hotel bell money
793 days ago
 

Another hotel price fixing class action emerges in the US, same defendants as previous complaints

Are we seeing the floodgates beginning to open with the hotel price parity issue? Perhaps so, with news of another attempt at a class action in the US against online travel agencies and hotel chains.

The latest to emerge has materialised in the state of Texas where an individual, James Smith on San Antonio, who has cited the same names in the industry as last week’s class action in California:

  • Orbitz
  • Expedia
  • Hotels.com
  • Travelocity
  • Priceline
  • Booking.com
  • Sabre
  • Trump International Hotels
  • Kimpton Hotel & Restaurant Group
  • InterContinental Hotels Group
  • Hilton Worldwide
  • Starwood Hotels & Resorts
  • Marriott

In the court documents filed at Dallas Federal Court, Smith highlights a recent experience when he tried to book a room in Las Vegas via Expedia.

Smith says he was unable to get the best deal because the hotel (Treasure Island Hotel and Casino) because of an alleged secret agreement between it and Expedia so that customer do not pay less than a “guaranteed minimum mark-up”.

He adds that he was forced to pay “artificially inflated prices due to the conspiracy and has been damaged by the conduct” of the defendants.

The documents filed in Texas are almost identical in terms of structure and wording of the complaint, hinting at a wider and coordinated grass-roots campaign emerging.

The California and Texas class actions come just just three weeks after a UK regulator issued a “statement of objections” to Expedia, Booking.com and InterContinental, alleging the two OTAs entered in to individual agreements with the hotel giant which “restricted the online travel agency’s ability to discount the price of room-only accommodation”.

The defendants in the case(s) are currently keeping quiet, with no commentary emerging from any of the companies cited in the two class actions.

NB: Hotel bell money image via Shutterstock.

 
 
Kevin May

About the Writer :: Kevin May

Kevin May is editor and a co-founder of Tnooz. He was previously editor of UK-based magazine Travolution for nearly four years and web editor of Media Week UK from 2003 to 2005.

He has also worked in regional newspapers (Essex Enquirer) and started his career in journalism at the Police Gazette at New Scotland Yard in London. He has a degree in criminology and a postgraduate diploma in magazine journalism.

 

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  1. Dorian

    Robert,

    It’s academic what happens in the States. They made the Leegin ruling and they can live with it.

    R.P.M. is illegal in almost every other country and they’re not quite so comfortable having a few American companies controlling their hotel market. You’re going to start seeing rate parity challenged across the world.

    And, remember, Expedia has applied for immunity over in the U.K., and stopped practicing here already.

    One way or another, it’s coming to an end.

     
  2. RobertKCole

    Dorian,

    The assumption that the Online travel agencies and/or hotel companies dominate the market is simply not the case.

    For the US at least, OTAs account for only 10% of overall hotel occupancy – that is not exactly a dominant market share.

    If one is looking at the dominant position of hotel companies, the largest hotel group only comprises a trace over 10% of available room supply and ALL the major hotel brands combined only account for a bit under 70% of total US hotel room supply across hundreds of hotel brands and/or dozens of chains holding multiple brands.

    Outside the US, the figures are markedly lower due to the predominance of independent properties.

    It is easily argued under a rule of reason that a vertical pricing constraint like resale price maintenance levels the playing field for new market entrants to compete

    Given that the vast majority of OTAS are not exposed to inventory risk by pre-purchasing hotel rooms for future dates, even under the merchant model, they operate largely as agents on behalf of the hotel to transact the sale.

    The operator of each property independently determines a nightly variable price by room category – retail pricing is not dictated by the brands or the OTAs.

    Aside assuming that any form of resale price maintenance is “per se” illegal (a position both the US Supreme Court & EU have respectively dismissed or softened on in recent years) in lieu of a rule of reason approach, it will be extremely difficult conclude that hotels and/or OTAs are guilty of price fixing.

     
  3. Dorian

    Avi, you certainly would have been correct. It all comes down to how much traction rate parity has gained and how dominant the few big players have become as a result. If we can unravel it in time and perhaps fine its proponents enough to inhibit their growth for a while there is still a chance.

    Robert, as a small player in this market I have no fear about the depth of the pockets of my larger competitors. They can squander their cash on advertising if that’s what they want to do. Big companies are slow and lazy and invite competition.

