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Airlines try to cut out middle man with more discounts

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Some airlines are making travelers work harder to find a deal.

Carriers are offering more deals to passengers who book flights directly on their websites. It's an effort to steer people away from online travel agencies such as Expedia, Orbitz and Travelocity, which charge the carriers commissions of roughly $10 to $25 a ticket.

While travelers save money, they also must do without the convenience of one-stop shopping.

Frontier Airlines, which is owned by Indianapolis-based Republic Airways Holdings Inc., is the latest carrier to jump into the fight, announcing Wednesday that it will penalize passengers who don't book directly with the airline. Those fliers won't be able to get seat assignments until check-in. And they'll pay more in fees while earning half as many frequent flier miles.

"Particularly for families, it provides an incentive to book directly," said Daniel Shurz, Frontier's senior vice president, commercial. "There is no logical reason for our customers to want to book anywhere else."

Contracts with the online travel agencies prohibit airlines from offering lower fares on their sites. Instead, airlines such as JetBlue Airways Corp., Spirit Airlines Inc. and Virgin America often provide discount codes in emails to their frequent fliers or through Facebook and Twitter.

The savings for booking directly can be significant.

Toronto-based Porter Airlines frequently offers codes that save travelers up to 50 percent. A recent search of flights from Chicago to Toronto for November produced an airfare of $249.61 using a code at flyporter.com. The same flights would have cost $404.38 through Travelocity.

The airlines face a delicate balance. The online travel agencies account for the lion's share of ticket sales. But the airlines want to trim the fees that eat into their profit margins.

Besides the discounts, the airlines say their sites offer passengers a better experience, providing up-to-date seat maps, details about in-flight entertainment and more seamless booking.

Henry Harteveldt, co-founder Atmosphere Research Group, said the airlines and travel sites have "a very, very dysfunctional business relationship." The travel sites treat all flights equally. Price is the only differentiator.

"The online travel agencies either won't or can't talk about how an airline might have Wi-Fi on a plane or extra legroom seats available," he said.

The online agencies say they provide travelers with several advantages, including comparison shopping and the ability to mix and match airlines for a single trip.

"That's something you can't do on an airline's site," said Dara Khosrowshahi, president and CEO of Expedia, Inc.

Simon Bramely, vice president of transportation and lodging for Travelocity, part of Sabre Holdings, noted that "the flight is one element of the trip." He said online travel agencies can save travelers hassle and money by creating packages that include hotel rooms and car rentals.

The battle is not new. Southwest Airlines Co. was a pioneer in cutting out the middleman. The airline does not list its fares on third party sites. That means travelers have to search both southwest.com and then elsewhere to compare fares. Southwest hopes fliers will never make it to another site.

"We think we can have better control over the customer experience by dealing directly with them," said Southwest spokesman Chris Mainz.

Most of the big carriers have remained quiet. American Airlines, part of AMR Corp., was the exception. In December 2010, American cut off Orbitz Worldwide Inc. from displaying its fares and selling its tickets to protest the commissions and the failure to displays extras like seat upgrades. The site had been selling about 3 percent of the airline's overall tickets. Expedia joined the fight by making American's fares harder to find. All sides eventually settled their disputes.

Frontier is making its changes specifically to cut the commissions.

A four-segment itinerary — say a roundtrip flight from Sioux Falls, S.D., to Phoenix connecting in Denver each way — booked directly through Frontier costs the airline $1.60 to process. That same itinerary booked through an online travel agent costs Frontier $20 to $26, depending on which website the ticket is booked on, according to Shurz.

Those commissions add up: Shurz said Frontier spends about $55 million to $60 million annually on distribution fees. In the first half of 2012, 42 percent of Frontier's $713 million in revenue came through tickets sold directly with the airline. Shurz hopes to increase that figure to 65 percent in a few years, cutting expenses in the process.

Frontier's customers have a big incentive to book directly.

Only those going through the airline's website will get to pick their seats in advance. Travelers booking through third-party websites will only get half the frequent flier miles. Fees for changing itineraries, going standby, traveling as an unaccompanied minor or bringing a pet onboard will be $50 higher for those booking elsewhere.

Frontier is a low-cost carrier based in Denver. It flies to 80 destinations in the United States, many smaller cities, as well as leisure destinations such as Mexico, Costa Rica, Jamaica and the Dominican Republic. Through August, it carried 9.1 million passengers. In that same period, United Continental Holdings Inc. carried 96.1 million passengers.

In a related move to increase loyalty, Frontier is lowering the amount of frequent flier miles needed for a free flight by 5,000. The airline also changed its website URL to flyfrontier.com.

About the only thing not changing are baggage fees: They will remain $20 for each of the first two checked bags regardless of where you buy a ticket.

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