ACCC goes into bat for small motels after Dick Smith campaigns against online travel agencies

Rod Sims’ backing of Dick Smith’s campaign against global travel websites lets big firms know the game has changed.

Australian businessman Dick Smith announces he will be closing down Dick Smith foods. Picture: AAP

The royal commission into banking, superannuation and insurance is dramatically increasing the Australian community distrust of large corporations.

And this has been confirmed by the unprecedented reaction to Dick Smith’s campaign against the big US accommodation web sites for over charging family-owned small motels, hotels and other accommodation centres — often in rural, drought-affected areas.

The small accommodation providers are trapped and must pay the high charges because the web sites often deliver half their turnover. Smith equates the actions of accommodation web sites like Expedia.com, Hotels.com, Trivago and Booking.com to what happened in the 1950s when, if hotels didn’t pay criminal gangs money, their premises were burnt down.

That’s obviously an emotive exaggeration but the truth behind Smith’s allegations has caused ACCC chairman Rod Sims to not only review his organisation’s stance on the issue but to take immediate corrective action and look at what else needs to be done via a “dedicated team to work on the issue”.

Smith has campaigned on many issues before but nothing like this has ever happened to him --- as well as the ACCC policy reversal his video has received an incredible 1.4 million views, as radio stations around the land are encouraged by their listeners to spread outrage.

In the accommodation industry, online travel agencies (OTAs) have boomed, with US-based Expedia Group (which owns Expedia.com, Hotels.com and Trivago) and European company Booking.com emerging as major players.

Those who book via these sites are “guaranteed” that their prices are the lowest and a clause in the online contracts aims to prevent the small motels from advertising lower prices than the US-owned web sites (This agreement was originally cleared by the ACCC).

But every booking via the web sites carries a charge which is usually around 15 to 17 per cent but motel owners on the radio are complaining that as their turnover becomes more dependent on the websites, the charges rise. Smith says some are being charged up to 30 per cent.

This is sucking the life out of country towns because the local hotel/motel was once a centre of community support. Maintenance is sometimes cut back.

On Google it is often very hard to find the website of the motel because the US online agencies have bought the prime positions. Accordingly, the bookings via the OTA’s get bigger and bigger.

Smith is urging the 1.4 million that watched his video to find those motel websites and book direct online or ring the hotel/motel so the motel owner receives all the booking money. Until now many motel owners “under the lap” threw in a discount perhaps via an add on. Those discounts were a lot cheaper than paying 15 to 30 per cent to the online agencies.

Via the radio networks, ACCC Chairman Rod Sims has stepped in to allow the hotel motels to undercut the online agencies. Sims told Ray Hadley (who broadcasts on 2GB in Sydney and via a network of stations in most states): “this is a hugely important issue and you’re right, and Dick Smith’s right, that the way to get the best price is to call the hotel direct”.

Hadley had explained that the problem was these family-owned hotels entered into signed contracts with the large multinationals to promise they’ll give them the best price and as a result they couldn’t offer a better price to those who approached them directly.

Sims comments: “Now we looked at that and thought — now hang on — that’s probably anti-competitive.”

The ACCC sought “a lot of legal advice” and was able to make changes to allow competitive prices when you call the hotel.

Sims says: “The only reason you can now ring up the hotels and get a lower price directly is because of the action we took.”

And it’s also now possible to get a better price on the motel/hotel websites.

In my view, there is clearly a big role for online web sites and they can play a valuable role for the accommodation industry. But what’s happened is that their charges bore no relation to the cost of providing the service and as they increased their market share they sucked the life out of the family businesses running parts of the accommodation industry. The US owned websites should have reduced charges as their business with a motel rose. Instead they put the charges up and they will pay for that profit boosting action.

Now, because of the ACCC actions, if they advertise that their charges are the lowest they will be wrong and likely to be charged with false advertising. And the ACCC team can’t wait for a US online site to punish a family motel owner for offering a lower price to escape the high OTA charges.

The online websites appear to have reacted by increasing their advertising spend.

Large companies need to understand that the game has changed in Australia. And community and customer aware executives need to speak up at those big and seemingly endless corporate committee meetings rather than follow the groupthink.