The sky is not the limit

The week got off to the worst possible start for Booking: On Monday, the European Commission prohibited Booking’s proposed acquisition of eTraveli, one of the main providers of flight online travel agency services in Europe (we have already reported about the case here). In this post, I summarize the key points of the decision to the extent they can be gleaned from the press release and a recent speech by EU Commissioner Reynders.

What is the case about?

The EUR 1.63 billion deal was unveiled in November 2021, nearly two years ago. Both, Booking and eTraveli are leading providers of online travel agency (OTA) services. Booking is known to many antitrust practitioners because they regularly book their hotel accommodations there from the price parity clause cases (see our post here). While Booking focuses on Hotel OTA services, eTraveli provides flight OTA services through various brands. Booking also operates the price comparison platform Kayak.

OTAs play a critical role as intermediaries, connecting travellers with various travel services, including accommodations, flights, car rentals, and attractions. According to the European Commission, OTAs handle transactions worth more than EUR 100 billion annually, with the hotel segment accounting for 40% of this total. It is assumed that one third of the hotel bookings in Europe are made through OTAs. The European Commission finds that Booking’s market share in the European market for Hotel OTAs is close to 70%.

Does it not it make sense to allow the combination of flight and hotel OTAs?

A familiar situation for many: Once the flights to the desired vacation destination are identified, a nice accommodation must be found to complete the joyful anticipation of the holidays. And the European Commission is standing in the way of this happiness? It’s not quite that simple. From the regulator’s perspective, the transaction raises the following key concerns:

• Flight OTAs are an important channel through which customers are channeled to hotel OTAs, since booking a flight is often the first step of booking a trip. Since eTraveli is the number two flight OTA in Europe, it would be in a position to channel large numbers of customers to Booking.

• This would, in turn, lead to more customers for Booking’s OTA service, allowing it to strengthen its market position, in particular given the network effects in the OTA market in which a larger offering attracts a larger number of customers and vice versa. For competitors of Booking, it would therefore be more difficult to challenge Booking’s market position.

• The primary concern of the European Commission is neither strictly horizontal nor vertical; rather, it centers on the apprehension that Booking could bolster its travel ecosystem by integrating multiple travel products, thereby “reinforce customer inertia and existing network effects”.

• While it might be enticing for consumers to book their flights and hotels within the Booking ecosystem, there could be long-term consequences. Less OTA alternatives for hotels (the European Commission reached out to around 15,000 hotels to seek their input regarding the transaction) would increase their dependency on Booking and worsen their bargaining position which could result in higher costs for them and ultimately also for consumers.

Why was Booking not able to address the European Commission’s concerns?

To remedy the concerns, Booking proposed to show offers from competing hotel OTAs on its flight check-out page (i.e. the page which appears after flights have been booked). This did not convince the European Commission, which found that it was not transparent how Booking would choose which competing OTAs would be shown on the check-out page (i.e., how the respective algorithm operated by Kayak would work).

Furthermore, the proposed solution would only apply for cases in which flight tickets had actually been purchased and would leave other cross-selling opportunities unaffected. Finally, the European Commission found the proposed remedies “difficult to monitor and implement, with a high risk of circumvention”.

And now?  

With its first prohibition decision this year, the European Commission set an exclamation mark in the – interim – post-Vestager era. Booking has already announced that it will challenge the decision in court. It will be particularly interesting to see whether the EU’s General Court agrees with the fact that this is the first prohibition decision that is purely based on “ecosystem concerns”.

In terms of such concerns, the case will definitely have signaling effects for the future (I assume that this will not be the last merger prohibition concerning digital ecosystems…). Regarding remedies, the case showed once again that the European Commission is critical when it comes to behavioral remedies. I would assume that the transparency of algorithms and how those can be controlled will also play a role in future remedy discussions.

Photo by Ashim D’Silva on Unsplash