Given the credentials and background of the two panelists who carried on a colloquy over the issue of price parity—industry veterans Uri Argov, founder and CEO of Tourico Holidays, and Bob Gilbert, vice president, sales and marketing at Exotics Racing, whose experience also includes tenures as vice president, worldwide marketing and sales at Best Western International and vice president, worldwide sales and intermediary marketing, Choice Hotels—delegates at the Inbound Symposium during NAJ’s RTO Summit last week in New York City got the feeling that they were watching two top tennis professionals playing for match point at deuce, with neither able to gain the advantage.
Neither Gilbert nor Argov disagreed over a basic definition of price parity: the practice of hotel chains or brands establishing a room rate at which no third party—whether online travel agency (OTA) tour operator or aggregator—can sell the room at less than the company-established rate. The way in which they framed their description of the practice, however, helped those who listened to their dialogue understand why they held so fast to their perspective.
The Background: Argov traced the practice to the period immediately following the Sept. 11, 2011 terrorist attacks in the United States and the devastating impact they had on the hotel industry, which experience all-time low occupancy rates. He explained that some hotels gladly released their distressed inventory to the then emerging online travel agencies (OTAs), who then began offloading the rooms by underselling the rate at which the hotels sold them. “Hotels imposed a rule then,” recalled Argov. “Anyone’s who going to sell below our price will be charged.”
Gilbert, meanwhile, placed the start of the practice to a decade earlier. “It existed before—not in the leisure market, but in the corporate market not the leisure market, in the form of Best Available Rate,” he explained. For purposes of marketing and promotion, this enabled hotel chains to guarantee potential clients and customers that they could match any rate offered by any other party.
And now? Argov said that “parity is being imposed by the chains as never before.” Hotel chains are doing so by claiming that they “are protecting our integrity … protecting our name, when, really, they’re protecting their business.” But Gilbert countered, “At end of day, it is really about hotels and the guests and the relationship between the hotel and its guest. Who owns the guest? Over the years, we’ve seen an erosion of the relationship. Even those words are cold. That is not what hospitality it is about. It’s about the relationship between the hotel and the customer.”
Who Owns the Hotels? Woven throughout the points Argov made was his contention that the hotel chains do not actually “own” the properties or assets under its corporate brands. It used to be that the actual owner was the owner of the asset, not just the brand name. So, under those circumstances, he reasoned, “Whenever you own the asset, you have the freedom to control conditions … You can say ‘ These are my rules, these are my conditions ..If I don’t like it, I’m not going to do business with you.’
When it comes to hotels most the chains do not own the asset, he asserted, “they are distribution companies. … they are not the owner, they sold the assets to another party.” Franchisees, own the assets. Under such circumstances, Argov seemed to argue, the practice of imposing rate parity represents an illegal agreement between owners. It represents price-fixing, he said, which is a violation of U.S. anti-trust laws.
Gilbert strongly disagreed. While conceding that “there is a vast difference between a franchise chain and an independent hotel,” he contended that, using the Wyndham New Yorker, host hotel for the RTO Summit, as an example, “There is an ownership. There is an asset owner to any property … they have financial targets … they have to deliver … they are highly motivated to be successful. The choice as to who a hotel chooses to do business with has changed … most understand the channel mix …they understand the choice … there isn’t one price according to market … or according to season. At the end of the day, what hotels want is for a loyal customer to book direct.”
The Impact and Role of OTAs: The one issue on which the positions of Gilbert and Argov intersected, in part, was over the presence and impact of OTAs. Argov, who forcefully made the case that price parity thwarts competition on the marketplace, wondered skeptically about how much competition there really is among OTAs on the marketplace, as he pointed out that just two groups, Expedia and Priceline, control the brands that transact the overwhelming majority of OTA sales volume. He readily pointed out that Expedia owns Travelocity, Hotwire, Hotels.com, Trivago and now Orbitz, while the Priceline Group owns Priceline, Booking.com, agoda.com, KAYAK as well as rentalcars.com and OpenTable.
Asked by panel moderator Jeff Hentz, who is NAJ’s chief advisor, if this helps the consumer, Argov answered emphatically, “Absolutely not!”
Sounding a little like Argov, Gilbert pointed to the case of Europe, where third part sales or business in hotel bookings is roughly 65 to 70 percent of the total (vs. 40 percent in the U.S.) and were that to grow, “it would be catastrophic … there is no competition. We become sedentary.”
What the Future Holds: Argov was consistent in declaring that an open, free and unfettered marketplace was necessary for competition, while Gilbert maintained that there are ways to compete—even with price parity as part of the bargaining framework (“Rate parity is a floor. How can you overcome rate parity? There are creative ways of having rate integrity … you bundle … you have free Wi-Fi… free breakfast… health club .. non refundable bookings.”).