In March and April of this year, some of the biggest online travel agencies (OTAs) cut their flight booking fees. The booking fee changes were largely a response to competitive pressures: why would a consumer pay a fee on an OTA site when the same flight is available at the same price on the airline site without a fee? Moreover, Priceline has been operating without flight booking fees since the summer of 2007. Compete leveraged behavioral data from its panel of millions of US consumers to examine who wins and who loses in a world without flight bookings fees.
The short answer is that the impact was strong, immediate, and beneficial for the OTAs. Moreover, Orbitz, the OTA most reliant on flight booking fees, has generated impressive improvements in flight bookers and flight booking efficiency since dropping its booking fees on April 7th.
The above shows the top OTA’s monthly share of flight bookers for the period from just before the booking fee changes were announced through June 2009. The top OTA’s share of flight bookers (which peaked at 36% in early 2006) rebounded 7 points from January 2009 to June 2009.
Year-over-year growth in flight shoppers and flight bookers (below) for Q2 2009 (i.e. the change in flight shoppers and flight bookers from Q2 2008 to Q2 2009) for three top OTAs. Travelocity, and Orbitz have experienced significant declines in flight shoppers resulting from the economy-driven cutback in travel shopping as well as a loss of shopper share to the airline sites. Expedia‘s quarterly traffic was only down 7.5% year-over-year after a big jump in June flight traffic.
But look at Orbitz booker growth. Compete’s data shows a 22% year-over-year increase in Q2 flight bookers for Orbitz despite the 24% decline in flight shoppers. In the period from March 2008 through March 2009 (the year prior to dropping the flight booking fee), Orbitz saw year-over-year declines in flight bookers of 17% in an average month.
Orbitz is growing its number of bookers by better leveraging the traffic it already has. Figure 3 shows booking rates (the % of site flight path visitors who book a flight in the same month) for the 3 biggest traditional OTAs. Compared to Q2 2008, Orbitz booking rate is up 61% to 7.3% while Expedia’s very respectable improvement is only a 17% gain from Q2 2008.
Orbitz has thrown down the gauntlet to its OTA competitors and demonstrated that it remains a player in flight. However, Orbitz (and the other OTAs) face a couple challenges:
- Addressing Barriers to Booking at an OTA. OTAs need to understand and respond to consumers’ motivations for booking on airline sites. Behaviorally-targeted surveys are an opportunity to discover preferences and attitudes among a group of consumers who, for example, Compete observed shopping at an OTA for a flight but booking at an airline site.
- Adapt to Airlines Marketing Tactics. Dropping OTA flight booking fees are likely to produce a strong response from the airlines. United’s plan to have some agencies pay the airline’s credit card fees on flights they book may be the first response by the airlines. OTAs need to closely monitor and benchmark their traffic and conversion against the other OTAs and airline sites.
Note: The Expedia numbers in Figures 2 and 3 have been updated to reflect a change in Compete’s calculation of Expedia flight traffic. Please see the comments below for more details