Municipalities across the country have been suing the online travel agencies, charging them with cheating the local governments out of lodging taxes. Agencies responded by keeping hotels in those cities out of searches. Until now, it’s been primarily smaller cities like Columbus, Georgia. But last week, the state of Florida got in the game, suing Expedia and Orbitz, claiming that the agencies failed to pay the full amount of taxes owed.

The state’s argument rests on the distribution model of the big agencies. When you book a $150 room with a hotel directly, the rate you reserve is the top-line number the hotel receives. Taxes are calculated on the basis of that $150 price, and submitted to governments accordingly. When you book with an Orbitz, Expedia, Travelocity, Priceline, or Hotwire, you may be paying one price, but the agency is paying another. So you may pay $150, but a Travelocity may be paying $100 to the hotel and keeping $50 in profit. For such reservations, the hotel submits taxes based on the $100 wholesale price. State and local governments argue that they should be receiving the taxes based on the retail rate, not the wholesale. So a thousand lawsuits bloom.

When I visited Orbitz headquarters in Chicago at the end of September, I asked Brian Hoyt, the company’s Vice President of Corporate Communications & Government Affairs, about this legal trend. Hoyt replied that the premise of these suits was fundamentally wrong: The lawsuits presumed that the agency was the hotelier, when in fact they were just the middleman, adding a convenience charge to the booking that they negotiated for their customers. “Orbitz is no more a hotelier than Ticketmaster is a baseball team.”

But the state of Florida has just upgraded Orbitz to the big leagues.

I’ve been sympathetic to the agencies on this front since I first posted about it in May. But the agencies aren’t doing themselves any favors: The problem for Orbitz and their peers is exacerbated by the fact that the agencies don’t break out their prices in a transparent manner. The $150 rate in the example above doesn’t show up as $100 plus $50 in fees. It shows up as $150.

Further, the agencies tack on extra “taxes & fees” (reduced recently, admittedly, but still there) without explaining the breakdown. Since the margins on hotel bookings are fat, and the taxes are based on the lower wholesale rate, there’s some room for profit in those fees, too. (It’s much like the “handling” in “shipping and handling” charges.)

The Florida case is a huge deal for the agencies, and the consumers who book there. Just the Orlando and Miami bookings alone would hurt the companies’ bottom line.

Let’s assume for the moment that the agencies lose this battle, regardless of the merits of the argument. One strategy would be to lobby for a federal solution, in which a national legal standard for tax collection is determined and applied federally. Another strategy would be to reform the ways in which agencies quote hotel rates.

Look at the these two current examples of hotel rate and tax quotation:

Expedia:

Orbitz:

Same hotel, same dates. First off, note the slight variation between the agencies. The difference may be due to variation in negotiated rates, or in fees. But you won’t ever know, because the agencies aren’t telling you what you’re actually buying.

I can understand the why the agencies want to keep their real rates quient. But since the prices aren’t broken out, it’s possible for states like Florida to launch lawsuits. If the agencies can’t get a federal solution, they may need to start quoting the wholesale rates plus the fees.

And if these lawsuits lead to greater price transparency, that’s going to be a huge change.

Upgraded: Continental Airlines BusinessFirst seats
Continental Airlines’ international business class seats are getting a facelift. Initially promised back in August 2008, the first of the new 180-degree lie-flat seats finally debuted last week. (They call them “BusinessFirst,” but let’s be real, it’s really business class.) The new seats are four inches wider than the old seats. The interactive tour of the seat is here.

Upgraded: Frontier Airlines, front half
Downgraded: Frontier Airlines, rear half
Frontier Airlines is reorganizing the seatmap to put in an extra-legroom section in economy, a la United’s Economy Plus. The section, dubbed “Stretch,” will have 36 inches of pitch between seats. Seats in the rear will have between 30 and 32 inches. 30? That is tight.

Upgraded: The Expedia-Choice Hotels War
You may recall the spat between the Choice Hotels chain and Expedia. Expedia demanded numerous draconian terms of Choice, and Choice said no. But now… As of this evening, Choice is back in. But no details yet on what the deal actual consists of. Stay tuned.

Upgraded: Ways to share your miles with veterans
It’s not new, but on this Veteran’s Day (or Armistice Day in the UK), you may be interested in the Fisher House Foundation’s program that accepts frequent flier miles to share with “military (or DoD civilian employees) hospitalized as a result of their service in Iraq, Afghanistan, or surrounding areas, and their families. These tickets can not be used for R&R travel, ordinary leave, emergency leave, or other travel not related to a medical condition.”

