Online travel agencies go to war over booking fees By Dennis Schaal / March 21, 2009 Share 1 -- The major U.S.-based online travel agencies have engaged in a play-for-keeps market-share tussle over booking fees and price guarantees, and Orbitz has taken the hardest blows.In the past 10 days, Expedia and then Travelocity dropped booking fees on domestic and international tickets booked through May 31, leaving Orbitz as the sole online agency among the top four charging a booking fee for airline tickets. By eliminating the fees, Expedia’s prices for air tickets drop by $7. Travelocity had charged a $6.99 fee on domestic tickets and $10.99 on international tickets. Priceline, which eliminated its air booking fee in 2007, this week joined Travelocity to refund the difference on flights and vacation packages if the price drops after ticketing. Those moves are indirect challenges to Orbitz, which has offered a price guarantee on air tickets since June. Tom Botts, a partner in Hudson Crossing, a strategic advisory firm in the travel industry, called Expedia’s opening shot in deleting its air-booking fee "a share-shift play." Among the top four online agencies, Expedia.com was the leader in fourth-quarter gross bookings, followed by Orbitz, Travelocity and Priceline."Any way you cut it, Orbitz clearly is more dependent on airline booking fees than anyone else," Botts said. He called the booking-fee wars a "pivotal" moment for Orbitz.Orbitz Worldwide shares were trading around $1.25 last week, about a 36% drop since Expedia eliminated its flight-booking fees on March 11. Orbitz spokesman Brian Hoyt declined to say last week what actions, if any, Orbitz might take. "There are different options out there in the marketplace, and we are looking at them all," he said.According to Jake Fuller, a financial analyst covering the online travel sector, "Orbitz would likely have a very hard time matching, as they derive 60% to 70% of EBITDA from booking fees.""Without that income, they would likely struggle to meet debt-service requirements," Fuller said. "And if they don’t match, they face potential share loss, given a price disadvantage."Fuller said Orbitz continued to lose share in air sales despite its price guarantee, noting that "consumers shop multiple sites with limited brand loyalty." Orbitz Worldwide, which posted its first quarterly profit in the fourth quarter ($8 million), noted in its annual financial statement on March 11 that the company might find itself in a tight spot on the booking-fee issue."Although some of our primary competitors also charge booking or service fees, we believe our business and results of operations would be more adversely impacted, relative to certain of our competitors, if competitive dynamics caused us to reduce or eliminate these fees," Orbitz said.Nor can Orbitz afford to lose market share. Its GDS agreement requires Orbitz to pay Galileo and Worldspan penalties if Orbitz doesn’t meet minimum volume targets.The contract, which runs through 2014, restricts Orbitz’s ability to modify and enter into advantageous agreements with suppliers or pursue direct connections with airlines, Orbitz stated.Expedia and Travelocity are not saying what will happen to air booking fees after May 31, but Botts expects that they will drop the fees permanently, since it would be difficult to restore them after enabling consumers to book at lower prices.In addition to being less reliant on air revenue than Orbitz, both Expedia and Travelocity are considered better-positioned to cushion the loss of booking fees because they have more advanced advertising sales programs than Orbitz.