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Travelers gird as airline and web travel sites do battle

First, the good news. The cost of air travel has been flat for a decade. This freeze on prices is mostly thanks to online travel sites like Orbiz, Expedia and Travelocity. More recently, the sour economy can be credited with putting downward pressure on air travel prices.

Now the bad news. Things are likely to change soon. In fact, prices are already starting to rise – an extra $30 per roundtrip ticket.

It could get worse. The major airlines, frustrated by stagnant ticket prices started doing things that aggravate travelers, such as imposing “add-on” service fees for checked baggage and seat assignments. That’s brought an extra $1 billion in revenue to participating airlines.

Now some airlines are taking it a step further by pulling out of major online travel sites. Delta launched the first volley by banishing its flight from second-tier online sites including CheapOAir.com, OneTravel.com and Bookit.com. American Airlines upped the ante by pulling its flights from two of the first-tier sites, Orbitz and Expedia.

If the skirmish turns into an industry-wide revolt the first victims would be travelers, who will be offered fewer choices by online travel sites and pay more for what remains. They will also lose the convenience of one-stop shopping.

The second victim would be internet travel sites. To give you some idea, Orbitz reports that $800 million of its annual revenue (5 percent) comes from sales of American Airline tickets alone. Interestingly, Orbitz, Expedia, Travelocity and their brethren earn only a small profit margin on airline ticket sales, but reap a healthy profit margin by offering customers addition travel services, such as hotel rooms, rental cars, cruises and integrated travel packages.

The airline/travel-site battle is about control and money. American Airlines and its peers would like to lower the distribution costs they pay to be on internet travel sites, reduce the pricing transparency offered by travel sites, route internet traffic directly to their respective web sites, and drive fares skyward.

The airlines, of course, would disavow such characterizations. And they are not without some ammunition on this point. Southwest Airlines, one carrier that has never cooperated with internet travel sites, offers some of the best fare prices. Southwest tickets can only be purchased directly from the airline via phone or Southwest.com.

But, industry observers argue, the Southwest model – one class of service, one-way prices, no international flights and no add-on fees – cannot be replicated by the big full-service carriers.

The strategy would be a risky one for the airlines. Travel experts say it’s questionable whether airlines can make up the hit they would sustain by pulling out of the big internet travel sites. For American Airlines, the loss of bookings from just Orbitz and Expedia will cost $2 billion a year.

Though they are short on details, the airlines say their strategy will actually benefit travelers.

Paul Ruden, senior vice president for legal and industry affairs at the American Society of Travel Agents, disagrees. He was quoted by the Minneapolis Star Tribune saying, “It’s nonsense to say that this is not going to cost consumers.”

We’ll keep you posted.

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