U.S. Official Boosts Travel Mega-Site

Despite widespread concerns over potential price-fixing and other antitrust issues, controversial travel Web site Orbitz.com received its first U.S. goverment endorsement Thursday from a Department of Transportation (DOT) official.

While speaking at the U.S. Senate Commerce Committee’s hearing on Internet issues in the aviation industry, DOT Inspector General Ken Mead said the planned site “could potentially benefit consumers and airlines by providing a wider range of fare options, bias-free displays, and reduced booking fees.”

Mead added, however, that “red flags raised by competitive issues, such as airlines potentially restricting their lowest fares exclusively to Orbitz, must first be resolved.”

Orbitz, which was created by a consortium of 30 airlines, is currently under fire from travel agents and is facing an investigation by the U.S. Department of Justice (DOJ).

Five of the largest airline companies in the U.S. — United, American, Delta, Continental and Northwest — led the effort, contending that Orbitz will enable them to drastically reduce Computer Reservation System (CRS) booking fees and pass along substantial savings to consumers.

Ticket to Ride

Before receiving its official name, Orbitz was known informally as “T2” or “Travelocity Terminator,” a reference to chief competitor Travelocity.com. The aggressive style drew the attention of the travel agency industry, which expressed its concerns about possible unfair competition and violations of U.S. antitrust laws.

Orbitz chairman, president and chief executive Jeffrey G. Katz was given the opportunity to respond to those allegations at the senate hearing Thursday.

“We represent new competition, using state-of-the-art technology, in a revolutionary effort to present Internet customers what they want: comprehensive and unbiased travel information. Consumers deserve to have more choice and competition than just two major players in Internet travel,” Katz told the Committee.

According to an Orbitz company statement, the airline industry is presently controlled by a “duopoly of two of the most entrenched companies in the Internet economy: Sabre/Travelocity.com and Microsoft/ Expedia.com.”

Katz told the Committee that those two Web sites hold more than 70 percent of the business of offering multiple airline schedules over the Internet.

Two Sides of a Coin

Senator John McCain, (R-Arizona) the Committee chairman, pointed to flaws in the CRS system, saying that travel agents use it to the disadvantage of their competitors by imposing excessively high fees on the airline companies.

“It would be foolish for us to ignore our past experience,” McCain said. “We need to look at the down-the-road market power of a site that may be the only outlet for the best deals that the airlines have to offer.”

Senator Ron Wyden (D-Oregon) questioned the airlines’ intentions, particularly in light of recent lukewarm ratings from DOT regarding improvement of customer service.

“I think this is part of a pattern of anti-consumer activity we’ve seen from the airlines,” Wyden said.

Hearings Cut Short

Thursday’s hearings were cut short due to a procedural issue related to a separate Senate bill, but in testimony published on the Commerce Committee’s Web site, Paul Ruden, Senior Vice President for Legal and Industry Affairs for the American Society of Travel Agents (ASTA), questioned the airline companies’ motives in establishing the new Web site.

“Why did United Airlines or one of the other founders not simply buy the software that Orbitz touts as the most significant innovation in travel since the jet engine and use it to compete against the other airlines?” Ruden asked. “Why are the airlines once again approaching the marketplace as a unit rather than as the individual competitors that the Airline Deregulation Act envisioned? Why won’t the airlines compete?”

At the Gate

ASTA filed a formal complaint with the DOJ in February, claiming that the Orbitz business model represents unfair competition and a violation of U.S. antitrust laws. The DOJ announced in May that it had launched an investigation into the mammoth Internet venture.

The Commerce Committee has scheduled additional hearings on antitrust issues in the airline industry for July 27th.

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