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«BRITISH HOSPITALITY ASSOCIATION SUBMISSION 1. This response is submitted on behalf of the British Hospitality Association (“BHA”) which is a ...»

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2 October 2015

BRITISH HOSPITALITY ASSOCIATION SUBMISSION

1. This response is submitted on behalf of the British Hospitality Association (“BHA”)

which is a representative body for the UK hospitality and tourism industry, speaking

on behalf of 40,000 hospitality and tourism establishments, including hotels,

restaurants, catering and facilities management companies, attractions and aparthotels in the UK.

2. The BHA has conducted two surveys with its members relevant to this call for evidence, the first asking them to respond to questions 3, 4 and 5 of the call (“Survey”). The second survey mainly concerned the National Living Wage but also sought information regarding OTA commissions in the UK hospitality industry, which is included in the answer to question 4b.

SUMMARY

3. In summary the answers provided to the Inquiry’s questions set out below indicate that the

BHA and its members agree that:

- online platforms in their industry have provided a wider market place with global reach, resulting in exposure to more customers and increased business but this has come at a price. The growing power of online platforms has created a market which is not competitive and in which businesses and customers alike have less choice;

- that it is no longer feasible for the majority of hospitality and tourism venues to operate without online sales, as most searches for hotel, restaurant and other bookings are made online. Venues must therefore make agreements with online platforms and are obliged to choose the largest platforms, since these are the ones visited by customers. They are visible on the first pages of a customer’s search, venues own websites appearing several pages on;

- as a result, venues, in particular SMEs have little bargaining power and agreement terms are controlled by the online platforms, resulting in contracts which include “parity clauses” and “most favoured nations” clauses;

- a myriad of other concerns arise as a result of this platform/industry/customer imbalance. These include excessive commissions and lack of transparency on the part of online platforms, whose websites are often confusing and misleading for the customer, for example, in not providing the customer with key information about pricing, how ratings are awarded to venues, terms of booking and so on;

- the need for answers to these problems is pressing as the most powerful online platforms have grown in strength very rapidly, in control of the market and in wealth, giving them enormous resources to consolidate their position. This Inquiry is welcomed by the BHA as a key step in considering how to regulate online commerce and how to implement regulation in the short term, particularly since reliance on existing legislation is not seen as an effective tool for addressing the issues raised, rapidly and cost effectively.

4. In response to Q.1 Do you agree with the Commission’s definition of online platforms? What are the key common features of online platforms and how they operate? What are the main types of online platform? Are there significant differences between them?

Yes, the definition is accurate.

The main types of online platform used in the hospitality and tourism industry are online marketplace platforms such as Booking.com, Expedia, Laterooms.com, Lastminute.com, Opentable and Bookatable and search engines such as TripAdvisor and, of course, Google as initial search engine of its customers.

Online marketplaces deal with the booking of hotel rooms, restaurant tables and so on, whilst search engines provide information about available venues in particular areas and with particular characteristics and provide comparative pricing. There are links on search engines directing customers to Online Travel Agents (“OTAs”) and other hospitality and travel marketplaces. The large online platforms now often own both the search engine and online marketplace platforms, including OTAs, blurring the distinctions between different platforms, as does, for example, searching Google Maps for the location of a restaurant and being able to click on Open table within the Google app to book.

5. In response to Q.2 How and to what extent do online platforms shape and control the online environment and the experience of those using them?

See our answers to questions 3 to 5.

6. In response to Q.3 What benefits have online platforms brought consumers and businesses that rely on platforms to sell their goods and services, as well as the wider economy?

Following the answers received in the Survey the BHA can say, in summary, that there is consensus that on-line platforms, including on-line travel agents (OTAs) and search engines, have been instrumental in enabling the industry to reach customers globally, resulting in an increase in business and exposure to a wider audience in Europe and the rest of the world.

“Increase in business, and exposure to a wider audience.

More exposure to potential guests, therefore increased sales” Marketing and the expertise of online companies has enabled large businesses to extend global brands and revenue streams, whilst SMEs have been able to use OTA’s marketing resources to reach many more customers.





“The OTAs helped smaller businesses, who couldn't afford the expertise on their own, have access to the www as it replaced the various guide books travellers had used.

Global brand coverage. Huge increase in global revenue streams. Efficiency savings in coordinating pricing, supply and booking delivery/creation.” OTAs and search engines such as Tripadvisor are seen as useful for consumers since they provide “one-stop shops” for travellers.

“The ability for a service provider to reach a wider International audience without extra work or language translation issues.

Online Travel Agents (OTAs) create a 'one-stop-shop' for travellers. They allow a guest to search in an area and instantly find all of the hotels in the area. Guests browsing the web no longer have to trawl through lots of different websites. They have very much replaced the old-fashioned guide book in this sense.”

7. In response to Q.4 What problems, if any, do online platforms cause for you or others, and how can these be addressed? If you wish to describe a particular experience, please do so here.

Following the Survey the BHA can say, in summary, that the key issues raised are:

a) The so–called parity clauses included by OTAs in their agreements with hotels and serviced apartments. These “most favoured nations” clauses are very restrictive: prices, commercial conditions (type of room, etc.) and number of rooms offered listed on the OTA’s website must be equal to or more attractive than prices offered by the hotels themselves, all other OTAs and off-line booking channels.

