Market Study of the Online Travel Booking Sector in Singapore

MAKING MARKETS WORK WELL

             Market Study of the Online Travel Booking Sector in Singapore:
                              Cross Border Issues ,Findings andPolicy Recommendations
                            Hi-Lin Tan                             ACF, 20 January 2020
      The views expressed in this presentation are my personal views and do not necessarily reflect the views of the CCCS

Introduction
Industry
• Online travel industry in Southeast Asia
   » Largest segment (41%) of the Southeast Asia internet economy in
     2018, ahead of e-commerce, online media and ride-hailing
     segments
   » Singapore was estimated to be the 3rd largest in Southeast Asia in
     terms of online travel booking market value
   (Source: Google and Temasek “e-Conomy SEA 2018”)

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Key industry players
Inter-relationships between the different players in the supply chain
                                       Service Providers
                                        (airlines, hotels)

                          GDS                                      Wholesalers

         Traditional Travel Agents                               Other retailers/ distribution
                                             OTAs
          (with online presence)                                          channels

                                                             Other advertising/search
                  Metasearch Engines
                                                                    platforms

                                          Consumers

                                                                                                 3

Major OTAs and metasearch engines
Ownership
Holding company            OTA / metasearch companies
                                        Expedia
                                      Hotels.com
     Expedia Group
                                        Trivago
                                      Travelocity
                                     Priceline.com
                                     Booking.com
    Booking Holdings                  Agoda.com
                                      Kayak.com
                                      Cheapflights
                                       Trip.com
 Ctrip.com International
                                      Skyscanner
                                       eDreams
   eDreams ODIGEO                     Go Voyages
                                         Liligo

                                                        4

Major OTAs and metasearch engines

• Top 5 globally by revenue
   »   Priceline (OTA)
   »   Expedia (OTA)
   »   Ctrip (OTA)
   »   TripAdvisor (metasearch engine)
   »   Trivago (metasearch engine)
• Most commonly used by consumers in Singapore
   » OTAs
         —Expedia, Booking.com, Agoda
   » Metasearch engines
         —TripAdvisor, Skyscanner, Trivago

                                                 5

Objectives

• To better understand:
   » the industry landscape for the online provision of bookings for flight
     tickets and hotel accommodation to Singapore consumers
   » the commercial arrangements and practices adopted by online
     travel booking providers
   » the specific competition and/or consumer protection issues that
     can arise

• First market study by CCCS to examine both competition
  and consumer issues
   » CCCS took on additional function of administering Singapore’s
     Consumer Protection (Fair Trading) Act in April 2018

                                                                              6

Methodology
Study conducted from July 2018 to April 2019
• Consultancy study (Frost & Sullivan and Europe Economics)
   » website sweep of 38 online travel booking websites
       —initial view of practices that could be potentially harmful to consumers
        and competition
       —informed literature review and development of theories of harm
   » research into the industry landscape and relevant literature
   » online surveys with consumers and industry stakeholders
       —airlines and hotels (519 respondents)
       —travel agents and metasearch engines (191 respondents)
       —consumers (524 respondents)
   » interviews with 40 industry stakeholders

                                                                                   7

Methodology
Study conducted from July 2018 to April 2019
• CCCS’s in-house research and review
   » past feedback from consumers in Singapore in relation to online
     travel bookings
       —Included complaints received by CCCS and Consumers Association of
        Singapore
   » cross-jurisdiction scan of policy positions and enforcement cases on
     the pertinent practices
   » engaged relevant government agencies and non-government
     organisations to obtain feedback on potential consumer protection
     and competition issues that may arise and how these concerns
     could be addressed

                                                                            8

Issues
Commercial practices and arrangements examined

Practices that primarily result in        Practices that primarily result in
potential consumer protection             potential competition concerns
concerns
Drip pricing                              Price and non-price parity clauses
Pre-ticked boxes                          Tying and bundling
Strikethrough pricing                     Pricing algorithms
Pressure selling using false and          Withholding of information (by service
misleading claims                         providers to third-party booking sites)
Search rankings and ownership
Misleading user reviews

