Online Travel — Might Congress Step In?

The possibility of Congressional action in the online travel sector was
raised today at a House subcommittee hearing in Washington called to examine
supplier-owned online travel sites such as Orbitz.


Representatives of the site owned by a consortium of airlines did not attend,
citing lack of notice and a scheduling conflict, but Orbitz said in written testimony for the
hearing that “the purpose of Orbitz is to bring new competition to automated
distribution: new price competition, new technology, competition in the
quality and content of the information provided, and new customer service
competition.”


But some of the panel members of the House Energy and Commerce Subcommittee
on Commerce, Trade and Consumer Protections weren’t buying that, and neither
was Travelocity.com’s CEO, Sam Gilliland, who told the panel that Orbitz
“precludes selective price discounting by airlines, including in deals with
independent travel sites.”


“The concern is that we typically don’t get guarantees as to the quantity of
fares made available to us. We get dribs and drabs, crumbs, not a slice of
the cake,” he said, adding that it “makes it difficult to compete.”


Paul Ruden, senior vice president for legal and industry affairs at the American Society of Travel Agents, said
that if a pending Justice Department investigation of Orbitz does not rectify
the situation, “Congress may need to step in to address this aggregation of
market power.”


“Independent distributors are at risk of being displaced,” he said.


Ruden said that in ASTA’s view, “the e-commerce marketplace for travel
services is being distorted and misused by airlines who seek collectively to
dominate the Internet space, and indeed all distribution channels, while
throwing roadblocks in the way of competitors.”


“The government is going to have to take some swift and strong action to stop
the trend toward airline domination of this space,” he said.


Gilliland said that Orbitz has in its airline agreements what has come to be
called “Most Favored Nation” status, meaning that contractually, every fare
on an airline’s Web site must be given to Orbitz . “Simply removing the MFN
language would go a long way” toward leveling the playing field, he said.


Orbitz, in a statement prepared by Gary R. Doernhoefer, its vice president
and general counsel, said that since the airline site launched 13 months ago,
“price competition has increased (with several of our larger competitors for
the first time engaging in price reductions on the cost of making a booking.”


He also said that customer service at many Web sites, both online agencies
and individual airline sites, has improved considerably in competitive
response to improvements in customer service first launched by Orbitz.


Last month the U.S. Department of Transportation issued an inconclusive
report on Orbitz, the third most visited travel site. The agency cited no
anti-competitive fallout from Orbitz so far, but it said the ticket venture
could potentially have a negative effect on airline competition.


Orbitz, which has an IPO pending, is owned by American Airlines, United
Airlines, Continental, Delta and Northwest Airlines.

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