Hotel Rate Parity Lives On

by Harvey Chipkin March 18, 2014

With the recent dismissal of an antitrust case accusing hoteliers and online travel sellers of price-fixing, the practice of hotel rate parity is likely to live on – for now.

Rate parity is the industry-wide practice of hotel chains setting and controlling the “best available rates” offered through various distribution channels. Rate parity does not involve hotel companies setting prices in collusion with competitors.

A ‘rational’ business practice
Last month a federal judge in Dallas dismissed a consolidated class action suit brought against major hotel companies and online travel sellers, including Orbitz, Priceline and Expedia.

The suit accused Starwood, InterContinental Hotels Group and Marriott, among others, of conspiring with OTAs to set prices.

The judge said that rate parity agreements between hoteliers and online travel sellers represented “rational business interests” rather than anti-competitive behavior.

The question for hotels is: Can parity survive the technology and market forces that have generated a dizzying array of distribution channels for hotels, making control a challenge.

And the question for travel agents is: How does rate parity, or the lack of it, affect them?

Rate parity & TMCs
Under rate parity, most publicly available channels display the same rate for individual hotels.

But hotels and OTAs can, and do, offer different rates in packages and through agreements with corporate clients, with opaque sites (like Priceline), with loyalty groups and with mobile apps.

For travel management companies, hotel rate parity is a good thing, said Yon Abad, director of CWT Hotel Solutions, Americas.

With rate parity, “we are able to compare our negotiated rates with the best available rates,” he explained. “We can usually offer a negotiated rate of 20% to 40% off the best available rate.”

But not always. “We get feedback from clients who say they booked through our program but then got a lower rate on arrival at a hotel. That is not a common occurrence, but it does happen,” Abad said.

Maximizing revenues
Controlling room rates in different distribution channels is a high priority for hotel companies, Abad said. “They have invested a lot in yield management and revenue management, and rate parity enables them to maximize their revenues.”

But while hotel brands are able to maintain rate parity in online distribution channels, controlling rates in offline and on-property sales can be difficult because individual owners and franchisees may offer promotions to fill unsold rooms, Abad said.

Threats to parity
A growing threat to parity are new online and mobile tools, especially those that allow rate shopping, Abad said.

For instance, apps like tripBAM monitor hotel rates and notifies travelers when rates drop, cancelling the original booking and rebooking at the lower rate. (A white label version is available for travel agencies.)

“I don’t know how hotels will manage that,” said Abad.

Numbered days
Two experts in distribution told Travel Market Report that they believe rate parity’s days may be numbered.

The questions said John Burns, president of Hospitality Technology Consulting, is: “What is the desirability of parity to hotels? Has it outgrown its value? If it has, can hotels move away from it – or do they have legal agreements with OTAs that will maintain it?

“The other question is: What does a post-parity world look like? It might be worse.”

Rate outliers
As it is, hotels are not doing a perfect job of maintaining parity, and that’s troublesome both for travel agents and hoteliers. “There are rate outliers that shake up hotel and agent credibility,” Burns said.

“Hotels have to figure out this imperfect situation, and they are not of a single mind on this. Some even see a wide open market as desirable.”

Short life span
For now, rate parity is “still a significant force,” said Bonnie Buckhiester, president of Buckhiester Management.

But Buckhiester also sees threats to rate parity, including hoteliers’ sophisticated dynamic pricing models, as well as the complexity of hotel bookings themselves, given the array of rate and room types available today.

“I think parity is on a short life right now,” she said. “I think we will eventually see more court cases around parity.”

Hotel Distribution 2.0: Will Tech Giants Change Everything?