Change of Travel, Booking Fees and other Maladies

Booking fees. What exactly are we paying for, anyway? Photo Credit: Martin Kingsley

The topic that’s tying knots around the Australian travel industry this week is that of booking fees, being that rather capricious sum that unexpectedly bumps up the bill when you’re purchasing a hotel room or airfare. Following the lead of their parent sites, both Expedia and Zuji Australia lifted their booking fees this week, with Zuji plumly citing that they are “outdated in these tough economic times”. However, despite the success of this tactic in the United States (with Priceline.com gaining market share when they went booking fee-free in 1998), Webjet have expressed with certainty that they will not be following suit… Perhaps, understandably.

For the major Online Travel Agencies (OTAs) in the United States, the majority of revenue comes from hotel bookings. For example, Expedia derives 60% of its revenue from hotel transactions and less than 15% from airfare sales worldwide. So even if airfare revenue takes a considerable hit from forfeited booking fees, it’s a managed hit. Ground can be gained through an increased number of hotel transactions, car bookings and packaged services.

Webjet does not have this luxury. Despite possessing a whopping 13% of online market share in the Australian travel booking space, one can speculate that practically none of their money comes from hotel reservations, whereas in 2007, it was reported that 65% of their revenue came from those pesky “service fees”. Given their lack of revenue diversity, booking fees make for a really hard teat to wean from. And so it is in the free market that a retailer such as Webjet can charge $50 per international airline booking, run really irritating television ads for weeks on end and still be the number one online airfare retailer in Australia.

Personally, I believe that in most circumstances, booking fees are antiquated in the online space and do little to warm customers towards a brand. First of all, the point of an online shopfront is to put the consumer in control, ie. make them do the work. I’m quite content to give a physical travel agent a considerable cut of my travel spend, as I’m purchasing their time, expertise and security. However, if I’m doing the research (and assuming the risk), then I don’t believe I’m getting any inherit value in paying a booking fee. Secondly, having $50 unexpectedly whacked onto your trip to Fiji doesn’t make for a happy consumer, especially considering that’s 10% of a Pacific return fare these days. That said, a lot of people seem quite happy to put up with this nonsense – service fees in the Australian online travel industry cost consumers an estimated $22 million annually.

So on to my second bug bear – airline fees.

Recently I had the pleasure of attempting to change the travel details of a relative flying with Tiger Airways. With only a vague mention of a “change of travel” fee on Tiger Airways’ website, I decided to give their call centre a go. The horror – Tiger Airways charges $50 per person, per sector, plus the difference in airfare. Considering that I was trying to reschedule a $70 return flight between Sydney and Melbourne, it made more sense to simply forfeit the  fare.

Ultimately, fares can be sold at near cost-price on discount carriers, as  money can, and is recouped in paid meal service, entertainment system rental, merchandise and fees. Plus through fares which are purchased, then not redeemed. However, is there a better way to monetise on customers’ low-cost carrier mistakes, than charging $80 at the airport to check-in baggage bound for New Zealand? Or hitting you with a stupendous sum if you book on the wrong date? These measures certainly funnel the money back into the carrier and keep the administrative overheads low (as it’s not in Tiger’s interest to rebook passengers at whim), however do so at the expense of the public opinion. Watch an episode of  Channel 7′s ‘Airways’ and I bet you, there will be at least one skit involving a heated passenger dispute over fees.

Some of you may tell me that the removal of these booking, changing and purely whimsical fees will only result in price increases, as vendors simply push up their margins to compensate. I wouldn’t mind an “honest” fare or hotel tariff, as tacking up the price at checkout is quite disrespectful to the consumers who have spent considerable time shopping around for a competitive price. Perhaps more importantly, consumers and retailers should consider what value the consumer is receiving in paying a booking fee – is Webjet’s price guarantee really worth over $20, when many brick-and-mortar travel agents price match free of charge with hardly a second thought?

If the booking fee is simply paying for the “pleasure” of using the travel agents’ advertising-crammed and often clunky travel product search, then it doesn’t seem to be delivering much value at all.