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Do airlines or agencies have the better deals on packages?

In addition to offering traditional air travel, most major U.S. airlines have increasingly begun to focus on combining flights with hotel stays and other perks to create bundled air-and-hotel vacation packages. These packages can mean one-stop shopping for travelers. But are they always the best deal?

When we compared vacation rates from the “Big Six” U.S. airlines (American, Continental, Delta, Northwest, United, and US Airways) with those of the “Big Three” online travel agencies (Expedia, Orbitz, and Travelocity), the results were dramatic: In most cases, the online agencies consistently outperformed the airlines in head-to-head price competition.

To provide a fair basis for evaluation, we compared prices to three very different destinations (Jamaica, Hawaii, and the Netherlands), and we tracked departures in several different travel periods to avoid skewing the prices with advance-purchase requirements. We also selected sample rates for Monday, Wednesday, and Friday departures from the same gateway cities. Our sample vacations consisted of three-, five-, and seven-night packages with comparable accommodations. Finally, for comparison purposes, we factored all taxes and fees for air travel into the prices.

Our research revealed that, by and large, Expedia, Orbitz, and Travelocity each offer consistently lower prices than the airlines for comparable vacation packages. For example, for travel to Montego Bay, Jamaica, the three agencies’ average low price for a three-night air-and-hotel vacation was $453 per person. For exactly the same vacation, using the same departure date, the four airlines that had availability had an average price of $877, a full $424 higher than the Big Three’s average.

The same trend held true in our Hawaiian vacation test. The sample starting rates we found for five-night packages from Los Angeles to Kauai were as low as $598 from Travelocity (with an average agency price of just $626), while the airlines, despite United’s modest $647 price tag, had an overall average of $1,168, or $542 higher than the agency average.

Interestingly, Expedia had the best rates to both Amsterdam and Jamaica, and was close to the best price for Hawaii vacation packages. According to Teri Franklin, a Product Manager for Expedia, the agencyÂ?s 11,000 Expedia Special Rate (ESR) hotel properties worldwide greatly contribute to the low prices. Expedia negotiates directly with the ESRs, and can then pass on its savings to travelers. And the value improves when the hotel rate is combined with airfare into a vacation package. Franklin says that packages tend to be less expensive than airfare and accommodations purchased separately because hotels can sell their rooms to a travel agency at lower prices than they feel comfortable publishing publicly.

As noted above, the other two agencies also had generally low prices, though Travelocity tended to have a smaller hotel selection in many searches. Orbitz, which is owned jointly by five of the six major airlines (excluding US Airways), is a sort of “hybrid,” and its mixed-bag prices reflect that. Since the agency sells for the largest airlines, it can offer the best prices among those, and has access to many hotel suppliers as well. On the downside, however, Orbitz would not provide an online price quote for Amsterdam packages (it required phone reservations), whereas both Expedia and Travelocity allowed online booking in all cases.

The price disparity between the airlines and the agencies may be due to the fact that the airlines are limited to offering their own flights, or those of a codeshare partner, while an agency such as Travelocity can offer flights on hundreds of carriers. Clearly, it’s crucial to shop around when searching for your next vacation. And although you may sometimes find a competitive price, or an attractive frequent flyer benefit, from the airlines, our research suggests that the best benefits come from the Big Three online agencies.

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