LONDON—Legal rulings outlawing rate parity in Europe, and other country-specific action that supposedly leveled the playing field in favor of hoteliers, have done little to change the overall landscape, according to sources.
Rulings have been made on rate parity in Germany and France, where the practice is outlawed, and Sweden and Italy, where the practice has been curtailed.
Speaking at a panel titled “Changes in pricing parity and closed user groups” at the EyeforTravel European Summit held in London, some hoteliers said the legal changes were more aimed at making illegal best-price clauses, not alterations to rate parity.
Independent and small chain hoteliers said they see no or very little difference in how they manage their channels and retain relationships with online travel agencies. One audience member said it was in everyone’s interest to protect rate parity, because that would allow more OTAs to operate—potentially increasing competition and reducing commissions—and urge hotels to better their service levels and increase their own margins in that way.
“It is getting more complicated, but what the bottom line is what makes sense for the final consumer,” said Fernando Vives, SVP of commercial strategy and pricing at NH Hotel Group. “Essentially, it is price consistency and integrity.”
Vives said hoteliers need to keep several things in mind in terms of optimizing revenue:
- Think about segmentation, not channels;
- consider the value each market brings;
- determine the ultimate channel mix; and
- remember that some channels have fixed costs, while others have variable ones.
Having the right channel mix is where price competitiveness comes into the equation, Vives said.
“We like to protect our partners and have long agreements with OTAs, wholesalers, corporate accounts, tour operators, all of which are supposed to give you a certain value,” Vives said.
“It would not make sense for us to change the way we price today,” Vives added. “The issue is the control you have on your distribution. For example, tour operators are supposed to package hotel rates within overall rates, but sometimes this does not happen, and that complicates things.”
Sweden-based consultant Asa Murphy, CEO of BizStrat, said she felt very little change has happened in the consumers’ relationship with rate parity.
“Pricing pretty much looks the same, I have not seen great movement,” Murphy said. “Maybe that will come, but after nine months or so, I have seen little. This could be because of legacy systems being still in place.”
Vives said that for Madrid-based NH Hotels—which has just two hotels in France and approximately 60 in Germany—pricing has remained static as the chain has global agreements in place, not localized ones.
“It’s not a bad thing to have low rates out there as long as you can control them,” said moderator Pieter Jan Dorhout, founder of consultancy Pieter Dorhout Consulting.
Obsessed with rate parity?
Panelists then discussed how the “obsession” with rate parity and OTA commissions has distracted European hoteliers from focusing on maximizing revenue.
“Price competitiveness or rate parity?” Vives said. “We have been slaves, perhaps still are, to (key performance indicators), and one of those is market share. We ask what is the price of that market share, but will you be first in profit after paying more commission? What is your net (average daily rate)? What you think might be your most profitable channel, might not be when you study net ADR. Again, you have to analyze your channel mix.”
“In Scandinavia, much of OTA business did not drive value, as it is mostly domestic clients, which the hotels could drive themselves,” Murphy added.
Vives said NH Hotels does not consider it has found the perfect strategy but is working on it.
“But if we changed it tomorrow to one that was, then things in the market would also change tomorrow, so we’d need to do another change the day after,” Vives said.
Vives spoke about additional problems of combining strategy with technology, the possibility of adopting dynamic pricing and human error.
He also said that even though NH Hotels is a relatively big player with about 70,000 rooms in its portfolio, the company is nothing to the combined 1 million-plus rooms Marriott International and Starwood Hotels & Resorts Worldwide will have once their planned merger is completed.
Metrics movements
Detlev Remy, program manager and lecturer for marking and revenue management at Les Roches International School of Hotel Management, said Europe needed to look at alternative metrics to judge performance.
Remy said he would prefer emphasis on net revenue per available room—that is, RevPAR minus distribution costs—or revenue per available customer.
“If the same customer comes once for business, the second time for leisure, is that one guest or two?” Remy asked.
Remy agreed with Vives’ stance that bottom-line revenue was the most important factor.
Remy also said profitability is not addressed enough, often due to lack of knowledge of the actual cost per room. KPIs also are more centered on rooms performance than total hotel revenue, he said, and RevPAR often does not take into account anything that is not controlled by the hotel. Vives agreed.
“What we take to the banks is total revenue,” Vives said.