Aug 26, 2004 (04:08 PM EDT)
New Northwest Fees Will Raise Costs For Business Travel
Read the Original Article at InformationWeek
A few days after Northwest Airlines Corp. imposed charges on travel agents and independent Web sites that sell tickets on its flights, business travelers are being left to sort out the impact. Steve Sahl, CEO of the Barrier Group, a startup that makes an IT security server, is based in Northwest's hometown of Minneapolis and depends on Northwest for its travel. He says the move will likely force Barrier to book more Northwest flights through the airline's Web site.
Northwest is simply too dominant in the Minneapolis market to boycott, Sahl says. "Once you get over the initial frustration as a businessperson, then the reality sets in and you take a look at your options," he says.
On Aug. 24, Northwest said it would charge travel agencies and Web sites such as Expedia and Travelocity an average of $7.50 on each round-trip ticket they buy through "distribution networks" such as Sabre Holdings Corp.'s Sabre Travel Network. That will help offset fees Northwest pays to those networks. The airline says it paid $180 million last year, a cost that low-fare competitors don't have to bear. "Since we compete with the low-cost carriers on price, it's essential that we take steps to compete with them on distribution costs," said Tim Griffin, Northwest's executive VP of marketing and distribution, during a conference call this week. Northwest also said it would charge an additional $5 on all tickets booked through its call center or at its airport ticket counters.
Sabre, the nation's largest distribution network, countered with a breach-of-contract lawsuit. Sabre and rival network Galileo, a subsidiary of Cendant Corp., say they'll display Northwest fares less prominently to agents. A day after Sabre filed its lawsuit, Northwest filed its own breach-of-contract suit against Sabre.
Travel agencies and third-party Web sites generate nearly 60% of the Northwest's bookings. But the airline pays the distribution networks $12.50 for each booking.
According to travel-industry analysts, Northwest's move could have the same impact as its decision in the early '90s to offer discounts to corporate clients that booked flights directly from its reservations system, a practice that's common in the industry today. "If Northwest succeeds, I believe we're going to see other airlines follow suit," says Norm Rose, president of Travel Tech Consulting. But Rose says that in the short term, Northwest's move is bad news for travelers, as agencies are expected to pass the fees on to consumers.
Rose also says it's no coincidence that Northwest is among the airlines named by startup company G2 SwitchWorks as participants in a new distribution network it's launching. G2 was founded by Alex Zoghlin, former chief technology officer of Orbitz, the travel site launched in 2001 by five airlines, including Northwest. Orbitz is exempt from Northwest's new fees because its SupplierLink technology bypasses the distribution networks by linking directly with airlines' reservations systems.