On the side of the argument that it is a myth is Bill Chambers, regional vice president of product development, Tourico Holidays. “Rate parity is a myth,” he told delegates to NAJ’s recent RTO Summit West in Marina del Rey, Calif., when the question was put to him in a one-on-one discussion with Jeff Hentz, NAJ’s chief advisor.
Chambers’ answer should come as no surprise given the environment at Tourico. His boss, Tourico founder and CEO Uri Argov, told another RTO Summit less than three months beforehand in Orlando, that price parity was “the worst violator of human rights in the world,” and had more to say later on (see below). Chambers came to the question ready for the question and armed with data gleaned from the information grid at Tourico, overseen by probably the most sophisticated IT team in the travel industry, and by posing questions himself that begged an answer from hoteliers and hotel chains.
Rate Parity—Why it is: Chambers granted the position of hotels who want to protect their rates. For some, the issue is not a dominant one, but branded hotels, he said “live, eat and sleep parity.”
The practice began in the wake of the 9/11 terrorist attacks on the U.S. as big brands wanted to stabilized their business. (“That’s the only thing it did good at the beginning,” observed Chambers.)
After this initial phase, it really served RTOs, who spend billions of dollars on hotel companies—the commissions hoteliers are paying are allowing them to grow.
(Inbound Note: There is a difference between rate parity as it involves receptives and for OTAs. For RTOs, the hotels are trying to prevent them from selling to B2B clients, who then sell below the stated Best Available Rate (BAR)—something RTOs cannot easily control. For OTAs, the hotels began rate parity as the lowest rate on their own sites in an attempt to drive direct bookings. But with Booking.com and Expedia (which owns Travelocity, Hotwire, Hotels.com, Trivago and now Orbitz, if the sale of the company to Expedia is approved by regulatory agencies) spending over $1.5 billion in consumer advertising, it is the OTAs that are asking for rate parity in their contracts with language that requires hotels not sell to anyone below the rates the OTAs receive.)
Chambers’ major point is that rate parity is not a good practice, especially for a company like Tourico, because 72 percent of business is packaged and does not involve parity, while 28 percent does. As for the future of parity, the issue is very important to branded hotel chains, but many properties are operated by management companies and, said Chambers, “most management companies are not that interested” in protecting rate parity.
For additional insight into the issue, Inbound contacted Argov, who told us: “Parity is becoming an epidemic. Some hotel chains are asking bed banks to stop offering B2B channels and password protected websites rates below parity. The recent events in Starwood are the outcome—in my opinion—of a very wrong direction the hotel chains are taking. On one side they are selling all their assets (buildings). On the other side, while becoming another distribution channel, they still believe that hotel owners should and will follow their directions. Owners like to work with companies such as ours because we are offering a unique and cheaper distribution; a real add-on … a service which is not offered to the Sam’s Club /Walmart distribution or to the American Express loyalty members or to the 100 thousand daily passengers of Emirates Airlines or to the Formosa Tours consumers in Taiwan; such service is unknown to these distribution channels or, in other words, it does not exist. In recent years hotel chains that enforced parity simply pushed away certain distribution channels from the hotel owners. At times it became irreversible. Many of those are left now with the two OTA giants and these two know to be aggressive when needed. In 2014 there was a decrease in number of overall franchisees and 2015 shows even stronger increase of independent hotels.”