Expedia demotes American Airlines, airline booking war gets HOT

by Tom Johansmeyer on

Could the battle between airlines and online travel agencies have gotten any more intense? This week, American Airlines got the green light in court to yank its fares from Orbitz, and Delta announced that it was pulling out of several smaller sites – CheapOair, OneTravel and BookIt. Travel industry experts are saying it’s about time, but that doesn’t lessen the shock to the business, especially with the rapid succession. Well, if you didn’t think it couldn’t get any crazier, brace yourself: the online travel agency community is fighting back.

Expedia is changing the way it shows American Airlines flights on its site, making it “extremely difficult” for users to find them, according to ABC News. Is it a show of solidarity, as Scott Mayerowitz of ABC puts it, or could it be an early form of risk management? By reducing its reliance on the American Airlines relationship, Expedia can mitigate the impact of an American withdrawal from its own site.

And let’s not underestimate the financial damage involved: the move by American with Orbitz could cause a nine-figure loss. For the first three quarters of 2010, the sale of American flights was worth approximately $800 million to the latter.

Mayerowitz confirms what I wrote several weeks ago, that a “full out war,” as he puts it, is at hand.At the beginning of December, I noticed that the increasing fares, an outcome of many economic developments, was indicative of a positive development for the airlines. Not only does it mean they can charge more, but it suggests that traveler price sensitivity is waning. Since airline web sites still own the bulk of online sales, the stronger brands of airlines will lead to continued growth in 2011, some of it likely to come at the expense of online travel agencies such as Expedia, Orbitz and CheapOair.

That forecast has become a reality.

This latest development, by Expedia, does not remove American from its site completely. The airlines flights still show up in search results, but the fare is not listed. Instead, users have to click a link to see the details.

Given the competitive landscape, it does seem evident that this is a defensive move on Expedia’s part. Expedia’s statement to ABC News is full of business risk management language:

“This has been done in light of both American Airlines’ recent decision to prevent Orbitz from selling its inventory and a possible disruption in Expedia’s ability to sell American Airlines tickets when our contract with American Airlines expires,” Expedia said in a statement to ABC News. “American Airlines has shown it only intends to do business with travel agencies through a new model that is anti-consumer and anti-choice.”

Basically, Expedia is saying it doesn’t want to get caught with its pants down – as Orbitz was. By taking early action to reduce its reliance on American, it can facilitate a smooth transition at the end of its contract (if necessary) or at least maintain a solid negotiating position.

ABC News reports that passengers looking for bargains will have to work a little harder as a result of this trend toward fragmentation, but the implications may not be as severe as it seems. Bargain-hunting has always involved a measure of this sort of behavior, as would-be buyers would hit airline sites as well as several online travel agencies. This is reinforced by the fact, according to data from travel industry research firm PhoCusWright, that 28 percent of visitors to online travel agencies ultimately make their purchases directly from airline websites.

The airlines have the brand advantage here, as that’s where the bulk of the experience occurs, not to mention that a visit to an online travel agency likely indicates that price, rather than brand recognition or loyalty is the motivator. And, like the online travel agencies, they also sell hotels and other ancillary services, meaning that they can compete head-to-head.

So, why are there any online travel agencies at all?

The booking sites actually play an important role in the travel business, which is why they exist and will continue to do so. In any market where there is both a wide variety of choices and price sensitivity, consumers can benefit from a bit of help in making the decision. This includes being able to compare prices and routes and put together packages across multiple sectors (airlines, hotels, rental cars and so on) that maximize value through comparison. As intermediaries, they make the process of navigating alternatives easier.

Since the online travel agencies are able to amass a market this way, they gain the power to negotiate with travel suppliers (such as airlines and hotels) to offer some discounts, which makes the sites more attractive to buyers. Over time, this has created a robust channel for the booking sites, which do billions of dollars a year in business. They remain an important part of the strategy of any travel supplier, even if it means sacrificing some revenue in order to win the customer. Online travel agencies remain a great way to reach the price-sensitive customer.

But, as I mentioned, the changes in the economic climate are making price less of an issue, and the airlines are aware of this. They see an opportunity to claim more of the revenue for themselves, not to mention long-term ownership of the customer relationship. And what has followed has been the brewing war between online travel agencies and their suppliers.

