees to pay a rate before knowing the name of the hotel. Some in the travel industry say the practice helps consumers by reducing time spent cybershopping.

"This is a standard industry practice," said Nancy St. Pierre, a spokeswoman for Sabre Holdings , which operates Travelocity.com.

It's done in part "so that the customer can have the confidence that they will get the best rate, that they don't have to go on 18 different sites," she said.

Kimberly Hutcherson, director of sales at the Hampton Inn Dallas-Irving-Las Colinas Hotel, calls herself a "believer in rate parity."

"If you're selling a product that's worth it, you need to stick to that price," she said. "It leaves the brand with the control of the rate."

Complaints to site

Championing the opposite view is Dorian Harris, director of Skoosh.com, based in Brighton in the U.K. He likens the practice to price fixing.

Harris said that in the last year, he has received up to 10 irate phone calls or e-mails a day from hotels complaining about his online discounts.

He said he ultimately pulled the hotels off his site, dropping the number of properties available for booking from 65,000 to about 40,000.

Critics note that Skoosh has been subject to consumer complaints. Harris said the complaints, many related to reservation problems, are "very few in proportion to our business."

Beyond that, he said, "this isn't Skoosh's case. No one is particularly interested in Skoosh as a company per se, least of all the Office of Fair Trading."

To Harris, the issue is how parity undermines his ability to undercut competitors.

"When I go shopping online, I don't expect to see the same price everywhere," Harris said. "That's the reason I shop online."

St. Pierre was aware of the British probe but said her company had not been contacted.

A spokesman for the U.S. Federal Trade Commission declined to comment. The antitrust division of the Justice Department did not respond.

St. Pierre disputed the notion that the practice amounts to price fixing and stressed that hotels are not required to participate in rate parity.

"That's purely a business decision on their part," she said.

Lower on list

For hotels that do not agree, "you will be ... lower in the search [results] list than hotels that do want to offer" parity, she said. Like Google, online travel agents use search engine technology to control where a property pops up on the search results list.

And back-end placement, Kamlani said, can be the kiss of death, since consumers usually choose from the top of the list.

"The hotels enforce rate parity because they fear the consequences of not maintaining rate parity," he said. "They fear having their hotel dropped to page 6 or even pulled off their largest producing [online travel agents] sites, which translates into a potentially significant loss of revenue."

Kamlani doesn't think rate parity is going away, at least in the U.S. But he also doesn't think the "burden" of enforcing it "should fall on the shoulders of the hotels."

Imagine if every computer maker that also sold directly to consumers had to make certain that Wal-Mart did not undercut Target.

Others argue that hotels should enforce the policy because they benefit and they set the rates.

Even with most hotels and most major websites backing rate parity, there are still deals to be found, said Chicke Fitzgerald, chief executive at Solutionz Holdings, a travel consulting firm specializing in the use of technology.

"They intend for there to be rate parity," she said of hotels, but there are still "a plethora of [discounted] rates for a given property that blows that argument pretty much away. It's not as neat and clean as that. It's so hard for the hotels to control."

From a profit standpoint, Fitzgerald said rate parity has helped the hotel industry avoid deep online discounting that has been so damaging to the airline industry.

"If I need $80 or more [per room] just to break even and I let Expedia sell at $75, I may never be able to sell" at $80, she said. "I would have to shut my doors. And that's not good for the consumer either."

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