Monday, April 27, 2009

Orbitz to Expedia: I Call Your Flight Fees and Raise You One Hotel Fee

Here's some interesting speculation I heard about Orbitz's decision last week to trim the fees it charges consumers for hotel bookings.

As you recall, in March Expedia got in Orbitz's face and eliminated consumer-booking fees on flights. That was a body-blow to Orbitz because about half of its profits come from these air-booking fees.

Well, Expedia gets about 19 percent of its profits from the fees Expedia charges consumers for hotel bookings. So, last week Orbitz, which has a much smaller hotel business than does Expedia, reduced its consumer fees for hotel bookings, and Expedia matched.

Orbitz's hotel move could not have been a welcome development in Bellevue, Wash., which is Expedia land, just as Expedia's decision to rescind fees on airline reservations assuredly caused a huge bellyache in Chicago.

Expedia: I'll raise you one airline fee.

Orbitz: I call your airline fee and raise you one hotel fee.

So, here's the speculation: Orbitz might be signaling to Expedia that it should restore its fees on flight bookings.

Expedia, Travelocity and Orbitz all eliminated the flight fees, but on a temporary basis. The fee eliminations run through the end of May, and many people assume they will become permanent.

But, as the signaling theory goes, if Expedia restores its consumer fees on airline bookings, then Orbitz might quietly bring back its hotel fees, perhaps in the second half of the year.

In that way, the potential "revenue death spiral," which is how Forrester Research analyst Henry Harteveldt characterized the OTAs' price wars, might be avoided.

One problem with this theory, however, is that Orbitz sees increasingly its hotel business as a strategic imperative and is about to embark on a marketing campaign related to its fee cuts on hotels and its related "total price" initiative.

But, let's see what happens around June 1, when all of the OTAs' airline-fee promotions end.

If the flight fees are restored and Expedia leads the way, maybe the travel-industry wag who speculated about this scenario is correct and someone at Expedia understood Orbitz's distress call.

1 comment:

Dirk said...

Looking forward to Juni 1. Just for your information. in Germany launched the zero Euro Air Booking Fee without a limit of time.