Online travel company lawsuits heat up, cool off

Going back more than 10 years, U.S. city and state governments have been suing online travel sites for underpaying general excise and hotel taxes. Now, lawsuits filed years ago are being heard and the story continues as mixed verdicts come in.

First, here’s the beef. Online travel companies purchase unused hotel room inventory and then sell those rooms to consumers at a marked-up price. The online travel company pays the hotel occupancy tax on the discounted rate that it purchased from hotels and not on the rate charged to its consumers.

Cities from Honolulu to Houston to Washington D.C say “that’s not right” and want the taxes actually charged to be paid.

Online travel companies like Expedia, Orbitz, Travelocity,,, Priceline and others say “forget it, we’re not paying.”

Some lose, some win as the issue plays itself out.

In January, Houston, Texas lost it’s battle when a a Texas trial court judge dismissed the allegations. “These claims are not based on law, but on the greed of plaintiffs’ attorneys,” Andrew Weinstein, spokesperson for the Interactive Travel Services Association told the Southeast Texas Record.

It’s a sketchy claim at best and both sides have their share of supporters and valid points.

“If the city’s right, all that means is there’s been an under-collection of taxes, and the city can’t sue us for that,” said Frank Lowrey, an attorney representing the firms to Business Week. “They’re telling us to collect more taxes than we said we would collect.”

Similar lawsuits or complaints have been filed around the country by cities and states including in Oklahoma, Maryland, Texas, New York, Illinois, Pennsylvania and in the California cities of San Diego and San Francisco. While some of the complaints have been dismissed, several are still pending.

Is this just cities and states grasping at any possible income source, however bizzare it may sound? Maybe, but that’s nothing new either. Just last year Gadling reported on how the state of Tennessee wanted to tax complementary hotel breakfasts and before that we reported how taxes are becoming a larger part of travel expenses all the time as cities and states are pumping up their coffers at the expense of visitors.

Those who lay claim to jobs as lawmakers may not have the oldest profession in the world but sometimes they sure act like it.

Flickr photo by Love My Tours

Related Stories

Travelocity video contest awards winners $5,000 voluntourism vacation grants

Travelocity knows you work hard. That’s why the online travel company would like to give you a $5,000 grant to go on vacation.

Calm down now. You have to work to win your just reward. And by work, I mean you or a team need to submit a winning video. Then you have to use your five thousand smackers to take a Signature Trip volunteer vacation offered by Travelocity’s voluntourism partners. Examples include doing trail work in Alaska with the American Hiking Society, developing community projects in Tanzania with Cross-Cultural Solutions, working side-by-side with scientists on an Amazonian riverboat with Earthwatch Institute, or living in a children’s home in Peru with Globe Aware. Oh, and there’s one more catch. The top 25 finalists will be determined based on the number of online votes they receive from social networking sites.

Since 2006, Travelocity’s Travel for Good® program has been annually awarding eight, $5,000 volunteer vacation grants to American applicants. Travel for Good’s main objectives are green hotels and voluntourism. As Gadling has previously reported, voluntourism is one of the fastest growing sectors of the travel industry.

If hands-on, experiential travel is up your alley, go to The site will walk you through the easy process to upload your video. You can then promote your video on social networking sites like Facebook and Twitter, and send it to friends and family for voting.
Each video should explain why you deserve to win, and which Signature Trip from Travelocity’s voluntourism partners inspires you. Volunteers and grant winners also have use of the site’s free blogging platform to share their experiences.

The top 25 finalists will be determined by 50 percent audience support and 50 percent quality of their videos. There are two contest cycles per year, and Travelocity employees will select four winners from the top 25 finalists from each cycle. There are two deadlines for entries: March 31 (voting is April 1-May 31), and July 1-September 31 (voting October 1-November 30). Get filming!

Brand Wars: The Airline Booking Battle Will Be Televised

Online travel agencies have had a solid run over the past two years. They picked up some market share as would-be travelers were willing to poke around a little more to score cheap tickets. High rates of unemployment and under-employment and general economic uncertainty, of course, were enough to make consumers value every dollar a little more. This opened an opportunity for online travel agencies to advance in the marketplace, and chip away at the dominance of their suppliers (i.e., the airlines) on the web.

Yet, the market is turning. Next year is expected to be a strong one for the air travel industry relative to 2010, and 2010 was a vast improvement over 2009. For online travel agencies, this provides some benefit as a rising tide, but it’s likely to favor their suppliers, as customers are more likely to go with what they know over putting in some effort to find the largest discounts.

Online travel agencies will have to overcome this tendency by investing smartly and substantially in their own brands. This is what we’re seeing in the latest move by CheapOair, the one of the 10 largest online travel agencies in the sector, in its recent announcement of a marketing mix change, which teases a broader strategic shift given changing market conditions.

A Changing Travel Market
From 2008 to 2010, online travel agencies were able to chip away at the online market share of their suppliers, reducing the suppliers from owning 62 percent of the online business in 2008 to 59 percent in 2010, according to travel industry research firm PhoCusWright. Bargain hunters drove the market, which eroded the importance of brand loyalty.

From 2009 to 2010, PhoCusWright notes a “strong countercyclical performance for the OTA category.” In 2009, sales fell only 1 percent for the sector, compared to 5 percent for the total online leisure/unmanaged business travel market. And, online travel agencies have posted double-digit gains in 2010.

Stronger industry conditions, however, are better for the suppliers, and PhoCusWright observes, “With the rebound continuing, supplier websites will likely regain momentum as the OTA fight to hold on to their share gains.”

