Businesses to be given greater pricing control under Labor

Ross Greenwood speaks to Accommodation Association of Australia CEO Richard Munro after the Labor Party says it will let accommodation providers set their own prices to compete with the booking sites.

Ross Greenwood:  Welcome back to Money News right around Australia. One issue. Think about this, if you’re running, say, I don’t know, a winery. You’ve got wine that you’re selling at the cellar door, but you’re also selling toward no big supermarkets or big liquor outlets. Well, of course, what happens in that case is, if they discover that you are selling the wine cheaper at the cellar door than what they can sell at as the big merchants, they’re not going to be very happy with you. In fact, in many cases, they have actually threatened and carried out not to buy any more wine from that winery.

Now sit there and start to think that you are a travel agent or, I don’t know, a hotel or some sort of accommodation provider. What happens is that the market right now, in this particular case, is dominated by two key players. One of them is Expedia. The other one is I don’t know if you’ve ever used them, I have. Now, they right now, in terms of bookings, control 80% of the market that’s suggested. There’s been ACCC investigations into the way in which this works.

What happened was, ultimately, they, like, I don’t know, big hotels or big liquor outlets had said to accommodation providers, hotels, small businesses and so forth, “If you sell cheaper than we do, we won’t buy from you. We won’t by the bids anymore.” The ACCC got involved 2016 and did a deal with them to amend the ability for small hotels and accommodation providers to actually cut deals with potential customers. In other words, you ring up and you say, “I’ve seen this quoted, can you do a better price?” “Yes, I can. Come on in.”

Otherwise, if people walk in and say, “What’s your best price?” “Well, we got a cheap price today at this.” What’s happened since then? The ACCC has confirmed it was investigating whether it should take actions to address issues within the online travel booking industry. Today, however, the Labor Party has come out and indicated that it will give greater control over pricing back to businesses under a Labor government if elected.

It’s interesting to see how this all plays out. Now, bear in mind that Expedia, for example, owns Expedia, it owns, Trivago, What If and today. Expedia owns most of those online brand names that you do know. Now, one person who has been watching all of this, no doubt, with much interest, is the chief executive of the Accommodation Association of Australia, Richard Munro, who is on the line. Many thanks for your time, Richard.

Interview with: Richard Munro, CEO, Accommodation Association of Australia

Richard Munro:  Ross, pleasure to be here, thank you.

Ross Greenwood:  Okay. I’ve tried to sum it up for people to explain the history and the background of some of this, but from an Accommodation providers’ point of view, is what the Labor Party is proposing a reasonable thing or the ACCC’s power is strong enough to allow the flexibility of pricing to be able to undercut Expedia or

Richard Munro:  Ross, it’s a good question. You said that pretty well, the example of the winery. In fact, I think it’s like with it hoteliers, they’re like dairy farmers with milk, all they’re trying to do is get their products to market, but they’re being dictated to by these big duopolies offshore. If dairy farmers in Australia would be dictated to by Woolworths and Coles, but these guys are actually saying offshore, “You can’t put a price out in the market better than us.” Which is almost a restriction on trade. The Labor Party, to your question, I think this policy goes a long way to what we want as a business, as the industry and we’ve been waiting for the ACCC to move on this.

They’ve been running an excellent investigation, but they seem to work at a very slow pace. This policy setting that the Labor Party has come out with is music to our ears, because finally, we can get a price for the market better than what an agent who is commanding up to 30% commissions is going to give you, because at the end of the day, if you think about it, if they’re selling something and they have to take 30% out that goes offshore, the hotelier is only getting 70% net. All that money disappears and at the end of the day, we can’t give a cheaper rate to the consumer.

Ross Greenwood:  Okay. Let’s work this out right now. Let’s say, for example, that we’ve got Expedia or quoting a hotel price at a $100 a night. Now, they basically keep $30 and give $70 back to the hotelier. Now, if that same hotelier can sell that same room for, let’s call it $85 a night, in other words, we split the difference, the consumer gets a better deal, so they 15 bucks off the price. The hotelier gets a better deal, they get $15 extra as compared with what they previously would have, and the only people missing out here are and Expedia. What incentive would those big agents then have to give that particular hotel any business in the future?

Richard Munro:  Probably not a lot, but you think about it, what they were set up to do was really the international market. What it’s turned out, approximately 85% of the market is domestic. What they’re doing is getting Australian consumers buying Australian products and they’re taking a clip of the ticket along the way, but not doing much except a bit of technology. Essentially, if they buy just from an international player, I think the hoteliers could play nicely with them, but at the moment, we need to recalibrate the relationship, remember and remind them that we’ve actually got the prime products that the consumers are after.

Ross Greenwood:  Okay, already countries including Germany, Italy, France, Sweden, Belgium and Austria have taken action to blend the clauses which say that the hotels can’t sell at cheaper prices than what Expedia and/or are offering. What sort of impact has that had in those countries?

Richard Munro:  A positive impact is what we understand. Again, if you’ve got any sort of restrictive practice where you can’t get a price out to a consumer that’s better than an agent, you’ve got to think twice, but it doesn’t snap fast. In those countries, from our understanding, the hoteliers are actually making more profits, which profit relates to better services which relates to more jobs, and that’s the cycle. Ross, what’s been happening in Australia for the last three or four years, the impact of these commissions going offshore, in fact, has been that the biggest lever that our sisters have is labor. We hire a lot of people very labor-intensive industry and if your margins are getting compressed, guess what happens. You have to start laying people off. I think that’s where the Labor Party has looked at this and said, “If we get these settings right, it’s probably a good thing for this industry, because they’re a big employer.” I think so.

Ross Greenwood:  Final one to you also is, when you sit there and contemplate this, you sit there and realize that it’s a situation where the ACCC has investigated. We know that Kate Carnell, the Australian small business and family Ombudsman, she said multiple complaints from small businesses about the conduct of these online travel agents. It’s clear they have significant power. Is it possible if they take away the business from an individual hotel or a small business and/or a motel, whatever it might be, could they put that particular business out of business?

Richard Munro:  They can, Ross. You know what it’s called? They have a practice in a contract, in fact, it’s called darkening. Darkening means you go from page 1 to page 30, and in their contract, they stipulate, they say, “If you want to be undarkened, give us more money and we’ll get you back on page 1.” Well, it sounds to me a lot like extortion. “We’re going to darken you until you play by the rules that we’ve set and, if you don’t, you’re going to sit there on the very last page and we’ll make sure no one ever books you.” I think this conduct verges on issues of market sale, which is the piece of legislation that came in, I think, 2017. I think that’s what  is having a good hard look at.

Ross Greenwood:  Tell you what, it’s really interesting stuff. Darkening, there’s an expression that nobody’s ever heard before until right now. Richard Monroe is the chief executive of Accommodation Association of Australia. Richard, I appreciate your time.

Richard Munro:  Nice to talk to you, Ross. Thanks for the opportunity.

Image source: 2GB

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