US Air departs from Expedia
US Airways suspends all ticket sales through the travel site due to a dispute regarding booking fees--but both sides express interest in working toward a new contract.
The airline on Tuesday said it chose to stop doing business with Expedia when the travel reservations specialist increased the fees it charges customers who buy US Airways tickets. However, both sides expressed interest in working toward a new contract, as third-party travel sites remain vital to airlines' sagging revenues.
Under the plan, US Airways fees would rise from their current rate of $5 to $8.99 per transaction, an increase of nearly 80 percent. The two companies have been working without a contract since June, when a previous agreement related to customer booking rates expired. Other airlines' customers are still paying Expedia $5 per transaction.
US Airways spokesman David Castelveter said his company has every intention of pursuing a new contract with Expedia but didn't shy away from criticizing the site's bargaining methods. He said Expedia increased the price without giving any warning to the Arlington, Va.-based airline, the nation's seventh-largest carrier. He estimated that US Airways depends on Expedia for $280 million in ticket sales each year, or roughly 3 percent of its overall revenue.
"We felt that we were being strong-armed into paying higher booking fees to the detriment of our customers," Castelveter said. "Why would potential customers buy (US Airways) tickets when other airlines were showing up with lower fares as a result?"
Castelveter said the decision to halt ticket sales proved "difficult but necessary," based on US Airways' ongoing efforts to lower fares to compete with budget-minded airlines such as Southwest.
Expedia executives refused to comment on any issues related to the US Airways rate increase other than to say negotiations are ongoing.
"US Air remains a valued customer, and we are working to resolve the matter," said Andrea Riggs, an Expedia spokeswoman.
The US Airways announcement marks the second time in two years an airline has discontinued ticket sales on Expedia due to the booking rate issue. In 2002, Northwest Airlines cited a similar difference in opinion when it stopped doing business through the site. The airline has since reached an agreement with the company and currently markets tickets on Expedia.
According to at least one industry watcher, Expedia doesn't have to worry about airlines or other travel companies rebelling against the site's business practices. Jared Blank, an analyst at Darien, Conn.-based Jupiter Research, said sluggish performance across the sector and the vital role Expedia plays as a third-party source of income makes it likely that the current disagreement will be resolved, just as a deal was struck with Northwest.
"Expedia has always said they wouldn't work for free, and US Air has said in (U.S. Securities and Exchange Commission) filings that third-party distribution is becoming expensive," Blank said. "This is just a part of doing business."
Blank pointed to US Airways' recent deal to offer additional frequent-flier points to customers of Expedia rival Orbitz as a possible catalyst behind the discord.
While some companies, including discount airline JetBlue Airways, have publicized their success in selling tickets through their own Web sites, Blank said it would be hard for US Airways to move to that model at this point.
"No airline that has depended on third parties for distribution has ever moved back inside, and I don't expect it to happen," he said. "They wouldn't walk away from a source of revenue like that."
Third-party travel distribution sites are likely to increase their clout with airlines and other industry vendors. Evidence of this trend can be seen in the exclusive distribution deal recently signed between hotelier Hilton Hospitality and Expedia, according to Blank, who pointed out that airlines and hotels have very different needs.
US Airways' Castelveter said his company would love to do more business via its own Web sales operations, but he conceded that moving away from third-party travel partners wouldn't make much sense.
"We don't take this issue lightly, but with the airline industry in financial trouble, every dollar is important," he said.
US Airways tickets already purchased through Expedia will not be affected by the announcement.