Marketplace Scratch Pad

Orbitz drops fees, Southwest adds them

Scott Jagow Jun 1, 2009

Online travel sites are getting rid of their booking fees. Today, Orbitz said it has permanently removed fees for all domestic and international flights. At the same time, Southwest’s response to declining traffic and profits is to ask people to pay more money.

The move by the travel sites to drop fees seems like a no-brainer. If you’re like me, you probably shop for fares at those sites and then actually book the flight with the airlines.
But some analysts question whether the travel sites can make money if they stop charging fees. From Reuters:

“To be honest, when they say permanent, I don’t know how truthful that really is,” said Morningstar analyst Warren Miller.

“I can’t see them not coming back at some point. That’s how they make money,” he said.

Miller noted that online travel agencies typically make about 15 percent of their total bookings value in fees.

But of the three publicly traded online travel agencies – Expedia, Priceline and Orbitz – only Priceline had increased bookings in the first quarter. Priceline dumped fees two years ago.

Meanwhile, Southwest will start charging $25 more for overweight bags, $25 for helping unaccompanied minors on flights, and it will start allowing small pets on board for $75.
The Baltimore Sun quotes Southwest CEO Gary Kelly:

“We truly believe in setting the right customer expectation and not charging for those amenities that a customer would ‘expect’ to get for free,” Kelly said. “That being said, it is our fiscal responsibility to our employees, our customers, and our shareholders to maximize our existing and potential revenue opportunities.”

This might be no big deal. These fees won’t affect that many people, and Southwest charges for fewer things than other airlines. But I won’t be shocked if Southwest tacks on other charges down the line. It’s now like all the other airlines – losing money.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.