- The Washington Times - Tuesday, April 10, 2001

An on-line venture involving more than 30 of the nation's biggest airlines has been issued a stern warning from antitrust and consumer-advocacy groups.

The American Antitrust Institute announced yesterday that it had sent a letter to Transportation Secretary Norman Y. Mineta urging the department to block the start-up of Orbitz, an on-line travel agency similar to Travelocity and Expedia.

Orbitz is owned jointly by every major carrier except Southwest. The Department of Transportation is investigating Orbitz for antitrust violations and has said it is close to issuing a report. The site is scheduled to begin operations in June.

In its letter to Mr. Mineta, signed by representatives of 11 consumer and business-advocacy groups, the AAI argued that Orbitz may be violating antitrust laws because the airlines "have incentive not to share information fully with competing Internet and non-Internet travel agencies."

The AAI also argued that Orbitz "appears to be requiring the airlines to withhold from other ticket sellers most fares that are lower than those available on Orbitz itself."

Twenty-three state attorneys general have argued against Orbitz as well. They claim Orbitz is designed to keep airlines' lowest fares from appearing on other travel agent sites, a situation they referred to as a "group boycott."

Orbitz officials insist they are not requiring the airlines to do anything and that Orbitz will save consumers money by using technology that cuts infrastructure costs up to 30 percent.

"The AAI fails to recognize the consumer and marketplace benefits of adding a new Internet entrant designed to provide the first new competition to Computer Reservation Systems since the 1970s," Orbitz's general counsel Gary Doernhoefer said in a statement issued yesterday.

In October, independent antitrust scholars from the Brookings Institute wrote to the DOT in defense of Orbitz, saying the company "has the potential to enhance consumer welfare without undermining the competitive workings of the airline industry. We strongly recommend that the government refrain from taking any steps to regulate Orbitz at this time."

Clifford Winston, one of the authors of that report, yesterday stood by his statements, but pointed out that they were made under the assumption that Orbitz was telling the truth about the nature of its business model.

"If what [Orbitz] is saying is right, then that would explain my support for them," Mr. Winston said. "If they really are engaging in a group boycott, then that's a problem."

Independent analysts said it was not clear whether Orbitz would be found in violation of antitrust laws. Nearly all agreed that protests against Orbitz stemmed from a general unease surrounding the business plans of airlines, known to engage each other in price wars and marketing battles.

"[Airlines] have traditionally done business in an extremely aggressive manner," said Kate Rice, senior analyst with the Connecticut firm PhoCusWright. "When the industry has done that kind of activity in the past and then they get together, it's going to invite some close scrutiny."

Analysts said anticipation of Orbitz has led to ingenious marketing tactics and lower prices offered by Travelocity, Expedia and other on-line travel agencies. Although Orbitz is expected to cut into their market shares, analysts said, Travelocity and Expedia are solid enough to succeed.

"Travelocity and Expedia do have a five-year head start," Miss Rice said. "But [Orbitz] could, if they have enough money, play a pretty decent game of catch-up."

The on-line travel agency market is prospering, according to recent figures. Forrester Research said revenue will grow from $12.2 billion to $16.7 billion this year, almost 11 times faster than the travel industry as a whole.

Travelocity rose 19 cents to close at $18 per share on the Nasdaq yesterday. Expedia rose 80 cents to close at $15.61 on the Nasdaq.

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