Since booking flights online became possible at the turn of the century, there has been a false perception that it offers better value. There is some truth to this- booking flights online can be cheaper than booking offline, but it could end up costing you a lot more money in the long term.
In this article, I am going to explain how the online flight booking market works so that you can make an informed decision about where to book and protect yourself if you do still decide to book online.
Airlines operate various fare types. They have seat only fares, package fares that can only be sold with a hotel, corporate fares that can be accessed by select companies, VFR (visiting friends and relatives) fares which are targeted at ethnic travellers, cruise fares which must be sold with cruises and many more.
Websites selling online are only allowed to sell Seat Only fares from the airline which they buy at about £5-£30 less than what the airline sells the same flights for on their own website.
So, you will be asking the question- how do online travel sites sell tickets at prices that can be as much as £100 lower than the airline does if they are at best making £30 per ticket!
Online sites selling flights should only be selling seat only fares (which they buy from the airline and sell at a mark up) or published fares which are the same fares the airline sells on their own website and for which the travel company may receive a commission.
There are however companies that sell IT fares (leisure fares which can only be sold as part of a package holiday) as seat only fares. Airlines offer these discounted fares because the rate will be hidden from the public within the package price. The airline does not allow these fares to be sold individually and can deny boarding to a passenger that has purchased such a ticket – even if they did so unknowingly.
Risks: You may save money, and you may get away with travelling, but if you are caught, you will not be getting on the plane and you will have to fight the online travel company for a refund.
Mitigation: Pay by credit card so that if you need a refund, your card provider will be able to refund you.
These companies sell the correct fares at a loss. For example, they will buy a British Airways ticket from the airline at £350 but sell it for £325. Inevitably they must make up for the loss somewhere. They do this in one of 3 ways:
– Sell an add on: The online travel site will recommend you buy an insurance policy. For example, they will offer a policy for £59 to allow you to change or cancel the flights for free. What they are actually doing is buying the £375 ticket from the airline which allows free changes and cancellations and thereby making £9 profit on your ticket
– Overrides: Airlines offer overrides based on volumes. These can be six or seven figure sums for big companies. If an online travel site is getting £300,000 in overrides for selling 10,000 tickets on an airline, they can afford to make a loss of £25 a ticket and still earn £50,000 profit.
– Cancellations and changes: If you need to change or cancel your tickets, the company will charge a heavy service charge for doing so. This will be on top of the airline’s own charges. So, the airline may charge £25 for the change, but you will be charged £125 on top of this as service charge. This is legal and will be listed in the terms and conditions. The loss leaders have algorithms that tell them how much they can afford to lose on a ticket and be covered by the surplus from service charges. Doing the same change with the airline would only cost you £25.
Risks: These companies tend to be large and well-funded and so the risks are low. But sometimes they get their numbers wrong and as a result run out of money and go bust. A recent example of a company operating this model was Omega Flight Store which went bust in 2018. You also risk paying high fees if you need to change or cancel.
Mitigation: Make sure the company you are buying from is ATOL protected and that you get an ATOL certificate and/or pay by credit card. There is no mitigation for the service charges.
These companies are featuring flights at low prices but have no intention of selling to you at these prices. This works in one of 2 ways
You book for 2 seats for £310 each. All other sites are £350+. The online travel company will call you within a few hours of making the booking and tell you that the transaction failed, and the price has now gone up. They may say that there is glitch on the website and the price presented to you was wrong. Either way, they will offer you a full refund or the chance to book the last remaining seats at £355. They will tell you that there are only 3 seats showing in the system at this price and once gone, the price will go up to £390. Suddenly 1 of those seats will go while you are waiting and there will be 2 seats left. You will panic and book. The online travel company has now made a profit on the ticket.
If you don’t book, these companies will generally not have charged your card in the first place or refund your money promptly which is all that they are legally required to do.
You buy 2 tickets at £300 each to travel in 4 months. All other sites are £400+. The tickets will actually cost the online travel company £380. The company will make your reservation in the airline system but not issue the tickets. Travel companies don’t pay the airline until they issue a ticket, but they can “lock in” the fare by making the reservation in the airline system without actually paying for it.
Three weeks before departure, you will get a call saying there was a problem with the booking and the price has gone up to £480 a ticket. At this time, all other sites will be offering the same tickets for £600+. The company will offer you a full refund if you don’t want to pay the extra (which is all that they are legally obliged to do).
You have no choice because you must travel and £480 is cheaper than £600. You will pay the extra £180 a ticket. The travel company will issue the ticket and, having held the reservation when the prices were lower, will only have to pay the airline £380, making themselves a tidy £100 profit per ticket.
Risks: You will be stung with a price increase or be forced to cancel your travel plans.
Mitigation: Review sites are full of negative reviews about these companies- do your research before booking.
These companies are based outside the UK. Airlines and travel agents interact through IATA which operates an internal currency called NUC (Neutral Unit of Construction). Airlines set their pricing in NUCs and these are then converted into local currencies at the NUC rate. The NUC rates does not track the international FX rates precisely which means the fluctuations could make it cheaper to buy a ticket departing from London by buying it from a company in the Netherlands rather than one based in the UK.
The big foreign sellers will have an IATA licences in multiple countries and their algorithms will search pricing from as many as 49 countries to find the best price. A ticket may cost £300 from the UK but in the Hong Kong the same ticket will cost 2,800 Hong Kong Dollars. By then converting the HKD price back using the prevailing GBP HKD rate of 10.7, the ticket will cost only £261.
Finally, these companies don’t have to operate under the ATOL rules or pay the ATOL fees which further reduces costs.
Risks: Most of these companies are big, well capitalised and sophisticated tech companies so they are not out to scam you and are not short of cash. But, if things go wrong then you may struggle getting through to head office in Vietnam or Durban. You also won’t have the option to make a court claim against them in the UK.
Mitigation: Pay by credit card and check the reviews online about the company before booking.
Booking a flight with travel agent may be more expensive than some of the online travel sites, but now you understand why. The benefits of booking with a travel agent are:
Book by: Sep 30th 2021
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