Duff on Hospitality Law

What a week it has been. For those of you working around the clock to retain some semblance of your business and the travel industry together, we stand alongside you. Each day that passes brings with it a wave of new cancellations, news of mass furloughs or layoffs and, most recently, property closures. If we can help any of you deal with this onslaught, please let us know. We are trying to devise creative ways to support all of our clients through this incredibly tough period. 

Through all of this, we will continue to share those stories that we believe may provide direction as you continue to move forward. If there are topics of particular interest that you think we should include, we would love hear from you.  

Yesterday, March 23, 2020, Washington State Governor Jay Inslee announced that he will sign the statewide Stay Home, Stay Healthy Order (the "Order").

The Order requires every person to stay at home (unless they need to pursue an “essential activity”); bans all gatherings for social, spiritual and recreational purposes; and closes all businesses, except for “essential businesses.”

With all that has occurred in these past few weeks involving coronavirus (and its devastating effects on the travel industry and those within it), I had questioned whether I should suspend our weekly Updates until things have settled. After some consideration, I believe that there is probably no better time to provide this important information to our readers as they inevitably re-evaluate (and then re-evaluate again) their near-term and long-term plans for this new altered reality. I hope in some small way that our continued Updates are informative and helpful. If I can do things better or different, please let me know.

While this week’s Update does not include stories about Coronavirus and its potentially disastrous effects on the lodging and travel industries, I’m sure it will only be a matter of time. We are already hearing stories of distributors’ troubling responses to the outbreak.

Marketing Investments by OTAs Increase Again
(“Expedia Group, Booking Holdings spent more than $11B on marketing (mostly to Google) in 2019, Phocuswire on Mar 6, 2020)
For the past few years, we’ve reported on the staggering annual increases in marketing by the two largest OTAs – Expedia Group and Booking Holdings. This past year (2019) was no exception, although last year’s $400 million increase was almost exclusively attributable to Expedia. Combined, the two largest OTAs spent nearly $11 billion on marketing. Booking’s marketing expenses remained mostly flat (from $4.96 billion in 2018 to $4.97 billion in 2019), but Expedia’s increased significantly (from $5.57 billion in 2018 to $6.03 billion in 2019). A closer examination of Booking’s marketing expenses reveals that Booking’s “performance marketing” (display ads) investments decreased in 2019, while its “brand marketing” efforts increased. Not surprisingly, Google was the largest recipient of the OTAs’ marketing spend.

Our (travel-abbreviated) weekly OTA & Travel Distribution Update for the week ending February 28, 2020 is below. I’ll be back next week with our regular format. 

Booking Channels Rival Expedia and Will Cut Costs Too 
Skift Travel News on Feb 27, 2020
Like other travel companies, Booking Holdings officials are grappling with the fluid nature of the coronavirus and the negative impact on its business. And, like one other company, Expedia Group, that’s been making headlines about attacking internal bloat, Booking Holdings intends to get costs in line, although the extent of any budget trims wasn’t specified.

This week’s Update again features number of stories on Google, including an update on last week’s story detailing Google’s recent addition of direct links to competitors’ travel sites.

Last but not least, as most of you know, this past Monday, Expedia announced a massive layoff cutting 3,000 jobs, including 500 at the new Seattle headquarters. Geekwire (our local Seattle technology news outlet) has had some of the best coverage of Expedia over the past few years and broke the story. I will share my analysis later, but what this might mean for the OTA giant and its many supplier relationships remains to be seen...Stay tuned.

Google’s New Vertical Search Features a Big Hit With Travelers
(“Google’s Customized Travel Search Features Receive Massive Traffic in the U.S.: New Skift Research,” Skift Travel News on Feb 18, 2020)
In case anyone is in need of further evidence of Google’s growing prominence in online travel, Skift’s recently released report, “A Deep Dive Into Google’s Impact on Travel 2020,” provides ample details. In particular, the report details the growing prominence of Google’s vertical search features for flights, hotels and short-term rentals. In 2019, the search offerings for just two of these segments (flight and hotels) enjoyed traffic (as measured by number of U.S. user visits) almost equal to Expedia and Booking.com combined. The 674 million visits in 2019 represent a 28 percent increase over 2018. Although total annual visits are far fewer in key international markets (e.g., UK, Germany, France and Japan), the annual growth rates in these markets are nearly double the U.S. rate.

Both Google and Expedia are featured prominently in this week’s Update, particularly Barry Diller and his many colorful statements made during last week’s Expedia earnings call. Enjoy.

