In a development which will be closely studied by the UK hotel and hospitality industry, UK competition regulator the Office of Fair Trading (the “OFT”) has accepted formal commitments from two of the UK’s largest online travel agents, Booking.com B.V. (Booking.com) and Expedia Inc (Expedia), together with InterContinental Hotels Group plc (IHG), which will enable online travel agents (OTA’s) and hotels to offer discounts on rates for hotel rooms.
The OFT said that the commitments should increase competition within the industry and mean travellers across Europe can benefit from reductions on hotel accommodation throughout the UK.
The OFT’s investigation centred on competition concerns that Booking.com and Expedia each entered into separate agreements with IHG which restricted each OTA’s ability to discount the rates at which room-only hotel accommodation bookings are offered to consumers.
The commitments will remain in place for two years and will extend to bookings made by residents in the European Economic Area in respect of hotel rooms at hotel properties located in the UK. Their effect will mean that all OTAs and hotels that deal with these three businesses will be able to offer discounts off headline room-only rates so long as customers:
-sign up to the membership scheme of an OTA or hotel to be able to view specific discounts, and
-make one undiscounted booking with the OTA or hotel in question to be eligible for future discounts.
The discounts offered by OTAs will be funded through their commission or margins. In relation to the parties existing commercial arrangements with each other these will be amended to ensure that they comply with the commitments principles without undue delay and in any event within one month. In the case of their arrangements with third parties, the parties will use reasonable endeavours to procure the consent of the counterparty to ensure that their existing commercial arrangements comply with the commitments principles without undue delay and in any event within three months.
The investigation was launched by the OFT following a complaint by a small rival on-line travel agent which alleged that the inability of OTAs to offer discounts stifled price competition on the market and acted as a barrier to new entrants or to the expansion of smaller agents already present in the market in favour of larger on line competitors. These commitments should now enable new online agents to enter the market or expand by offering attractive discounts.
The OFT limited its investigation to a small number of major companies. Expedia and Booking.com are two of the largest OTAs in the UK and IHG is the largest hotel company world-wide, measured by room numbers.
Whilst the commitments only relate to the operations of these companies the OFT will be looking to other companies in the industry to adjust their behaviour or face the threat of further regulatory action. The findings are also likely to be watched with interest by the EU Commission and other national European regulators