Hotel Commission Fees. Rip-off or shrewd marketing?

Commission fees

Rip-off or shrewd marketing?

Hotel guests are paying millions of pounds in commission fees to online travel agents for little in return. This is one of the reasons why hotel prices remain stubbornly high in the UK, far higher than in other European countries.

If you want a loaf of bread, you go to a baker. So why do 40% of travellers book through third-party agents, which is likely to get them a worse deal because the hotel has to pay15% plus VAT of gross revenues in commission?

These commission fees that guests are indirectly paying are big business; worldwide online travel bookings total more than £250 billion a year. Priceline Group, which owns Booking.com, the leading European online travel website, has annual revenues of nearly £20 billion and gross profits of more than £2.5 billion.

So what are online agents doing to earn commissions which are almost double those of high street travel agents? Not enough in my opinion. Admittedly, they have slick computerised booking systems, their selected hotels feature at the top of search engine pages, and they are effective in selling rooms in certain types of big hotels such as chains.

But for the sort of small, owner-managed hotels that the Guide specialises in, they are a mixed blessing. As for our readers, they usually offer even less, just a soulless process leading invariably to a poor deal. Booking.com says that it levies ‘no booking or credit card fees’, a disingenuous claim in view of the 15% commission they charge hotels.

Last month, the Office of Fair Trading concluded, after a three-year investigation into ‘rate parity’, a practice by which Booking.com and Expedia sought to stop hotels undercutting their online rates that there was little they could do apart from seeking assurances of future good behaviour. The OFT should be less spineless, and widen its inquiry into what is going on in the hospitality industry.

The growing power of third-party agents stems from internet search results being dominated by them. Google, for example, sells advertising to the highest bidder on a pay-per-click basis which enables Booking.com and Expedia to dominate search results using the name of the hotel as bait. When travellers click on these ads at the top of the search page, many do not realise that they are dealing with a commission-charging agent.

Hotels claim that they have to use booking agents to fill empty rooms but how many analyse whether they really bring additional guests or merely cream off revenue? Some hotels are now providing incentives for guests who book directly. The Queensberry in Bath offers those who book directly a 10% reduction on the price of dinner, a 20% discount on cocktails, and a free gift.

Booking agents not only take commission fees, but often also impose expensive conditions. Mr & Mrs Smith, which specialises in promoting boutique hotels, charges hotels up to £7,000 for an entry, plus 15% commission on bookings. Its selected hotels are also required to provide four nights free hospitality each year, to provide a free gift to every Smith card -holder, and they are urged to throw in free breakfast, dinner and spa treatments.

The hospitality industry’s increasing reliance on online travel agents is a cause of price inflation. Hotels need to wean themselves off the quick fix that these agents promise. As for GHG readers, they should encourage hotels to do so by booking direct.

Adam Raphael