Every day millions of individual elements of inventory – airline seats, rental cars, hotel beds – are matched with millions of consumers online. In the 15 years since the first tentative steps were taken to sell travel via the internet, the distribution dimension of the industry – getting bums on seats and heads on beds – has been transformed. What was an inefficient, cost-laden mechanism is now fairly close to the economists' mythical perfect market.
Parts of the hotel business have not yet fully bought into the idea that the market will decide prices – and bizarrely, this is largely due to the internet and the travel-booking websites that generally do consumers such favours. Every enterprise likes to brag that you will never find a lower price, not least because it is commercially convenient for them if you don't bother shopping around. "Rate parity," the practice of setting a floor in prices below which no one can stray, is an easy way to protect a price promise.
In the alleged unsavoury practice of making deals with travel agents to limit price cutting, there are echoes of the bad old days of aviation in the 1970s, when the airlines openly fixed fares between themselves. The refreshing difference is that, 40 years ago, the government actively supported the cartels and penalised price cutting. This Office of Fair Trading investigation is on the side of the consumer.
Life for everyone in the travel industry is tough. Hotels and airlines have high fixed costs, low marginal costs and the remorseless perishability of stock: the tens of thousands of bed nights that went unsold in London last night are gone forever. But hoteliers should embrace the market. The dark art of filling as many beds as possible at the highest rate is best conducted by allowing the free market to flourish, rather than stifling competition.Reuse content