Digital technology is affecting almost every industry – in the hotel and hospitality sector, businesses now have to compete with a variety of new approaches to accommodation, creating an uneven playing field. By Kate Nicholls
Perhaps the most significant driver of change for the travel and tourism industries has come, as it has for numerous sectors, via the digital revolution. For hotels and other accommodation providers, much of this change has come through the rise of both the sharing economy and Online Travel Agents (OTAs). It may easily be regarded as a boon for customers, but in practice it often increases the prices. For hotels, the dramatic change has arguably been much less than positive.
Those seeking a hotel online almost always end up booking through an OTA. They have become so ubiquitous that some customers may not even entertain the notion of booking a holiday without using one. Although these platforms exist to connect customers to accommodation providers – and customers rely on them thinking they will get the best deal – in reality, they also exist to make money for themselves and the way in which they have done so has, at times, been counterproductive. The lack of competition in the market means that all the power sits with the OTAs. Parity clauses – clauses which prevent hotels from charging lower prices on their own websites than those listed on the OTA – have damaged competition to such an extent that they have been outlawed in some countries. Austria, France, Italy, Germany, Belgium and Sweden have taken action on parity clauses and we are calling for similar action in the UK. We have made the point in Brussels with other European hospitality bodies and MEPs and will continue to push the case at home. It’s worth mentioning that OTAs can take up to almost 20 per cent of the price of a booking and this cost is never perceived by the customer.
On the other hand, the rise of the sharing economy and the popularity of businesses such as AirBnB throws up even more issues. This has arguably been the most dramatic development in the accommodation sector. Customers are now spoilt for choice but are perhaps unaware of the complexities and potential hazards of home sharing. The rise of such platforms has had a dramatic impact on what we might call ‘traditional’ accommodation providers. Currently, sharing economy platforms operate at an unfair advantage that undermines hospitality businesses and they are feeling the effect. The principal problem is that, most rules and regulations don’t apply to home sharing; customer rights, business rates and taxation to name a few. And, where there is regulation, it is unenforceable. Currently there is very little in the way of an effective method to ensuring that outlets listed on home-sharing platforms play by the rules. The tax and employment contribution from home sharing is also negligible. Home sharing is arguably a hidden economy due to the lack of data.
Relaxed health and safety rules put customers at risk. If you book a room or a house through a home-sharing platform, can you, as a guest, be sure that the required fire-safety certificates are in place? There is a degree of transparency with customers able to use publicly viewable feedback, but there can also be a lack of support, particularly if there are last-minute cancellations by hosts. In jurisdictions such as Barcelona and San Francisco, registration systems have been developed to level the playing field, and the legislation appears to have been successful.
Transparency is crucial for a productive relationship between businesses and customers but, too often, there is a lack of clarity regarding the operation of homes listed on platforms.
For instance, the lack of information regarding where these properties are, and who is letting them, means that enforcement of existing legislation is almost impossible. In many cases properties are subject to the regulations applied to hotels, bed and breakfasts, serviced apartments and other accommodation providers, but are able to avoid compliance. Effectively, businesses are able to purchase huge numbers of properties and list them on home-sharing sites all year long, creating what can be called ‘pseudo-hotels’. In London, there is a limit of 90 days where a property can be rented out without requiring planning permission (Deregulation Act 2015), however, without knowing who the host is and where is the property, how can this be enforced? There is a new form of investment now with landlords withdrawing properties from the long-term market to offer them on home sharing websites. Consequently,the housing shortage is being aggravated.
There is also a moral argument to consider: with affordable housing in short supply in many UK cities, should wealthy property owners be able to deny people the chance to own a home by renting much of the available space on a short-term basis?
The identity of some municipalities have changed drastically, with local residents being replaced by short-let guests. Amsterdam and Barcelona are known examples of where over tourism and gentrification can be easily linked to the grown of home sharing.
Conversely, traditional hospitality businesses comply with all regulations and pay significantly via taxes and business rates. The digital era should improve the services from all providers but what’s happening is that traditional businesses are being killed by an invisible economy at the expense of customer safety and loss of taxation. The hospitality sector is not suggesting that digital operators be eliminated or that customer choice be stifled, only that businesses operate on a level playing field to ensure fairness for competitors and customers – that regulations are clear and enforceable. A fundamental problem is that our current tax system was designed when the majority of business was done in the ‘old-fashioned’ way before the rise of online businesses. Existing legislation has essentially been devised for a pre-digital era and is almost totally unfit for purpose, shouldering hospitality businesses with an unfair burden. The Government must catch up with the fast-changing digital environment. Changes to ensure digital businesses pay their fair share will go a long way to ensuring the level playing field we need and that will allow hospitality businesses to flourish and keep the convenience that customers crave. UKHospitality has been in Brussels talking to MEPs and other representatives from the sector across Europe to formalise plans and make the case for our businesses.
Kate Nicholls is Chief Executive of UKHospitality, the new trade body representing the UK’s hospitality sector, established following a merger approved in February 2018 between the Association of Licensed Multiple Retailers (ALMR) and the British Hospitality Association (BHA). UKHospitality is the authoritative voice for over 700 companies, operating around 65,000 venues in a sector that employs 3.2 million people.