Booking a hotel for a weekend away or a summer vacation? Be prepared to open your wallet a little wider this year. The cost of a hotel room has jumped 3.3 percent in the year to September, well ahead of the 0.4 percent rise in general inflation.
Increased demand has received much of the blame for the rise. Hotel guest nights topped 12.5 million for the year, up from 11.9 million. But Hospitality New Zealand has also pointed the finger at online booking sites Expedia and Booking.com, major players in the multi-million-dollar accommodation game, as playing a part in the rise.
Online booking sites earn their income by charging hotels and motels a commission for each reservation made. These costs are ultimately passed on to consumers. According to Hospitality New Zealand chief Bruce Robertson, commission rates are currently about 15 percent.
Commissions aren’t the only bone of contention. Overseas, questions are also being raised about the dominance of these sites and the flow-on effects they may be having on competition.
Heads in beds
Globally, the major online booking sites are operated by Expedia and the Priceline group. They’ve each acquired a number of subsidiary brands. Expedia’s subsidiaries include Hotels.com, Lastminute and Wotif, bought out by the company in 2014. Priceline owns Booking.com and Kayak, and is the largest operator here.
Unfortunately for consumers, despite the appearance of choice the different websites of each company may not offer any major price differences. The brands within a group tend to offer the same prices as each other. For instance, room rates for a particular hotel on Wotif are likely to be the same on Expedia and Hotels.com.
Critics say there’s also not a lot, if any, difference in advertised room prices between competing booking sites.
What’s known as price parity or “most-favoured nation” clauses in contracts between the booking sites and hotels have been fingered as the reason why.
These clauses have come under scrutiny from regulators in Europe and the UK because of their potential anti-competitive effects. According to the UK’s Competition and Markets Authority (CMA), the clauses effectively prevent hotels from offering cheaper rates than those listed on Expedia or Booking.com to anyone else.
Several European regulators closed their investigations earlier this year after both companies announced they would shelve the clauses for five years, albeit maintaining the clauses were lawful.
The CMA said the change of heart means European hotels can now offer cheaper rates through other online travel agents and offline.
However, rates on hotels’ own websites can’t be cheaper than what they offer through Booking.com or Expedia. France has gone further, passing a law allowing hotels to set lower prices on their own websites. Germany’s regulator has also signaled the clauses may breach competition law there.
Commenting in September on the CMA’s decision to close its investigation, Ann Pope, senior director for antitrust, said it was “too soon to tell” whether the changes will materially affect how hotel rooms are priced on the internet. The authority said it would maintain a “careful watch” on how the market develops.
Outside of Europe, it’s a different story.
Expedia said the five-year moratorium doesn’t apply to its dealings with hotels outside the European Economic Area or Switzerland. The company said details of its contracts with individual hotels here are confidential but believes they comply with the law. Booking.com did not confirm whether price parity clauses in New Zealand would change but defended its services as a “highly cost effective marketing channel” for hotels.
However, events in Europe signal the need to take a closer look at practices here to ensure the market is offering consumers real choice.
Whether that happens remains to be seen. In the wake of overseas developments, the Commerce Commission has received two complaints about price parity clauses, including one from Hospitality New Zealand. A commission spokesperson said it was looking into the complaints.
The Australian Competition and Consumer Commission has also got its eye on the online accommodation sector and has called for feedback from the industry on the use of price parity clauses. It intends to use the information to assess whether these arrangements are anti-competitive.
If there’s little difference in online prices available for your favoured hotel, can you get a cheaper price booking offline?
You could ring a hotel directly and try to strike a deal but the results from our trial suggests your odds – and savings – may not be great.
Of 20 hotels we rang, nine gave us a cheaper rate than the price listed on online booking sites. But the savings weren’t huge, ranging from 25¢ to $34 per night.
Whether you strike it lucky may depend on the hotel’s policy, demand at the time or even who you speak to.
Some providers may also be prevented from offering deals by their contracts with booking sites. The Commerce Commission’s 2014 report on Expedia’s buyout of Wotif commented a number of accommodation providers advised they were constrained by price parity clauses in the deals they could offer direct to consumers.
Report by Kate Sluka.