Wednesday, March 25, 2009

Expedia's Booking Fees: The Trigger Point

There's a rumor circulating in some circles that Expedia Inc. CEO Dara Khosrowshahi decided to remove consumer-booking fees on airline tickets and "go after" Orbitz, which still charges fees, because Dara was angry that Orbitz Worldwide picked Barney Harford, an Expedia alum, as Orbitz's President and CEO in January.
I have no clue what Dara, which is what everyone calls him, thinks of Orbitz's selection of Harford, who left Expedia in 2006.
But, I doubt the validity of the whispers I'm hearing.
Instead, I do know what had to be a conversation topic in the Expedia Inc. boardroom.
Priceline, which bid adieu to consumer-booking fees on airline tickets in 2007, saw the number of airline tickets it sold worldwide climb 65.3 percent in 2008.
And, while price-conscious consumers were filling Priceline's coffers, the number of airline tickets that Expedia sold worldwide in 2008 stagnated. There was 0 percent growth.
Not all of the disparity in the respective growth rates is due to booking fees -- but much of it has to be.
So, Expedia's dropping of booking fees, followed by Travelocity's match, represented a chance to make up some of that market-share loss, and to try to crush the weakest of the Big Four online travel agencies, Orbitz.
Expedia's initiative resembles the way major airlines sometimes try to drive smaller competitors off the runway and out of business.
As I reported, Orbitz is dependent on the booking-fee model, and hamstrung in its maneuverability because of GDS agreements with its overlord, Travelport. Unless amended, Orbitz is locked into those agreements through 2014.
So far, Orbitz's only answer to Expedia's and Travelocity's still-temporary booking-fee deletions is a hotel sale, which runs through May 31, as do promotions by its three main competitors.
Undoubtedly, Harford and his chairman, Jeff Clarke, who just so happens to be president and CEO of Travelport, are trying to figure a way out of this mess.

1 comment:

yen said...

hard to believe that Dara, being the rationale financial CEO that he is, would drop booking fees for that reason

mark mahaney, the citibank internet analyst, wrote an excellent summary of the positive impact on expedia's prospects from dropping the booking fee.

can't argue with the short term results - expedia shares are up $3 from a low of $6.5

yen