What is hotel rate parity?

Rate parity symbolised by a level scale photo

What is rate parity?

Rate parity is a legal agreement between a hotel and an OTA.

It obligates the hotel to provide the same rate for the same room on all sales channels. Rate parity covers all rooms in all public configuration options.

For example: Hotel XYZ sells an ocean-view double room for a 2 night stay with breakfast for $200 on their own website. Under the rate parity agreement, they have to offer the same room at the same rate to Expedia and Booking.com if they want to be listed there.

Why is rate parity important?

Rate parity is essential to the OTAs because it preserves and maintains their business model.

If guests know that they can save by booking directly with the hotel, they will do it. If enough people do that, then the current business model of the OTAs would be invalidated.

The hotel’s position

OTAs have become the cost of doing business for most hotels.

The impact of the rate parity agreement is reflected mostly in the commission fees that hotels have to pay to the OTAs. Since the rates have to be the same across the Internet, hotels are at the mercy of the OTAs. They have complete control to raise commission fees, which will make the hotel earn less in order to maintain rate parity.

Ultimately, rate parity agreements prevent hotels from offering better value for money to their guests.

The OTA’s position

OTAs spend billions of dollars in marketing and advertising each year. The money is spent to achieve visibility on the Internet and in the media. It is also used to maintain a comprehensive ecosystem of users and hotel partners.

From their perspective, rate parity agreements are essential to justify the marketing and branding expenses involved in maintaining that ecosystem.

Ultimately, rate parity agreements are the essential tool for survival of the OTAs in their current form.

Rate disparity

Rate disparity symbolised via different shapes of leaves

Rate disparity occurs when there is a price difference between two sales channels. It is the practice which is explicitly forbidden with rate parity agreements, provided the hotel wants to be visible on the OTAs.

Hotel Price Reporter offers a hotel rate parity checker that hotels can use to monitor their rate parity across the Internet.

Rate integrity - An opportunity for the hotel

Rate integrity is a justification to a discount. As mentioned earlier, rate parity agreements prevent hotels from undercutting OTAs on price. That leaves hotels with little room for manoeuvre.

The way a hotel can offer better value to their guests is by providing a discount to a select ‘closed’ group. As long as this is not in breach with the rate parity agreement, hotels can offer better rates to subscribers to their mailing list, Facebook/Instagram followers, packaged deals, etc.

For example, inviting everyone to join the hotel’s loyalty scheme would grant them immediate coupon off the list price. This practice will preserve the rate integrity as required by parity agreements, while providing better value for money to the guest at the same time.

The UK government guidance on rate parity contains some more information on this topic.

Rate parity agreements

For reasons mentioned above, rate parity agreements are very important to the travel industry.

Even though there has been some changes in the legislation in certain European countries, the changes don’t go deep or far enough to be meaningful. Many calls from the British Hospitality Association have fallen to deaf ears.

Rate parity agreements involve different vested interests and history shows that they are here to stay for the long run.