The European Commission has prohibited, under the EU Merger Regulation, the proposed acquisition of Flugo Group Holdings AB (‘eTraveli’) by Booking Holdings (‘Booking’). The acquisition would have allowed Booking to strengthen its dominant position on the market for hotel online travel agencies (‘OTAs’) in the European Economic Area (‘EEA’). Booking did not offer remedies that were sufficient to address these concerns.
The Commission’s investigation
Today’s decision follows an in-depth investigation by the Commission of the transaction, which would have combined Booking and eTraveli, two leading providers of OTA services in a concentrated industry. Booking is the leading hotel OTA while eTraveli is one of the main providers of flight OTA services in Europe. Booking is also active in the market for metasearch services (‘MSS’) mainly through its price comparison platform KAYAK.
OTAs provide an important intermediation service, matching demand and supply for travel services, which include accommodation, flights, car rentals, and attractions. In the EEA only, OTAs handle transactions worth more than €100 billion annually. Hotel OTA services are the largest and most profitable segment of the OTA market and are worth approximately €40 billion annually.
During the investigation, the Commission received feedback from a large number of stakeholders, including hotels and competing OTAs. Market participants were concerned that the transaction would strengthen Booking’s dominant position on the market for hotel OTAs in the EEA, reduce competition and increase prices for hotels and, possibly, for consumers.
The Commission’s decision
The Commission found that the transaction would have strengthened Booking’s dominant position in the hotel OTA market, leading to higher costs for hotels and, possibly, for consumers. More specifically, the Commission found that:
- Booking is the dominant hotel OTA in the EEA, which has been consistently growing over the past ten years to reach a market share above 60%. There is only one sizeable competitor in the market, which is however much smaller and mainly focused on the US market. Rival OTAs are not able to exert sufficient competitive price pressure on Booking, which is thus free to charge higher commissions to hotels than some of its main competitors. Moreover, Booking benefits from network effects as it has developed a significant scale in its hotel offering that, in turn, attracts an ever larger number of consumers.
- The transaction would have allowed Booking to acquire a main customer acquisition channel. After accommodation, flight OTA services are the second largest OTA market and the closest complement to Booking’s core hotel OTA business. Flight OTA services are an important customer acquisition channel for hotel OTAs as they generate a significant amount of traffic and are often the first step in the planning of a trip. On the flight OTA market, eTraveli is a best-in-class OTA and the number two player in the EEA. Booking could have leveraged eTraveli’s capabilities to become the main flight OTA in Europe.
- The transaction would have allowed Booking to expand its travel services ecosystem, which revolves around its hotel OTA business. A flight OTA product is a crucial growth avenue in this ecosystem as it would generate significant additional traffic to Booking’s platform. This is because, among the different travel OTA services, flights have the highest chance to lead to the cross-selling of accommodation. These would have allowed Booking to benefit from existing customer inertia because a significant share of these additional consumers would have stayed on Booking’s platforms. Therefore, the transaction would have made it more difficult for competitors to contest Booking’s position in the hotel OTA market.
- By increasing traffic to and sales by Booking’s platforms, the transaction would have reinforced network effects and increased barriers to entry and expansion, making it harder for competing OTAs to develop a customer base capable of supporting a hotel OTA business. OTAs currently on a path to become full-fledged competitors may not be able to do so if the transaction goes ahead.
- The strengthening of Booking’s dominant position would have further increased its bargaining position towards hotels and diverted demand from cheaper sales channels to Booking. This could have resulted in higher cost for hotels and, possibly, consumers.
Booking’s proposed remedies
The remedies offered by Booking did not adequately address the Commission’s competition concerns so that it could be concluded that competition would be preserved on a lasting basis. Booking proposed to show flight customers a choice screen on the flight check-out page, which is the page shown to travellers after they purchase their flight tickets. In such choice screen, Booking offered to display multiple hotel offers from competing hotel OTAs, allowing customers clicking on the displayed offer to be redirected to the hotel OTA’s website. The choice screen presented the following characteristics:
- It would have been powered by KAYAK, Booking’s metasearch service (‘MSS’) service.
