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Orbitz Unveils Direct Reservation System

By Keith Regan
Aug 19, 2002 10:20 AM PT

In a move almost certain to draw heat from its many critics, travel site Orbitz has created a direct link to the ticket supplies of its major backers, saying that the move will help airlines and consumers save money.

Orbitz Unveils Direct Reservation System

According to Orbitz, American Airlines will be the first to launch its supplier-link technology, and three more airlines, including US Airways, will be using the system by year-end.

Chicago-based Orbitz said the system, which represents the first competition to the Global Distribution System (GDS) of airline reservations, makes it "the first Internet company to replace all intermediary functionality in order to book tickets directly with airline reservation systems."

Leon Chism, the system's chief architect, called it the "first major development in booking technology in more than 30 years."

Big Savings Seen

Orbitz noted that its system will let airlines avoid paying GDS fees that are applied when other travel sites use a central database to arrange fares. Because those fees are charged according to travel segments, a round-trip flight through an airline's hub airport is assessed four segment fees.

In contrast, Orbitz' alternative system will involve a single flat fee, with no additional charges for connecting flights or cancellations. Company CEO Jeff Katz said the technology will let Orbitz carry out its original mission to be a low-cost distribution channel for airline tickets.

"The move to a supplier link with American and other airlines is another step toward reducing supplier costs," Katz said.

The system has been in testing for four months and Orbitz began booking American Airlines tickets through it last week, launching a 30-day ramp-up period that will culminate with all American tickets being sold through the link. Orbitz claims that American Airlines will save up to 77 percent on each ticket booked through its site, and that industry-wide savings could reach US$1 billion per year.

And Orbitz chief technology officer Alex Zoghlin said that seven airlines -- including Alaska Airlines, Delta Air Lines, Midwest Express and United Air Lines -- helped design the supplier link.

Bonfire of the Sanities

Orbitz said in a recent filing with the U.S. Securities and Exchange Commission that it could face regulation that would require its new system to be treated as a GDS. Such an outcome would force the company to open its inventory to other reservation systems.

The supplier-link technology, which comes just over a year after Orbitz' much-delayed launch, is likely to be the equivalent of tossing jet fuel onto the rhetorical fire that is burning in Washington, D.C., over whether Orbitz is an antitrust monster or a boon to consumers.

Dozens of lawmakers have lined up on either side of that debate. Late last month, both sides pleaded with the White House to help expedite reviews under way at both the Department of Justice and the Department of Transportation.

Orbitz appears to anticipate criticism from competitors, who have maintained that Orbitz has unfair access to fares. Rick Weber, vice president of business services at Orbitz, said that Sabre and other competitors are "the very same companies that are profiting handsomely from excessive booking fees that have characterized GDS for a number of years."

Weber also said that current GDS rules make it impractical for the Orbitz system to be used by travel agents at this time. He added that when all 11 airlines that have expressed interest in the supplier-link technology are up and running, up to 70 percent of all airline tickets will be sold through the Orbitz system rather than through existing GDS.

Waiting for Go

Meanwhile, Orbitz appears to be waiting for the right time to advance its planned $125 million initial public offering. First announced in May, the offering has yet to set a price target or expected pricing date.

Morningstar.com analyst George Nichols told the E-Commerce Times that the Orbitz IPO will likely draw more than its share of attention from investors. But he also noted that while Wall Street has perked up of late, the IPO market remains uncertain.

"There are a lot of regulatory questions still hanging over Orbitz' head, but then PayPal went public under a similar cloud and did fine for itself," Nichols said.


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