Airlines and online travel agencies (OTAs) continue in their fight over distribution costs and, once again, customers are stuck in the middle. The most recent battle is being waged by Frontier Airlines. They announced this week that they will charge higher fees and reduce benefits for customers who book via OTAs.
Customers flying on Frontier who book through an OTA will receive only 50% credit in the EarlyReturns frequent flyer program. They will also face a $50 premium on fees for flight changes, standby travel and bringing pets on board, among other things. Customers who do not book directly will also not be able to assign seats on the flights until check-in. This move is unlikely to win the carrier many friends, especially given recent overtures from politicians railing against assigned seating fees when it comes to families being split up on planes. Naturally, Frontier recognizes the value of assigned seats. Daniel Shurz, Frontier’s senior vice president, commercial sums it up quite well:
Particularly for families, it provides an incentive to book directly. There is no logical reason for our customers to want to book anywhere else.
And while customers who are committed to flying with Frontier will see benefits from booking directly, there are plenty of logical reasons for starting a search elsewhere. Comparing prices and flight times with other airlines is not something Frontier offers on its site. Nor does it help passengers compare other benefits associated with flights such as legroom, entertainment or in-flight internet service. Naturally the online travel agents are reminding customers of the benefits they offer, including comparing multiple airlines and the ability to mix carriers on itineraries.
Airlines and OTAs have been fighting for a while now over distribution costs. It is no surprise that the airlines balk at paying the $20-ish it costs for an OTA booking when they can handle the same transaction internally for just a couple dollars. Plus most OTAs don’t have the ability to sell ancillary products (extra legroom, upgrades, etc.) which further reduces the revenue for the airlines. Where those features have been incorporated into the process the sales have been impressive, but it requires a significant change in technology infrastructure to support the option, something the OTAs are not inclined to invest in.
This isn’t the first time that an airline has changed the benefits available to customers based on the booking channels; Continental previously offered 50% elite credit on 3rd party discount fares booked through 3rd party sites. And the fight between American and OTAs got so bad recently that American Airlines pulled inventory from Orbitz for a while. It is back now, but there are still legal battles being fought on that front.
Whether through legal challenges or just variable customer service levels, expect the battle to continue. That’s bad news for customers but it is what the market demands these days.
- American’s Direct Connect doing brisk business via Priceline
- Let’s talk airfare and distribution
- Expedia joins the Orbitz/American Airlines fight
- American Airlines to pull inventory from Orbitz
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This fight benefits neither the airline nor the OTA. Over time this will only result in the OTA either going away or somehow luring passengers into paying more for the experience.
Call it a fight, but really nothing more than a common sense business decision by Frontier to reduce the nearly $50m (as in MILLION!) they pay the OTAs annually. Frontier competes with Southwest who does not participate with OTAs, instead driving a huge chuck of their bookings through their website. You can’t even call 800-IFLYSWA and get the same deal you would on the website. I would consider that a “penalty” providing an incentive for their customers to book at the website. Frontier pays between $20-$26 for every seat sold via OTA compared to less than $2 via their website. Every Frontier ticket sold via OTA must still be priced to compete with Southwest, which effectively gains a $20-$26 cost advantage by avoiding OTAs. With CASM (costs) already competitive with Southwest, any suggestions on how to close the gap currently being siphoned off to OTAs?
Yes, Brian, it is a fight with passengers. All the airlines compete with Southwest, not just Frontier. I noted the cost differential of the transactions and I agree that’s an issue the airlines face. But taking that out on your customers is pretty harsh. Not at all a customer-friendly move, regardless of the motivation.
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