Upgraded: Your ability to earn lots of British Airways miles
Chase and British Airways have launched a pretty amazing airline mileage-earning credit card offer. 50,000 BA miles after one purchase, then 50,000 more after spending $2000 within three months. Gary Leff has thought this through and come up with a scheme for 420,000 miles between two people. That’s a lot of free tickets for a $75 annual fee.

Downgraded: Track suits
A Best Buy executive says that United refused him an upgrade because he was wearing a track suit. “United says there is no passenger dress code, but they cited two rules. Ticketed passengers can not be barefoot and must be clothed.” Standards!

Upgraded: Fees for Expedia phone bookings
Expedia announced that it was dropping the booking fees it charged for booking any flight, car rental, hotel or cruise on the phone. As online agencies compete to attract customers, this is the latest fee to drop. Yay, lower fees! Priceline immediately tweeted that they had never had phone booking fees. Nyahh.

Upgraded: Responsibility for rental car reservations
Avis Budget Group has worked with global booking systems to prepare their networks for an eventual introduction of no-show fees for car rental bookings. Frankly, I’m amazed that this is a fee that hasn’t been enforced more widely already.

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An article on the website of the trade journal Hotels sounds an alarm to hoteliers, and by extension, to consumers: Expedia and its sister site Hotels.com are blocking hotels under the Choice Hotels umbrella from searches on their sites.

The alleged reason? Here’s a quote from the piece, for the wonkish:

For some time now, we have been hearing from many industry sources that during renewal negotiations Expedia/Hotels.com has demanded new terms and conditions that are against everything the hospitality industry stands for: last room availability, guarantees that the best rates are only found on Expedia/Hotels.com sites, penalties to properties that do not use their sites 100% of the time, etc. These contract renewal “negotiations” have been described to us by some participants from various hotel companies as “here are our terms – take it or leave it”-type of meetings and “practically lack of any essence of a real negotiation,” etc.

In other words, these new terms and conditions demanded by Expedia will effectively take away hoteliers’ rights to manage inventory and rates at their own hotels, destroy channel management and rate parity, and will eventually lead to a long-term erosion of hotel brand and price integrity in the same manner it did after 9/11 in 2001.

Since Choice is apparently not playing along, they’re missing from search results on Expedia-owned sites. That means that customers looking for a hotel will have to look somewhere other than Expedia if they want a more complete picture of the lodging landscape. That’s nearly 5000 properties that are off of Expedia’s grid. And there may be others.

Granted, the Choice properties (Quality, Comfort, Econolodge, Clarion) aren’t ones that I long to be staying at. You may not miss them. But for the budget-minded or the roadside sleep-seeker, these brands are generally reliable, standard motel fare. And now, on Expedia, it’s as if the hotels didn’t exist.

Part of me doesn’t have a problem with this. The big online travel agencies aren’t search engines. They’re businesses, and they’re trying to make as much money as they can. They don’t claim to represent every hotel in the world, and it’s their prerogative to keep out a company that isn’t willing to ante up.

But for consumers, it makes apples-to-apples comparisons harder, and thus makes loyalty to a single agency hard to justify. It also makes metasearch more important. Using a search like Kayak, which once claimed to want to catalog every hotel on the planet, looks more attractive for first-cut hotel searches.

Expedia is risking losing customers’ trust. If the agency wants to hardball its suppliers, that’s its option. But consumers would be right to ask if Expedia is in their corner.

As predicted here, Expedia has decided to make its temporary elimination of the airfare booking fee permanent. This follows in the steps of Priceline and Hotwire, which stopped adding a surcharge over a year ago.

The Expedia fee was scheduled to go back into effect on June 1. The company had two choices: Quietly reinstate the fees, and face the marketing wrath of the no-fee competition, or “permanently” kill the fee with a big fanfare. How’s the fanfare sound on your end?

The big agencies still get a cut of the sale, unlike most mom-and-pop travel agencies, so the extra booking fee monies were additional revenue. Many customers (31%, according to here) were doing their searches on the major agencies’ sites, and then going to the airline to book directly and save the fee. Now, the agencies’ fares should be on the same level as the airlines’ own websites.

Interestingly, Expedia also cut change fees in the same breath:

Other fee changes also were announced Wednesday. Expedia.com said it will eliminate the change-and-cancel fees on hotel, car rental and cruise reservations and on most flight reservations. Flights that are part of certain package deals will still be subject to a fee when reservations are changed or canceled. Expedia.com said it will resume charging $20 [on June 1, 2009] to make a flight booking over the phone, a fee that was halted during the promotion.

Eliminating change-and-cancel fees is nice, but it’s just the surcharge, not the totality of relevant fees. Airlines are charging $100, $150, or more to change itineraries for non-refundable booking classes, and Expedia can’t waive those fees. The elimination only applies to the surcharges which Expedia tacked on.