- It would have been displayed on the Booking.com branded flight platform and on the eTraveli branded flight platform. It would have been shown to flight customers located in the EEA and to flight customers located outside the EEA and travelling in the EEA.
- It would have displayed four hotel options offered by OTAs. A drop-down menu appearing under each of the four hotel options would have contained up to four additional offerings from other hotel OTAs for the same hotel.
- The recommended OTA, that is the one appearing first, would have been the OTA offering the lowest price for each hotel. The KAYAK algorithm would have been used to: (i) select the four hotels shown in the choice screen; and (ii) select the additional OTAs shown in the drop-down menu for each accommodation. The KAYAK algorithm includes a bidding mechanism, meaning that Booking would have been remunerated by competitors for referrals from the choice screen.
- Hotel OTAs could be displayed provided they meet the following criteria: (i) complying with KAYAK’s technical and quality standards for OTA partners; and (ii) generating at least 60% of their total accommodation revenue from the sale of hotel rooms. Booking’s offers could also be displayed.
The Commission conducted an extensive analysis of the proposed commitments, including testing their efficacy with the relevant market participants. The feedback received indicates that the proposed remedies were not sufficiently comprehensive and effective and did not eliminate entirely the identified competition concerns. In particular:
- The selection and ranking of offers by competing hotel OTAs were not sufficiently transparent and non-discriminatory, because KAYAK – a subsidiary of Booking– would have been in control of several aspects of their implementation.
- The offers from competing hotel OTAs would have been displayed only on the flight check-out page and not in other important cross-sell opportunities such as emails, notifications, or other pages of the website. Furthermore, the flight check-out page represents only a small share of the cross-sell opportunities that Booking could have pursued through the acquisition of eTraveli.
- The commitments would have been difficult to monitor effectively, especially because of Kayak’s algorithm working as a black box.
Based on this, the Commission found that the remedies offered by Booking were not sufficient to address the competition concerns and to prevent the transaction’s detrimental effect on competition. As a result, the Commission has decided to block the proposed transaction.
Companies and products
Booking, headquartered in the US, operates OTA brands such as Booking.com, Rentalcars, Priceline and Agoda. In the EEA, Booking is mainly active in the provision of hotel OTA services under the Booking.com brand and, to a limited extent, in the provision of flight OTA services, which it sources from eTraveli. Moreover, Booking is active in the provision of MSS for accommodation, car rental and flights via its KAYAK business (including the brands KAYAK, Momondo, Cheapflights, HotelsCombined, among others). Booking provides access to its OTA accommodation functionalities, via commercial affiliated programmes, to certain rival OTAs that do not have the capability to offer such services.
eTraveli, headquartered in Sweden, operates an OTA via its brands Gotogate, My Trip, Seat24 and SuperSaver. eTraveli is primarily active as a flight OTA.
Merger control rules and procedure
The transaction was notified to the Commission on 10 October 2022, and the Commission opened an in-depth investigation on 16 November 2022. On 9 June 2023, the Commission sent a Statement of Objections to Booking.
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) or for which it acquired jurisdiction by virtue of referral from Member States (see Articles 4(5) and 22 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
In the past ten years, the Commission has approved almost 3500 mergers. Today’s prohibition is only the 11th merger that the Commission has blocked over the same period.
There are currently four ongoing Phase II merger investigations: (i) the proposed acquisition of Asiana by Korean Air; (ii) the proposed creation of a joint venture by Orange and MasMovil, (iii) the proposed acquisition of iRobot by Amazon; (iv) the proposed acquisition of Figma by Adobe.
For more information
More information will be available on the Commission’s competition website, in the Commission’s public case register under case number M.10615.
Quotes
Europe is a world-leading tourism destination attracting millions of travellers every year. The travel industry plays a vital role for the local economy of many regions, cities, and rural areas. Booking’s acquisition of eTraveli would strengthen Booking’s dominant position in the online travel agencies market and likely lead to higher costs for hotels and, possibly, consumers. Our decision to block the merger means that European hotels and travellers will not be further limited in the options available to offer their services and book their trips. This also means that the drive for competitive prices and innovation will be preserved in this important part of the travel industry.
