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Thursday, March 06, 2014

6 ways travel websites make money

Selling tickets has become a tough business. Margin is almost nill and dozens of websites fight for your attention if you have a ticket or hotel to book. We all compare the displayed fare among different websites and keep it as a basis to decide where to book our tickets from. But there’s more than what meets the eye. Your final cost of transaction could be more than what you saw in the first screen. This post helps you understand what are the various ways travel sites make money- sometimes by conning you or exploiting you. If you’re informed and cautious, you may be able to save some money.

1 Charging a convenience fee for payment via credit cards…
Banks charge a small fee, usually 1.5-2% of the amount for credit card payments. While some merchants absorb this expense as they have enough margin-for example restaurants and shopping portals, few directly transfer it to end customers, making them pay few % extra while paying through credit card. This cost is not highlighted in first few screens when you search for fares and compare it with other sites. It is shown only during payment time. When I booked a Blr-Delhi flight on Indigo, the ticket fares were same on Make my trip and Indigo website, but while MMT was forcing me to pay a convenience fee of Rs 250 for credit card payment, Indigo didn’t charge anything extra. Simialry in another case MMT's convenience fee was higher than spicejet's so I had to book at spicejet website. If you overlook this aspect, you’ll end up loosing few hundred rupees, though you thought you’ve got lowest fare.
 
Contextual image-Spicejet Bombardier ready to land in Mysore
2 Cancellation charges: Travel websites add one more layer of complexity if you want your ticket changed or cancelled. Once you’ve booked, you’re their captive customer. On top of what airlines charge, travel websites charge a fee, to the tune of few hundred rupees, to facilitate corrections or cancellations. If you book directly with the airline, you might save this middlemen expense. Many of us often book months in advance hoping to leverage low fares, only to seek cancellation/modifications later as our plans change. We sometime loose more money in this re-processing, than what it would have cost to book afresh.
Not allowing one way cancellation is another way to force people forgo their money.

Providing a discount coupon instead of cash refund is another tricky way- the coupon comes with a limited validity period and other conditions and needs you to make a bigger purchase again to avail it. (tip from BP Bhat)

3 Marketing campaigns- Search for a ticket on make my trip and then browse some websites… the google adsense ad is most likely to be customized to display the some ads related to air travel between these two cities. So I have a feeling that our usage pattern and data are exploited by these companies for commercial gains.
Go Ibibo ad showing me Blr-Delhi fare, because I searched for the same in makemytrip
4 Auto addition of unsolicited services: Most websites add services like insurance, seat selection charges, some charity etc even though no one asked for them. The onus is on the customer to realize that the price has gone up because of these additions and then unselect them if he/she doesn’t wish, while right approach should be the other way round- Customer should Opt-in for such services. Only if I confirm I want something, then add them. Many do not realize these while hurrying to book and spend a few hundred more unknowingly, as most travel websites adopt an Opt-out strategy, in which your consent for these services is taken for granted unless you state that you don't want them.

5 Delaying payments to vendors- There have been instances where hotels were booked on travel websites but when guests land at the hotel, hotel declined to have any confirmation from the travel website- this could be because delayed payments from the website to the hotel or other such credit issues. Where possible book directly with the hotel, else after confirmation from travel website, confirm with hotel that everything is fine, to avoid getting stranded on arrival. Also delayed refund of cancellation helps them hold on to operating cash for more time.

6 Promoting particular airline/hotel- travel sites are sometimes incentivized by the hotel/airline to sell more of their tickets than competition. This might mean giving more prominence visibility to certain options while underplaying other options etc. If you feel you’re not getting enough options or variety, do compare with an alternate site.

Some newcomer travel websites are funded well and don’t mind running in loss for an year or two with the ambition of gaining some market share first. Such sites might be liberal in not charging extra to customers in the beginning. But once they become established players and amass good customer base, earning profit will become important and new and innovative ways to make people spend more, without scaring them off in the first screen becomes important. The smart MBAs in the management will throw newer ideas that often exploits unsuspecting customers.
Watch out and happy journey.

Related: Changi Airport *  Why Cochin Australia is cheaper *  Kingfisher experience * Kinetic rain at Changi *  Gardens at Changi airport * AirAsia review 

5 comments :

magiceye said...

Good compilation!

Shrinidhi Hande said...

Thanks Deepak

B P Bhat said...

Hai Shrinidhi,

Due to time constraint, I was not reading many blogs at all. I think I must start reading at least your blog now.

I completely agree with all you have said. My experience:

1. I don't have a credit card at all. I book only thru net banking. And even in this, I have come across "convenience fee". Your write up gave me lots of inputs.

2. "Cancellation charges": I was a victim of this also. Once, instead of refund, I got a discount coupon for cancelling a ticket. I could not use the coupon, and thus I lost all the money that I paid for booking the ticket.

4 Auto addition of unsolicited services: I have come across this also. And I avoid such things.

I also agree with your other views. Thanks a lot for sharing your experience.

Regards

Shrinidhi Hande said...

Thanks BP Bhat sir for your comment- refund with coupons instead of cash is a good point. Will add to the list with credit.

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