There has been a lot of talk in the press and discussion forums about the “fall” of rate parity in Europe and its implications.
Most of the new rules and proclamations in Europe thus far concern Most Favorite Nation (MFN) clauses in the hotel-OTA agreements. In the case of France, a new “rate parity” law was adopted in August, which directly affected the rate parity clauses in the hotel-OTA agreements in this country, and most probably will have Pan-European repercussions as well.
I believe one of the reason for the confusion about what exactly is happening and has happened in Europe is that the analysts and editors are mixing two completely separate issues: Most Favorite Nation (MFN) and Rate Parity.
Most Favorite Nation: this is historically the contractual requirement by Booking.com in Europe that a hotel cannot give a lower rate to another OTA. This MFN requirement does not exist here in the U.S. and Booking.com and Expedia both take advantage of various exclusive deals a hotel extends to them based on the property’s business needs. The 24-hour exclusive sales on Expedia fall into this category.
Rate Parity traditionally means maintaining the same publicly available rate for the same room/same stay across all public distribution channels. Rate Parity is not a new online policy specifically designed for the OTAs. It existed long before the “commercial internet” came into being and there was only one reason for its existence: it made revenue management and management of distribution channels much easier. All major hotel chains and smart hoteliers applied rate parity across all offline distribution channels: voice, walk-ins, GDS/brick-and-mortar travel agents, etc. With the advent of the online channel, this business policy was applied to the hotel website and the OTAs as well.
Rate parity in the OTA–hotel relationship means the OTA has access to any publicly available rate a hotel might have. Rate parity does not preclude one OTA or Flash Sales Site to get special lower rates for a private sale: this is why Groupon Gateways, Expedia Gateways, JetSetters.com, etc. are still in existence today. The fact that this offer is extended only to a “private membership club” is what circumvents the requirements of rate parity.
So what actually happened in Europe?
As a result of industry pressure, legal challenges and anti-trust laws, Booking.com “voluntarily” dropped the MFN requirement from its contracts with hoteliers. This past summer, rate parity was de facto abolished in France as a result of the most anti-rate parity government legal action yet. So in theory, any French hotel can now sell at whatever rates they want, unencumbered by the OTA rate parity restrictions. Only time will tell whether similar rate parity legislation will be adopted in other countries of the European Union or across the Atlantic.
Is hospitality ready for the end of the Rate Parity Era?
Some hoteliers argue that the industry would be better off without rate parity because hoteliers would be able to sell at whatever rates they want, free from the OTA rate parity restrictions. In other words, the abolishment of rate parity would be a good thing for the industry.
Unfortunately I find these arguments rather naïve, especially coming from hoteliers who consistently under-invest in the direct online channel, and in their digital marketing and technology.
Read full article at: Hotel Online