• Some of the practices (e.g. drip pricing) can raise concerns from both the
  consumer protection and competition perspectives

                                                                                    9

Drip Pricing
Consumer protection concerns with implications on competition
• Findings
   » can result in consumer harm by luring consumers into making a
     purchase based on incomplete price information
   » impedes competition by making it harder for consumers to
     compare product offerings across online travel booking providers
     because true price only revealed at end of purchasing process
   » some consumers indicated that they sometimes pay the higher
     price for mandatory extras, even if they objected to having to pay
     higher prices than expected
       —40% of respondents who booked flight tickets
       —36% of respondents who booked hotel stays

                                                                          10

Drip Pricing
How online travel booking providers should conduct themselves
• Recommendations
   » Unavoidable or mandatory fees/charges (e.g. taxes, surcharges,
     room cleaning fees)
       —ensure that they are included in the total headline price
       —where they cannot be reasonably calculated in advance, should clearly
        disclose the existence of such fees/charges upfront
       —If display prices to consumers only in SGD but payments are processed
        outside Singapore, online travel booking providers should clearly
        disclose that transaction is a cross-border one that may involve
        unavoidable additional fees disclosed at point of billing
   » Optional add-ons (e.g. travel insurance)
       —should be clearly indicated as such, prominent, noticeable to
        consumers, and properly disclosed
       —terms and conditions, any qualifiers, and charges should be made
        clear to consumers

                                                                                11

Pre-Ticked Boxes (Opt-Out Practices)
Consumer protection concerns with implications on competition
• Findings
   » can give rise to consumer harm where consumers may end up
     buying unwanted add-on products as a result of failing to uncheck
     pre-ticked boxes
   » particularly problematic when such harm to consumers arises from
     the failure of suppliers to clearly communicate and indicate to
     consumers the existence of such pre-ticked boxes
   » some consumers who noticed differences between the headline
     and final prices indicated that they ended up purchasing additional
     items as they missed opting out of certain optional extras
       —30% of respondents who noticed differences between headline and
        final prices when booking flight tickets
       —29% of respondents who noticed differences between headline and
        final prices when booking hotel stays

                                                                           12

Pre-Ticked Boxes (Opt-Out Practices)
How online travel booking providers should conduct themselves
• Recommendations
   » should ensure that optional add-ons (e.g. travel insurance, car
     rental) are prominent, noticeable to consumers and properly
     disclosed
   » terms and conditions, any qualifiers, and charges should be made
     clear to consumers
   » use of pre-ticked boxes can amount to a false or misleading
     representation of the headline price
       —especially if disclosure is not proper and clear, such as failure to
        include the cost of a pre-ticked optional add-on to the total headline
        price listed upfront
   » if pre-ticked boxes are used, suppliers must provide proper
     disclosures of the goods or services offered in a clear and
     prominent manner

                                                                                 13

Strikethrough Pricing
Consumer protection concerns with implications on competition
• Findings
   » general lack of information provided on what the strikethrough
     price refers to or how it is set
   » can create market distortions as consumers do not have accurate
     information to make an informed purchasing decision
   » some airlines/hotels indicated that strikethrough price must match
     only some features of the flight/room being viewed by the
     consumer
       —39% of respondents from airlines
       —35% of respondents from hotels
   » despite lack of information about the crossed-out price
       —55% of consumers who encountered strikethrough pricing assumed
        that the crossed-out price was the true, original price
       —40% of consumers indicated that they would favour hotels where the
        hotel room price was shown with a strikethrough price besides it

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Strikethrough Pricing
How online travel booking providers should conduct themselves
• Recommendations
   » When offering a discount and/or making comparisons with a
     previous price to represent a price benefit, should use an actual,
     bona fide previous price that provides a legitimate basis for the
     price comparison

