Expedia Tacks On a Booking Fee

The online air fare wars and declining airline commissions are clearly having an effect as travel site Expedia.com issued a terse announcement saying that it has begun charging a $5 booking fee for most airline tickets purchased on its U.S. Web sites.

Bellevue, Wash.-based Expedia said it’s too early to estimate what the impact of the fees will be on its fourth quarter or 2003 earnings.

But the company had other problems as Salomon Smith Barney cut its rating on Expedia shares, sending the stock price down $3.78 at mid-day, to $71.59.

The downgrade to “in-line” from “outperform” apparently was unrelated to the imposition of the new fee structure. The investment bank said that the stock was too expensive relative to the S&P 500 Index.

Is there going to be a backlash to Expedia’s new fee? One analyst thinks not.

“We believe that the online travel agencies have enough consumer clout that they can begin charging fees,” said Lorraine Sileo at travel research and consulting firm PhoCusWright. “And considering that off-line travel agencies charge $20 per ticket fees on average, $5 is pretty reasonable for the full service offerings available online — customer service, merchant (low) rates, saved credit card information, etc.”

Expedia, a majority-owned subsidiary of USA Interactive , did not say in its statement why it was imposing the fee, but a spokesman was quoted as saying cutbacks in airline commissions were a factor. The major airlines have been putting increasing pressure on the commission structure as their revenues eroded after the terrorist attack on the U.S. on 9-11.

The American Society of Travel Agents (ASTA), representing 24,000 agencies online and off, has called the moves to cut commissions “anti-consumer.” Airline analysts have estimated that the nation’s largest carriers could save as much as $1 billion by not paying commissions.

Expedia did say it will waive the $5 booking fee for airline tickets purchased as part of package transactions.