A federal lawsuit accuses Austin-based vacation rental company HomeAway Inc. of engaging in “bait and switch tactics” after it rolled out new service fees for customers booking vacation rentals.
Those fees “range from 4 percent to 10 percent of the total price of the vacation rental,” according to the suit filed last week in U.S. District Court in Austin. The suit claims the new fees are substantially increasing prices paid by consumers and dramatically changing the business model HomeAway and its sister sites, such as VRBO, were built upon.
HomeAway, which was acquired last year by travel giant Expedia for $3.9 billion, is the leading player in the online vacation rental industry. The company says it has more than 1 million paid listings in 190 countries around the world, offering travelers an alternative to hotels. It reported total revenue of $446.8 million in 2014.
Only in place a few weeks, the fees have already had a significant impact on owners of vacation properties, the lawsuit contends, reducing “the number and value of bookings by travelers.”
The suit seeks class-action status, alleging that property owners had contracts in place with HomeAway that prohibited the company from implementing the fees without their consent.
Austin attorney Dan Byrne, who filed the suit along with California attorney Michael Bowse, said he believes this suit is the first of its kind since HomeAway’s decision to implement the consumer fees — which are being charged on top of subscriptions already being paid by the owners of vacation rental properties.
For example, the owner cited in the suit, Ivan Arnold, said he paid $1,848 in February for a platinum-level HomeAway subscription.
HomeAway declined to discuss the claims made in the suit. “We do not comment on pending litigation but, as always, HomeAway is committed to maximizing the value of our partnerships with our owner partners and travelers worldwide,” the company said in a written statement.
Byrne said it’s unclear how long it could take for the suit to be resolved. A court date hasn’t been set.
“Much depends on how HomeAway approaches the suit and the issues it raises,” he said. “It is too early to say with any certainty whether there are mutually agreeable terms under which the suit could be resolved.
“It is worth noting, however, that our research indicates that vacation home owners who subscribe to HomeAway’s websites have already lost bookings because of HomeAway’s new fees to travelers. Compensation for those lost or reduced bookings is one of the categories of damages sought by the lawsuit.”
One of the issues with the new fees was how they were rolled out, said Jamie Anderson of Austin, a former HomeAway client who listed her properties on the site until recently. The company didn’t give adequate notice, she said, leading to confusion.
Anderson isn’t involved in the suit against HomeAway.
“Initially, I didn’t know what was going on,” she said. “I’ve always been booked all of March, and I was not booked for March. Well, apparently they were already charging the fees without telling me.”
Part of HomeAway’s appeal, according to many users, was that there was no charge for renters to use the site. The fees have changed that, Anderson said.
“I felt like they were double-dipping,” Anderson said. “I thought it was unfair to the people making the reservation. We were already paying a fee. They shouldn’t have to pay one, too.”
Anderson said she expects many property owners to leave HomeAway once their contracts are up.
“Really, it’s a perfect opportunity for someone to come in and start a new company,” she said.
HomeAway CEO Brian Sharples acknowledged the backlash because of the fee in a letter to property owners and managers posted on HomeAway’s website. Sharples conceded HomeAway hadn’t done a good job of communicating the change, but he defended the fee.
The money will be used to improve the online booking experience and expand marketing to bring in more travelers, he said.
“The good news is that vacation rentals are now considered a mainstream travel option,” he wrote. “But as a result, travelers are demanding more from listing sites like HomeAway and VRBO. Our research and experience shows that it is no longer enough for us to just operate an online classified-listing site.”
Many competing websites already charge similar service fees. San Francisco-based Airbnb, for example, charges 6 to 12 percent on top of the 3 percent booking fee that owners pay.
Reverdy Johnson, research director of San Francisco-based Blueshift Research, said it is unlikely that HomeAway will take a financial hit because of the fee.
“Airbnb has had this fee, and it hasn’t slowed them down,” Johnson said. “So if HomeAway is imposing a similar, if not smaller, fee than its chief rival, you don’t expect that it’s going to significantly hurt or change their business.”
He added, “They’re not charging something that’s egregious or out of line with what has become the industry standard.”
Johnson said the anger might be as much about HomeAway’s handling of the fee as the fee itself.
“If renters think it’s the homeowner and the homeowner can’t explain, that’s a problem,” Johnson said. “That’s an execution issue and something that needs to be fixed.”
HomeAway was one of Austin’s most high-profile public companies when it was acquired by online travel giant Expedia last year. It has more than 1,900 employees worldwide, including 1,300 in Austin.