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Pressure Selling using False/Misleading Claims
Consumer protection concerns with implications on competition
• Findings
   » practice of alerting consumers when there are limited availabilities
     of a product or of a discount
   » can create a false sense of urgency for consumers to make a
     purchase based on inaccurate information
   » some airlines/hotels indicated that information on availability of
     flights/rooms when supply becomes low or limited need to match
     only some of the features that consumers are considering
       —65% of respondents from airlines
       —50% of respondents from hotels
       —48% to 56% of respondents from OTAs, metasearch engines and
        traditional travel agents with an online presence
   » consumers unclear about what limited availabilities refer to
       —53% believed it may sometimes be the number of flights/rooms
        available at the airline/hotel
       —51% believed it may sometimes be the number of hotel rooms or
        flights that the OTA or metasearch engine has access to
                                                                            16

Pressure Selling using False/Misleading Claims
Consumer protection concerns with implications on competition
• Findings
   » significant majority of consumers indicate that they are more likely
     to book air tickets (78%) and hotel accommodation (79%), if they
     are marked with limited availability, either in quantity or at the
     discounted price point
   » considerable proportion of consumers who made a booking based
     on a claim of limited quantity or price availability (over 40%), have
     regretted such a decision after completing the booking, noting that
     they felt that they made it under pressure

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Pressure Selling using False/Misleading Claims
How online travel booking providers should conduct themselves
• Recommendations
   » should not make false or misleading claims that create unwarranted
     pressure or a sense of urgency for consumers to make an
     immediate purchase/booking
   » e.g. should not promote a temporary “sale” or “special” price for a
     limited period when the “sale” or “special” price will still be
     available beyond the limited period, or give a false or misleading
     impression of limited availability of a product

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Price and Non-Price Parity Clauses
Potential competition concerns
• Findings
   » Price parity clauses
       —one party to the contract restricts the prices that the other party can
        set on other distribution channels
   » Non-price parity clauses
       —restrict the service provider from providing greater availability on
        other distribution channels
   » relatively small proportion of airlines/hotels subject to price parity
     clauses with OTAs or metasearch engines
       —20% of respondents from airlines
       —23% of respondents from hotels
   » even smaller proportion of airlines/hotels subject to non-price
     parity clauses with OTAs or metasearch engines
       —16% of respondents from airlines
       —20% of respondents from hotels

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Price and Non-Price Parity Clauses
Potential competition concerns
• Findings
   » wide price parity clauses more prevalent than narrow price parity
     clauses
       —77% of respondents from airlines subject to wide price parity clauses
       —62% of respondents from hotels subject to wide price parity clauses
       —35% of respondents from airlines subject to narrow price parity
        clauses
       —36% of respondents from hotels subject to narrow price parity clauses
• Assessment
   » potential to generate pro-competitive effects and efficiencies
   » can be considered vertical agreements between the service
     providers and OTAs/metasearch engines, insofar as they operate at
     different levels of the distribution chain, and thus could benefit
     from the vertical agreements exclusion under the Competition Act
   » continue to monitor developments

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Search Rankings and Ownership
Consumer protection concerns with implications on competition
• Findings
   » commissions paid by airlines/hotels to OTAs and metasearch
     engines are likely to have some influence on the ranking of search
     results
       —27% of respondents from OTAs indicated that they have agreements
        with airlines/hotels on how to prioritise their search rankings
       —31% of respondents metasearch engines indicated that they have
        agreements with airlines/hotels on how to prioritise their search
        rankings
       —40% of respondents from OTAs indicated that commissions paid by
        airlines/hotels is a factor
       —39% of respondents from metasearch engines indicated that
        commissions paid by airlines/hotels is a factor
   » only 20% of consumers believe that search results for a new trip
     (flight/room) could have been manipulated in any way
   » Information on affiliations or links to airlines/hotels is likely to be
     provided by OTAs/metasearch engines
                                                                               21