The decisions by the likes of American and Delta aren’t surprising, given these market conditions, but what about Expedia? Doesn’t it seem like they’re sacrificing some revenue to make a point?

Well, it may not be that simple.

It makes sense to cut its risk a bit, given American’s decision to pull its inventory from Orbitz. Also, it appears to be betting on the fact that a visitor to Expedia doesn’t care about getting an American Airlines flight. Rather, the visitor wants a flight: there’s a difference between New York to San Francisco and New York to San Francisco on American. The customer who wants the former won’t be affected by the absence of a particular airline’s fares on a booking site. A customer who wants the latter would more likely go to the airline’s site directly. The only concern for Expedia is whether the flights by American were priced favorably relative to other airlines, and the loss of any negotiated fare deals it had.

What comes next? Well, that’s hard to say. Douglas Quinby, Sr. Director, Research, at PhoCusWright, told me earlier this week that “American may have jumped the gun a bit with Orbitz, but believe me – we ain’t see nothin’ yet!” There will be more changes in the near future it seems, but this appears to be tempered by the belief by some travel industry experts that the airlines and online travel agencies will find ways to mend their relationships. American and Orbitz, for example, are expected to find a way to work together again, and Bill Miller, Sr. Vice President of strategic partnerships at CheapOair, told Tnooz, “”We’ve had a 10-plus-year partnership with Delta and we fully expect to renew our contract with Delta in 2011. This is our only comment at this time.”

Airlines will need to find a way to work with the online travel agencies, and the online travel agencies will need to demonstrate their value to the airlines … a typical obligation for a market intermediary. My guess is that the dust will eventually settle, and the market will return to a happy medium.

But, it all comes down to the consumer.

If the airlines can make substantial gains, the booking sites will become less relevant. If the online travel agencies can solidify their brands and become more present and important to consumers, they’ll regain some of their recession-period negotiating power.

For now, the two sides are amping up the intensity, and we can sit back and watch the fireworks.

[photo by rjones0856 via Flickr]

Update: This story has been modified to reflect that the $800 million is from American Airlines flights only and does not include ancillary fees.

14 skiers get lost in ten days at Washington ski resort

by Kraig Becker on

Winter is finally officially upon us, and the ski season is in full swing at last. Many of the country’s top resorts have been opening over the past month, and they’re all dealing with the usual hiccups of launching a new season, including handling crowds on the lifts, making sure all of their equipment is running efficiently, and watching the skies for snow. But one resort in Washington has had to deal with a completely different issue, with 14 skiers getting lost out of bounds in just the first ten days of operations.

On Saturday, December 4th, Washington state’s White Pass Ski Resort opened for the season, unveiling a highly anticipated expansion to their property known as Paradise Basin. The new expansion doubled the size of the resort and delivered new lifts, a day lodge, and a slew of new runs as well. But what the management team didn’t anticipate was the number of lost skiers the new area would generate.

While most of the 14 skiers who became lost have managed to find their way back on property without calling in the ski patrol. For instance, one group of six snowboarders went the wrong direction, and ended up having to hike more than seven miles just to get out of the surrounding wilderness, but they did eventually find their way home. Three of the lost skiers did have to be rescued however, which set them back $500 each to cover the expenses.

According to White Pass manager Kevin McCarthy, it hasn’t been the younger, more reckless skiers and snowboarders who have been the biggest problem. Instead, it has been the 40 and 50 year olds who wander too far out of bounds, resulting in three to four hour searches to find them. In the case of one person, even the rescue squads were reluctant to go in to find him because of the high risk of avalanches in the area that he wandered into.

White Pass officials say that signs and ropes are used to clearly distinguish where the resort begins and ends, but in the case of most of these lost skiers, they are simply ducking under those ropes or ignoring the signs altogether. Once they are out of bounds, the endless snow slopes and dense trees can make it difficult to get your bearings, which leads to confusion and disorientation. This has often been the case with these lost skiers.

