Gov't targeting global OTAs' 'unfair request' over hotel rate

By Kang Seung-woo

People who have attempted to book a hotel know that the booking rate is the same on all online booking apps, and on the hotel's website as well. This is because of an agreement called rate parity, and the government is now set to take a closer look at what hotels call an “unfair practice.”

Rate parity is a deal between hotels and global online travel agencies (OTAs) that provide hotels with online exposure and a booking platform. Under the agreement, properties must offer the same rate for the same room on all distribution platforms as well as on their own websites.

In other words, customers cannot get any discounts no matter where they book.

“As the rate parity agreement does not allows hotels to undersell all distribution channels, the practice is highly anti-competitive,” a government official told The Korea Times.

“In addition, it bans hotels from providing rooms at lower rates on their websites, restricting consumer choice for cheaper deals.”

According to the government, the Fair Trade Commission (FTC) and the Ministry of Culture, Sports and Tourism plan to form a consultative body comprising of representatives from the Korea Travel Organization, the Korea Consumer Agency, the FTC and the ministry as well as global OTAs to discuss the issue.

In addition, they will also initiate research on unfair practice cases in the form of rate parity by global OTAs such as Booking.com, Expedia and Agoda.

The moves come as local hotels have complained that rate parity, also known as price parity, has restricted them from offering and promoting cheaper rates, as OTAs have gained tremendous market power in the local hospitality industry.

Thanks to the growing preference for online booking, accompanied by their massive marketing budgets, bookings through global OTAs account for more than 50 percent in the Korean market.

“As global OTAs have gained ground here, local hotels' dependence on them has been rising. In that respect, hotels are under pressure to meet the OTAs' demands,” a local hotel official said on condition of anonymity.

“Otherwise, the hotels will not rank highly on the websites and apps of OTAs, which would adversely affect their earnings because most online bookings are made on the first two pages.”

Another hotel staffer said given that OTAs' enormous marketing budgets easily dwarf those of most hotels, the hotels have to meet the OTAs' requirements.

“As far as I know, global OTAs spend up to 80 percent of their earnings on advertisements, making budget-strapped local hotels less competitive, and as a result, they are committing a kind of 'gapjil' to us,” she said. Gapjil refers to a hierarchical abuse of power in Korean.

The high commission that hotels pay to OTAs is another problem.

According to the hotel sector, OTAs receive up to 20 percent of the rate as commission for each booking.

“Along with the rate parity agreement, the high commission paid to OTAs is also putting a financial strain on hotels,” an official of the local tourism industry said.

“Although room rates must remain at the same level, some OTAs demand additional increases in commission for higher exposure.”

In response to the government plan, however, global OTAs were not available for official comments.

This is not the first time that online hotel booking platforms have been on the government radar.

Last November, the FTC ordered Agoda and Booking.com to revise their policies which ban refunds for certain products regardless of the reservation date, the companies countered with their own administrative litigation earlier this year.

In Europe, Austria, Belgium, France and Italy strictly prohibit rate parity, while a few are applied in Germany and Sweden.

The United States does not regulate rate parity.