I'm sure you're going to travel somewhere this summer. Or this fall. Or sometime soon. And if you're like me you'll use online travel agencies like Expedia, Orbitz or Priceline as part of planning your flight, hotel and rental car arrangements. But how, exactly, should you use these online sites?
Secret agent or secret merchant?
Consider Expedia which you're most likely to use because it has the highest market share of the three. It has an agency business and a merchant business.
Its agency business works like you might expect - Expedia brokers a sale between you and a travel supplier (United, Marriott, Hertz, etc.) for a fee. If you buy a plane ticket through Expedia it gets a commission on that sale - say, $5.00. (Note that right now is an exception - to get you to buy now, flights are available with no booking fees though May 31.)
Its agency model is different though. For a small percentage of its flights, and for most of its hotel and rental car sales, Expedia re-sells inventory to you at a markup. That, plus a booking fee of course. The arrangement works well for both sides because travel suppliers get broader inventory distribution while Expedia earns the bulk of its revenue and profit from this business.
Why you should care
Cost is one reason. You can go directly to the travel supplier and avoid the commission or markup or both. But flexibility is just as, if not more, important.
When you book an air ticket through Expedia you get charged up front regardless of whether you buy it from Expedia or the airline. But then for any changes you've got to go through Expedia instead of the airline which can be a major inconvenience, especially if you have status.
For hotels and rental cars it's worse: i) You get charged a markup, ii) You pay a booking fee, and iii) You pay for all the inventory up front. It's this last piece that Expedia loves and you should dislike very much.
Expedia gets all that cash up front, at the time of booking, which is a really nice source of working capital for the company. If you're staying at the Hilton for 5 days, for example, you're paying Expedia for all 5 days when you book. Same thing for a rental car. And if you need to adjust your travel plans you can't without paying cancelation penalites or forfeiting nights - you're on the hook because you've already paid.
Note the difference if you go directly to the travel supplier. You can book as far ahead as you want and get charged nothing until your trip occurs. And you can generally change or cancel all the way up until, say, 24-72 hours prior to your trip. (Bear in mind I'm talking mainly about hotels and rental cars.) You have all the flexibility you need (and should want) and on top of that you're not paying a markup or a commission.
The billboard effect
What are Expedia and other online travel agencies good for then? Use them as a billboard. Survey all the options at your disposal for free and then go to the travel supplier and book what works for you. No booking fees, no markups, no added hassles and you keep your cash in your bank account (earning interest, hopefully) until you actually travel. (Note that this works only for travel suppliers who allow others to crawl their websites - Southwest Airlines is an example of a supplier that doesn't, forcing you to go directly there to compare its travel offerings with others.)
Certainly Expedia, Orbitz and Priceline and aware of this "billboard effect" and don't like it, and on top of that there are plenty of travel metasearch engines now that accomplish the same thing. But they still do good business, either because people don't care or more likely because they don't understand how it works.
All this is not to say you can't find deals on sites like these - you can. Priceline is a great way to get an outsized discount on a rental car, for example, if you bid correctly and are willing to pay up front. But generally it's good to buy direct.
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You can also visit my other blogs at OrangeHornet.com and 2andahalf.com