Pay parity contracts which prevent independent motel and hotel operators from undercutting online travel giants will be outlawed if Labor wins the next election.
Moving to address the “number one issue” facing Australia’s accommodation industry on Tuesday, Labor said platforms such as Expedia and Booking.com are using their market power to serve small business with a raw deal.
The reforms will target pay parity clauses, which online travel agents (OTAs) use to prevent businesses on their platforms from advertising cheaper prices on their own websites.
Independent hotel and motel owners SmartCompany has spoken to say they feel ripped off by the contracts, but feel forced to sign to generate new business, paying steep commissions between 10-30%.
It’s resulted in an extraordinary scenario where customers who call providers directly or visit in person are offered cheaper rates than those booking online.
Shadow Assistant Treasurer Andrew Leigh said the OTAs function as an effective duopoly in Australia, using their market power to charge non-competitive fees.
“They’re frankly gouging local hotel owners,” Leigh tells SmartCompany.
Regulators in Italy, France, Germany and Sweden have already taken action on the use of pay parity clauses by the OTA platforms, which turnover billions of dollars each year worldwide.
Leigh believes it’s time for Australia to follow suit, expecting a ban on pay parity clauses will put downward pressure on the commissions the platforms are able to charge.
Richard Munro, chief executive of the Accommodation Association of Australia, which represents independent hotel and motel owners, describes Labor’s announcement as “historic”.
Digital marketing still an issue
However, while Labor’s policy addresses pay parity clauses, it doesn’t deal with broader concern about the grip OTAs have on online discoverability.
Operators SmartCompany has spoken to say they struggle to get noticed by customers online because the giants dominate search result listings, driving most business through their platforms.
Mark Henderson, owner of the Golden Hill Motel in Bendigo, Victoria, has said even a direct Google search for the name of his business delivers first and second ranking results for Booking.com and Expedia-owned Trivago.
“It just isn’t a level playing field,” he has said.
Others have reported receiving as much as 80% of their business from OTAs, complaining there’s little option but to join up.
Leigh says Labor’s principal focus is on ensuring there’s “proper competition” in the accommodation market by ensuring consumers can still go direct and save money.
“A platform like Expedia or Booking.com will invariably have a stronger presence online than any individual hotel but that doesn’t entitle them to be getting nearly a third of the booking fee,” he says.
Industry looks to the ACCC
The ACCC had already been investigating the use of pay parity clauses by OTAs, but Labor said on Tuesday it would launch a renewed investigation into the use of such terms in other industries if elected.
The exact scope of the ACCC’s current review is unknown, however, the competition watchdog indicated it extended beyond the use of pay parity clauses last year.
“The ACCC continues to look into potential issues within the online travel booking industry, including parity clauses, to see if further action is warranted to improve competition and business practice,” an ACCC spokesperson said last September.
Munro said on Tuesday the industry is keenly awaiting the outcome of the ACCC’s probe.
“[discoversability] is something that hasn’t been addressed … we’re very much relying on the ACCC to make the right decision,” he tells SmartCompany.
Munro says action on pay parity is “one part of a broader issue” but is confident the reforms will put some power back into the hands of independents.
“It will hopefully recalibrate the way people book.”
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