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Federal Officials Probe Online Travel

The online travel industry has been both lucrative and volatile, but has it been good for the consumer? The government (and the conventional travel business) wants to know, and a special commission began hearings today to find out.

The commission, formally called the National Commission to Ensure Consumer Information and Choice in the Airline Industry, was created by Congress to take a look-see at the prices and practices of various Web sites, both independent sales sites and those run by the individual airlines.

Richard Fahy Jr., executive director of the commission, has said that the groups challenging the legitimacy of airline practices will testify first, at today's hearing in Washington, D.C. The airlines will be represented at the second hearing, in Chicago on June 26.

Transportation Secretary Norman Mineta named David Winstead, the former transportation secretary from Maryland, to oversee the nine-member commission.

First to testify today was American Society of Travel Agents (ASTA) Executive Vice President and COO William A. Maloney, who said that "airline activity threatens consumer access to price and schedule information, preventing optimal choice-making in the purchase of air travel."

Defending the travel agency concept, Maloney outlined three major categories of airline marketing practices that he said negatively impact consumer access to information:

  1. The use of airline market power to reduce travel agency compensation below the level a competitive market would produce.
  2. The collective and individual actions to raise the operating costs of travel agents and to encourage consumers to book elsewhere.
  3. Collective airline action funneled through Orbitz to deny travel agencies and their customers equal access to all published fares.

Orbitz, the online ticketing operation backed by a consortium of five major airlines, was quick to defend itself. Gary Doernhoefer, the operation's vice president and general counsel, issued a statement saying that consumers should be free to choose how they purchase travel. He added that "online travelers now have more sites from which to choose, offering more options, more convenience and an abundance of information about fares, rates and schedules at the click of a mouse."

Maloney told the commission that "joint airline ownership of Orbitz is designed to impair travel agencies' ability to compete by favoring Orbitz over other channels while simultaneously denying effective access to lowest fares for Orbitz's competitors both online and off-line."

That may or may not be the case, but Orbitz has clearly heard the message and even before today's hearing it was moving to let travel agents have direct access to its Web-based search engine and its inventory of low-fare ticket prices

The commission was established as a result of the passage of H.R. 1000, the Aviation Investment and Reform Act, to examine the impact on travel agents of airline marketing practices and to determine if impediments block the distribution of air travel schedule and fare information to the traveling public through travel agents.

Meanwhile, the National Business Travel Association (NBTA) said in testimony to the commission that traditional travel distribution channels have been weakened by the major airlines' control over where various fares are published.

"The current environment prevents consumers from looking at all available fares," NBTA President Kevin Iwamoto said

And AAA, the nation's largest leisure travel agency, testified that consumers are paying more for travel and losing valuable access to travel agent expertise and service as a result of the recent elimination of airline commissions.

AAA recommended equal access to airline inventory and pricing, regardless of distribution channel, "since 46 percent of the U.S. population does not use the Internet."

Ironically, within the past week Consumer Reports' Consumer WebWatch issued a study that concluded that travelers looking for airfares can probably find the best deals by searching the largest online travel sites and those of individual airlines.

However, Consumer Reports said that it believes federal regulation of the business is needed and in fact is "the only way to ensure fairness'' so that bonuses and commission arrangements don't prejudice the offerings and listings available on Web sites.

Winstead is to present a report on Nov. 15 to members of Congress, who will then determine if any "recommendations or regulations" should be implemented by Congress or the Bush administration.