Progress or Potential Monopoly

By eweek  |  Posted 2001-05-28 Print this article Print

?"> Progress or Potential Monopoly?

Competitors counter that improving technology and services is one thing — Orbitz is another. The consortium clearly seeks to collude on prices and squeeze out independent agencies, the American Society of Travel Agents said.

Those concerns are backed by a study earlier this year by Jerry Hausman, a professor at the Massachusetts Institute of Technology who estimates that the service will ultimately cost consumers $3.2 billion in higher airfares.

Hausmans study, which was sponsored by Orbitz critics such as the ASTA, the Interactive Travel Services Association and Southwest Airlines, predicts that Orbitz "will allow its airline owners to jointly agree on anticompetitive initiatives that they could not enforce individually."

Executives at Expedia and Travelocity echo those concerns, pointing to agreements that Orbitz has with 35 charter members as evidence of unfair competition. Those airlines are required to offer Orbitz any specials that they give to other travel services. At the same time, they are allowed to pay part of their $2 million annual Orbitz membership fee through fare offerings that are exclusive to Orbitz.

"Were concerned this group of airlines has come together to control prices," said Terrell B. Jones, CEO of Travelocity.

Orbitz, however, insists that its technology prevents airlines from fixing prices. In fact, Orbitz will scan all available fares and display them according to consumers preferences — even showing the fares of airlines that have no contractual agreements with Orbitz, company spokeswoman Carol Jouzaitis said.

The MIT study "is not even slightly credible," Jouzaitis said. "Bought and paid for by Travelocity and Expedia, who fund ITSA. The author never once spoke to anyone at Orbitz in his research, and made seriously erroneous assumptions and factual errors."

Another study backs Orbitz. According to a January report from The Progressive Policy Institute, a Washington, D.C., think tank affiliated with the Democratic Leadership Council, the new company will enable travel suppliers to lower the hidden distribution fees paid to huge computer reservation systems.

"This new service has the potential to benefit consumers and airlines by providing a wider range of fare options, bias-free displays and reduced booking fees," the PPI report said in reference to Orbitz. "The development of a new online system that has the potential to cut the cost of airline ticket distribution should be embraced, not resisted."

Still, regulators will be watching. Twenty-three state attorneys general have said that they will be scrutinizing the company for price collusion, and the DOT has promised another review in six months.

In the meantime, online travel bookings are expected to continue growing to record levels.


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