Pay Now or Pay Later: A New Choice at Priceline - And the Next OTA Battleground?

Priceline.com has begun including "pay-at-checkout" inventory alongside traditional, "pay-in-advance" merchant model hotel inventory at select hotels. Priceline has developed a jazzy new logo and tagline: “Pay When You Stay” to highlight this option.

Users are then given the option of paying upfront or at time of booking when they click to select the hotel.

And this isn't a matter of simply including traditional agency inventory sourced via a Global Distribution System (GDS) such as Sabre or Travelport. This stroke of genius is actually the latest convergence of booking.com inventory with Priceline.com non-opaque (i.e. Travelweb) inventory.

Booking.com's rapidly expanding inventory base within North America now enables Priceline to offer multiple sources of inventory with multiple payment options for the same hotel. At the same time, as more hotels roll out, Priceline has removed one of the largest perceived negatives to booking with an OTA - upfront payment.

The gap between supplier.com and online travel agencies continues to close. First booking fees fall, then change and cancel penalties disappear and now this latest game-changer.

Orbitz For Travel Agents Pays 10% Commissions

Orbitz has launched a new platform for traditional travel agents which enables them to book stand-alone hotel rooms as well as vacation packages. This matches (for hotel only anyway) agentaccess, a program which hotels.com has offered to the agency community for some time.

The Orbitz for Agents platform offers a 10% commission to agents on stand-alone hotel bookings and 4% on packages which include air and hotel or car and hotel.

And, in an effort to sign up agents, the first 500 agents to register will be paid 12% commissions.

So now we have Orbitz, partially owned by Travelport, pushing agents to book outside of the GDS. And Orbitz is offering a strong economic incentive (at least for the 1st 500 agents) to do so. But will agents abandon their beloved green screens in large numbers? I doubt it - but plenty of small, independent agents may be interested.

And what of suppliers? It gives you some clue as to the level of margins Orbitz (and Hotels.com) are able to extract from hotels if they are able to not only match the industry standard 10% rate but still cover the other costs associated with the merchant model (e.g. credit card fees, fraud, customer care etc) which are normally borne by hoteliers under the agency model.

And it is a good move for Orbitz. Orbitz has a choice to drive incremental bookings - they can pay an agency 10% or Google. Stands to reason they already pay Google enough so this is an interesting way of lowering reliance on paid search.

Orbitz does allow for agents to add their own service fees - could this be the distribution model of the future in the hotel industry much as it has become the standard for airlines? Wait and see..

Lodging Recovery: 4 Years Away, OTAs vs. Suppliers, Google vs. TripA and Other Good Discussions

Check out the blog over at uptake.com for some good thought-provoking discussions following the PhoCusWright conference down in Orlando.

Yen does a nice job of explaining Bill Carroll, Chris Anderson and Jake Fuller's analysis of the lodging cycle and the opportunities for the OTAs. In a nutshell, look for another 4 years of pain for hoteliers and substantial continued opportunities for OTAs.

Solid musings on the potential GDS IPOs along with HomeAway, Kayak and ITA - should be a big year in travel IPOs

And what would a travel discussion be without thoughts on google and tripadvisor?

Catch all the details here including my thoughts on OTA vs. supplier.com innovation and growth. The reply below is in response to Yen's thoughts around the growth of OTAs during the last economic blip - good supply helps but innovation is critical as well:

I think the question is as much around supply vs. demand as it is innovation vs. the lack of it. Hotels.com and Expedia built their businesses just as much around great pricing as they did around great websites, content and functionality. The chains and airlines fought back and brought their sites (somewhat anyway) up to snuff. But, particularly for airlines, they have relied on booking fees charged by the OTAs as a crutch to create differentiation. With those fees now moot, is it any wonder why consumers, for the same price, aren’t booking where a better booking experience happens – the OTAs? No wonder OTA air segments are way up – which obviously feeds the hotel and car lines of business. The innovation pendulum has swung squarely to the OTAs from the suppliers. Just look at Orbitz Price Assurance for air and hotel or Travelocity’s Guarantee or Expedia’s packaging product to see how the OTAs are changing the game. The suppliers are nowhere in these customer friendly areas. Will the airlines fight back with more negatives (as they are sooo prone to do) by restricting seat assignments or frequent flyer mileage accumulation to their own websites? (Remember when hoteliers did this?) Or will they match the innovation of the OTAs and really attempt to compete? We’ll see next year."

Delta: Ooops, we forgot the fuel surcharge: Crazy deals to Europe!

Last night, Delta uploaded a host of new fares for Central and Southern European destinations including Madrid, Zurich, Athens, Barcelona and the like. In so doing, however, they managed to leave off the $200 fuel surcharge making for some outrageously low airfare deals.

For example, JFK-Zurich in August for $233 including all taxes and fees. Similar deals were to be had to Madrid and Barcelona - the taxes alone to Europe these days are often over $100. Athens was a bit more but who is going be bothered paying $400 for a ticket to Greece in the peak of summer?

How did this happen you may ask?

