Expedia’s cost-cutting initiative isn’t going so well.
Last Thursday, news broke the elimination of airline-booking fees is costing the third-party reservation site US$3 million … a month. Expedia’s CEO said no decision has been made whether the company will keep the policy in place after the promotion ends in late May. It’ll wait to see what its competitor’s are doing before making a move.
This news is interesting for two reasons:
1. Though we don’t know if or how much the airline booking-fee cuts are hurting other third-party reservation sites, it’s safe to assume a brewing experiment with hotel booking fees might yield a similarly disastrous result. On 22 April, Orbitz—which was the first major site to reduce airline fees—upped the ante by reducing hotel-service fees. Expedia and Travelocity have yet to take the bait, but their track records suggest moves may be imminent.
2. This is yet another example of the poor returns that often result when you follow your competitor to the bottom of the barrel. Yes, Orbitz made a compelling move that might have swayed a few travelers to book their airline tickets, but how much better is Expedia for having followed its competitor to that end? Couldn’t the company’s brass have used that hemorrhaged US$3 million to create a value-adding marketing campaign each month instead?
Now, I’m not going to argue revenue models for third-party reservation sites and hotels are the same. Applying literal lessons from one to another is like driving a square peg through a round hole. However, there’s clarity to be gained from stepping back and watching another industry, albeit a related one, engage in price-slashing tactics that can only hurt the bottom line.
As you watch its poor example, think about creative ways to drive your own demand—not just the most compelling ways to cut rates. And while you should always keep an eye on your competitors, don’t become fixated with their movements. If you do, you’ll be too consumed to move forward yourself.