Hoteliers agree with parity lawsuit dismissal
19 FEBRUARY 2014 10:10 AM
A Dallas judge on Tuesday described industry-wide rate-parity clauses as “rational business interests,” rather than anti-competitive behavior.
REPORT FROM THE U.S.—The dismissal of an antitrust lawsuit Tuesday against hotel brands and online travel agencies accused of colluding on price should bring some closure to the ongoing debate over rate parity and price fixing, hoteliers said.
United States District Judge Jane Boyle in Dallas described industry-wide rate-parity clauses as “rational business interests,” rather than anti-competitive behavior, according to a filing in the case of Online Travel Company Hotel Booking Antitrust Litigation in the U.S. District Court for the Northern District of Texas.
Companies named in the lawsuit were: Starwood Hotels & Resorts Worldwide, InterContinental Hotels Group, Marriott International, Expedia, Inc., Orbitz Worldwide and Priceline.com. The lawsuit was a consolidation of several class-action complaints from various states.
Robert Cole, founder of RockCheetah consulting firm, said the case was frivolous from the outset.
“The rate-parity practice employed by hotels in the U.S. is technically known as resale price maintenance, which is a perfectly legal vertical price constraint, as long as it does not constrain trade or negatively impact consumers,” Cole said via email. “The claim made by the litigants not only failed to provide any indication of collusion by or between hotels and/or OTAs to dictate pricing, but also demonstrated that the group had very limited familiarity with how hotels and OTAs function.”
Tim Peter, managing director of Tim Peter & Associates consulting firm, said the ruling is a big win for hoteliers, OTAs and consumers.
“For hoteliers, it provides the continued ability to price their rooms appropriately based on demand and the value of the offering,” he said via email. “For OTAs, it provides an opportunity to compete based on offering guests a core value proposition and avoids the need to … undercut hotels and other OTAs. Consumers ultimately benefit because it forces hotels and OTAs to develop clear, consistent value propositions.”
Rate parity—the practice of hotel suppliers and third-party distributors agreeing to sell rooms at a standard base price—is a common industry-wide practice. Both parties can alter the price of the rooms by including them in packages or “fencing” deals, which means offering them to a limited, private group of travelers. For example, opaque sites, loyalty groups and mobile app users can all receive lower-rated inventory.
Drew Salapka, VP of sales and revenue generation for Hotel Equities, said rate parity between distribution channels is often confused as rate parity between competing hotel brands or operators.
“There would be no rational business sense for hotels to join together and fix their rates,” he said via email. “The brands do not promote it and our ownership groups would never want us doing this. We base our pricing on what is best for each hotel, what sort of demand each hotel/market is experiencing, and their current mix of business.
“As for rate parity, all of our brands believe that you should offer the same price point across all channels, but this has nothing to do with collusion among hotels; it has to do with our hotels not wanting to confuse our guests by offering different rates for the same product across different channels.”
The practice helps hoteliers evaluate their various distribution partners' effectiveness at bringing true, incremental business, not just those who drive occupancy due to artificially low prices, Peter said.
“The ruling removes any additional, unnecessary complexity and puts the focus back where it should be: which channels best serve the needs of the guest and the hotelier,” he said.
Tom Botts, executive VP and chief customer officer with Denihan Hospitality Group, said rate parity is not collusion but rather is a common business practice.
“We compete very hard with the OTAs and other hotel competitors to crack the best and most innovative deal for the customer,” he said. “Having worked on both sides of the table, I can tell you every one of these deals is different. All have different parts to them. That right there is reason enough (to dismiss the notion of price fixing).”
Botts pointed to the rising popularity of hotel metasearch sites to illustrate that there are different pricing structures for the same hotel rooms. “If rate parity was perfect, there would be no point of metasearch,” he said.
However, he said the lawsuit won’t end all complaints against OTAs.
“The OTAs will always be a ripe target for litigation,” Botts said. “Whether it’s the tax issue or this issue, there’s always lots of stuff out there because of the nature of the beast. Will someone turn around and find something else? Probably.”
Cole said the rate-parity legal situation is much different in the United Kingdom and throughout the European Union, where resale price maintenance is generally not permitted.
“I would argue that consumers are not hurt by the practice, since rate parity is the fundamental mechanism that enables hotels to provide guests with lowest price guarantees,” he said.