Passengers lose out in war over websites

PUBLISHED : Tuesday, 01 February, 2011, 12:00am
UPDATED : Tuesday, 01 February, 2011, 12:00am

It has been depicted as a big bruising fight between two corporate giants, a grudge match between companies previously partners, pitting American Airlines against Orbitz and Expedia, two of the four big US online travel agents. Unfortunately, the real loser is going to be the person that both sides say they are scrapping for, the airline passenger, also known as you and me.

This is not merely a battle between American and the big agencies, nor a dogfight limited to the American skies. It has global implications for online ways of doing business. Indeed, some Asian and European airlines have already begun to copy and think of wizard new ways of making money out of the wonderful flexibility that the internet offers.

Without action by wide-awake consumer-advocacy groups and - much more problematical - vigorous attitudes by governments in defence of laws on contract, competition and pricing, travelling, especially across national borders, is going to get more expensive and troublesome.

The dispute began in November when American Airlines informed Orbitz, the smallest of the big four agencies, that it intended to end its contract allowing Orbitz to display its fares on its site because American wanted to use its own technology in offering flights.

Expedia showed unusual solidarity and refused to renew its own contract with American when it expired at the end of the year. It claimed that: 'American Airlines has shown that it intends to do business with travel agencies through a new model that is anti-consumer and anti-choice.' It added that American's move 'will result in higher costs and reduced transparency for consumers, making it difficult to compare ticket prices and options with offerings by other airlines'.

American Airlines retorted by accusing Expedia of discrimination, and claimed that the airline was determined to give passengers - or consumers, as travel merchants now call them - the best deal.

One reason for the fight is cost. Fees paid to agencies via global distribution systems can be as much as US$4 per flight segment, which adds up to hundreds of millions of dollars in a year, that the airlines would rather have to add to their bottom line. It is much cheaper for an airline to sell fares on its own website, costing about 3 to 4 per cent, against 10 to 12 per cent using agents.

Gerald Arpey, president of American Airlines, who started as a financial analyst with the airline, said in 2009 that the company would like to see intermediaries and customers pay for access to the airline's products 'rather than us paying them to distribute our product'.

But virtual capture of the customer seems to be equally important. American's new 'Direct Connect' reservation system aims to build an airfare that fits the passenger's preferences, including such things as more leg room, a special seat or early boarding. In spite of the airline's claims that it wants travellers to be able to compare prices, it is hard to do so when the price only appears at the end of the deal, when all the preferences have been sorted out.

Traditionally, the online agencies offered direct price comparisons for flights across all airlines. But this has become more difficult since airlines vigorously started 'unbundling' fares to make US$10 billion a year now in 'ancillary fees'. Airlines now charge for a checked-in bag - some even charge for carry-on bags - and have a whole panoply of extra charges for everything from switching from a delayed flight to changing the date of a flight.

Asian airlines, apart from budget carriers, have kept to the deal that the base fare includes a checked bag of up to 20 kilograms in economy and free food and drink on board.

But Asian airlines are also pioneering new ways of making money. The old days of paper tickets issued in the name of one airline, which could usually be endorsed to another carrier within the validity of the ticket, disappeared more than a year ago.

In their place passengers have the convenience of a paperless ticket, but it ties them to the airline that has issued it, with heavy penalties to make any change. In some recent experiences, it seems clear that the airlines are taking advantage of their unequal bargaining power.

If you book online with Cathay Pacific or Singapore Airlines, you will be asked first what your home base is. This can be crucial. Tickets booked for travel from Japan are typically two to four times more expensive than equivalent tickets starting in Hong Kong or Singapore.

A potential major money-spinner for the airlines is in allowing changes to the flights. In the later days of paper it used to be that only the cheapest tickets attracted a penalty for changes, specifically spelled out on the ticket. But these days, American airlines charge US$100 to US$150 for any change, though the fees are often not charged for business class tickets or for a frequent flier. Asian airlines are taking a tough line. The Cathay Pacific UK site reveals that there is a new 'business standard' return fare from London to Hong Kong of GBP3,957.20 (HK$48,842) plus taxes. (The 'business flex' fare is GBP6,469.20) A careful search of the fine print reveals that changing the date, even before travel, costs GBP250 on the 'standard' fare, not a small sum.

A friend got stung in booking two business-class tickets on an Asian airline, from Bangkok to India and to Hong Kong. He belongs to the top tier of the airline's frequent flier club, but when the sudden death of a close friend led him to seek a change by one day in the flights, the airline demanded a fee amounting to about 22 per cent of the price of the ticket. It claimed that the fee was 'clearly stated' and involved 'rewriting' the ticket.

Both claims stretch the use of the English language. As to the 'clearly stated' charge, there was only a general reference in the 'terms and conditions' that extra charges may apply. The only specific reference came in the airline gobbledeegook, as printed below the itinerary after the ticket was issued.

An Asian lawyer working in consumer affairs for a European government commented: 'This is hardly a fair contract. Was the passenger clearly shown the penalties before paying the money?'

But how and where and to whom can a passenger apply for redress? In this case the passenger, a citizen of country A, resident in country B and taking the airline of country C going from D to E and F, has few options.

Caveat emptor, of course. But on the internet, there is no equality of bargaining, it is take it or leave it. Indeed, some airlines, as soon as they note an interest by a potential passenger, raise the fares even when a transaction has started. It is time for governments to look again at consumer protection on the internet. Ticking a box agreeing to blanket 'terms and conditions' should not become an airline's excuse.

Control issue

Airlines want to claw back the fees online agents are raking in

For one leg of one flight, such a fee is typically, in US dollars: $4