Tuesday, April 7, 2009
This morning, Orbitz matched competitors Expedia, Travelocity and long-time forerunner Priceline in removing booking fees on airline tickets. The duel continues. Orbitz, like Expedia and Travelocity, is billing it as a "promotion" through May 31st but as we've stated before, we don't think that putting this genie back in the bottle will be easy come late May.
Wisely, Orbitz excluded tickets that utilize a combination of airlines from the fee waiver. This is laudable because these kinds of tickets are difficult, if not impossible, for the supplier sites to sell. (when was the last time you bought a Delta ticket at United.com?) Also, because of Orbitz's strong ITA Software search engine backbone, Orbitz often provides lower combinations of multiple carriers than Expedia, Travelocity or Priceline. This may enable Orbitz to preserve at least some of their fee revenue - time will tell how much.
We also like that Orbitz is weaving their innovative Price Assurance plan (which protects consumers from airfare decreases after buying a ticket) tightly into the no-fee marketing. This provides a one-two punch vs. Expedia and the supplier (airline) websites which do not have a similar program.
But, we do worry about the costs associated with both of these efforts. Consumers apparently appreciate Price Assurance, but these payments come directly from Orbitz - not the airlines. Absent much or most of the $7 per ticket fee revenue that Orbitz has enjoyed, this program may get expensive quickly.
Similarly, as previously discussed, a much larger portion of Orbitz's earnings come from booking fees. (Citi estimates nearly 60% for OWW vs ~10% for EXPE.)
Orbitz's long-time focus on air (at the expense of higher margin hotels) is finally coming home to roost - OUCH or OWW may be perfect now more than ever.