Under the Hood of Online Travel Companies

May 11, 2009 on 10:37 am | In online travel companies, personal travel, things travelers need to know, travel, travel industry, travel news | Comments Off

Expedia, Orbitz, Priceline and Travelocity are well-known Online Travel Companies (OTCs) that have revolutionized the travel industry.   These companies have created a new travel services purchasing environment  by providing the consumer with greater access to reduced rate ticketing, based on their ability to apply the practices of yield management and harvest the unused inventories of airlines and hotels, as well as those of other travel services providers. 

The profit of an OTC, in part,  is based on the difference between the rate they are charged by the property owner and the rate that the consumer is charged for the service.  In turn, the consumer purchases are also burdened with taxes and the taxes have now become a bone of contention between local municipalities and the OTCs.  It appears that the OTCs have paid taxes based on the price they are charged for the room – not the price they charge you.  Well, municipalities feel that they are shortchanged by the practice. 

Of course, there is a class action lawsuit at the heart of this issue.  Read this article from Fortune for more details.  And when you read the article, you may conclude, at least based on the example provided, that consumers are paying the full, local tax, while the differential appears to be pocketed by the OTCs.  Hmmmm.  More lawsuits?

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