Posted by Ric Garrido

Different online travel agency (OTA) sites generally charge the same rate for the same hotel room and that rate is generally the same as the lowest Best Available Rate on the hotel brand website. The hotels in major hotel brands are covered by Best Rate Guarantee claims stating the lowest hotel rate will be found on the hotel’s own website, so there is no reason to compare rates with different OTA rates.

Contracts between the hotel and online travel agency sellers of rooms at that hotel contractually require OTAs not undersell the hotel brand’s own rates.

A look at hotel rates on Kayak.com verifies this price uniformity.

Kayak Grand Hyatt San Diego

The rate for Grand Hyatt San Diego is $129 on Hyatt.com and the same rate is offered at 11 other OTA sites seen in this Kayak.com display.

Thus, the Lawsuit

The case before the courts in the USA is whether this absence of rate competition between the hotel and the online travel agencies hotels contract with to sell rooms constitutes price-fixing for hotel rates. The plaintiffs who brought the case claim hotels fix rates with online travel agencies like Expedia and this price-fixing practice makes rates higher for consumers since online travel agencies are contractually required not to undersell the hotel brand website rate. Their claim is all consumers suffer by these pacts that artificially raise rates through lack of competition between online travel agencies.

Expedia and Starwood Hotels have asked a federal judge to dismiss the suit.

“The hotels can control the price of the rooms they offer,” Thomas Barnett, an attorney for the travel sites, said in court. “As long as there is interbrand competition going on, consumers don’t have to worry.” he said, referring to competition among different hotels within a city or area.

Bloomberg Business Week December 17, 2013

Interbrand competition is the argument from the hotel chain and online travel agency defendants. Hilton does not work with Marriott to fix hotel rates in a specific location. Starwood and Hyatt are not working together to fix room rates.

In the hotel industry, rates are determined by competitive set whereby hotels in a comparable market segment like a Hilton and a Marriott or a Holiday Inn Express and a Hampton Inn analyze their competitor’s rates and either price slightly higher, slightly lower or about the same. A Hilton selling rooms for $150 with a Marriott at $100 in the same area will be an easy choice for a consumer. Hotel competitive set pricing is common among the hotel brands in a specific area and sophisticated software analysis to set profitable room rates is one of the major draws in joining a hotel chain with these pricing systems in place. Each hotel chain has their own reservations and rate analysis software. This is interbrand competition which plays one role in hotel rates.

In my opinion, the statement from the OTA attorney sounds logical in that a hotel should be able to control the price of their own rooms even when using other distribution channels like online travel agencies. And the fact that there is competition between hotel brands is the real issue that negates the anti-trust argument for this lawsuit.

Best Rate Guarantee claims are a consumer’s friend

I spent about two hours yesterday booking five hotel nights. I am staying at three different hotel chains since I found the best rates for my travel in different chains. I also filed two Best Rate Guarantee claims. One claim has been approved already reducing my hotel rate from $119 to $67 when I found a prepaid, nonrefundable rate at a Marriott Hotel for $90.30 on Expedia and there was no comparable rate on the Marriott website. I am still waiting to hear back whether I have a free room at a Holiday Inn based on another Best Rate Guarantee claim.

If the class-action lawsuit were to be upheld against the defendants, then the hotel industry would need some major changes to Best Rate Guarantee policies. Currently consumers can use Best Rate Guarantee claims to get free nights (Choice, IHG) or rate reductions of 10% to 25% on the lower rates (Club Carlson 25%, Hyatt 20%, Marriott 25%, Starwood 10%) or cash back (Best Western $100, Kimpton $25 F&B credit, Hilton $50).

If OTA sites were allowed to set their own hotel rates, then room rates would likely be lower at times for consumers with OTA flash sales on sites. The problem would be that hotels already lose around 15% to 30% of the room rate for rooms contracted out to OTA sites. If the OTA could then undercut the hotel’s own rates, the shift in bookings from hotel’s own websites to OTA sites would have a revenue impact on the hotel’s bottom line.

Some of the growth in OTA sites is from last minute flash sales. These are typically day of arrival rates that are not covered by most Best rate Guarantee policies which require claims to be filed at least 24 hours before hotel arrival.

One of the major draws for joining a hotel brand like Marriott Courtyard or Hilton Hampton Inn is the reservations system and software that helps hotel owners set room rates and maximize revenue. Hotel owners are in business to make money. For hotels to lose control of their pricing would have a major impact on the industry.

Online travel agencies are designed for the consumer. Hotels have to negotiate with the OTA sites as one arm of their room distribution model. Millions of consumers book through OTA sites like Expedia, Travelocity and others for the convenience of being able to compare rates in one place across many hotel brands in a location.

For the consumer the disadvantage of the OTA booking is no loyalty credit when booking major brand hotels on an OTA site like Expedia since the hotel is already giving part of the revenue to the OTA. Loyalty programs are the main incentive for sticking with reservations through the hotel brand websites. Hotels keep a higher percentage of the room rate when a room is booked through the hotel brand website compared to an OTA booking.

Perhaps rates are higher due to room rate control by the hotels and hotel chains. As long as there are Best Rate Guarantee policies offered by all the major hotel chains, I find great value in using meta-search sites like Kayak.com to compare rates and catch the frequent discrepancies between OTA sites and hotel brand sites for significant rate discounts.

As hotel loyalty members we are part of the proposed class action suit.