In regards to the actual travel experience, ostensibly, the airline’s brand matters most. When a passenger books through an online travel agency, the brand associated with the transaction lasts for a few minutes – or a few hours, depending on the diligence of the buyer’s search. Meanwhile, interaction with the airline’s brand starts during the search for a ticket, persists through the flight and ends sometime after the passenger hops into a town car to get to his ultimate destination. To register in the customer consciousness, online travel agencies need to develop the sort of presences that will keep them top of mind.

This runs counter to the traditional online customer acquisition models associated with the online travel agency business, which involve a combination of search engine optimization, online ads, affiliate programs and social media. These are transaction-oriented tactics, which speak directly to the brand-barrenness of big discounting.

More Than the Transaction
The largest online travel agencies have already moved past transaction myopia: everybody knows the Travelocity gnome, Priceline‘s William Shatner and the likes of “Cooper” from Expedia. For all but the top players, however, investments in mass media brand development (such as television) have generally been eschewed in favor of what’s been known to work. Speaking at Business Insider’s IGNITION conference last week, Buddy Media CEO Michael Lazerow noted that Travelocity grew to $4 billion in revenue through online means before it moved to television to get to the next level.

Yet, for the online travel agency sector to hold its ground – and even grow – in 2011, brand has to matter more, and this means casting a wider media net. This, plus the size of CheapOair relative to its competitors, is what caught my attention about its recent media diversification. The company is launching its first television ad campaign, “Get More for Less,” in an aggressive move to get out in front of the imminent online travel market shift.

The move to television is an aggressive one, and it comes a bit ahead of “schedule” for CheapOair, if you use the Travelocity number as a reference point. Expedia pulled in close to $3 billion in revenue last year, for example, and Priceline at $2.3 billion. Travelong/CheapOair generated $825 million in revenue in 2009 and has grown at a year-over-year rate of 45 percent this year, resulting in forecasted 2010 revenues of $1.2 billion.

The company’s CEO, Sam Jain, says, “TV is a new strategy for CheapOair and as we head into our 6th year we believe this is the right time to expand our marketing efforts. TV is a natural evolution from our current digital marketing and will help build awareness among a larger audience and introduce more people to the brand.” The countercyclical tendencies of the online travel agency market relative to travel as a whole reinforce this point.

Pointing to the potential for a virtuous cycle, CheapOair’s Sr. Vice President of Strategic Partnerships, Bill Miller, adds, “This new TV campaign should draw in more customers for us which in turn will bring more value to our supplier partners. Our suppliers — airlines, hotels, car rentals —- want valuable and efficient distribution partners. I believe we are all that and more and this TV campaign is just another example of how we can extend our marketing reach on the behalf of our supplier partners.”

Fashion versus Reality
It’s been fashionable among the digerati to claim the death of other forms of media, and I’m as guilty as the rest. But, the reality is that SEO and online ads (a la Google’s pay-per-click model) are becoming increasingly crowded and competitive. Since they are focused on the transaction rather than the brand, they don’t provide for a relationship with the customer that results in a gradual reduction in cost per revenue over time. It’s strictly “pay by the drink,” and that can get pricey.

With the travel market starting to tip in favor of the travel suppliers over the online travel agencies, the costs associated with traditional online marketing will become even higher, as brand brings customers back to the suppliers and online travel agencies chase a shrinking share of bargain hunters. For online travel agencies to compete effectively, they have to make their own investments in branding – a commitment that lacks the predictability of other forms of marketing.

Strangely, television may become the key to winning on the web in the travel industry in 2011. A better market translates to the amplification of the importance of brand, and commercials are still a critical aspect of this in the consumer world.

A battle of the brands is about to break out. The good news is that it’s for your benefit … and you’ll get to watch it on TV!

[photo by Do u remember via Flickr]

Keep track of Thanksgiving holiday airport ruckus with Travelocity

The busiest travel day of the year is almost upon us — have you got your chain mail travel pants and your 3oz 4Loko shots ready yet?

There’s no doubt that the Wednesday before Thanksgiving is the craziest day of the year to travel, and with this year’s new security screenings in place and a higher volume of air travelers predicted over last year, airports are going to be experiencing record-setting tumult.

For many of us who are dreading the miserable trek from the ticket counter through security and onto the plane, this year Travelocity is again placing spotters inside of the 12 largest airports in the nation to monitor crowds, security and whatever else manifests during two days of crazy airport mayhem.

This year, the online travel agent is coordinating the entire effort over Twitter. You can find and subscribe to your airport’s feed by looking it up over at the Window Seat Blog and then follow along over the course of the day as the drama unfolds.

Another nice advantage of using Twitter for the feeds is that you can actually interact with the spotters. At Chicago‘s O’Hare, for example, I can ask my spotter Jel to mosey on over to the Garrett’s popcorn booth in terminal 3 to check on the lines and volumes. Or you can just try to track your spotter down and mess with them.

Either way, make sure you spend extra time getting to the airport and doing your dilligence for your Thanksgiving travel this year. All of this airport research will turn moot if you end up missing your flight.

[flickr image: Inha Leex Hale]

The Travelocity Roaming Gnome becomes a real retail celebrity

When I travel, I always expect to run into someone I never thought I’d see at my destination. But to travel, and run into not one, but three of the Travelocity Roaming Gnomes took me completely by surprise. Sadly, the little fellow wasn’t there to make sure my trip was going as planned (I had not booked through his company).

Apparently, the chubby little gnome has become quite a retail sensation, and is now on store shelves selling himself for just $34.99. Now, I’m not sure if this means you should bring your own gnome to take care of customer service issues, or whether he’s just a cute garden decoration, but I couldn’t resist and picked one up.

You want one of your own? Amazon is selling them for just $24.99. Want to take things to the next level? Order the $42 adult Travelocity Roaming Gnome outfit. I’m ordering one of these for our own Melanie Nayer for her next hotel review. I consider it the ultimate in hotel reviewer gear.