Expedia drops phone booking fees

Expedia announced today that they are removing booking/service fees on all travel products sold through Expedia's call centers.

From an airline perspective, the move is interesting in that it will now be cheaper for consumers to book with an OTA then calling the carrier directly. (Except, of course, for Southwest which does not charge extra for a call center booking but they don't participate in the OTAs anyway.) The move is another example of how the OTAs have continued to differentiate themselves from the suppliers in terms of service, functionality and price. The list of enhancements the OTAs have made this year is long and compelling and great for consumers. Just to tick off a few: Orbitz TLC, Orbitz Price Assurance, Expedia's SeatGuru reviews, Priceline's iPhone app all come to mind.

And what of the timing, by the way? Interesting that Expedia announced this change the same morning as Orbitz announced earnings - particularly when Orbitz had this say in their statement: "This net revenue decline was due primarily to the removal of most air booking fees and the significant reduction of hotel booking fees on the company's domestic websites, as well as a decline in average hotel room rates globally."

Today's move by Expedia along with the OTAs' other enhancements this year should be a wake-up call for suppliers - Airlines and hoteliers cannot continue to sit still while they are out-innovated by the distributors. Piling on more fees or other dis-incentives for booking through specific channels only further harms the supplier's brand and the overall customer experience. Suppliers, wake up!

OTA Slug Fest Continues: Expedia Removes Back-end Mark-ups Previously in "Taxes/Fees" to Match Orbitz

The OTA slug fest over booking fees continues today - Expedia has apparently (and quietly) stopped adding additional fees into the "taxes and fees" section as a result of Orbitz removing them yesterday. Expedia claimed to the press they would remain competitive and, indeed, they have.

Until now, while the "base" price of a hotel room on Orbitz, Travelocity and Expedia (and supplier sites) was usually the same, the OTAs often added additional fees into a murky line during the booking process labeled "taxes and fees." Consumers didnt pay much attention to these fees, assuming that they were not optional or a subject of competition. All that changed yesterday when Orbitz began breaking out the total all-in price on the first search results page - something even the hotel supplier sites don't currently do.

Yesterday, we shared the following price comparison which clearly showed the differences between the OTAs (and supplier sites) when the "all-in" price was compared:

Hilton.com $253.71
Orbitz.com $253.10
Priceline.com $253.76
Travelocity.com $262.46
Expedia.com $287.83
Hotels.com $287.83

Today, pricing seems to have equalized across the channels with Expedia coming in line with the competition. Consider the Paramount in New York for this Sunday night:

Paramount website $151.40
Orbitz.com $150.80
Expedia.com $150.07

(Note: Priceline was $299 and Travelocity was $160.33 showing the importance of shopping around - but that isn't the point here)

Or consider the same Hilton New York on Sunday, May 10th:

Hilton.com $162.31
Orbitz.com $161.94
Expedia.com $162.23

What is critical is that Expedia has effectively taken a hatchet to their margins. The difference could be as much as a 12 point drop in the Hilton example above. Clearly, Expedia is not about to cede share and is determined to remain competitive - the open question is what the effect will be on Expedia's hotel margins.

Travelocity to match Expedia on no booking fees

Today's Wall Street Journal is reporting that Travelocity will announce they are matching Expedia in removing booking fees for published airline tickets until May 31st.

As we previously posted, we don't think the removal of booking fees at Expedia (or Travelocity) is a temporary promotion anymore than it was for Priceline and Hotwire. Adding fees back in is hard - really hard.

It has taken Travelocity a week to digest this dramatic change in the landscape that has occurred and now they have gotten on board. And now Travelocity has matched Expedia - reminds us a little of how the airlines all miraculously match fares and add-on fees. This is a seismic change for the OTA industry - Expedia has put all of their chips "in."


Orbitz will be forced to match the fee reduction as well - the customer overlap is now just too large to ignore. According to Nielson/Net ratings data from 2007, well over 50% of visitors to Expedia also visit Orbitz or vice-versa. We doubt that some of the airline product innovations that Orbitz has developed (Orbitz TLC, Orbitz Pricematch) will be enough to convince finicky customers (just look at those retention rates!) to book with Orbitz vs. Travelocity or Expedia. If only Orbitz had spent as much time working on hotels as they have on air......

Expedia's bold move into the land of no air booking fees

This morning Expedia announced a new promotion offering free nights at 700+ hotels based on a three, four or five night minimum stay. This isn't particularly new or exciting as Expedia has long offered hotels this capability. What is earth-shattering is the reduction on booking fees on airline tickets.

Priceline started this trend over a year ago on what was at the time called a special promotion. It was quickly matched by Priceline's key competitor Hotwire (which is owned by Expedia.) But Pricline and Hotwire both had little to lose as neither one sold very much published airfare anyway. And, getting people to buy air, even without making any profit, was key to getting people to buy highly profitable hotels and cars in follow-on transactions.

But now Expedia has followed. This is billed as a promotion, but we would not be surprised to see it become permanent, just as it did at Priceline and Hotwire.

Clearly there will be winners and losers.

Consumers are the big winners as they will gain a major distribution outlet for fare shopping and comparing that will now have prices equal to the supplier sites.

We don't think Priceline has too much to fear because while their sales of air have grown significantly following the removal of fees, they are still a much smaller player with the majority of their profits and revenues coming from the sale of hotel rooms But clearly, Expedia has taken notice.

The biggest loser in this is probably Orbitz. Orbitz derives a much bigger share of their revenues and profits from these fees. In fact, Citi analyst Mark S. Mahaney calculates that Orbitz (OWW) derives nearly 60% of their operating profits from these fees vs. just 10% for Expedia. Expedia's strong stand-alone hotel product and robust cross-selling may enable it to make up for the loss of booking fee revenue on other products.

And another question mark will be the meta-search sites such as Kayak, fly.com and Tripadvisor.com. Kayak in particular depends on significant revenue streams from its partnership with Orbitz. If Orbitz's fee goes to zero, it will be hard, if not impossible, for Orbitz to continue paying Kayak a referral fee.

Which brings us back to an interesting question: Is there more than meets the eye here with Tripadvisor's new air meta-search product? (Note: Expedia also owns Tripadvisor) If Expedia is now at partity with supplier sites (e.g. Delta.com, AA.com etc) on a meta-search site, they stand to benefit from a substantial up-tick in traffic......