Search Rankings and Ownership
Consumer protection concerns with implications on competition
• Assessment
   » extent of actual consumer detriment in relation to search rankings
     may be unknown, but the Consultant’s findings indicate that it does
     not appear to be a significant issue for consumers
       —where results are sorted according to a manual filter (e.g. price, or
        distance from the city centre), it is more likely that these results
        reflect consumer preferences rather than the influence of
        commissions
   » scope for consumer harm from ownership information appears to
     be low in general, with OTAs/metasearch engines providing such
     information
   » continue to monitor developments

                                                                                22

Pricing Algorithms
Potential competition concerns
• Findings
   » appear to be commonly used in the online travel booking industry
       —more than half of the respondents from online travel booking
        providers (i.e. hotels, airlines, OTAs, metasearch engines and
        traditional travel agents with an online presence) generally use
        algorithms to monitor and set prices
   » use of algorithms to implement dynamic pricing appears to be more
     common among airlines and hotels, but less so among OTAs and
     metasearch engines which tend to receive price information from
     the service providers
   » most online travel booking providers develop their pricing
     algorithms in-house, rather than using third-party-developed
     algorithms
   » industry surveys do not suggest that online travel booking providers
     widely employ algorithms for personalised pricing
   » Different prices depending on channels through which consumers
     arrive on website may be due to different marketing costs paid
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Pricing Algorithms
Potential competition concerns
• Assessment
   » no evidence suggesting competition concerns relating to possible
     collusion among the online travel booking providers in Singapore
   » no evidence suggesting consumer detriment arising from
     personalised pricing
   » dynamic pricing can improve market efficiency by seeking to
     guarantee constant market equilibrium
   » continue to monitor developments

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Withholding of Information
Potential competition concerns
• Findings
   » more than 70% of respondents from airlines/hotels provide OTAs
     and metasearch engines with the required pricing, availability and
     other booking information for their flights/rooms, when listing their
     flights/rooms on these third-party booking platforms’ websites
       —corroborated by a similar proportion of respondents from OTAs and
        metasearch engines, confirming that they receive such information
        from the airlines/hotels
   » more than 60% of respondents from airlines/hotels generally
     update such information to third-party booking platforms on a real-
     time basis, though a significant proportion of airlines/hotels may
     also sometimes update such information infrequently
   » some respondents did express views that airlines/hotels could
     withhold information or even feed incorrect information, should
     they wish to do so, and in particular if they have significant
     bargaining power

                                                                             25

Withholding of Information
Potential competition concerns
• Assessment
   » limited evidence to suggest that the issue of the withholding of
     information is prevalent in Singapore, or of significant cause for
     concern to industry participants in Singapore
   » continue to monitor developments

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Price Transparency Guidelines
How consumer-facing businesses should conduct themselves
• Encourage all consumer-facing businesses to adopt
  transparent pricing practices
   » prices and their accompanying conditions should be communicated
     clearly
   » enable consumers to accurately compare prices and make informed
     purchasing decisions unhindered by false/misleading claims
   » allow businesses to compete on a level playing field, and essential
     for well-functioning market
   » provide greater clarity and guidance not just to online travel
     booking industry

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Cross-border issues

• From consumer protection perspective, interested in the
  impact on consumers in Singapore
• But from competition perspective, interested in impact on
  competition in Singapore
• Cross-border nature of consumption
   » Consumers in Singapore primarily purchase hotel stays overseas
     rather than domestically
   » Consumers in Singapore only purchase international flights
• But while OTAs may target consumers in Singapore
  specifically through Singapore-dedicated websites,
   » other OTAs may not have a presence in Singapore or even websites
     targeting consumers in Singapore
   » overseas hotels seldom target consumers in Singapore specifically
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Cross-border issues

• Jurisdiction over OTAs that target consumers in Singapore
  but perhaps not other OTAs that do not target consumers in
  Singapore or overseas hotels, even though they may all be
  alternative booking options for consumers in Singapore

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A VIBRANT ECONOMY WITH
            WELL-FUNCTIONING AND INNOVATIVE MARKETS

Thank You