Source – EU Commission
Remarks by Commissioner Reynders on the EU Commission decision to prohibit the proposed acquisition of eTraveli by Booking
Brussels, 25 September 2023
Bonjour à toutes et tous,
Je suis heureux de vous retrouver aujourd’hui pour une conférence de presse sur une décision de la Commission dans le domaine de la concurrence.
Comme vous le savez, depuis le 05 septembre dernier, j’assure la responsabilité de ce portefeuille.
Aujourd’hui, la Commission a décidé de bloquer l’acquisition d’eTraveli par Booking.
Les deux entreprises sont des agences de voyages en ligne, aussi connues sous l’acronyme ‘OTA’ pour Online Travel Agencies, en anglais.
Les agences de voyages en ligne interviennent en tant qu’intermédiaires entre, d’un côté, les hôtels, les compagnies aériennes principalement, et les consommateurs de l’autre côté.
Notre enquête a montré que la fusion aurait permis à Booking de renforcer davantage sa position dominante sur le marché des OTA hôteliers dans l’Espace économique européen.
Elle aurait entrainé pour les consommateurs un choix plus réduit d’hôtels et des coûts plus élevés.
Booking a proposé des remèdes pour répondre à nos préoccupations. Ils étaient cependant insuffisants pour compenser les effets négatifs de l’acquisition. C’est la raison pour laquelle la fusion n’a pas pu être approuvée.
Comme vous le savez, les interdictions sont rares. La décision d’aujourd’hui est en fait la première fusion à être bloquée cette année.
Mais permettez-moi de passer maintenant aux détails de la décision d’aujourd’hui.
Europe is a world-leading tourism destination attracting millions of travellers every year. The travel industry, which has been severely hit by the coronavirus pandemic, plays a vital role for the local economy of many regions, cities, and also rural areas. Its contribution to the European economy, but also to the social and cultural fabric, cannot be overstated.
As many sectors, this industry is becoming more and more digital. One of the key actors of this digitalisation are the Online Travel Agencies, also known under the name of OTAs.
OTAs provide an important intermediation between hotels and consumers: they match supply and demand for accommodation, so it is a service for the consumers and the hotels.
Over the past decade, the importance of the OTA channel for hotels has increased. Industry experts estimate that this channel represented one third of hotel bookings in Europe in 2021.
While OTAs appear to be a convenient service for consumers, they also have an impact on the costs for hotels and ultimately on the price paid by consumers: And just to recall that I am also in charge of consumer policy in the Commission.
For instance, in the case of Booking, hotels need to pay a commission to Booking when a room is booked through its platform. This commission is typically a percentage of the price of the room.
OTAs services are not limited to hotels. They also include other travel services such as flights, car rentals, and attractions.
However, we know that hotel OTAs are the largest and most profitable segment of the OTA sector, with transactions worth approximately EUR 40 billion annually.
Hotel OTA services display some of the characteristics that can be found in other digital markets:
First, they are characterized by strong network effects. The attractiveness of an OTA for a hotel owner depends on the number of travellers that the OTA is able to attract. Likewise, the greater the number of hotels listed on an OTA, the more attractive it is for consumers.
These network effects work to the advantage of the large OTAs, especially Booking, which have developed a significant scale of hotel offers that, in turn, attract an even larger traffic volume with both sides constantly reinforcing each other. Network effects act as a barrier to entry for smaller or newly entering hotel OTAs, which find it difficult to secure a significant scale in terms of hotel numbers and consequently in terms of consumers they can reach to be competitive.
Second, about half of consumers only visit one platform before booking a hotel. This consumer inertia works to the benefit of the largest platforms such as Booking.
Third, the combination of network effects and consumer inertia means that many consumers get information on room availability and prices only from OTAs, often only from Booking. Since many consumers do not shop around and ‘stick’ to the large OTAs, the flow of information on hotel room availability and prices is dominated by the large OTAs, and mainly by Booking.
