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

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

“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

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

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.

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