April 28, 2015

Rate parity: The battle to determine how hotel rooms are bought

Rate parity is under challenge and most industry observers believe it will soon either loosen up or disappear entirely. And that, in turn, will have a big impact on how you shop for hotel accommodations. Currently, the center of the challenge is in Europe, but whatever happens in Europe will almost certainly cross the Atlantic, and vice versa.

While OTAs and the major hotel brands favor or at least accept price parity agreements rate parity agreements, some individual hotels don't like the fact that, with a parity agreement in place, they can't sell a room at a lower price on their own website than through the chain's website or an OTA. Individual hotels pay really big commissions - 15 percent to 20 percent - to OTAs, and that's a lot off the top to give away to a third party. They're willing to give that much away, however, because they know that a huge portion of their total room bookings - as much as half in the US and 70 percent in Europe - originate from customers who find them through OTA and aggregator searches.

How would a weakening of price parity affect the consumer? The primary question is whether individual hotels could avoid parity agreements and offer rates on their own websites lower than those they give the big OTAs. If so, aggregators could search hotel's own website in the search process, as Kayak now does with airfares. Aggregators would then displace OTAs such as Expedia and Booking.com as your initial go-to source for hotel search. TripAdvisor, which currently does not search individual hotel websites, could easily do so, and with its unparalleled base of customer reviews, could become a huge threat to the dominance of OTAs. And even with all the online searches, many travelers would be more likely to check with a hotel's own website for better deals.

Get the full story at the Chicago Tribune

Read also "Booking.com rate parity settlement only a half-step forward"