Something Scary in the Air

An estimated 20 percent of the revenue at Internet travel sites could be
threatened if more airlines follow the example set by Northwest Airlines
Corp., which has said it will no longer pay commissions to
U.S.
and Canadian Web sites selling its tickets.

The move was quickly condemned by the Interactive Travel Service Association
(ITSA), a trade group representing independent online travel service
companies.

“By this action, Northwest has declared war on the consumer-friendly online
travel service industry,” said ITSA spoksesperson Ed Rothschild. “This
should
come as no surprise since the major airlines are using their market power to
control the distribution of airline tickets through their Orbitz joint
venture and airline operations through upcoming mergers. This can only lead
to higher prices for the traveling public.”

Texas-based Travelocity.com Inc. shares fell 33 percent
yesterday after Northwest and its alliance partner KLM Royal Dutch Airlines
made their announcement.

Travelocity responded by instituting a $10 service fee on all Northwest and
KLM tickets. The stock fell $7.25 to close at $15 Thursday. The stock was
down another 50 cents shortly after the opening bell today. Expedia and Priceline also were down yesterday.

“We are surprised that Northwest and KLM would put themselves at a
competitive disadvantage by forcing us to charge a service fee that we must
now pass on to consumers,” said Terrell Jones, president and CEO of
Travelocity.

However, if other airlines follow suit, as they have a habit of doing
regarding adjustments to fare prices, the online travel industry may be
facing a significant blow. Northwest and KLM said that they will no longer
pay the standard 5 percent commission, capped at $10 per ticket, for each
U.S. and Canada ticket booked with online travel agents.

“It’s a surprise that it’s happened this quickly,” Paul Keung, an analyst
who
follows Internet travel sellers for CIBC World Markets, told Reuters.
“Northwest has eliminated commissions to a lower-cost distribution channel.”

Other analysts echoed the ITSA, saying the airlines are indeed trying to
encourage consumers to use their company sites or Orbitz, an online ticket
seller owned by Northwest and four other airlines that is scheduled to open
for business in June.

Other travel sites might well have to institute fees to make up for the lost
revenue.

Expedia, the Bellevue, Wash. travel site, said however that it is continuing to
conduct business as usual. Expedia spokesperson Suzi LeVine told
seattle.internet.com that Expedia is currently involved in ongoing
discussions with Northwest.

According to LeVine, Expedia was not surprised
by
the decision and has already been preparing itself for such action by
diversifying its business. “Airline commission-based business is only 25
percent of our revenue,” said LeVine.

The ITSA’s Rothschild said in a statement that the decision, particularly if
followed by other airlines, “is sending a signal that airlines are more
interested in profits than helping consumers have convenient, personalized
access to fares and travel services.”

“Through new technological innovations and increased efficiency, the online
travel service industry has not only helped consumers find the least costly
travel options, but reduced the overall cost of airline and other travel
services,” he said, adding that the Northwest action came only days after
Northwest and the other U.S. carriers began beta testing Orbitz.