Airlines Work on Their Web Footing

Nevertheless, most airlines still recognize the importance of having a presence on agency sites such as IAC/InterActive's (IACI) Expedia, Sabre Holdings' (TSG) Travelocity and Orbitz. Notable exceptions include low-cost airlines Southwest (LUV) and JetBlue (JBLU), which sell tickets online only at their own Web sites.

Continental's Slater said such agency sites can bring Continental non-loyal, price-hunting customers and corporate customers, who may want to view offerings from a variety of suppliers.

But by having flights listed at online agencies, airlines may actually be helping their own direct sales, because many travelers are using agencies such as the Yellow Pages, according to industry watchers. A survey last October by the Connecticut travel research firm PhoCusWright found that 48% of respondents said they had shopped around via online travel agent sites but then booked directly at an airline's Web site, toll-free number or ticket counter. "Online shoppers tend to be least loyal to online travel agencies' sites for air travel compared to any other travel component and method," PhoCusWright said.

Still, airlines are scrutinizing the cost of acquiring customers through third parties and have worked to negotiate terms with them.

"They do attract the price-shopping traveler, and those customers generally pay fairly low ticket prices," Continental's Slater said. "Our only contention has been what is the cost of acquiring that customer. It hasn't come to the point of ending a relationship. [The agencies] have been good at negotiating with us."

Northwest, however, ended one third-party relationship. Last November it stopped offering retail tickets over Priceline.com and its Lowestfare.com subsidiary because of a disagreement over distribution terms. Northwest said a key factor was the cost it incurred for getting revenue on the sites.

It could be a harbinger of things to come. "Northwest is saying there's one third-party intermediary where it's simply not profitable for them to do business with that firm," Forrester's Harteveldt said. "That is clearly a warning shot to other third-party intermediaries, that if they can't get a higher-yielding customer, or new customers, they'll reassess other distribution channels."

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