    But if they’re allowed to dominate the market and force everyone to sell at the same price then I’m outta here. Like every sensible business person, I’ll move into an industry where this sort of nonsense isn’t happening.

     
  4. Jane

    I’ve always thought rate parity would bite hotels on the ankle some day, although I never envisioned price-fixing charges. It seemed to me that hotels were leaving money on the table by insisting on parity across all channels when obviously all channels are not created equally. It was a knee-jerk reaction to the rise of online distribution channels (not GDS’) where hotels felt they had little or no control of pricing. Forcing a single rate across all online channels gave them some control, but no differentiation and skinny margins.

    Hotels can wait for the courts to dictate their business practices, or they can drag themselves into the 21st century and start pricing in a more market friendly fashion where the rate available on the channel matches the channel segment and value. One size no longer fits all.

    Come on, Robert – don’t disappoint us! Give us the ambulance chasing analogy in one comment, then the lemmings analogy in another!

    And Avi, with all due respect, that kind of talk isn’t going to open many hotel doors to you or your product. You might want to consider changing your marketing message, or at least posting anonymously…

     
    • Ivana

      I’m afraid that with meta-search there can be no channel segment and value. Price again will be the only motivator and any hope that hotels had of differentiating themselves will disappear.

       
  5. Avi Meir

    Great news for the industry in my opinion. Let’s spice up a bit the competition with better pricing practices. Stopping with price parity will create tons of potential for start-ups to innovate and disrupt.

     
    • RobertKCole

      Avi, I respectfully beg to differ. Actually, in all likelihood, the reverse will occur.

      The large OTA’s with the ability to generate high room night volumes have already negotiated deeper merchant discounts through Most Favored Nations clauses and/or aggressive negotiation than most any startup will be able to garner without comparable aggregated demand or a highly disruptive, supplier-centric business model.

      Example, an OTA with a net rate 20-25% below the retail price will have huge advantages in offering discounted pricing compared with a new entrant receiving less of a merchant discount.

      Additionally, these OTAs will also be able to aggregate more demand by providing affiliate websites with richer revenue shares than startups with lower available margin.

      If the merchant model survives (which it undoubtedly will – at least for package & opaque bookings), the elimination of rate parity increases the relative strength of OTAs.

      If the merchant model doesn’t survive for stand-alone hotel bookings, look for agency commissions to be reduced for a large number of retailers who are not able to generate sufficient booking volume to be deemed relevant by the hoteliers.

      There is a big difference between being able to broadly aggregate demand and materially shift share compared with simply transacting a booking. Those few capable of turning the booking volume tap on or off will command (or demand) premium compensation. The rest will be marginalized to earning a living off of shared affiliate fees as a revenue stream.

      Travel sellers will need to prove to hoteliers that they are better, different or focus on a valued niche to gain preferred supplier pricing or commission levels.

      Start-ups may be able to innovate & disrupt, but in the absence of rate parity, the playing field will not be as level, meaning they may also need to start playing the quickly scale or fail game to become relevant to hoteliers before their business model or innovation is quickly adopted by a larger or better funded competitors.

      For a good example, just look at the US airline industry years ago in its post-regulatory days. Major carriers undercut prices added loyalty-based value adds, increased capacity and boosted advertising to bleed smaller competitors into surrender.

      In short, be careful what you wish for. The folks with volume and big margins that can support $100 million ad campaigns can aggressively use pricing techniques to starve upstart competitors lacking the same deep pockets.

      That is not a good environment for innovation or disruption to flourish.

       
      • Avi Meir

        The problem with those big OTAs who can support $100 million ad campaigns is that the business they send tend to be more costly. It’s not rare to see these big names asking over 20% in commission from the hotel.

        Which is fine, as long as the hotel has the ability to intelligently play with the rates, making sure that expensive reservations and billboards have cheaper alternatives on the hotel’s own website or at smaller OTAs.

        The current situation, where hotels have no ability to control price per channel is not fair for them and certainly not beneficial.

         
  6. RobertKCole

    Sigh…

    Unable to decide on an ambulance chaser or lemming analogy, I’ll decline further comment…

     
  7. Dorian

    Correction: a number of parties have spoken out to dispute the case. Orbitz denies any wrongdoing and says the case has no merit.

     
 
 

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