Fortunately, so far no one has been seriously injured or has died, but 14 lost skiers in such a short time span is a cause for concern. Perhaps they should start tagging every skier with a GPS tracking device as soon as they arrive. It sure would make them easier to find. One thing is for sure, the ski patrol is earning its wages so far this season.

American-Muslim group urges Palestinians to visit Holocaust Museum

by Sean McLachlan on


The Islamic Society of North America is defying Hamas and urging Palestinian youths to visit the U.S. Holocaust Memorial Museum in Washington, D.C., the Jewish news service JTA reports.

A group of A-students from the Gaza Strip are to visit the nation’s capital on a UN-sponsored educational visit. Their tour is to include the Holocaust Museum, but Hamas, which runs the Palestinian Authority, has criticized the plan. A Hamas spokesman says Palestinian children suffer enough persecution and can’t deal with learning about other people’s suffering.

That prompted the Islamic Society of North America to make a public statement endorsing the plan, saying they’ve taken Muslims there before and that it has had a positive effect on Muslim-Jewish relations.

I’ve never seen this museum, but I have been to the Holocaust Museum in Jerusalem. Although I went nearly twenty years ago, I have a very clear memory of speaking to a German student who I met there. Her reason for going? “I feel it’s my responsibility as a German.” She became a friend, and although she often criticizes Israel’s policies, she’s fully aware of what happened in the biggest crime of the twentieth century.

Who knows? Perhaps this will encourage Jewish-American children to visit Palestinian high schools, or Iranian and American kids to set up an exchange program, or North and South Korea to create a communal youth group.

Hmmm. . .is that too much to hope for this holiday season?

[Image courtesy user AgnosticPreachersKid via Wikimedia Commons]

Will Orbitz and American Airlines kiss and make up?

by Tom Johansmeyer on

The recent decision by American Airlines to pull its inventory from Orbitz caused quite a stir. A major change in an $800 million relationship will do that, of course. Some industry-watchers, however, don’t see it as a permanent situation. In a report by WFAA, Tom Parsons, owner of BestFares.com, said, “Three months down the line, nobody will even know American’s there, and I think the loser will be American.”

He believes that consumers still have plenty of choices, which is likely to lead to a gain for other carriers working with Orbitz.

But, it’s a situation that could cut either way. When Southwest Airlines pulled away from Orbitz, it assumed a similar risk. Now, the low-cost carrier moves 85 percent of its tickets via its website. While this has worked for Southwest, it does operate in a fundamentally different market.

Parsons believes that Orbitz and American Airlines will work together again, according to WFAA.

[photo by DavidMartynHunt via Flickr]

Does your cruise travel agent pass the test?

by Chris Owen on

There’s an ongoing debate between consumers and those critical of the travel business which struggles to answer the question “Do I need a travel agent or not?”. They’re not required and cruise-related websites make it really easy to click and buy a cruise, much like you might buy an airline ticket. But a good travel agent, one that will bring great value to the table, will have certain qualities required to make the cut. Ask these simple questions to find an agent with the minimum qualifications that make them worthy of your business.

  1. Are you connected? Since you are reading this, you are connected. You need someone who speaks your language in the medium you prefer be that via email, facebook, twitter or maybe just an easy phone call away. Bonus tip: try communicating with an agent via email to provide a written record of what was said, promised or delivered.
  2. Have you been on many cruises? A good travel agent specializing in cruise vacations should have a rich cruise history on multiple cruise lines. You’re looking for their first-hand knowledge and experience dealing with cruise lines, they better have it
  3. Are you certified? They should be at least members of the Cruise Lines International Association and have a few letters after their name like ACC, MCC or ECC showing they went through basic training and then some. If they have one of those, odds are they will tell you about some specialized training they got from the cruise line too. Give big bonus points if they are members of other professional organizations or consortium’s.
  4. How long have you been selling cruises? If they say less than five years forget about them. That’s about the minimum amount of time it takes for agents to really know their way around cruise lines, establish contacts that can do you some good later and have enough bookings behind them to know what they’re doing.
  5. Will I be dealing directly with just you? This one has to be a “yes” answer or the whole thing is not worth your time. To a good agent, their job starts with making the booking and never ends as they work towards building a life-long business relationship with you. If they are not personally following your booking from beginning to end you have the wrong person.