Does Rate Parity Benefit or Hurt the Hotel Industry?
The growth of online travel agencies (OTAs) through the years has directly impacted the travel industry as a whole, from hoteliers to brick-and-mortar travel agencies.
According to TravelClick, OTA bookings in the first quarter of 2015 jumped more than 15 percent, compared to the same period last year (in 25 major North American markets). That’s compared to a 7.1 percent increase in reservations made through official hotel websites (direct bookings).
The exponential rise of OTAs has some hoteliers and agents worried. The explosion in popularity of a web-based travel agency type has put the concept of "rate parity" under the microscope.
Basically, if hoteliers want product placement on an OTA, they are required to follow rate parity. In other words, all room rates must be equal across all channels. In a perfect world, hoteliers benefit from having access to a larger audience, while OTAs increase commissions, and nobody undercuts anybody with their prices.
But that may not be enough for hoteliers because from their perspective, simply put, hotels were there first.
Per reservation, hoteliers receive more revenue through direct bookings than OTA bookings because they don’t have to pay commission. So, naturally, when hoteliers see the growth of OTA bookings compared to the growth of direct bookings, that's going to raise some eyebrows, whether hoteliers are benefitting from partnerships with OTAs or not.
There have been some interesting rulings when it comes to rate parity lately. France, for example, just abolished rate parity this summer. As Tourism-Review.com noted, there is a belief in the hotel industry that doing away with rate parity could benefit hoteliers because they could charge whatever they want, undercut OTA rates and differentiate their products.
But, while it could be beneficial to hoteliers, not everyone sees it that way. HeBS Digital’s Max Starkov recently wrote in Hotel News Now that this would be ignoring the very reason why OTAs are largely outpacing hotels right now: They are generally better at digital marketing.
So, yes, the removal of rate parity would allow hoteliers to do whatever they want, but, then again, the hotel industry as a whole hasn’t proven it can market as effectively online as OTAs.
What happens in France could be very telling.
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