Scott Mayerowitz covers the latest salvo in the war between travel providers and online travel agencies in this Associated Press story: Frontier Airlines won’t offer you seat assignments until check-in, will give you only half the frequent flyer miles, and will charge you higher ancillary fees, if you book your ticket through Expedia, Orbitz, Travelocity, and similar websites.
It’s an attempt to reduce the airline’s distribution costs, Mayerowitz says that different airlines pay out $10 to $25 per ticket to the online agencies. I imagine that the bigger airlines pay lower per-transaction fees, just as the big hotel chains pay lower commissions than the smaller properties. I understand that the hotel chains pay commissions in the 20% – 30% range, while independent properties may give up as much half of their revenue on a booking.
Computer reservation system contracts generally require that airlines make the same fares available through those channels as they offer on their own websites, but airlines can offer discount codes (I use these all the time with American) and can privilege website bookings in various ways as Frontier is experimenting with such as frequent flyer bonuses (or penalties) and varying ancillary fees.
It’s these reservation system contracts, I believe, that killed United’s TWARES (twitter short-term discounts) since those ran afoul of agreements that required they make the same fares available through computer reservation systems as on their own website.
Frontier says that
“Particularly for families, it provides an incentive to book directly,” said Daniel Shurz, Frontier’s senior vice president, commercial. “There is no logical reason for our customers to want to book anywhere else.”
That’s because families are multiplying out the higher fees charged and are the ones that will find it most difficult to sit together without advance seat assignments.
Put another way, this ‘incentive’ means that families are the ones that will be penalized most.
And I imagine it won’t be glaringly obvious to families or really anyone else making bookings through online travel sites that their reservations will be at a disadvantage compared to those made on Frontier’s website. While it may serve as an incentive for savvy in-the-know travelers, it’s hard to act as a properly functioning incentive when the customers you want to incentivize aren’t aware of the rules and find out only at the airport (when it’s too late).
Paging Mommy Points…
Meanwhile, the ‘no logical reason for our customers to want to book anywhere else’ of course ignores all of the logical reasons to want to book somewhere else.
- You can compare prices across several airlines in one place (personally I use ITA Software’s Matrix website for this purpose and then choose where to book, and I often suggest more novice travelers use Kayak or Hipmunk)
- Combine airlines on a single ticket.
- Use a foreign-issued credit card on the US website, not have to show the credit card at check-in (which some airlines still require when booking directly through them), and even choose which country your ticket is issued in (I can book through Expedia’s German, Spanish, Canadian or New Zealand websites for instance).
- Rebates in the form of cash back or points, you can check EV Reward to see which website will offer you the best return for the booking you plan to make. Travelocity for instance offers 2 points per dollar spent through the Chase Ultimate Rewards Mall, Expedia one point per dollar plus points in its own Expedia Rewards program.
These are just a few logical reasons to book through an online agency, which now will be have to weighed against the hassles of doing so with Frontier.
When price is equivalent this also becomes a reason to book on Denver hub competitor United, rather than ticketing the trip with Frontier. So this is certainly a risky strategy if it pushes customers away from making purchases on the carrier. And a risky customer service move if customers are surprised by the hassle and higher fees imposed by them that they weren’t expecting when they made the booking through an online agency.
Nonetheless it’s certainly understandable to try to gain a handle on costs. It’s why most hotel chains won’t offer elite status credit for room nights booked through an online agency, and why some hotel chains won’t even honor elite status benefits for those bookings. In those latter cases especially I’m frustrated by the idea that I’m a less valuable customer on a given night based on the rate of booking engine I use, but the hotel chains have certainly pushed me to book through their websites — especially since in many cases I can get rebates through shopping portals for doing so.
There’s no question that distribution costs are a big deal for a small, struggling airline.
Those commissions add up: Shurz said Frontier spends about $55 million to 60 million annually on distribution fees. In the first half of 2012, 42 percent of Frontier’s $713 million in revenue came through tickets sold directly with the airline. Shurz hopes to increase that figure to 65 percent in a few years, cutting expenses in the process.
The question is whether they can lower these costs without ultimately reducing their revenue by alienating customers. And that remains to be seen.