The European Rate Conundrum: To Be (in Parity) or Not to Be?
January 26, 2016 8:25am
By Jean Francois Mourier
First, I’d like to start this article by saying “Felicitations!” and “Gratuliere!” to hoteliers in France and Germany. It is an exciting time to be a European hotelier because the laws relating to rate parity are being amended as we speak/write.
In July 2015, the French National Assembly completed the process to ban rate parity clauses in contracts between online travel agencies (OTAs) and hotels. Germany’s courts have decreed that OTAs cannot have a “best price” clause in their contracts with German hotels – and that all OTA contracts must be amended by January 31, 2016.
As many European properties obtain 70% of their business from the OTAs (vs. 35% to 50% in the US) and because most consumers choose a hotel room based primarily on price, the new laws can help French and German hoteliers funnel more business to the direct channels, minimizing their reliance on the OTAs, while increasing occupancy, decreasing the cost of acquisition and increasing overall RevPAR.
While it is still not clear exactly how the European market as a whole will be affected by this ruling over the long-term, we are seeing drastic changes on the horizon that will have HUGE effects on the industry – both in Europe and abroad. Booking.com and Expedia are implementing changes in their contracts in other European markets, allowing hoteliers to offer lower prices on competing OTAs but NOT through their direct channels. The two OTAs are making this change in an effort to preempt further legislation (similar to France and Germany’s rulings) that would banish rate parity clauses across the board.
While Booking.com and Expedia’s contract changes will help hoteliers (as it allows them to direct more business to smaller OTAs with lower commission rates by offering lower rates through these channels), it will not create the widespread changes that are necessary to give hoteliers control back over their revenues. Until hotels are allowed to offer the cheapest rate through the direct channel (and/or all restrictions are eliminated completely), European hotels will remain reliant on the OTAs for the majority of their income, and therefore, will be sacrificing a large percentage of revenue to commissions.
As a whole, the European Commission is moving towards making a European-wide decision on the issue, which – if enacted - will have HUGE impact on both European hoteliers and eventually, North American hoteliers (who will follow suit at some point once laws are amended in Europe).
But until rate parity laws are amended worldwide, it is still possible for hoteliers to increase the amount of revenue that they earn through the online channels – without changes in legislation.
By using a sophisticated revenue management system (RMS) that facilitates automated pricing updates made in real-time (as the market changes), hoteliers can guarantee that they will be pricing their rooms at the right price, at the right time, across all of the online channels, which will result in a drastic increase in occupancy and revenue. An automated pricing strategy will also continue to benefit hoteliers long after the law is implemented in every European country, as it will help hoteliers to adapt to any pricing and distribution trends that manifest as a result of the new legislation – no matter which possible outcome is realized.
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Jean Francois Mourier is CEO and Founder of REVPAR GURU, a company that provides hotels around the world with an alternative revenue management software system designed to deliver maximum bookings and profits. You can reach Jean Francois by calling 1.786.478.3500.
Contact: Jean Francois Mourier
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