During our investigation, we reviewed large quantities of documents from the parties and received substantive feedback from competitors, customers and many other stakeholders to understand the potential impact of the deal. Just to give you an idea: we reached out to almost 15.000 hotels.
Overall, market participants were concerned that the transaction would strengthen Booking’s dominant position on the market for hotel OTAs in the European Economic Area, reduce competition and increase prices for hotels and possibly for consumers.
In our decision we conclude that already today Booking is dominant on the market for hotel OTAs in the EEA with a market share close to 70%, which has steadily increased over the past 10 years, and that the merger would allow Booking to further strengthen its dominant position.
We find that the flight OTA market is an important customer acquisition channel for hotel OTA service providers. Flight OTA services are the second largest OTA market (after accommodation) and the closest complement to Booking’s core hotel OTA business.
They are an important customer acquisition channel for OTAs as they generate a significant amount of traffic and are for many customers the first step of the trip planning journey. Within this market, our investigation shows that eTraveli is a best-in-class flight OTA that prior to the transaction has been consistently growing.
Post-transaction, Booking expects to be able to leverage eTraveli’s capabilities to become the main flight OTA in Europe.
It is Booking’s strategy to combine several travel products in its travel ecosystem, revolving around its hotel OTA business. In such an ecosystem, a flight OTA product is a crucial growth avenue for Booking.
Indeed, it would allow Booking to generate significant additional traffic to its platform and flights show the highest cross-selling opportunity into accommodation among travel OTA services. These effects from the transaction would reinforce customer inertia and existing network effects.
In practice, a significant share of the additional consumers that Booking would attract are expected to stay on Booking’s platform as many customers tend to search for hotels only in one place.
Therefore, the transaction would have made it more difficult for competitors to challenge Booking’s position in the hotel OTA market in the future.
OTAs which are currently on a path to become full-fledged competitors may not be able to do so.
Our investigation also shows that the transaction would lead to higher costs for hotels and, possibly, consumers. The strengthening of Booking’s dominant position would further increase its bargaining position towards hotels and would divert demand from cheaper sales channels to Booking thus increasing hotels’ costs. Moreover, the transaction may also result in higher prices for consumers as there are some indications that Booking is an expensive channel from which to source hotel OTA services.
While this is the first prohibition decision based purely on ecosystem concerns, it does not mean that it is entirely novel. We have previously investigated mergers raising non-horizontal concerns in digital markets, and we have intervened in a number of cases. Today’s decision is also in line with the observations on ecosystems in the Commission’s report on Competition policy for the digital era from 2019, which specifically recommends looking more into those concerns.
Booking offered remedies to address our concerns.
Booking proposed to display offers from competing hotel OTAs on its flight check-out page, which is the page shown to travellers after they purchase their flight tickets. The selection and ranking of hotels and competitors were not sufficiently transparent and non-discriminatory, because they would have been made by Kayak’s algorithm, which is a subsidiary of Booking. This means that, essentially, Booking would choose which hotels and competitors to display.
In addition, the offers from competing hotel OTAs would be displayed only on the flight check-out page, which represents a small share of the cross-sell opportunities that Booking could have pursued post-transaction. They would not be displayed in other important cross-sell opportunities such as emails, notifications, or other pages of the website. Competing hotel OTAs would not be offered visibility in those other cross-selling opportunities. The remedies would therefore be to a large extent ineffective.
Moreover, the remedies would be very difficult to monitor and implement in practice, with a high risk of circumvention. This is in particular due to the fact that Kayak’s algorithm would work as a black box.
For these reasons, these remedies were strongly criticized by market participants.
Booking attempted to address some of these shortcomings. But ultimately it was not able to address our concerns in full.
So, given the significant negative effects of the merger, and the absence of suitable remedies, the Commission decided to block the merger.
Our decision today means that European hotels and travellers will not be further limited in the options available to them to offer their services and book their trips.
It also means that this important part of the travel industry will remain competitive, preserving the drive for competitive prices and innovation.
Thank you for your attention.
Source – EU Commission