An item near the top of most hotelier checklists is rate parity. This is a legal agreement between hotels and online travel agents (OTAs), in which the hotel agrees to charge the same rate and terms for a specific room type regardless of its promotional channel. But is this system strictly fair?

Hoteliers and tour operators would ideally like the freedom to offer their best rates to customers who book with them directly, even while listing their services on a variety of OTAs. Yet they find themselves under restrictive pressure from various OTAs, as a result of their fine print.

Two commonly enforced rate parity categories include:

  • wide rate parity, which is a restrictive form of the agreement in which a hotel promises not to undercut the room prices which OTAs charge for their hotel; and
  • narrow rate parity, which has arisen after interventions from European regulators, allowing hotels to lower their direct rates if guests email, call in or join their loyalty programmes, but not publicly via their own website.

In essence, hotels can reap higher earnings from return clientele if they secure more bookings without the OTA commission; at the same time, OTAs occupy an important industry niche because they reach new consumers that a hotel website may not and also offer valuable comparisons.

Because healthy levels of direct bookings are essential to ensure fair play and to offer improved guest experiences, many hoteliers are asking: “How can I incentivise direct bookings for interested potential guests?” A few clever ideas include:

  • offering complimentary items to those who book directly, from free WiFi to on-the-house breakfasts/drinks/shuttle services;
  • offering lower rates via customer loyalty programmes or email marketing campaigns; and/or
  • listing certain room types or specials exclusively on the hotel’s website.

Currently, the global hospitality landscape shows a mishmash of regulated and unregulated regions and behaviours – with all forms of rate parity being prohibited in some European Union (EU) countries; where rate-parity clauses only relate to certain OTAs in others; and where the USA and Latin America remain largely unregulated.

In South Africa, industry members debated the matter at a recent South African Tourism Services Association (Satsa) Conference – concluding that although the traveller should be able to find rate parity across channels, a dynamic rate system was needed in the future, with a quarterly review of pricing rather than fixed annual rates being a possible solution.

Jeff Rosenberg, Cape Chairman of FEDHASA, which is the national trade association for South Africa’s hospitality industry, is of the opinion that rate parity is only constructive if it is based on a narrow agreement that applies to just website parity. Additionally, the parity has to be reciprocal because, then, the hotel maintains control of its pricing decisions; and the OTA can’t use their commission as a tool to discount the rate and undermine the pricing strategy – thereby affecting a channel shift. “The OTA commission remunerates them for their reach, where the hotels brand.com does not have a presence. Therefore, it acts purely as an extension of the sales arm of the business. In essence, the OTA is just a sell-on channel,” advises Rosenberg. “What a significant number of hotels are failing to do is to negotiate the protection of their brand names with the OTAs. This is absolutely essential in ensuring OTAs cannot bid against them for the relevant brand name during search engine optimisation, i.e. basically buying the ranking rights to their own website.”

Further afield, in the international arena, the Direct Booking Summit has been gaining traction – in Amsterdam on 27 to 28 June 2018; Dallas on 3 and 4 October 2018; and in Singapore from 27 to 28 Feb next year.

The Summit’s goal is to build momentum for the shift to direct bookings, by facilitating a conversation between hoteliers and sharing best industry tactics. The message from the Direct Booking Summit chairman, Charlie Osmond, is: “We started the conference a few years ago to help hotels who really care about improving the guest experience on their website, and who want to drive more direct bookings… There are two keys things we want to do: the first is to build a community of hoteliers who come back each year because they want to share their struggles, their challenges and also their wins when it comes to driving direct bookings. Another one is the content. We’re really focused on delivering practical take-home tips. [So] what strategies are hotels using to put different rates and packages on their direct channel versus on the OTAs; in what ways are hotels combining their loyalty efforts, their CRM efforts and their direct-booking strategies to make both better; and, finally, [we’ll explore] the personalisation we’re beginning to see much more of on hotel websites, reflecting a broader online retail trend.”

Legal background

In recent news, Tourism Accommodation Australia says the country’s Competition and Consumer Commission (the ACCC) is investigating the fraught relationship between accommodation providers and booking platforms. This comes after moves in the UK, in late 2017, to clamp down on OTA claims that the UK’s own Competition and Markets Authority said were creating a false impression. The Australian inquiry will examine hidden charges, search results and discount claims, which operators found to mislead consumers facing possible court action.

Last year, the ACCC took a Swiss booking engine to court over breaches relating to the reselling of concert tickets, with claims of “less than one percent of tickets remaining” creating a false sense of urgency to buy on one channel, when tickets were still available for purchase on others. Booking sites that use phrases like “one room left”, “ten people are viewing this page” and “in high demand” could find themselves in a similar amount of trouble if they are unable to substantiate these claims.

Contact Robert Nienaber and his team if you would like to further discuss the issue of rate parity or if you require assistance with the setup of your accommodation establishments rate structure.

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