I am delighted to see that the OFT have at long last woken up to the serious problems being caused by hotel agents and the anti-competitive agreements they force hotels to sign. The small UK agent, Skoosh, has had a complaint against Expedia, Booking.com and IHG Hotels (the Intercontinental/Holiday Inn group) upheld and the matter will now be investigated more thoroughly. This is only the first stage but it is an important hurdle and, hopefully, now the issue is out in the open, a solution can be found.
Skoosh and its slightly eccentric (a compliment) boss, Dorian Harris have been one of the very few voices in the industry to raise concerns about this abuse. I have been writing about it for years and I suspect readers of Inside Traveller are a little tired of hearing my complaints. Hopefully, others will now join in.
When you go to an on-line agency to book a flight ticket the agent will take around 1% commission from the airline assuming it is a normal published fare. They actually earn rather more than this with various bonuses and loadings but the amount is small – but then so is the effort required.
Book a hotel with the same agent and they might get 25-30% commission. The same, minimal effort but much, much more money.
What is worse, the big agents (Expedia, Booking.com and others) force hotels to sign agreements that they will not sell rooms at a lower price themselves or through any other agent. Smaller agents, such as Skoosh, would love to discount their commission to get a competitive edge in the market but, if they try this, it is likely the big chains will cut off their supply of rooms.
I cannot understand why this issue has not been addressed before. It originated in the US where anti-trust legislation is sacrosanct. They fine airlines tens of millions of dollars for alleged collusion on fares but hotels and agents are allowed to maintain a cosy relationship which is ripping off the consumer by tens of millions a year.
Skoosh argue that the solution to this is to allow agents to discount their commission but I think the problem should be tackled in a different way.
It is fundamentally wrong that the middle-man in the process of booking a hotel is earning so much. If agents can book flights for 1% (plus a bit), then 10% is surely more than enough for a hotel booking. 25-30% is a lunacy.
Expedia announced its quarterly results last week and commented that its flight sales were stable but that hotel sales were very healthy. Hardly surprising, is it?
Hotels are keeping on-line agents in business.
The reasons for the huge difference in commissions is simply that the agents can get away with it. The hotel business is fragmented whilst the airline business is really controlled by just a handful of companies. The airlines moved more or less together to reduce commission levels and there was not much the agents could do but, even if Hilton, IHG, Sheraton and Marriott worked together, they would struggle because there are so many independents and smaller chains around. Divide and rule (plus water-tight contracts) are making the agents very fat indeed.
But the hotel agents aren’t the only parasites in this.
The agents are so keen to get this profitable business that they fight tooth-and-nail on the internet to get customers’ attention. This pushes Google’s pay-per-click bidding system to astronomical levels and means that the comparison sites can dictate terms to the agents they list. It is possible that half or more the commission earned by the agents is going to Google and the comparison sites.
Wasn’t the internet supposed to increase transparency, reduce distribution costs and lower prices? In the hotel business, the reverse has happened.
If commission rates were reduced to a maximum of 10% (I would prefer 5%), there would be less money for the agents to throw at Google and the comparison sites. This is simply wasted money.
If an agent can negotiate a special deal with a hotel for pre-paid or limited-time bookings and actively promotes the hotel in markets that it could not reach, then the consumer is winning and so is the hotel. In this instance, the agent should be able to set their own margins. However, charging up to 30% to book standard rates, and insisting the hotels cannot even do any last-minute deals direct with guests, is completely unjustifiable.
If you stay in a hotel, whether you like it or not, the rate you are paying is keeping Google in clover and maintaining the outmoded business model of a group of parasitical agents.
Extortion – pure and simple.