Down-to-earth airfares may be taking off with the launch Monday of Orbitz LLC, a travel site operated by five major airlines. Competitors Travelocity.com Inc. and Expedia Inc. say they don’t fear the new rival, but join some consumer groups who hope Orbitz won’t get off the ground, warning of possible antitrust practices and eventual higher prices.
Critics say that since Orbitz is co-owned by American Airlines Inc., Continental Airlines Inc., Delta Air Lines Inc., Northwest Airlines Corp., and United Airlines Inc., it will monopolize the online travel industry by enabling its owners to collude and offer cheaper fares than its competitors.
“We see Orbitz as an antitrust issue,” says Don Rounds, president of the American Consumer Alliance. “While Orbitz appears to offer more choice, what it really is bringing to the market will restrict choice by bringing together all of these airlines.”
But the Orbitz partners say the site is designed to serve up fare information faster than competitors, not unfairly.
Direct Line to Latest Fares
Participating airlines agree that they will not publish cheaper fares anywhere else on the Web without making them available at Orbitz.com. To encourage carriers to participate, those that sign up as Orbitz Charter Associates get 33 percent off Computer Reservation System fees. The average CRS fee is US$3.50 per reservation and is paid by airlines to travel agents. Last year, U.S. airlines paid $1.7 billion in such fees, says Stacey Spencer, Orbitz spokesperson.
Orbitz’s pitch is that it offers fast access to low-cost airfares, as well as car rentals, lodging, cruises, vacation packages, and other travel deals. Its founders say that Orbitz’s difference lies in using XML technology to automatically connect to airline Web sites, where Internet-only airfares are sometimes the cheapest available. It has also inked deals with 32 airlines that pledge to sell low-priced airfares on the site.
“We built Orbitz from the ground up so it can search billions and billions of travel prices, rules, and schedules quickly and efficiently,” says Kevin Malover, Orbitz chief information officer. “We are not just slapping a new front end onto a conventional reservation system.”
The site also offers a number of customer service features, such as alerts with travel information to the customer’s choice of device (e-mail, pager, or phone), similar to services from Travelocity and Expedia. It provides a bargain-hunter section for last-minute getaways, and a central place for customers to manage their airline miles from a variety of carriers.
Have Monopoly–Will Travel?
Orbitz has passed initial regulatory agency oversight. But the federal agencies say they’ll keep an eye on the new site at the urging of consumer organizations and competitors.
A U.S. Department of Transportation investigation of Orbitz found no evidence of monopolistic behavior, but the agency says it is monitoring the company. The U.S. Justice Department is conducting a separate probe.
Meanwhile, consumer advocacy groups are growing more vocal. The American Antitrust Institute and 14 other consumer groups wrote Transportation Secretary Norman Y. Mineta, urging him to block Orbitz’s launch. Twenty state attorneys general also signed a letter to Mineta raising concerns that Orbitz will increase prices and stifle competition.
“We believe the claims of anticompetitive behavior are unfounded,” says Orbitz spokesperson Malover. The site offers only publicly advertised prices, Malover says.
Orbitz detractors say this claim is false. “With all due respect, that is just not true,” says Jim Marsicano, executive vice president of sales and service at Travelocity.com. He doubts that “a benevolent benefactor is going to be offering the lowest fares,” when the information-provider is also a carrier competing for the passenger’s business.
An Expedia representative also questions Orbitz’s sincerity: “It’s like if OPEC bought Exxon and gave it special pricing on gasoline,” says Christina Kozloff, product manager for Expedia. “That would really irk Shell, now wouldn’t it?”
Fighting for an Expensive Itinerary
The competing travel sites and potential travelers can agree on one thing: The stakes are high and the potential rewards are great. Online travel bookings are considered among the Internet’s most promising sectors.
Last year $14.5 billion worth of airfares, hotels, and car rentals were booked online in the United States, according to market researchers at PhocusWright. Researchers project that online travel bookings will jump 58 percent in 2001 to $23 billion. That sum represents just 10 percent of all U.S. travel, so the potential market remains huge.
For its part, Orbitz is being aggressive about introducing itself to potential customers. As a promotion, the site is giving away one round-trip airline ticket an hour every hour for six weeks. It is also giving away a week’s vacation to Europe including airfare, accommodation, and $1500 cash.
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