In any case, this puts pressure on Travelocity and Orbitz to make fee cuts permanent as well. Both of those sites’ fee-elimination policies have a sunset clause, and fees are scheduled to re-emerge on June 1. Neither site is commenting on whether they’ll follow Expedia’s lead or not. We’ll see if there are more announcements of newly-permanent fee reductions in the coming days…

Today, Travelocity dropped its booking fee for airline tickets. A week ago, Expedia did the same.

Both agencies are promising that the fees will be on hiatus until May 31, 2009. But bringing the charge back may be tough: Back in 2007, Priceline and Hotwire dropped their booking fees “temporarily,” and they still haven’t brought the fees back.

That leaves Orbitz as the lone holdout among the biggest U.S. travel agencies. So when will Orbitz, the biggest holdout, throw in the towel on fees?

Consumers should welcome the rollback of these add-on booking charges. But this episode shows how brutal the online travel marketplace is right now. If online travel agencies want to collect a surcharge, they’re going to have to get creative, and earn it. Simply offering price comparisons and a few online alerts — which are free elsewhere — won’t cut it. And Travelocity, Expedia, Priceline, and Hotwire have admitted that.

Sure, Orbitz may counterargue that they provide value-added with their price guarantee, but since that service is of relatively limited value, I wouldn’t pay a premium for it (though maybe it’s worth the $6.99+ gamble for someone else…)

Travelocity is even poking a stick in Orbitz’ eye by copying their “Price Assurance” model and bringing it to vacation packages under the name “PriceGuardian.” If someone else books the same package as you, and the price has dropped, you get a check for the difference. Yeah, good luck with that.

What we may see is a shift to voluntary fees for add-on services, much like the airlines are going a-la-carte themselves. Want a price-drop guarantee? Pay a few bucks up front. Want text message alerts? A few more bucks. That I could see happening. But the standard one-size-fits-all fee is history at the mainstream agencies.

Downgraded: Celebrities’ secrets
Celebrities! They’re just like us! Except they check into hotels under made-up pseudonyms. “Bruce and Jasmine Pilaf”? That would be Angelina Jolie and Brad Pitt. “Mr Donkey Ass”? Johnny Depp. “Arnold Schwarzenegger” ? The false name of George Clooney. Read the whole article to wallow in the absurdity of it all.

I once worked at a hotel that regularly had NBA players and sportscasters as guests, and the check-in list was an exercise in hilarity. My favorites: Charles Barkley, checking in as the not-necessarily-helpful pseudonym “Tiger Woods,” and Shaquille O’Neal checking in as “Leroy Lovebone.”

Upgraded: Fuel efficiency
Downgraded: Inflight toilet action satisfaction
Airlines are doing what they can to lower the weight of their aircraft, to reduce the fuel burn. That includes reducing the amount of water they carry for their toilets.

Northwest is putting 25 percent less water for bathroom faucets and toilets on its international flights, Mr. McGraw said. Most planes had been returning from long flights with their tanks half full, an unneeded expense given that water weighs 8.3 pounds a gallon and a gallon of jet fuel weighs 6.8 pounds.

“Every 25 pounds we remove, we save $440,000 a year,” Mr. McGraw said.

Better hope that flight isn’t stuck on the ground anywhere.

Downgraded: Australian Aviation
It’s not just North America that’s being downgraded with fees upon fees. Australian airlines are enacting the same nickel-and-diming strategies as their trans-Pacific brethren.

Downgraded: Expedia’s idea of a “hotel”
Expedia has been advertising that they feature hotels in New York City for $58 a night. I raised an eyebrow, but Newyorkology’s Amy Langfield went the next step and found out what was being offered at that rate. Instead, she found a rate as low as $30 a night. $30?? Well, it’s a bunk in a hostel, and not even a nice one. $58? Not in a real hotel that’s actually in New York. Even New Jersey rooms are more. See the whole post for the breakdown.

Upgraded: The hours in a day
Downgraded: Advantage Rent-a-Car
I’ve been boycotting Advantage Rent-a-Car since 2003 already, but this just reaffirms my view that this is one car rental agency you want to avoid: The Consumerist relates a story of a renter whose damaged vehicle was charged for 22 days of loss of use, even though the car was in the shop for 49 hours. Nice math.

Upgraded: Uses for inflight oxygen
Great nugget from an article about the now-indicted former chief of Broadcom. The man, ahem, sure knew how to live. “In one incident described in the indictment, Mr. Nicholas and his guests are said to have inhaled so much marijuana on a flight to Las Vegas from Orange County, Calif., that clouds of smoke and fumes drifted into the cockpit of the private plane and the pilot was required to put on an oxygen mask.” Does that mean the co-pilot was high as a kite? (Thanks, Tyler!)

