Major online travel agencies are seeking to reverse a federal court’s public disclosure of how they calculate their service fees when selling hotel rooms using the merchant model.
The OTAs for a decade have bundled their “taxes and fees” when consumers book hotel rooms on a merchant model basis because the OTAs sought to hide their margins out of competitive concerns. In so doing, consumers are kept in the dark about how much taxes they are paying and how much is allotted for service fees.
But in handing the OTAs a $20.6 million or more defeat in the City of San Antonio vs. Hotels.com class-action lawsuit, Judge Orlando Garcia made several revelations, which the OTAs may consider confidential.
In filing an advisory motion on July 5, four days after the judge’s ruling, the defendants cited one of the revelations that they deem should be confidential. “For example, the court disclosed the method and manner that Hotels.com calculated its service fee…” the OTAs stated.
As part of its ruling, the court, citing testimony, disclosed that:
- For around 11 years, “Hotels.com’s service fee was calculated by taking the markup or margin and multiplying it by the tax rate.”
- “For six years, Travelocity’s variable surcharge was calculated by taking the markup amount and multiplying it by the tax rate, resulting in the same amount that the Cities contend should have been paid in taxes…. In November 2008, the variable surcharge was dissolved and the fixed service fees went from 2.61 to 5.5%.”
- Expedia, too, used an adjustable service fee that equated to the amount the cities deemed they were owed on Expedia’s markup.
In their advisory motion, the online travel agencies alleged that the court erroneously disclosed confidential information that was part of a protective order and a pending motion to redact the transcript of the trial.
The defendants therefore asked the court to “temporarily” seal the judge’s July 1 ruling, which already has been made public.
The defendants asked the court to seal the ruling “immediately” because they realize it would be used in other court cases around the country and then they would have to file similar motions to block the revelations of what they consider to be confidential information in those courts.
In his July 1 ruling, the judge stated that the OTAs, when selling hotel rooms in Texas, should collect taxes on the retail rate and transparently disclose their taxes and fees. If they did so, then there would be no mystery concerning how they calculate the service fees they charge.
But, the OTAs plan to appeal the judge’s ruling about their hotel tax liabilities.
The court on July 1 also disclosed several items about OTA-hotel contracts that the OTAs assuredly didn’t want to see in the public domain.
Among them, the court revealed:
- The 2006 Expedia-Marriott contract and an Expedia agreement with InterContinental Hotels barred the hotels from advocating that the online travel agencies should collect tax on their markups.
- In the run-up to InterContinental Hotels’ withdrawal from Expedia in 2004, InterContinental Hotels pressed Expedia to transparently display taxes and fees. Expedia and sister company Hotels.com refused to do so, and the hotel group didn’t do business with the two for a couple of years.
- Although the OTAs claim the wholesale rates they get from hotels are confidential, OTA-hotel contracts, “with rare exception,” include “parity and most favored nation clauses and the various OTCs have the same wholesale or net rate with the hotels and/or hotel chains.”
- Expedia and Hotels.com collected taxes on the retail rate when selling hotels using the merchant model for a short period, ending in 2002.
The court also provided a possible glimpse into the online travel agency e-commerce world in the event that they are forced to pay taxes on their margins when selling rooms using the merchant model.
The judge noted that: “The OTCs (online travel companies) concede that they currently make enough revenue through their markup and service fee to charge taxes on the margin and still make a considerable profit.”
In the event that the OTAs had to pay taxes on their margins, they simply would pass on the additional taxes to the consumer, the judge quotes a Travelweb (Priceline) official as testifying.