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How hotels can remain compliant following CMA ruling on OTA rate parity

By Charles Livingstone

- Last updated on GMT

How hotels can remain compliant following CMA ruling on OTA rate parity

Related tags: Otas, Contract, Competition

Following last month's decision by the Competition Markets Authority (CMA) to close its investigations into rate parity agreements between hotels and online travel agents (OTAs), Charles Livingstone, a partner at law firm Brodies LLP, gives his top tips for hotels to ensure they remain compliant with the law.

Competition authorities across Europe and beyond have been investigating rate parity agreements between hotels and online travel agents (OTAs), which prevent the hotels offering, or allowing other OTAs to offer, discount rates to customers unless the OTA also gets access to that lower rate. The concern is that these agreements have had the effect of restricting price competition for hotel rooms.

The UK investigation initially resulted in the OFT accepting proposals from certain hotel groups and OTAs to allow discount offers to 'closed' groups of select customers. However, that agreement was struck down by an appeal from Skyscanner, and so the CMA had to reopen the investigation.

In response to the various European investigations, Booking.com and Expedia have now announced the EU-wide waiver of their parity restrictions regarding other OTAs. Hotels are therefore now free to let other OTAs offer discounted rates.

Hotels can still not offer discounts themselves, however, so it may not be the end of the story. The French have already outlawed parity for hotels too. 

The CMA considered these developments and last month decided to close its own investigation without further action, although they will be monitoring how the market responds. 

There is likely an expectation that other OTAs will also waive any parity clauses. Hotels and OTAs should therefore be reviewing their contracts to ensure they are both taking advantage of the new environment and avoiding running competition law risks of their own. 

Here is the best way to ensure they remain compliant with the law:

Check parity clauses

If hotels have contracts with Expedia and/or Booking.com, or any other members of the Priceline group, such as Agoda, they should check that they have had confirmation that any parity clause has been waived in respect of other OTAs. If they haven’t had that confirmation, they should be asking for it.

Review existing and prospective contracts

Hotels should also review their existing and prospective contracts with other OTAs, to identify parity clauses and then take advice on whether they create a risk of a competition law breach, which can lead to significant fines for all the parties involved.

While other OTAs are not covered by the commitments given, and parity clauses have not been declared generally unlawful by the competition authorities, their compatibility with competition law remains an open question. The OTAs will be dealing with the same uncertainty.

Seek advice

Neither Expedia nor Booking.com (nor any other OTA) has agreed to waive restrictions on what hotels can offer through their own websites and other direct channels. However, hotels, and indeed OTAs, may still want to take advice on whether such restrictions could breach competition law.

If OTAs are unsure about the lawfulness of their parity clauses, whether covering other OTAs or the hotel itself, raising a potential competition law issue may give hotels greater scope to negotiate more flexibility into their contracts.

Follow developments

Although the CMA has closed its own investigation, other countries around Europe and beyond are still investigating parity clauses. Hotels should keep an eye out for developments in those countries that could have a knock-on effect in the UK.

The CMA will be reviewing how the UK market reacts to the Expedia and Booking.com commitments over the next 12 months. Hotels should feel free to send the CMA any views they have on whether the changes are good, bad, go too far or not far enough.

If a hotel is particularly unhappy with an existing parity clause, it doesn’t have to wait for a competition authority to take action. They could take the initiative and challenge the agreement in court as a void breach of competition law.

Related topics: Business, Legislation, Hotels, Ask the Experts

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