In the seven weeks since Expedia removed flight-booking fees, the move has cost the company about $3 million per month.
Expedia CEO Dara Khosrowshahi said during the company's first-quarter earnings call that no decision had been made on whether to keep the policy in place after the company’s "Free Nights & No-Fee Flights" promotion ends at the end of May.
He noted that the company would consider competitors' moves before making a decision.
Khosrowshahi added that Expedia’s decision to match Orbitz’s hotel-fee reduction on April 22 also could cost Expedia $3 million per month.
Khosrowshahi put the fee reductions in the context of Expedia's year-and-a-half study on why some consumers look but don’t book on Expedia sites. He said that about 75% of these lookers book on supplier sites, which don’t charge booking fees. The remaining 25% book on competitors' sites, including Priceline, Orbitz and Travelocity.
In that regard, Khosrowshahi said Expedia decided to eliminate fees because air shoppers are among the most price-sensitive.
He noted that attracting more air buyers gives Expedia the opportunity to up-sell them with higher-margin hotels and vacation packages.
Hotels are the largest part of Expedia’s business, Khosrowshahi noted, and the decision to reduce hotel fees was a way to maintain an edge.
"In a competitive marketplace, you have to do what it takes in order to get consumers to come to our site and book," he said.
Orbitz’s move to trim hotel fees put Expedia in a quandary. Orbitz’s hotel business is relatively small, while Expedia is the leader in online hotel sales and is believed to garner about 19% of its profits from the hotel booking fees.
For the quarter ended March 31, Expedia sold 4% less airline tickets, and revenue from those sales dropped 17%. Khosrowshahi noted that the volume decline was far less than the decline for the travel industry.
Global hotel room nights rose 13%, to 13.5 million, while hotel revenue fell 10%.
Expedia’s net income fell 23%, to $39.4 million. Revenue declined 8%, to $635.7 million.
The company attributed the revenue dip to softness in the air and leisure hotel business, which was partially offset by gains in advertising/media and car rentals.
Advertising/media revenue increased 15%, to $699 million. The business accounted for about 11% of Expedia’s global revenue for the first quarter.
Gross bookings, driven by weakness in leisure travel worldwide, fell 11%, to $5.2 billion.