Recently, following various complaints resulting in “settlements” throughout Europe, Booking.com and Expedia have agreed to introduce “narrow parity” whereby a hotel can offer other OTAs lower prices, more rooms and better commercial terms but must not itself offer better terms on its own website than the OTA with which it is contracting. In practice, however, the combination of this “narrow rate parity” and the hotel’s “Best Price Guarantee” means that hotels cannot discount prices through rival OTAs. The result is that the customer is left without a choice, as prices are the same across the market place.

“Restrictive pricing. They all say that we cannot charge less than they do, but that we can offer different pricing to other OTAs. However as they all have the clause "not less than us" clause, they effectively fix a single price and remove competition.

It is tantamount to price fixing when the platform contracts the operator to giving best prices and best price guarantee to them. Businesses should be free to choose which prices strategy they want and decide which price to give to who: direct booking or via OTA's.”

b) Another key concern is the amount of commission taken by the OTAs, felt to be unrealistically high, ranging between 15%-25% and, on occasion, between 10%The survey conducted by the BHA on the National Living Wage is relevant to this issue. It provided 99 responses from hotels answering questions about OTAs.

The total turnover of the 99 was £1.03 billion or about 4% of the total hotel and similar turnover of £24 billion (source Oxford Economics). 96 of the 99 obtained business via OTAs, 3 did not.

The question “What percentage of your sales are via OTAs?” provided the answer that, of the total £1.03 billion turnover, £489.5 million (47.4%) came via OTAs.

The question “What is the average rate of commission you pay to Online Travel Agents on these sales?” gave the answer that total commission paid to OTAs on the £489.5 billion was £77.26 million, which is an average 15.8% commission on those sales and equal to 7.5% of all sales.

It is worth noting that the total turnover of hotels and similar turnover is £24 billion, if the 7.5% is applied across the whole sector, that would be £8 billion in commissions to OTAs.

Members comments in response to the Survey were focussed on the high level of commission, the effect on room prices to customers and the lack of clarity in booking

methods such as “pay per click”:

“OTAs charge commission of between 15-25%, as the share of business which OTAs bring to a hotel increases, so does the hotel tariff. Thankfully, we have a relatively small percentage of our business coming through OTAs, but our prices have increased across the board by around 5% to cover these commission charges. I know of some hotels who claim that their general tariff has increased by 10% to cover OTA commission. By comparison, a conventional travel agent charges 8% commission, and their involvement is normally much more labour intensive.

VERY expensive commission charges, 20% commission is too high.

Increase in costs to both the business and the end consumer. Commission levels are not proportionate to the effort expended.

Booking.com and others compete against us as a vendor causing an unfair market place (Competition and Markets Authority ref is CE/9320-10) whereby we have to Pay per click to compete against a partner who will also charge us a commission for a booking.” Of particular concern is the lack of transparency for the consumer, who is often unaware that a commission is being charged by the OTA or that this inevitably increases the cost of the room. Even when a breakdown of the room charge is given on the platform, the commission is usually not identifiable but simply included in “costs and taxes”.

c) The power of OTAs and search engines is felt by all hotels but especially by SMEs. OTAs and search engines have huge budgets for advertising and are able to pay to position themselves at the top of or high up on the Google page, often leaving the hotel’s own website, particularly if it is a SME, to be found several pages on.

“Their huge size and marketing muscle effectively bullies us into submission. We use Booking.com, which then means that any online search for our hotel name or related search, has a Booking.com banner advert at the top of the first page. We cannot compete with that, and it drives our customers through to the OTA because they click the first link they see that relates to us.” Customers who search by the name of the hotel are often drawn to an OTA or search engine which is confusingly similar to the hotel website, leading some customers to believe that they are booking on the hotel website. Many other features of OTA websites are misleading and not transparent - such as how the platform awards rating stars.

“Our particularly bad experience was with Expedia or Venere who had set up a website, which appeared to be our official website on their Irish system and UK, using our photos (they had asked our permission for use of photos to help promote us to their clients) and which took quite a few bookings from people, who thought they were booking with us direct, on which they were charging us 23% commission.

Their IT departments have set up algorithms on all search engines preventing the general public from having a choice and finding exactly what they are looking for. Many internet search engine pages are now only full of sponsored ads by Booking.com, Trivago, Lastminute.com, etc. so when anyone tries to find a specific page it cannot be found. We have had previous guests who cannot find our contact details as even a search for our own website still leads them to Booking.com etc where they finally make their reservation as they give up trying to find us.” There is a general consensus that OTAs and search engines in working together dominate the marketplace and create an anti-competitive marketplace for the hospitality venues and consumers. An additional concern is that the large online platforms are coalescing –Expedia and Trivago, Priceline/ Booking.com/Open Table/Kayak giving them a dominant position.

Other concerns include customer reviews on websites, such as TripAdvisor, which are felt to be unfair since they frequently give no right of reply to the establishment reviewed. The way in which ratings are given to venues is not disclosed to the customer and, contrary to the belief of consumers, it is not simply based on the quality of the venue or its match to the customer’s search requirements but includes factors such as the commercial value of the venue to the online platform.

It is also felt that OTAs fail to take responsibility in general for booking practices. Whilst their insistence on retaining customer contact details and not giving them to the venues lacks transparency. From a purely practical point of view, it makes difficult for the hotel to manage the customer’s stay, affecting the quality of service enjoyed by the customer.

8. In response to Q.5 In addition to concerns for consumers and businesses, do online platforms raise wider social and political concerns?

Following the Survey of BHA’s members, the BHA can say, in summary, that online

platforms are thought to raise serious social and political concerns:



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