Changes to sales restrictions in travel agreements: the UK’s draft Vertical Agreement Block Exemption Order has been released

In December 2021 we wrote about future changes to the restrictions travel businesses can, and cannot, include in their vertical agreements (i.e. agreements between businesses at different levels of the supply chain).

The UK has now released its draft legislation – the Vertical Agreement Block Exemption Order (UK VABEO) – which is open for comment until 16 March 2022 and will ultimately bring these changes into effect in the UK.

What’s happening?

By way of reminder, an EU regulation which is retained law in the UK following Brexit, is due to expire in its current form in May 2022. The EU Vertical Agreement Block Exemption Regulation (EU VABER) provides that vertical agreements do not breach competition laws if certain conditions are met. One of these conditions is that there are no ‘hardcore’ restrictions in a vertical agreement, the other being satisfaction of a market share test.

The new UK rules

In November 2021 the UK’s Competition and Markets Authority (CMA) recommended to the government that the UK VABEO should largely stay the same as the retained EU VABER with a couple of important changes to the hardcore restrictions.

The government has adopted those recommendations and the important points for travel businesses to note are:

• Price parity/Most Favoured Nation (MFN) clauses: These clauses are often found in agreements with online marketplaces. 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. 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. 

As recommended by the CMA, the draft UK VABEO provides that:

• Narrow price parity clauses will be within the exemption and so can be included in vertical agreements
• Wide price parity clauses will be a hardcore restriction and will not be permitted in vertical agreements

• Retail price maintenance (RPM): a principal or supplier will still not be permitted to specify a fixed or minimum resale price at which its agents or resellers must resell its products or packages. This will remain a hardcore restriction. Recommending a price, or imposing a maximum retail price will still be permitted but other restrictions on resale prices will not.
• Use of online marketplaces: suppliers and principals will not be able to prohibit or restrict an agent or reseller selling through online marketplaces. 
• Use of price comparison websites: price comparison tools and websites are viewed as online advertising channels, and suppliers and principals will not be able to prohibit or restrict an agent or reseller advertising or being listed on a price comparison website.
• Dual pricing: this is the practice under which a supplier sets different wholesale prices depending on whether an agent or reseller sells online or in a bricks and mortar store. Under the new rules a principal will now be able to set different wholesale prices for agents and resellers making online and offline sales. Time will tell whether this will bring a resurgence to high street travel agent sales or whether it will allow online sales to flourish even more.
• Status of online intermediaries: Online Intermediaries which bring buyers and sellers of travel products and packages together will now be classed as ‘suppliers’ and subject to the same restrictions and exemptions as traditional suppliers. One implication of this is that other suppliers who sell through an online intermediary platform will be classed as ‘buyers’ of those intermediation services. Consequently, the platform will still be able to incentivise its ‘buyers’, but it will not, for example, be able to include wide parity clauses in its platform ts and cs, nor determine the prices at which the ‘buyers’ advertise or sell on their platform.

Who does it apply to?

The UK VABEO will apply to any business selling in or into the UK.

Next steps for travel companies

The consultation period for commenting on the draft VABEO runs until 16 March 2021. At this stage we assume no changes will be made after the consultation closes, and in any event the UK VABEO will become law on 31 May 2022.

There will be a year’s grace period for businesses to become compliant with the new rules but travel companies should start reviewing now what changes may be needed to their agency, reseller and/or supplier agreements and their terms and conditions to remove any non-compliant provisions.