The ACCC has confirmed it is investigating whether to take action to address issues within the online travel booking industry, amid persistent concerns that independent hotel and motel operators are being ripped off by online travel agents (OTAs).
Online travel booking agents (OTAs), such as booking.com and Expedia, have exploded in popularity in recent years, but members of the industry say the proliferation of the services is having an unprecedented impact on small businesses in the sector.
It comes as calls to address conduct in the industry mount, with outspoken entrepreneur Dick Smith last week slamming OTAs for “extorting money” out of local businesses.
SmartCompany has spoken to half-a-dozen independent hotel and motel owners from across the country who believe OTAs are damaging their businesses, ripping off consumers and effectively forcing them into unfair agreements.
Operators report signing contracts with so-called ‘pay parity’ clauses that prevent them from advertising cheaper rates on their websites than those listed by OTAs.
Meanwhile, customers who make direct contact either in person or over the phone are offered cheaper rates, reflecting the commission operators are obligated to pay online agencies for referrals, which can be as high as 20%
One owner described the commissions as “exorbitant”, saying that while around half of his new business is being referred through OTAs, the bookings made little business sense.
Another, who asked not to be named for fear of retribution, says they were threatened with being thrown off one online booking site for violating a pay parity clause.
“They said they would kick us off the platform,” the business owner says.
“It feels like some kind of extortion.”
“We’d go out of business”
These operators feel as though they’re being “ripped off” by the platforms but say that they’ve got little choice but to sign-up due to the popularity of OTAs with consumers.
“We’d go out of business if we weren’t on these sites,” says one motel owner, who derives 80% of their business from OTAs.
“I don’t know a single property that’s not listed.”
Others said ditching the platforms isn’t an option because search-engine listings prioritise larger platforms over the websites of independent players.
Mark Henderson, owner of the Golden Hill Motel in Bendigo, Victoria, told SmartCompany that even a direct Google search for the name of his business delivered first and second ranking results for booking.com and Expedia-owned Trivago.
“It just isn’t a level playing field,” he says.
The small business owners SmartCompany spoke to are not alone. A recent survey of 6,500 independent accommodation providers carried out by the Australian Accommodation Association found OTAs are playing on the minds of many operators.
“This is the number one issue in our industry,” Richard Munro, chief executive of the association, told SmartCompany.
Munro says businesses are facing losing 30-60% of their business overnight if they were to be kicked off online booking platforms, forcing them into a position of compliance.
“We want operators that have made long term investments to have the right to be able to put prices to consumers that don’t have to be equal or above what the OTAs have,” he says.
Higher commission? Better rankings
Compounding concerns, emails sent to an owner by Expedia and seen by SmartCompany show operators are also competing for search rankings within the platforms themselves.
A listing assessment sent to one owner notifying them of a “very poor” listing warned their access to features could be affected
The email said the offer was intended to “assist” the owner with “assessing the competitiveness” of their property if they “wished to do so”.
But several operators claim rankings on Expedia-owned sites have more to do with how much commission partners pay. They claim those willing to fork over a bigger slice of their business receive preferential treatment.
“Anyone paying 20% is top ranked,” one owner explains.
Expedia Group did not respond to requests for comment when contacted by SmartCompany, but booking.com spokesperson Jaime de Silva says search rankings aren’t determined by commission rates on its platform.
However, booking.com does have a preferred partner program that it uses to provide a selected group of partners with more prominent listings on its website.
“Every preferred property must first meet our performance criteria, because we ultimately only showcase excellent accommodations as preferred partners in order to ensure a great consumer experience,” she told SmartCompany.
“It’s a choice”
De Silva said booking.com processes 1.5 million bookings globally every day, which makes the platform a valuable “marketing tool” for small businesses.
“When we have a property sign up and list on our website all we ask, because we can bring them a lot of eyeballs … is not to undercut our customers and to provide the same rates on booking.com as they do on their channels,” she explains.
De Silva says booking.com has Australian-based support staff to help partners with concerns about its platform, and that “on average, partners ‘love working with booking.com’”.
“It’s a choice. If they feel that booking.com doesn’t bring them a big return … then they’re free to take their marketing dollars elsewhere,” she says.
But many small accommodation providers believe the size of the big OTA companies makes them impossible to ignore.
The online travel booking market is dominated by two key players, described as a “duopoly” by local industry stakeholders: US-based Expedia Group and Booking Holdings.
Expedia Group — which owns namesake Expedia, Hotels.com, Trivago, Wotif and Stayz.com.au— says it operates more than 200 travel booking sites across 75 countries, posting $US10.7 billion ($15 billion) in revenue for the year ended 30 June.
The company acquired Australian-founded Wotif.com for $703 million in 2014.
Booking Holdings — which owns Booking.com, Priceline.com Kayak and Agoda— says it operates in more than 220 countries and generated more than US$81 billion ($113.9 billion) in gross bookings in 2017.
Together Booking.com and Expedia Group account for 53.1% of Australia’s $1 billion online travel booking market, which has grown at an annual rate of 16% over the last five years, according to IBISWorld.
Push for ACCC action
The combined market power of the companies is raising eyebrows with local regulators and small business advocates.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell says she’s had multiple complaints from small businesses about the conduct of OTAs.
“This is a huge issue … [operators] can’t afford not to deal with them, but they can’t advertise their own rooms separately for anything less,” she told SmartCompany.
Carnell believes the size of the OTA giants may merit the creation of a legislated code of conduct, similar to the way in which the ACCC regulates large operators in the grocery space, including supermarkets Coles and Woolworths.
“A clause that stops a business being able to market its own rooms at a lower price than on their own platform is restrictive trade and that’s not okay,” she says.
The ACCC investigated the impact OTAs were having on the local market in 2016, resulting in amendments to price and availability parity clauses in partner contracts.
These changes allowed operators to offer lower rates to customers over the phone or in person, but not online.
Small business owners SmartCompany spoke to also called for renewed action, with one saying that they felt as though the ACCC had dropped the ball in 2016.
“The government needs to push the ACCC to act,” they said.
Overseas, regulators in Europe and the UK are already taking actions to safeguard businesses and consumers against the conduct of OTAs.
The UK’s competition and markets authority (CMA) launched enforcement action against hotel booking sites earlier this year, saying that it had “widespread concerns” about the conduct of online platforms. Meanwhile, regulators in Italy, France and Germany have outlawed parity rates.
SmartCompany understands the ACCC has reopened an investigation into OTAs, with both Expedia and booking.com referencing discussions with regulators in recent NASDAQ filings.
“The Australian NCA [national competition authority] indicated that it has reopened its investigation,” Expedia said in its 2018 annual report.
In a statement provided to SmartCompany, the ACCC said it is assessing whether further action within the online travel booking industry is warranted.
“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,” a spokesperson said.
“Accommodation providers with concerns about parity clauses can contact the ACCC.”
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