United Airlines used to offer last minute e-fares on their website, but stopped because they ran afoul of agreements with computer reservation systems to always display the best available fares through those sites.
Paying the computer reservation systems is costly, it’s cheaper when airlines sell to you directly, so they used to offer bonus miles for doing so. And paying the online travel agencies is costlier still. Even though few airlines base commissions any longer (although Alitalia just re-introduced 1% commissions in Italy) they do pay based on volume.
Airlines have long paid less to the online travel sites than hotels. So hotels have gone to greater lengths than airlines in trying to get customers to book direct. Generally when you book on Expedia you still earn frequent flyer miles for your flights, and are eligible for elite status accrual and elite benefits. (Although it may not always be as clear what restrictions apply to the fares you’re buying.)
Hotels on the other hand have:
- Restricted points-earning (Hilton’s official policy is no points at all, even for incidentals during your stay, when booking through a third party)
- Restricted status-earning (major chains won’t let your stay booked through most third parties count towards gaining or retaining status)
- Restricted elite status benefits (Though Hyatt and Marriott generally honor elite status on third party bookings, other major chains do not)
During periods with hotel occupancy low, the “OTAs” had the greatest leverage. The major chain hotels were paying over 20% commissions, perhaps 25%, and independent hotels easily paid 40%.
But those commissions have been falling. With hotels full they have a stronger bargaining hand. They’re able to pay lower commissions, and negotiate other favorable terms.
Hilton reports that it has successfully concluded better deals.
[Hilton CEO Chris] Nassetta said Hilton Worldwide won the right to lower the commissions it pays to online travel agencies such as Expedia and Booking.com.
…Hilton Worldwide managed to eliminate last-room availability clauses and won the right to offer preferential pricing — lower rates than it gives to online travel agencies — to certain members of the hotel chain’s loyalty program, Nassetta said.
“We are done with all of our OTA negotiations, and we achieved our goals in every one of those pillars,” Nassetta said.
This likely explains Hilton testing discounts for HHonors members since they don’t have to offer those same rates through online booking sites and can use those to incentive lower direct booking expenses.
Airlines, too, continually squabble with the online sites and computer reservation systems over how their fares are distributed. Lufthansa is currently imposing an extra charge for tickets through these systems, which makes them less competitive. It’s hard to sort out the effect it has had on the airline, because their sales have also been affected by strikes. Airlines want online travel sites to work through their own, less expensive, direct channels. And they want everyone selling their ancillary products, at the lowest cost to the carrier.
When we see Expedia buy Orbitz after buying Travelocity we shouldn’t just think of them as making consumer unfriendly moves, we should think of them as:
- Trying to preserve some of their leverage against travel providers who are eroding their margins.
- Making defensive moves in anticipation of Google disrupting their business model.
That isn’t to say that consolidation in the online booking industry is consumer-friendly. And consumer experiences vary. But online travel agency sites are hardly gaining market power.