Expedia makes ticket deal with Northwest and KLM

A month after Northwest Airlines and KLM Royal Dutch Airlines stopped paying commissions to Internet travel agents, online travel site Expedia reached a deal with the two airlines to continue to sell their plane tickets without adding a surcharge to consumers.
In striking the agreement, Expedia has taken a very different tack than its biggest competitor, Travelocity, which last month slapped a $10 surcharge on all Northwest and KLM tickets sold through its site to make up for the lost commissions.
Neither Expedia nor Northwest would disclose the terms of their deal, other than to say that they are “not material to Expedia`s financial results.” But Forrester Research analyst Henry Harteveldt maintained that while the airlines may not be paying Expedia formal commissions, they are most certainly giving the Internet travel agent some sort of compensation for the Northwest and KLM tickets that it sells.
He speculated, for instance, that the carriers may be providing Expedia with discounted tickets, which it can then sell at a markup. “Northwest and KLM recognize the value of the Expedia brand,” Harteveldt said. “Expedia will help Northwest reach an audience of travelers not likely to go to its own Web site.”
Expedia, which is 85-percent-owned by Microsoft, books about $1.5 billion in plane tickets a year. The company`s shares climbed 81 cents, or 6.2 percent, to $13.88 Monday.
Thomas Underwood, an analyst at Legg Mason Wood Walker, said the companies may also have been able to reach an agreement in part because they already have a relationship: Expedia provides the technology that powers flight searches on Northwest`s Web site and hosts the site.
Northwest and KLM, which work together closely to share routes and frequent-flier programs, had been paying a 5 percent commission, capped at $10, for each ticket sold through an online travel agent before changing their policies last month. Prudential Securities analyst Mark Rowen believes the deal with Expedia marks the beginning of a retreat by the carriers, which sent shock waves through the online travel industry last month when they eliminated commissions to online travel agents to bring down distribution costs. The move was also seen by many as an effort to circumvent the independent travel sites.
Since then, however, none of the other airlines has followed the lead of Northwest and KLM, making their tickets more expensive on sites like Travelocity and Lowestfare.com, which has also added a $10 surcharge. Northwest and KLM ``just can`t afford to lose market share to other airlines,`` Rowen said. Rowen added that he would not be surprised to see the two carriers strike similar deals with Travelocity and other travel sites.
A Northwest spokeswoman said only that the company is open to negotiating deals with other online travel sites. Travelocity, which is majority-owned by Sabre, one of the travel industry`s largest computer reservation systems, could not be reached for comment.
Not everybody is convinced that Northwest and KLM will change their broader policies, however. ``A deal with one travel agency does not signify a change in policy,`` Harteveldt said.
Northwest does work with Orbitz, a full-service travel site started by five major airlines - including Northwest - to bring down their distribution costs. Although Orbitz does not officially launch until June, it is already selling tickets on its beta site. The company receives ``service fees`` for all Northwest tickets it sells from the airline, said Carol Jouzaitis, Orbitz vice president of corporate communications.
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