Almost every hotel out there uses Online Travel Agents (OTA's) for selling rooms, but are these OTA's crushing the hotel industry with ever more restrictive and aggressive contracts and terms?
The (arguably) largest hotel booking sites are imposing more and more terms on hotels in relation to rates and booking management, that are gradually causing hoteliers to become very unsettled with a variety of companies; the latest evidence of this is the recent announcement that the French Hotel Employers Union is planning legal action against three such sites (Booking.com, Expedia, HRS) because of the restriction they cause on competition in the industry… let me explain:
Best Rate Guarantees — forget running your own exclusive deals!
All three agents listed above have clauses in their contracts that state the rates offered through them cannot be higher than rates available anywhere else. This is tantamount to price-fixing across the industry — it removes competition for most bookings as every site will have the same rooms, for the same rate, on the same board basis. Last year the Office of Fair Trading in the UK accused Expedia and Booking.com (and Intercontinental Hotels Group) of also infringing competition law by making deals that limit the discounts available to consumers. Alongside this imposition of rate matching, many OTA's are gradually increasing commissions, basically squeezing every possible penny from every booking made through them and driving down hotel revenue whilst ramping up their own.
With many of these rate-match offers seen online, customers are invited to contact the agent if they see a lower rate for the same stay, even through the hotels own website. This would be fine if it were one agent only, but when you use all three, you end up effectively price-fixing and having the same rate everywhere. This eliminates any competition between sites that would be based on price, it also eats in to the hotel's own revenue — after all if you sell a room through your own site at £50, you receive that full £50, but if you sell through an agent, you can expect as little as £35 dependent on commissions that are due.
You might not be able to stop them selling your rooms, even if you're full!
Some websites are also massively one-sided even further in the way of the agent — contracts that disallow close-outs (for venues that host special events this is a nightmare); I myself have seen bookings come through from third-party agents for dates the hotel has been closed-out for months, yet the agent holds to 'it is from our allocation as per your contract' — you not only get lumbered with the outbooking cost, but usually get lumbered with having to tell the guest themselves when they arrive also. Expedia do offer the assistance of a 'lodging support team' who will outbook guests for you… but not always in your favour. If you outbook a guest yourself, you retain control of the rate you pay, where to send them to and what compensation you offer; if you outbook via Expedia, expect a fairly whopping bill — they will not necessarily select the closest hotel, nor the most suited to the guest, nor the cheapest rate; it really is like Russian roulette as you could get a minimal bill from Expedia for relocating the guest, but you could also get a huge bill (I have seen them in excess of 5 times the rate the guest paid with us) as you get charged for the full relocation cost. If you do relocate, you are expected to write a full explanation to Expedia absolving them of responsibility.
On the subject of Expedia, this is one example of a company that states the rates you offer them must be equal to or better than those made available elsewhere, including third party sites and your own site and cancellation policies can be no more restrictive than those offered through other sites. So wave goodbye to 7-day or 3-day close-outs of allocation. It is not all bad though — I do know of hotels that have variations to these clauses in certain circumstances and use Expedia to great extent to fill rooms that may otherwise have been empty.
You must give them more rooms than anyone else!
Other sites have also jumped on this restrictive bandwagon — Booking.com works on a minimum allocation for many agreements, but does tend to be more relaxed and flexible about close-outs of dates; despite this they are more determined to get your rooms! They have a clause which states that their allocation of rooms must be equal to or greater than that of other sites, this could be a nightmare for smaller venues. To really ensure they get all your business, their contract determines that you cannot market, online or offline, to their guests — in other words, forget about signing up a guest to your email list if they booked through booking.com.
HRS reportedly have a similar 'best rate' agreement, but in my experience, this has never caused a problem and if anything, HRS are actually one of the easier agents to deal with — as standard it tends to be that if the guest has not arrived at 6pm, or has not advised the hotel they will be arriving after 6pm, then the hotel has the right to cancel that booking — finally, some power back to the hotels (but if the guest then arrives at 6.15pm, you will have an argument on your hands!).
It's not all bad!
I do want to clearly state at this stage that I am neither promoting nor deliberately being malicious towards or trying to damage the business of any travel agent — these three are mentioned purely because they are ones I have experience of , and all their T&C's for standard hotel contracts can be found via a simple google search online. There is little doubt that many other agents have similar, or even worse, clauses and each of the business listed above does a great deal to assist in marketing and advertising businesses and generates a lot of revenue for hotels on a daily basis; many hotels find that up to 75% or more of their bookings come through third parties including Expedia, Booking.com and HRS.
Every agent out there wants your business, and every hotelier wants to sell rooms; but it is important to weigh up the pro's and con's of every contract you sign as otherwise you will find yourself in the same situation as many hotels — every rate on every site is the same, meaning consumers have no competition and the only one who loses out is the hotelier — after all you are on to a good thing of everyone books that rate direct, but if they all book through the agent that charges 25% commission, you are actually losing 25% of your revenue (if not more by the time you factor in the accounts personnel time with invoicing etc).
But how to get round this? There used to be several ways — special promotions through your own sales channels were generally acceptable (although you may have needed permission from the travel agents first — remember that if someone books through an agent at £50 and then you advertise the same room for the same date at £25, you will have to give the travel agent that room at that price, plus pay them commission!) — increasingly this is becoming impossible due to the restriction of contracts.
It is also worthwhile noting that the restrictions on rates will in some cases only apply to the rates and board basis you offer the travel agent — if you sell Room Only via the agent and then all direct bookings are for bed and breakfast, this would be difficult to class as a breach of contract, although this needs checking out because, increasingly, OTA's are requiring you to offer them exactly the same packages, rates, board basis etc as are available on your own website.
So have a long hard think before you sign that contract with that agent as you could be causing your business undue hard work, stress and potentially damaging scenarios — read the contract thoroughly and if you disagree with aspects of the agreement, don't sign until they are changed, or walk away as there are plenty of other agents out there who will be willing to sign you up with much simpler contracts!
What does this mean for hotels?
For those wondering about the impending action in France — a successful claim could lead to a radical change to how all OTA's operate, and potentially huge fines if they are found to be infringing European competition laws. It is also reported that the Swiss Competition Bureau are investigating these practices — ultimately the consumer will have to spend more time searching for good rates, but hotels can actually then begin getting back to the scenario of 'you get what you pay for' — at current, if every room is the same price, you get a certain amount of people having upgraded rooms for the same rate as those in a standard room — hospitality used to be an industry where people paid more for a nicer room, and this is becoming more difficult for hotels to maintain — I have had people paying ridiculously low prices going in to a suite because an OTA has overbooked us on standard rooms and everyone is on the same rate — but at least with rate variances, we can ensure that the highest rates go in the upgraded rooms if necessary. Bring back the old days and just let us manage our rates and offer our own deals online through our sites (I can sell a room direct at £25 and make a profit, but I can't make a profit if I sell it through an agent at £25 with a 25% commission)!
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About the author
Matt Shiells-Jones is an international hospitality writer, industry contributor and specialist; Author of ‘How to be a Hotel Receptionist' and the upcoming ‘Big Book of Hotel Standards'. Publisher of www.chocolatepillow.com