Reader Michelle sends in an e-mail she received from Expedia, in which she’s encouraged to pack her bags and depart frigid New York for warmer climes. Such as:

Click for larger view

Chicago??!

That’s some solid marketing right there. Maybe if this were sent as a fare alert to customers in Nome, Alaska. But New York?

Let’s take a quick peek at weather.com and see where things stand in Chicago right now. Hmm…

At least it’s sunny!

Passengers miss flight because a Northwest crew wanted donuts
Since when do pilots call the shots on the ground, too? A flight crew convinced a hotel shuttle bus driver to go for donuts instead of heading to the airport, causing other van riders to miss their flight. Full story via Chris Elliott.

Wisconsin Dells loses its Wonder Spot
Ah, the Dells… The klassic kitschy Chicagoland weekend getaway. It has now lost one of its treasures, the gravity-defying Wonder Spot. While Tommy Bartlett’s Thrill Show remains, the Wonder Spot will be missed.

My bag is happy to see you
A “vibrating bag” was discovered unattended at Chicago O’Hare. (It contained a sleep apnea machine, so wipe that smirk off your face!)

I came for the transportation, I stayed for the haircut
Virgin Atlantic hires more in-flight beauty therapists.

Love at first sting
Two separate flights, two separate incidents of scorpions stinging people on a plane. Flight one: Chicago to Burlington, Vermont. Flight two, Miami to Toronto. Forget Samuel L. Jackson. Bring me Klaus Meine!

Singapore Airlines’ new business class… reviewed!
Remember Singapore Airlines’ major upgrade to its business and first class cabins on selected routes? The Global Traveller has sat in the business class seat, and offers his review. Live vicariously.

Charlie Trotter and United Airlines reunited and it feels so good
This is where the cost savings from eliminating pretzels in coach must have gone. United Airlines is jazzing up the food in business and first class. They’re bringing back uber-chef Charlie Trotter, whom they ditched after 9/11. Bet you a bag of savory snack mix that it’ll still taste like airline food… (Thanks to Mark L.!)

Oasis coming to Oakland
Oasis, the Hong Kong based discount airline, famous for it’s $128 tickets to London, is coming to the United States. They’ll start flights from Hong Kong to Oakland in June, with 4x weekly service to start, moving up to daily service in August. No word yet on the fare.

Avoid the TSA by shipping yourself in a crate?
This isn’t living the first class life, but it’s first class by shipping container standards: The Travelbox, a crate designed for shipping a person. Bonus: It has its own running water supply.

Enterprise Rent-a-Car adds hybrid SUVs in California
Enterprise will rent you one of 160 Saturn VUE Green Line SUVs in the Bay Area, LA, or Sacramento. Yes, only California. What, no other parts of the country care about fuel consumption? Hybrids: good. Hybrid CARS, and not just SUVs, would be even better… It’s a start.

American Airlines spurns Expedia
If you’re looking for American Airlines’ international fares or premium cabin fares on Expedia, you’re out of luck. The airline is apparently having a little spat with the online agency, and yanked its fares from the site. We’ll see how long that lasts…

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Reader Julie writes:

I’m looking to buy tickets from Newark to San Francisco for the holidays, and Expedia has the lowest price for tickets on United. (Even lower than united.com) Can I upgrade these tickets if I buy them from Expedia? Thanks!

You’re in luck! For travel within the United States, most every airline allows upgrades if the tickets were purchased from online agencies like Travelocity, Expedia, Orbitz, CheapTickets, etc. As long as the booking class is legally upgradable, it doesn’t matter where you buy it.

(The exception: If you bought “opaque” tickets from Hotwire or Priceline, i.e., you didn’t select the airline and/or flight times when you made your purchase, then you can’t upgrade.)

For international tickets, upgrades are generally a little more complicated. Not all booking classes are upgradable, either with miles or certificates. But again, as long as the ticket you buy conforms to the upgrade rules of the airline, then it shouldn’t matter where you buy the ticket. As long as you are buying a “published” fare, you should be fine. (And even then: I’ve upgraded a ticket purchased from a consolidator. But it’s up to each airline to set such rules.)

Buy the ticket from Expedia, Orbitz, Travelocity, or wherever it’s cheapest. And good luck getting the upgrade!

P.S. In theory, you could buy the ticket from United and invoke their low fare guarantee by pointing to the lower fare on Expedia to get $50 in credit, but it’s probably not worth the trouble…
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