Travel

Are hotel comparison sites a good deal?

As the OFT examines allegations that the hotel booking industry is breaching competition law, we investigate whether comparison sites still offer value for money

Laterooms.com promises hotel rooms at "unutterably low prices". Lastminute.com guarantees the lowest prices, while Booking.com offers a "best price promise". Yet when Guardian Money tested prices for a two-day getaway to Edinburgh over the royal wedding weekend they were nearly identical – and significantly more expensive than on rival comparison websites.

To test the hotel sites we selected three different hotels: a Sheraton in New York, a Hilton in Berlin, and a Malmaison in Edinburgh. We sought prices for two nights for two people, on the weekend of 29 April to 1 May.

The good news is that shopping around works. In Edinburgh, while the major booking sites all wanted £260 to £280 for two nights at the Malmaison, the surprise winner was Asda, whose hotel booking site found us the same hotel for £229.57 – a saving of more than £50. The price also included breakfast, which is unusual when most websites sell at "room only" prices.

Our survey suggests it is best to bypass sites such as lastminute.com, Travelocity or Expedia and instead go to websites that scan every travel website for the best deal. We found Asda's cheap price on the Malmaison by going through travelsupermarket.com. It also found the cheapest deal at the Hilton in Berlin – the underlying provider was travelrepublic.co.uk – and at the Sheraton in New York, where the underlying provider was lowcostusa.co.uk

Hotelsearchengines.net and kayak.co.uk use a similar model, and also found us better value deals than Expedia and Travelocity. But it pays to spend time looking at two or more websites – although Kayak turned up decent deals in the Hilton and the Sheraton, for instance, it found us the most expensive room at the Malmaison. Examine carefully the prices quoted; some headline deals did not include tax or were for the wrong dates.

Generally, we found that going direct to the hotel's own website failed to pay off – prices were the same as those charged by the big operators and higher than on the comparison sites.

The similar pricing by the Hilton and Sheraton hotels was striking. In part, this is because websites have common owners: lastminute.com is in the same group as travelocity.com; Expedia controls hotels.com, hotwire.com, tripadvisor.com and venere.com. Booking.com is owned by priceline.com.

The gap in pricing between the major players was just £1-£3 which, arguably, could represent price competition as they chase prices down. But the Office of Fair Trading is examining allegations of price fixing at hotel websites. The investigation began last September but, in a statement last week, the OFT said it is now an "administrative priority" and that it is "pursuing the investigation further".

If the hotel booking industry is found guilty of breaching competition law the fines could be substantial. The OFT can fine companies up to 10% of their global turnover for breaches of competition rules. Last year it fined cigarette makers and retailers £225m for price fixing.

The OFT investigation follows allegations by a small Brighton-based hotel booking website, Skoosh.co.uk. Dorian Harris, founder of the site, said his business started to be squeezed by big US hotel chains insisting they were removed from his site as his prices were below that of competitors.

"It became more of a worry when it moved to Europe, and by March last year I was getting as many as 10 complaints a day from hotels, from major chains through to small independent hotels. The hotels told me they were being put under huge pressure by the big hotel booking websites to ensure what's called 'rate parity'." Unless he raised his prices, he would be prevented from offering the rooms.

As an example, Harris showed Money an email from a hotel in Prague. Booking.com had warned the hotel that it wasn't at parity with Skoosh.com, saying: "You can only succeed in online sales if you have ongoing parity." The hotel owner, who copied Booking.com's warning to Skoosh, said this was a "very big problem" and asked him to change the rate quoted.

Harris has consulted competition lawyers who told him that enforcing rate parity could be illegal. The sites argue rate parity does not constitute anti competitive behaviour or infringe any law.

Harris does not claim that in each and every case his site could offer lower prices than the major players. He acknowledges that as much as 70% of his quotes could be beaten. But in the 30% where he was cheaper, he came under pressure to charge the same as competitors. "It could be that we were selling the room at £100, but elsewhere it was at £130. But I had hotels telling me they wanted to come off the site if we were even £1 cheaper than the majors. It's been cripplingly difficult to run a business."

Hotel booking websites hire individuals to act as rate monitors to check that no one is undercutting them. A current job advert for Booking.com, shows that the company wants to hire a "rate parity associate" in which "you are part of a team that is responsible for finding and solving any rate inconsistencies between Booking.com and their competitors". The person will be expected to "solve rate parity issues" if they arise.

Harris has passed a dossier to the OFT of the emails and letters, and says he has been in touch with the watchdog regularly. "The price comparison sites have been a great thing for consumers, but now as people are not seeing different prices there's almost no point in going to them," he says. Harris adds that, typically, booking websites don't buy rooms direct from the hotel chains or even the independents.

"Distribution of hotel rooms is handled by wholesalers as no hotel group wants to deal with thousands of agents all over the world. The wholesalers give us a net rate and we add a margin, usually around 25%. The wholesaler itself takes around 10%-15%. We don't make huge profits on these margins. Sometimes we sell below 25%, sometimes above."

Money asked Booking.com and Expedia for comment on the OFT investigation and the allegations by Skoosh.com. Neither had responded by the time we went to press.

Are "top secret" hotels the best way for budget-conscious travellers to save money? Lastminute.com pioneered the concept in the UK, and in recent weeks Hotwire.com, a large US operator of secret hotel deals, has launched in Britain. It promises savings of up to 50% by selling off, at bargain prices, the four out of 10 bedrooms that are left vacant in hotels every night.

The drawback is you don't know precisely what you're getting until after you buy. All you're told is the general location and star rating. This has provoked consumers to try and guess the hotel before committing. Martin Lewis of moneysavingexpert.com says: "Copy and paste all or part of the hotel description into Google. Often, it just uses the hotels standard description text that also appears on its website." If that doesn't work, try secrethotelsrevealed.co.uk, although it's a bit hit and miss. The biggest discounts come from the four- and five-star hotels – you're unlikely to find 50% off a hotel that only charges £60 a night.

Unfortunately, you can end up paying more than booking in the conventional way, as one London couple discovered. Planning to spend a few days in Paris, Jon Law and Helena Bonett, who live in Highgate, north London tried Expedia's Secret Saver Hotel option. They were, attracted by the promise of savings of "up to 50%".

"The hotel we chose was advertised as a four-star in the Latin Quarter and we paid £555 for a room for four nights. However, once we'd made our booking we found the 'secret' hotel was in Montparnasse – over a mile from its advertised location – and wasn't four star. The hotel's website didn't appear to show any stars at all."

Worse: rather than saving 40%, they had paid 53% more than if booking the room in the normal way.

"A direct booking via the hotel's website was substantially cheaper than our 'saver' rate, and double rooms were also being sold on Expedia at almost £200 less than what we paid for the so-called 'saver' deal," says Jon.

They printed screenshots to show over-payment, but despite emails to Expedia, no one responded.

A spokeswoman for Expedia apologised for the problems the couple experienced.

"We have investigated Mr Law's issue and a fix has been implemented to resolve the rate issue he experienced. Mr Law has been refunded in line with our best-price guarantee and has been issued him with a gesture of goodwill. With regards to location, the postcode of this hotel is exactly on the border of two 'arrondissements', so is categorised under both areas on our site." Miles Brignall and Patrick Collinson