I have never had a decent refund as a member of a class action suit. I wonder what ten years of hotel room bookings and $50,000 or so in hotel spend would come my way in a settlement?

Proposed Class

The proposed class would include all people nationwide who paid for hotel rooms reserved through the defendants’ online websites from Jan. 1, 2003 to May 1, 2013, according to court filings. It wouldn’t include room reservations made as a part of a package deal or where the name of the hotel wasn’t disclosed until after paying for the reservation.

The online travel site defendants include Expedia, Hotels.com LP, Travelocity.com LP, Booking.com B.V., Priceline.com Inc. (PCLN:US), Orbitz Worldwide Inc.

The hotel defendants include Starwood, Intercontinental Hotel Group, Marriott International Inc., Trump International Hotels Management LLC, and Hilton Worldwide Inc.

The lawsuits were initially filed last year and combined in a multidistrict litigation, or MDL, in February.

The case is In re On-Line Travel Company (OTC)/Hotel Booking Antitrust Litigation, 12-cv-3515-B, U.S. District Court, Northern District of Texas (Dallas).

Bloomberg Business Week Dec 17, 2013.

Do you think Online Travel Agencies should be allowed to offer lower rates than the hotel’s rates on its own sites?

*****

Ric Garrido of Monterey, California is writer and owner of Loyalty Traveler.

Loyalty Traveler shares news and views on hotels, hotel loyalty programs and vacation destinations for frequent guests.

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9 Responses

  1. I have a question about an OTA. I have been looking at hotels in Italy (thanks to Wideroe) and have noticed that on aggragation sites (i.e. room77) olotels often offers rates way below the rest. Is this site reputable? If so, how can they get away with offering rates way below the competition.

  2. Room77.com is reputable.

    You need to go beyond the initial rate shown and try to book to see if the rate is valid.

    I have tried a dozen hotels this morning showing low rates on Booking.com, Priceline.com and Orbitz.com where the rate was lower than the hotel brand site, only to find the rates were not accurate and not lower than the hotel brand site.

    That could be what is happening in your Italy searches.

    If not, then book a rate you can cancel without penalty on the hotel brand site and file a BRG.

    Best Rate Guarantee is primarily for brand name hotels. Independent hotels may have a contract where the OTA can sell the room for less than the hotel website.

  3. Nitpicking…
    “The defendants who brought the case”
    *Plaintiffs* bring a case against defendants.

    As for the substance of this case, I’m kinda split. I can see that if you view the OTAs as agents/channels for the hotels to sell their rooms through, then the hotels should be able to control the prices. But, as I understand, the OTAs buy rooms from the hotels and resell them to consumers, in which case I don’t think the hotels should be able to control the resell prices.

    That said, I read an interesting article on how Apple somewhat controls the prices for its products so no retailer undercuts the prices much while avoiding running afoul of anti-trust laws. Apple provides “incentives”(marketing dollars if I remember right) if you stick to the suggested retail price. I expect the hotel chains could do something similar.

    I think that you are right that if the case is decided in the plaintiff’s favor, it will affect the best rate guarantees. Keep us informed!

    Do you have all your hotel stays organized somewhere that it would be easy for you to substantiate your stays? If not, it would be a real pain to respond to the class effectively.

  4. @Charles Clarke – as always, thanks for the correction. It is important to use the correct words.

    Apple products came to mind as a company that controls its prices.

  5. I can only speak for the industry I work in, but it’s a similar concept (distributors for our product), and we’re not allowed to tell them what they can price at. Whether it makes sense or not is one thing, but our legal department is very adamant that we can’t communicate with them on what we/they are going to price items at.

  6. Ric, the question asked by #1 pertained to Olotels, as seen on Room77, not Room77 itself. I’ve often wondered the same; is Olotels for real? Frequently their prices are much lower than the rest shown on the ota, and that concern is not something I want answered when I get to the hotel, only to find out the “rest of the story”.

    Comment by The Masked Poster on December 18th, 2013 at 10:37 pm
  7. Ric, as an industry insider I want to say that there’s more to this. Many individual hotels and even hotel chains don’t want same pricing (“rate parity”) but they have to or the OTAs threaten to stop working with them and it’s a condition of their head-office.

    When the big OTAs guarantee they have the best rate (a very powerful message, dissuading travelers looking further) what they’re actually saying is this: “we can guarantee we have the best rates because we contractually stop anyone undercutting us”. When you put it like that it doesn’t sound anywhere near as inviting.

    And the reason why some chains enforce rate parity is equally pernicious. Many of their hotels are franchisees. The head-office only makes money (a commission) when travelers book through the corporate website. If they book directly with the hotel head-office doesn’t get paid. On a hotel level of course it makes sense when a customer calls up to say I’ve seen this price on Expedia can you beat it, to do so. It’s better for the hotel (no commission) and better for the customer. But head-office says ‘no’ and OTAs say ‘no’. The hotel is tied.

    There is a revolution against rate parity sweeping across Europe and it was declared illegal in Germany last week. I honestly don’t know what the industry will be like without it but I do know that it is currently controlled by a very few big corporations and I’d much rather see a free-market for hotel rooms.

  8. @The Masked Poster – Thanks for pointing out I did not read Krystyna’s question correctly. Actually I know nothing at all about olotels.

    I will keep my eyes open for information.

    @Dorian – Thanks for the insider insight.

  9. […] Major Chain and OTA Hotel Price-Fixing lawsuit in USA […]

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