Nomura Securities on U.S. OTA and European Leisure: UK’s Office of Fair Trading Alleging Infringement by IHG, PCLN & EXPE
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Rating Summary:
5 Buy, 11 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Nomura Securities on U.S. On-line Travel Agencies (OTA) and European Leisure:
Analyst, Brian Nowak, said, "The UK’s Office of Fair Trading issued a Statement of Objections alleging that Intercontinental Hotels Group (NYSE: IHG), Priceline (Nasdaq: PCLN) and Expedia (Nasdaq: EXPE) have infringed on competition law related to online travel. The Statement stems from a multiyear investigation and a complaint from a smaller OTA alleging that hotels’ enforcing “pricing parity” clauses in their contracts with OTAs are limiting OTA price competition in the UK. In our view, it is somewhat surprising that IHG is the only hotelier cited in this case. In its filed response, Priceline does not deny its adherence to price parity, but it questions the basis of the complaint. Expedia has thus far not issued a response. The Competition Act gives the OFT power to impose penalties of up to 10% of turnover (revenue) for infringements. In IHG’s case, we estimate that 6% of annual U.K. system revenues would be c.£50m. This means that a 10% fine would imply £5m. The OFT objection dates back to 2007, implying that over five years the fine could be up to £25m, PCLN has estimated that it could face a fine up to $50m if the decision is unfavorable. We will continue to monitor this issue, as a reduction in hotels’ control over pricing would likely adversely affect their willingness to work with OTAs in the UK."
Analyst, Brian Nowak, said, "The UK’s Office of Fair Trading issued a Statement of Objections alleging that Intercontinental Hotels Group (NYSE: IHG), Priceline (Nasdaq: PCLN) and Expedia (Nasdaq: EXPE) have infringed on competition law related to online travel. The Statement stems from a multiyear investigation and a complaint from a smaller OTA alleging that hotels’ enforcing “pricing parity” clauses in their contracts with OTAs are limiting OTA price competition in the UK. In our view, it is somewhat surprising that IHG is the only hotelier cited in this case. In its filed response, Priceline does not deny its adherence to price parity, but it questions the basis of the complaint. Expedia has thus far not issued a response. The Competition Act gives the OFT power to impose penalties of up to 10% of turnover (revenue) for infringements. In IHG’s case, we estimate that 6% of annual U.K. system revenues would be c.£50m. This means that a 10% fine would imply £5m. The OFT objection dates back to 2007, implying that over five years the fine could be up to £25m, PCLN has estimated that it could face a fine up to $50m if the decision is unfavorable. We will continue to monitor this issue, as a reduction in hotels’ control over pricing would likely adversely affect their willingness to work with OTAs in the UK."
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