Travel providers have long had a love-hate relationship with online travel agencies like Expedia. Historically both airlines and hotels have relied on these third-party booking sites to sell their seats and rooms, yet they’ve also done everything they can to discourage guests from booking through them.
Why? Because online travel agencies are a good source of customers, but at a cost. Airlines and hotels not only have to pay for bookings through third party sites, but these kinds of sites also limit the ancillary revenue opportunities airlines have.
How airlines & hotels have dealt with OTAs
Airlines and hotels have taken very different approaches to dealing with online travel agencies:
- Hotels have created incentives for booking directly, including special rates and free Wi-Fi for those who book direct, etc.; this helps hotels avoid paying a commission of 10% or more to online travel agencies
- Airlines have been more inconsistent when it comes to their relationships with online travel agencies, though they also pay lower fees, as airlines largely cut commissions for third party bookings years ago; airlines like Southwest have been successful not displaying their flights through online travel agencies, while other airlines haven’t been able to rip the band aid off
United to pull inventory from Expedia?
It looks like United is ready to cut ties with Expedia when their current contract expires on September 30, 2019… or at least that’s what they threatened during this week’s first quarter earnings conference call.
In February United revealed they were unable to reach a new agreement with Expedia, while now they’re saying that they plan to pull their flights from Expedia as of that date.
United’s chief commercial officer, Andrew Nocella, had the following to say:
“Expedia has historically been very good in selling our lowest fares but quite obviously, we think we can sell our lowest fares just as well. We look forward to having a direct relationship with our customers going forward, and that’s really where we are with Expedia.”
What would the implications of this be?
What would the impact on revenue be if United cut ties with Expedia? Skift notes that Expedia likely sells about 8.5 million domestic United tickets per year, for about $2.8 billion in bookings. Expedia makes $10.56 in revenue per booking, so this could cost Expedia $90 million per year. It could be less than that, since it’s not a sure bet that all of those people who were booking United through Expedia would otherwise be booking United direct.
The question of what’s on the line for United is a much bigger one, since it’s tough to estimate just how many fewer bookings United would get if they pulled inventory from Expedia. United president Scott Kirby indicates that the impact wouldn’t be significant, though that may also be optimistic on his part.
What makes this situation especially interesting is that both United president Scott Kirby and United chief commercial officer Andrew Nocella used to work at American, and during their time at the airline they tried to do exactly the same thing, ultimately unsuccessfully. They threatened to pull inventory, but quickly reinstated it.
I’ll be curious to see if United does in fact follow through with trying to pull inventory from Expedia. On one hand it’s risky, though at the same time if they can get passengers in the habit of booking directly, and if other airlines follow, this could make a huge difference.
There’s no doubt upside to airlines in getting people to book directly, not just in terms of cost savings, but also in terms of the potential to get more revenue from these customers.