Do Consumers Lose When Airlines and OTAs Fight?

AskEd & AnswerEd
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Editor's Note: This story was originally published on January 9, 2011. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: airfare, AskEd & AnswerEd, booking strategy, Ed Perkins.

The travel press has been full of the current fight between American and Delta on one side and five online travel agencies (OTAs) on the other. It's anybody's guess how the fight will ultimately be settled – and tough to decide which side will "win" or "lose." Regardless of the outcome within the industry, however, one reader asks:

"After the dust settles, will consumers be the final losers?"

In all too many internal squabbles in the travel industry, the short answer is, "Yes – consumers may well lose out in the end."

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What Happened

Delta was first into the fray when it removed its flights and fares from three smaller OTAs, CheapOAir, OneTravel, and Bookit. Shortly afterwards, American pulled its fares from Orbitz, one of the "big three" OTAs. Next, Expedia tweaked its fare display to cut American flights and fares from first-page displays. Later it dropped American entirely. That was the status as of the time I had to post this.

The immediate impact on consumers so far is minimal. You won't be able to check American's fares or book on Expedia or Orbitz, and you won't be able to check on or book Delta through the three smaller sites. For the moment, you won't see any immediate change in most other online fare displays and comparisons. But industry observers think that these moves are only the opening gambits in a chess game that may extend over many months and involve many suppliers.

Who Wants What

Whenever you look at an internal industry fight, the best place to start is to figure what each of the main players really wants to happen:

Airlines. The big airlines want you to make your ticket purchases through their own sites, not through any OTA. Specifically:

  • They want to avoid the charges they have to pay to OTAs acting as agencies and they want to avoid the fees they pay to the "global distribution systems" that agencies use to process transactions. Even though those fees are very small, in aggregate they add up to money the airlines don't want to spend.
  • They want full control of the purchase process – to tailor the displays to individual customers. In its public pronouncements, American admits it wants to be able to track customer preferences and habits and to tailor displays to match the results of this profiling.
  • They want to retain profits from the sale of any associated purchases you might make in connection with an air trip: hotel accommodations, rental cars, insurance, whatever.
  • Although not openly stated, I believe they'd really just as soon not have their fares shown in apples-to-apples honest price comparisons among all competitors. Southwest and Allegiant actively enforce "no third-party price search" policies and I suspect other lines would like to be able to do the same. Some industry maven recently described the Internet as a "system dedicated to keeping our prices down," or some such, and airlines don't like anything that limits their pricing flexibility.

Online Travel Agencies. According to trade sources, travel is by far the largest segment of the huge online commerce business – around 38 percent of the total – and the OTAs want to keep their share of this market:

  • They, too, would like to "own" you as a customer, and they want to be able to continue selling and marking up air/hotel and air/car rental packages.
  • Typically, they want to continue acting as "consolidators" selling unpublished discount fares they negotiate with some airlines.
  • And they want to continue to enjoy the competitive advantage of being able to generate itineraries that involve more than one airline when those itineraries are less expensive than anything available on a single line.

Aggregators.Third-party "metasearch" systems such as provided by Kayak, Mobissimo, and TripAdvisor, and systems such as our own home-page "Find Cheap Flights" feature, don't sell tickets. Instead, they present what they try to keep as unbiased fare comparisons, and they make their money by links through to airline and OTA sites. As far as I know, they're doing reasonably well with this business model, and they don't want to see it disturbed.

Consumer Impacts

At this point, I'd have to say that the current system – imperfect though it may be – serves consumer interests better than a fragmented system such as the airlines seem to be favoring:

  • Presumably, as consumers, your main interest is in easy access to accurate, complete, and consistent price comparisons for fares and associated fees and charges. Currently, the aggregators come closest to that ideal, and the OTAs do reasonably well except for the minor biases and omissions. Although no aggregator or OTA currently provides first-screen fare searches inclusive of all fees from the first display, TripAdvisor's engine is off to a decent start and startup TruPrice is developing a robust all-inclusive search.
  • You also want to retain easy access to itineraries that include more than one airline and to the unpublished discount fares the OTAs occasionally provide.

If I'm right, then, your interests are served more by the status quo – with evolutionary improvements – than by fragmentation of information sources that would make it harder for you to do complete, accurate, and rapid price comparisons. The main weakness in the present system is the difficulty of making easy all-inclusive fare comparisons, and I believe that the independent aggregators or OTAs will tackle that requirement sooner rather than later. And certainly they'll do it better than individual airline sites would.

Meanwhile, recognize that, at least in the interim, you'll have to work a little harder to make sure you find the best airfare deal for any planned trip. That means either using one of the metasearch systems, including all the airlines you might use, rather than just one of the OTAs. And, where applicable, be sure to check Allegiant and Southwest separately – two lines that often have deals better than any other lines.

Your Turn

How do you think this evolving situation will affect you and your travel planning? Tell us about it by adding a comment below!

 
 
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