Tech Industry

Expedia tacks on booking fee

The profitable online travel company announces that it will charge a $5 booking fee on airline tickets purchased on its U.S. Web sites.

Expedia announced Wednesday that it will charge a $5 booking fee on airline tickets purchased on its Web sites, joining the ranks of a number of other online travel companies.

The move comes as the profitable company seeks to squeeze out more revenue from its low-margin airline-ticket business and as a number of airline carriers, struggling under financial duress, are waging battles with both brick-and-mortar and online travel agents over the cost of commissions.

"The airlines are continuing to put pressure on their commission fees, so this will serve as an offset," said Paul Keung, a CIBC World Markets analyst.

Expedia will charge a $5 booking fee for tickets purchased on its U.S. Web sites. The company, however, will waive the fee for tickets purchased as part of a travel package.

Last year, competitor Orbitz initiated a similar booking fee of $5. And several years ago, Priceline kicked off a $4.95 booking fee but quickly increased it to $5.95, said Tom Underwood, a Legg Mason analyst.

"The loss of business for both Priceline and Orbitz was less than anticipated when they initiated these booking fees," Underwood said. "Their volume was hurt less than 5 percent in the first few weeks and, in less than a month, their volume increased to where it was higher than when they started these programs."

Underwood noted that travelers are apparently willing to absorb a nominal fee for a service that not only provides airline tickets but also travel discounts on hotels and car rentals. Travelers "don't mind paying $5 for these benefits when the brick-and-mortar airlines are charging around $20 to $30 for their fees," he said.

Although Expedia declined to forecast the effect of the booking fees on its fourth-quarter earnings, Underwood said he expects the fees will further improve the company's outlook. First Call expects the company to report a fourth-quarter profit of 41 cents.

Analysts said Expedia chose a good time to begin charging a booking fee. The online travel industry is usually slow between mid-December and January, because most travelers have already made their airline reservations. As a result, the new fee should not affect a drop in busy holiday travel reservations, analysts said.

Nonetheless, shares of Expedia fell $3.15, or about 4 percent, to $71.22 in midday trading.

One analyst, David Richter of Salomon Smith Barney, downgraded the company Tuesday to "in-line" from "outperform," citing its valuation.

"While a premium to the market likely remains justified given a demonstrated ability to maintain earnings growth, under penetrated markets and minimal capital spending requirements, we believe the current valuation leaves little room for further price appreciation in the intermediate term," Richter said in his report.

Overall, however, analysts applaud the move by Expedia to charge a booking fee--some wondering why it took the online travel site so long to make that decision. Underwood, meanwhile, said Travelocity is the last of the online travel sites to take the plunge.

"We are examining it and taking a look at what (Expedia) has done. We're getting our arms around it," said Al Comeaux, a Travelocity spokesman. He declined to say if or when the travel site may initiate such a fee.