Different online travel agency (OTA) sites generally charge the same rate for the same hotel room and that rate is generally the same as the lowest Best Available Rate on the hotel brand website. The hotels in major hotel brands are covered by Best Rate Guarantee claims stating the lowest hotel rate will be found on the hotel’s own website, so there is no reason to compare rates with different OTA rates.
Contracts between the hotel and online travel agency sellers of rooms at that hotel contractually require OTAs not undersell the hotel brand’s own rates.
A look at hotel rates on Kayak.com verifies this price uniformity.
The rate for Grand Hyatt San Diego is $129 on Hyatt.com and the same rate is offered at 11 other OTA sites seen in this Kayak.com display.
Thus, the Lawsuit
The case before the courts in the USA is whether this absence of rate competition between the hotel and the online travel agencies hotels contract with to sell rooms constitutes price-fixing for hotel rates. The plaintiffs who brought the case claim hotels fix rates with online travel agencies like Expedia and this price-fixing practice makes rates higher for consumers since online travel agencies are contractually required not to undersell the hotel brand website rate. Their claim is all consumers suffer by these pacts that artificially raise rates through lack of competition between online travel agencies.
Expedia and Starwood Hotels have asked a federal judge to dismiss the suit.
“The hotels can control the price of the rooms they offer,” Thomas Barnett, an attorney for the travel sites, said in court. “As long as there is interbrand competition going on, consumers don’t have to worry.” he said, referring to competition among different hotels within a city or area.
Interbrand competition is the argument from the hotel chain and online travel agency defendants. Hilton does not work with Marriott to fix hotel rates in a specific location. Starwood and Hyatt are not working together to fix room rates.
In the hotel industry, rates are determined by competitive set whereby hotels in a comparable market segment like a Hilton and a Marriott or a Holiday Inn Express and a Hampton Inn analyze their competitor’s rates and either price slightly higher, slightly lower or about the same. A Hilton selling rooms for $150 with a Marriott at $100 in the same area will be an easy choice for a consumer. Hotel competitive set pricing is common among the hotel brands in a specific area and sophisticated software analysis to set profitable room rates is one of the major draws in joining a hotel chain with these pricing systems in place. Each hotel chain has their own reservations and rate analysis software. This is interbrand competition which plays one role in hotel rates.
In my opinion, the statement from the OTA attorney sounds logical in that a hotel should be able to control the price of their own rooms even when using other distribution channels like online travel agencies. And the fact that there is competition between hotel brands is the real issue that negates the anti-trust argument for this lawsuit.
Best Rate Guarantee claims are a consumer’s friend
I spent about two hours yesterday booking five hotel nights. I am staying at three different hotel chains since I found the best rates for my travel in different chains. I also filed two Best Rate Guarantee claims. One claim has been approved already reducing my hotel rate from $119 to $67 when I found a prepaid, nonrefundable rate at a Marriott Hotel for $90.30 on Expedia and there was no comparable rate on the Marriott website. I am still waiting to hear back whether I have a free room at a Holiday Inn based on another Best Rate Guarantee claim.
If the class-action lawsuit were to be upheld against the defendants, then the hotel industry would need some major changes to Best Rate Guarantee policies. Currently consumers can use Best Rate Guarantee claims to get free nights (Choice, IHG) or rate reductions of 10% to 25% on the lower rates (Club Carlson 25%, Hyatt 20%, Marriott 25%, Starwood 10%) or cash back (Best Western $100, Kimpton $25 F&B credit, Hilton $50).
If OTA sites were allowed to set their own hotel rates, then room rates would likely be lower at times for consumers with OTA flash sales on sites. The problem would be that hotels already lose around 15% to 30% of the room rate for rooms contracted out to OTA sites. If the OTA could then undercut the hotel’s own rates, the shift in bookings from hotel’s own websites to OTA sites would have a revenue impact on the hotel’s bottom line.
Some of the growth in OTA sites is from last minute flash sales. These are typically day of arrival rates that are not covered by most Best rate Guarantee policies which require claims to be filed at least 24 hours before hotel arrival.
One of the major draws for joining a hotel brand like Marriott Courtyard or Hilton Hampton Inn is the reservations system and software that helps hotel owners set room rates and maximize revenue. Hotel owners are in business to make money. For hotels to lose control of their pricing would have a major impact on the industry.
Online travel agencies are designed for the consumer. Hotels have to negotiate with the OTA sites as one arm of their room distribution model. Millions of consumers book through OTA sites like Expedia, Travelocity and others for the convenience of being able to compare rates in one place across many hotel brands in a location.
For the consumer the disadvantage of the OTA booking is no loyalty credit when booking major brand hotels on an OTA site like Expedia since the hotel is already giving part of the revenue to the OTA. Loyalty programs are the main incentive for sticking with reservations through the hotel brand websites. Hotels keep a higher percentage of the room rate when a room is booked through the hotel brand website compared to an OTA booking.
Perhaps rates are higher due to room rate control by the hotels and hotel chains. As long as there are Best Rate Guarantee policies offered by all the major hotel chains, I find great value in using meta-search sites like Kayak.com to compare rates and catch the frequent discrepancies between OTA sites and hotel brand sites for significant rate discounts.
As hotel loyalty members we are part of the proposed class action suit.
I have never had a decent refund as a member of a class action suit. I wonder what ten years of hotel room bookings and $50,000 or so in hotel spend would come my way in a settlement?
Proposed Class
The proposed class would include all people nationwide who paid for hotel rooms reserved through the defendants’ online websites from Jan. 1, 2003 to May 1, 2013, according to court filings. It wouldn’t include room reservations made as a part of a package deal or where the name of the hotel wasn’t disclosed until after paying for the reservation.
The online travel site defendants include Expedia, Hotels.com LP, Travelocity.com LP, Booking.com B.V., Priceline.com Inc. (PCLN:US), Orbitz Worldwide Inc.
The hotel defendants include Starwood, Intercontinental Hotel Group, Marriott International Inc., Trump International Hotels Management LLC, and Hilton Worldwide Inc.
The lawsuits were initially filed last year and combined in a multidistrict litigation, or MDL, in February.
The case is In re On-Line Travel Company (OTC)/Hotel Booking Antitrust Litigation, 12-cv-3515-B, U.S. District Court, Northern District of Texas (Dallas).
Bloomberg Business Week Dec 17, 2013.
Do you think Online Travel Agencies should be allowed to offer lower rates than the hotel’s rates on its own sites?
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Ric Garrido of Monterey, California is writer and owner of Loyalty Traveler.
Loyalty Traveler shares news and views on hotels, hotel loyalty programs and vacation destinations for frequent guests.
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