Australian hotels deserve a better deal, writes Labor’s Ed Husic and Andrew Leigh
Monday, April 1, 2019AND /
Australia has some amazing little hotels. There are beachfront places where guests track sand into the lobby. We’ve got cosy bed and breakfasts off the beaten track. From Magnetic Island to Manly, there are a plethora of places where you can feel at home while enjoying a night away.
Over recent years, we’ve increasingly come to book those places through online travel platforms. They trade under a host of names — Expedia, Kayak, Hotels.com, Wotif, Priceline, Booking.com, Trivago and more — but they’re really just two large firms, which together control 84% of the market. Both are multinationals, headquartered in places that seem chosen more for their tax advantages than their proximity to the accommodation sector.
The online booking duopoly has used its market power exactly the way an economics textbook would suggest. The commission hotels are charged isn’t just a few per cent, as with a credit card, but can be up to 30%. That’s right: just for linking up customers with accommodation providers, they’re charging up to 30% of the bill. That leaves only 70% for the people who change the sheets, wash the towels, vacuum the carpets and run the reception.
A key way the duopoly has come to dominate the market is by requiring hotels not to offer a cheaper price on their own websites. These ‘price parity clauses’ steer people away from dealing directly with motels, hotels and bed and breakfasts, because they know they can’t get a better deal by making a direct internet booking.
Because of the effect the price parity clauses can have on quashing competition, they have been banned by a number of other countries, including Germany, Italy, France, Sweden, Belgium and Austria.
Under a Shorten Labor Government, Australia would do the same. Hotel guests would be welcome to use the multinational online platforms, but they might also want to check out the accommodation provider’s own website, where they could find a better deal.
In times past, we’ve seen the major accommodation websites open up new opportunities, enabling consumers to get a better deal or find a new out-of-the-way hotel or motel. This has been good for hotels and consumers. But when anti-competitive behaviour creeps in — that forces the hand of hotels and their potential guests — there is reason for the government to step in.
Richard Munro, chief of the Accommodation Association of Australia, has described our policy as a ‘historic announcement’. As he puts it: “Effectively this means that our industry, should the Labor Party win office, be able to finally offer the best rate directly to our customers without fear of being darkened or threatened by these big multinational online booking platforms.” The winners, Munro says, “will be the operators of small business and the public who can finally get a better deal by going direct online once this legislation is passed”.
The week after we announced the policy, we got a breakthrough. Expedia, which has 38 % of the market, announced they will no longer use price parity clauses to stop Aussie hotels from offering the best deal to people who book direct. We still need to ensure Expedia won’t indirectly punish hotels that offer the best deal on their own sites, but it’s a promising start. We’re calling on Booking.com, which has a 46% market share, to do the same.
Fair treatment for Aussie hotels is just one part of the broader debate that will characterise the coming election. As the leading champion of a big-business tax cut, Scott Morrison is a believer in trickle-down economics: the idea that giving goodies to the top end of town ultimately helps everyone. By contrast, Bill Shorten believes in flow-up economics: the idea that if you want the economy to grow, you should start local, and foster fairness.
With wage growth in the doldrums and consumer spending languishing, it’s time we put up the ‘no vacancy’ sign for trickle-down economics, and give flow-up economics the warm welcome it deserves.
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