Airlines file or load international airfares from their internal systems to a distribution partner known at ATPCO or the Airline Tariff Publishing Company. ATPCO is owned by most of the major airlines and serves as a central "hub" for fare (but not inventory) distribution to the major Global Distribution Systems (GDSs) such as Sabre, Travelport and Amadeus. ATPCO sends international fare changes to the GDSs five times per day where it is processed and made available for sale. Travel agents (everyone from Amex to Expedia) can access the airlines fares, schedules and availability directly from the GDSs.

Airlines send two pieces of data to ATPCO with each load: Fares and rules. The fares are fairly self explanatory - a basic dollar amount for each specific fare product. The rules get more tricky. This is where each fare product is defined - things like Saturday night stay requirements, advance purchases, etc. Also part of the rules section is, you guessed it, fuel surcharges. In last night's load, Delta inadvertently left of the $200 fuel surcharge for these fares. ATPCO dutifully uploaded the fares to the GDSs and voila: Cheap tickets to Europe!

And, yes, the deals are still out there as of this posting - but dont expect them to last too long - you can be sure Delta is taking steps to correct their mistake....

New EXPE Board Member - Chairman of Amadeus - really!

In a small 8K filing late last month, Expedia added Jose Antonio Tazon to the Board of Directors. Tazon replaced Expedia long-time insider and fellow European Simon Breakwell who left the board.

Breakwell leaving isn't particularly interesting aside from the fact that he was one of the "old guard" from earlier times - he joined the company in 1997.

But the Chairman of one of the big three GDS systems joining the board is interesting indeed. Clearly, Tazon brings a wealth of European knowledge and insight to Expedia - which could be crucial as Expedia continues to slug it out with the likes of booking.com in particular. Amadeus also brings deep experience in serving both airlines and travel agents alike.

But Amadeus' market strength comes from the European Markets - not North America where Expedia's strengths lie.

Amadeus, on the other hand, unlike Travelport and Sabre, has limited experience in the direct-to-consumer online travel agency space. From a consumer marketing standpoint, clearly Expedia sets the bar.

We doubt this is a prognostication of further consolidation within the travel distribution space (yet) but Expedia and Amadeus certainly have plenty to learn from each other.

Delta joins AA in Suggesting that OTAs and Travel Agents Should Pay for Content

If you listened to Delta's Q1 earnings call this morning, you heard some interesting commentary on the future of distribution according to Delta.

DL management echoed American's CEO's suggestion on their call last week that the time would come when OTAs and agents would pay the airlines for their content. Interesting how the airlines can have these "open" discussions in their earnings calls, isn't it? We've been following the commentary over on Dennis Schaal's blog but this was too rich to pass up without a few thoughts of our own!

Of note, DL stated that "TMCs have an important role to play" and seemed to imply that their main target was the OTAs particularly when DL described the "value we provide vs. others" online. Maybe so, Orbitz's Price Assurance which offers consumers a refund when fares decline seems like a pretty good value. The same can be said for the multitude of air+hotel packaging options that the OTAs provide to consumers. And many consumers would also vote Orbitz's TLC in-route support to be far superior to many airline's offerings. And multiple airlines? Try booking a multi-carrier trip on Delta.com or Continental.com. OTAs are all about offering consumers choices and comparison opportunities - things they do quite well.

More interesting, however, was the suggestion that "OTAs should pay for [airline] content the way they do for hotels" Hmmmm. Obviously, someone at Delta has not taken a quick look at hotel distribution costs - nor drivers of OTA profitability. Newsflash: OTAs don't make any money selling airline tickets! They make it selling hotels. And they don't pay hotels - quite the opposite. Can you imagine the horror if someone at Delta knew that many chains are paying Expedia/Travelocity/Orbitz in the mid-teens for distribution? And what of independent hotels? Considerably more.

And finally, DL mentioned that Delta.com was driving ~ 37-38% of Delta's revenues - great news indeed. But they also estimated that the OTAs were providing in the area of 30% of Delta's revenues - wow is all we can say on that one.

January US Airline Agency Sales off 25% - demand plumets faster than airlines can remove capacity

The Airlines Reporting Corporation (ARC) has posted January US travel agency sales and the numbers are, in a word, shocking.

A bit of background first. ARC is a company owned by the major US airlines that facilitates payments between the airlines and all travel agencies (including OTAs such as Expedia et al). If a ticket was bought at a travel agency in the US, the revenues flow through ARC. Airlines' sales outside the US, as well as their own airline.com (e.g. delta.com, aa.com etc) revenues do not flow through ARC. Roughly 50% of US airline revenue is handled by ARC and it skews heavily towards business travelers.

The raw data is here but year over year, actual ticket sales numbers plunged by nearly 25% while revenues plunged by an even greater amount - nearly 27%. This is one of the first indicators we have of what is to come for the airlines now that the holidays are over and the true recession has set in. Most analysts have pegged capacity reductions at around 10% year over year - revealing a great chasm is opening between demand and capacity.

Indeed, the carriers' worst fears are being realized - demand is falling faster than they can reduce capacity. Things were not supposed to work out this way.

These declines are also telling for the Global Distribution Systems (GDSs) . Galileo, Worldspan (both owned by Travelport), Sabre and Amadeus are no doubt seeing similar declines in airline segments as nearly all of ARC's revenue is delivered by the GDSs. With their heavy debt loads from their privatizations, things may get interesting quickly for Sabre and Travelport.