In an effort to gain a competitive edge over travel suppliers and offline agents, online travel agencies may be on the verge of jettisoning booking fees. That’s good news for travelers, who may save $5 or more every time they buy a trip online.
A few weeks ago TripSync, a relatively unknown travel site, announced it had eliminated booking fees. Yesterday, Priceline said it would cut fees for all domestic and international flights purchased by July 4th.
I asked the three major online agencies if they are considering a similar move. Expedia, Orbitz and Travelocity say they aren’t (for now). [See updates, below.]
If just one of the big online agencies matches Priceline, then things could get very interesting. Here’s why:
It could trigger an online price war. At the moment, all of the OTAs are playing on a level field, in terms of air fares. But as Priceline points out, a $5 reduction in fares means its customers, “will pay less for their airline tickets than they would at any other major online travel reservation service.” When customers follow the cheap fares, it will most likely start a price war.
Fares can go even lower. Online agencies earn money not only from booking fees, but also from overrides (where they’re paid extra when they meet sales goals) and consolidator fares (buying tickets in bulk and then reselling them at a markup). I can imagine a competitive response that doesn’t just eliminate the booking fees, but also dips into the other money made through the sale of each ticket.
Consolidation is inevitable. With some online agencies struggling (Expedia missed its recent profit forecast; the other two big agencies don’t break out their results) it’s possible that a round of fee-cutting could leave one or more online agencies weakened and vulnerable to being acquired by a competitor. Fewer choices aren’t a good thing for travelers, though.
What’s going to happen? If I knew, I’d be running a hedge fund, thanks very much.
At least one agency, Orbitz, seems dead-set against the idea of eliminating fees. Here’s what spokesman Brian Hoyt wrote to me in a response to an e-mail I sent this morning, asking if the agency had considered a cut after Priceline’s announcement:
Our service fee pays for customer care innovations like OrbitzTLC, mobile access, our alert system, live chat support, podcasts, our staff who proactively supports customers, etc. And there is more coming!
Priceline’s move is curious as these fees should pay for service (but apparently a sale like that below is a worth while attempt to generate more interest for their air product despite that it will challenge their service capabilities). But as the #4 player in the space, they have to do what gimmicks they can do in order to attempt to build their North American business.
So in short, our service fee stays because we use the funds to help support a business that is constantly innovating for customers and adding value to the travel experience.
And we think, as UC Davis recently noted in a study, we are still one of the cheapest places online to buy a plane ticket, even beating Southwest.
But Ill give priceline this…it is definitely an interesting direction to go in when your whole value prop is price.
Update: Just received from my Travelocity contact: “Travelocity has no plans to react to this announcement.”
Update 2: And from Expedia: “We don’t have any plans to make changes to our fees.”
We’ll see where things stand at the end of the summer …
Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.
Elliott is consumer advocate 
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