Maintaining a competitive marketplace is one of the tenets for many regulators because it ensures consumers are not disadvantaged by a lack of choice. The travel industry is no exception and many travel businesses pride themselves on being able to give customers as much choice as possible, at the most competitive prices available.
There has long been friction between the restrictions that travel principals, such as airlines, hotels and tour operators, wish to impose on their agents and resellers, and vice versa, as a way to maintain control over sales channels. However, some of these restrictions, which usually relate to price but also cover territory and exclusivity, are not permitted by competition laws.
In Spring 2022, changes are coming at the UK and EU level. A failure to comply or not consider them could mean that contracts are unenforceable, affected parties could claim damages and the UK’s Competition and Markets Authority (CMA) and/or the European Commission could impose fines or bring investigations or take action to stamp out anti-competitive behaviour.
Existing EU legislation, the Vertical Agreement Block Exemption Regulation (VABER) is due to expire in its current form in May 2022. The VABER is also retained law in the UK following Brexit.
As a general rule the VABER says that vertical agreements (i.e. agreements between businesses at different levels of the supply chain) do not breach competition laws. There are certain conditions to that general rule, the main ones being that each party to the agreement does not have more than a 30% market share and that the agreement does not contain any of the listed ‘hardcore’ restrictions.
The VABER is being shaken up to reflect the growth of online sales and the way consumers now buy goods and services. As the UK is no longer required to implement EU legislation, it will introduce its own legislation – the Vertical Agreement Block Exemption Order (VABEO) – the detail of which is being recommended by the CMA.
While the CMA has recommended that the VABEO reflects the VABER in many ways, it has proposed divergences in some areas. We may therefore see different restrictions for businesses selling into the UK versus those selling into Europe.
In this article we focus just on those areas of the new VABER and VABEO which are relevant to the travel industry. The final text of the new VABER is still being settled, and we have not yet seen the draft VABEO so the points raised in this article may still change, however we do not anticipate significant amendments to what has been published already.
The new regime
As with the current VABER, the new VABER will contain ‘hardcore’ restrictions which are not permitted in vertical agreements. If a hardcore restriction is included, that restriction will not be enforceable and the whole agreement will fall outside the VABER i.e it will be subject to, and caught by, competition law principles.
The points from the new VEBER and the VABEO that travel businesses should take notice of are as follows:
Wide parity clauses stipulate that a product or service cannot be offered on better terms on any other sales channels, including the supplier’s own website and those of other agents or resellers. Online marketplaces often want to include this in their standard agreements with suppliers.
Narrow parity clauses usually focus the restriction just on the contracting party’s website/sales channels and specify that that party (the supplier) cannot offer for sale the same product or service on its own website at a better price than that at which, for example, the online marketplace can sell.
It should now finally be settled that:
Travel businesses that deal with both UK and EU suppliers should now have certainty over what is permitted with MFN clauses. Companies on the receiving end of these provisions should also now be able to rebut with certainty any non-permitted price parity obligations that they don’t want to accept.
The final text of the new VABER is still being settled across EU institutions and the final text of the new UK VABEO is expected in 2022 so changes may still occur. Both will come into force in June 2022. There will be a one-year transition period which will allow businesses time to consider their agreements and make changes to ensure compliance. The CMA will also publish accompanying guidance to the VABEO, a consultation on which is expected in early 2022.
What should you be doing now?
Start considering your agency and reseller agreements and your terms and conditions of business to assess whether you need to start making changes to bring them in line with these new rules. The CMA’s guidance early next year will shed further light on some areas and we will provide a further update once they have been released.
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