Summary
- Much larger portion of Orbitz's earnings come from booking fees than competitors. (Citi estimates nearly 60% for OWW vs ~10% for EXPE.)
Analysis
This morning, Orbitz matched
competitors Expedia, Travelocity and long-time forerunner Priceline in
removing booking fees on airline tickets. The duel continues. Orbitz,
like Expedia and Travelocity, is billing it as a "promotion" through
May 31st but putting this
genie back in the bottle will not be easy come late May.
Wisely,
Orbitz excluded tickets that utilize a combination of airlines from the
fee waiver. This is laudable because these kinds of tickets are
difficult, if not impossible, for the supplier sites to sell. (when was
the last time you bought a Delta ticket at United.com?) Also, because
of Orbitz's strong ITA Software search engine backbone, Orbitz often
provides lower combinations of multiple carriers than Expedia,
Travelocity or Priceline. This may enable Orbitz to preserve at least
some of their fee revenue - time will tell how much.
Orbitz is weaving their innovative Price Assurance plan
(which protects consumers from airfare decreases after buying a ticket)
tightly into the no-fee marketing. This provides a one-two punch vs.
Expedia and the supplier (airline) websites which do not have a similar
program.
But,
there is worry about the costs associated with both of these efforts.
Consumers apparently appreciate Price Assurance, but these payments
come directly from Orbitz - not the airlines. Absent much or most of
the $7 per ticket fee revenue that Orbitz has enjoyed, this program may
get expensive quickly.
Similarly, as previously discussed, a
much larger portion of Orbitz's earnings come from booking fees. (Citi
estimates nearly 60% for OWW vs ~10% for EXPE.)
Orbitz's
long-time focus on air (at the expense of higher margin hotels) is
finally coming home to roost - OUCH or OWW may be perfect now more than
ever.
