20 U.S. States Target Airline Mega-Site

Citing sweeping antitrust concerns, 20 U.S. states have filed a letter with the U.S. Department of Transportation (DOT) voicing their concerns about the controversial Internet mega-travel site Orbitz.

According to published reports, the filing by state attorneys general from New York, Iowa and California questions the legality of Orbitz's business model, contending that the joint venture "has the potential to harness the vast power of the Internet for anti-competitive purposes."

The filing, which was sent to DOT Secretary Rodney E. Slater, was reportedly endorsed by 17 additional states and Puerto Rico.

Orbitz -- which is backed by a consortium that includes airline giants American, Continental, Delta, Northwest and United -- has drawn much criticism even though it has yet to launch.

Whether the proposed online-reservations site poses anti-competitive threats is currently being reviewed by the DOT and U.S. Department of Justice.

Orbitz Responds

The agencies began examining Orbitz's proposal last year after complaints arose that the site would create extreme turbulence in the online travel industry by restricting access to flight information and low-fare tickets, ultimately resulting in price collusion and forcing out the competition.

However, Chicago, Illinois-based Orbitz has long maintained that these concerns are unwarranted.

"Orbitz is creating a travel site that is about fair competition and consumer choice," the company said in a statement responding to the filing by the attorneys general. "Orbitz is committed to offering travelers the level of convenience, neutrality, choice and service that they expect online, while providing travel suppliers with a new, lower cost distribution channel."

To bolster its position, Orbitz cited a submission by members of Washington, D.C.-based think tank the Brookings Institution to DOT in October.

"In a nutshell, our position is that the creation of Orbitz has the potential to enhance consumer welfare without undermining the competitive workings of the airline industry," said Clifford Winston and Robert Litan of the Brookings Institution. "We therefore strongly recommend that the government refrain from taking any steps to regulate Orbitz at this time."

Too Early?

According to Orbitz, the letter from the state attorneys general "is clearly premature" because it acknowledges that the states are still in the initial stages of their antitrust review and have not reached final conclusions.

"Others have expressed similar general concerns, but where regulatory agencies have invested the time and resources to thoroughly understand Orbitz's infrastructure and the market, they have found that Orbitz will have a pro-competitive impact," the company said.

DOT Signals

Despite widespread criticism of Orbitz, the DOT has sent out some positive signals about the site.

When the issues were surrounding Orbitz were addressed last July by the U.S. Senate Commerce Committee, DOT Inspector General Ken Mead told the committee that the planned site "could potentially benefit consumers and airlines by providing a wider range of fare options, bias-free displays and reduced booking fees."

However, Meed added that "red flags raised by competitive issues, such as airlines potentially restricting their lowest fares exclusively to Orbitz, must first be resolved."

Orbitz, which offers online flight booking on scores of participating carriers, is now slated to launch in June, following the decision to scrap an earlier launch date.