Under Mounting EU Pressure, Google Adds Direct Links
(“Google Bows to European Pressure and Tests Adding Travel Rivals’ Direct Links,” Skift Travel News on Feb 10, 2020)
When it rains it pours, particularly if you are Google…Last week, the search engine’s many ongoing regulatory battles in the EU took center stage as Google began its appeal of the European Commission’s $2.6 billion fine for allegedly biasing shopping results and engaging in anti-competitive behavior in vacation rentals (alleged by 34 travel competitors who wrote letters to the European Competition Commissioner). At the same time, news of Google’s limited testing in the EU of a “carousel” of unpaid direct links to Google travel competitors placed above Google’s own featured travel products and services garnered the attention of many. Tests of these new direct links – for travel, jobs and local listings – have apparently been underway for the past several months in countries, including France, Germany, Spain, Italy, Belgium, Denmark, the Netherlands, Sweden and the United Kingdom. What effect these new links might have on European regulators and whether Google will roll out these changes in the United States (where it is also facing antitrust scrutiny) remain to be seen. More to come…

We lead off this week’s Update again with a story regarding ongoing regulatory activity in the EU. Enjoy.

European Commission Close to Wrapping up its Multi-Year Pricing Probe into Meliá Hotels and Tour Operators
(“Meliá Hotels' EU pricing probe heads to conclusion,” MLex Insight on Feb 7, 2020)
All indications signify that the European Commission is close to completing its multi-year pricing investigation into European tour operator pricing. The investigation is the result of an effort that began in May 2015 when the Commission announced a broad review of the online distribution of goods and services. In February 2017, the Commission focused its efforts on probes into (a) retail price maintenance efforts by electronics manufacturers and (b) the systematic partitioning of the EU market by both video game publishers and tour operators (and certain hotel partners like Meliá Hotels). As for tour operators, the Commission was focused on allegations that some of the largest European tour operators (Thomas Cook and TUI) and/or hotel groups were using geo-blocking technology to restrict access to certain discounted rates to residents in certain EU countries while providing those rates to residents in other EU countries (i.e. location-based discrimination). The announcement that regulators were prepared to discuss the results of their probe last week signals a likely end to the Commission’s investigation and upcoming announcement of enforcement remedies.

Luxury-Goods Makers Making the Case for Permissible Distribution Controls
(“New EU online-sales rules should step up fight against free-riders, luxury-goods makers say,” MLex Insight on Jan 31, 2020)
Why, you might ask, are we leading with a story on luxury-goods makers’ fight for permissible distribution controls in the EU? In short, because the same EU regulations and European Commission (EC) decisions applying those regulations that affect luxury-goods makers’ ability to govern the online distribution of their products by third parties are (rightly or wrongly) finding their way into the lodging industry. If you’re not already familiar with the Vertical Block Exemption Regulation (VBER) or the European Commission decisions in Coty or Guess, you may soon be. While there are both factual and legal arguments as to why the VBER and related EC decisions are not applicable to hotel distribution, distributors and wholesalers operating in the EU are increasingly relying on the VBER and related decisions to reject efforts by hoteliers to avoid the display of their properties on certain troublesome distribution platforms, to impose industry standard keyword restrictions or to require the purchase of negative keywords. Luxury-goods makers, which fear the inability to control the method and manner of online distribution of their luxury products on well-known discount platforms such as Amazon and Alibaba, have taken up the fight in favor of updating the VBER and its anti-trust exemptions permitting certain sales tactics.

This week’s Update features a recent Skift story that tries to answer a question that I know many of you have asked...What’s Barry Diller’s next move with Expedia? Enjoy.

Expedia Group’s Trivago Found to Have Misled Consumers
(“Trivago's 'cheapest' hotel-room offer misled consumers, Australian court finds,” MLex Insight on Jan 20, 2020)
In a ruling issued last week, the Australian Federal Court found that Trivago breached Australian Consumer Law by making misleading statements about rates on its website and in television advertising. While Trivago claimed to provide travelers information on hotels with the lowest hotel rates, the Court found that instead, Trivago provided travelers with rates for hotels that paid Trivago the highest click-through fees. The Court further found (like regulators in many other countries) that Trivago’s use of strike-through pricing gave travelers false impressions as to the relative value of the advertised rate.  According to the Australian Competition & Consumer Commission (the Australian regulator that brought the clams), the Court’s decision “…sends a strong message to comparison websites and search engines that if ranking or ordering of results is based or influenced by advertising, they should be upfront and clear with consumers…”