- The Washington Times - Sunday, April 28, 2002

The Department of Transportation recently said that it is once again investigating Orbitz, the on-line source of travel information and reservations started up last June by a consortium of airlines. DOT wants to be sure that Orbitz is not anticompetitive, and thus in violation of antitrust laws. This succeeds the inquiry it completed that spring before Orbitz started business and the follow-up inquiry it conducted last fall, when it wanted to be sure that the company's actual operations were OK.
The real story is that Orbitz is a major impetus behind a revamping of an antiquated airline ticket distribution system that now absorbs a whopping 20 percent of airline industry revenues. Industry incumbents that profit from the inefficiencies are following the path blazed in the Microsoft case trying to goad antitrust enforcers into suppressing innovation.
A good example of the potential savings from Orbitz' innovation is that existing computer reservation systems (CRS), which are used by travel agents to contact airline computers and actually book seats, charge roughly $3.50 per flight segment, or $14.00 for a typical round trip with two segments in each leg, for each reservation. In the near future, Orbitz will do the same chore with new technology at what financial analysts expect to be substantial cost savings.
Another example: The United States has 429 commercial airports, which creates 91,806 possible origin-destination pairs. Add in connecting flights, and the number of possible trips reaches the billions. Existing flight-search engines are based on 1970s main frame computer technology. Their capacity is limited, and they must eliminate large numbers of possibilities at the outset; for example, they may search only for flights through a few specific intermediate stops. The restrictions can miss some attractive fares. Orbitz, based on new technology, need not impose any such arbitrary limits. The result is broader searches, more options, more competition among airlines and lower fares.
Orbitz is also increasing the honesty with which information is presented. Its charter requires it to display information according to price, number of stops, length of flights or other quality-of-service criteria. It is forbidden to favor particular airlines, such as those who own it or who advertise on Orbitz, or to bias the display in any other way. Other on-line services now make the same claim, but in pre-Orbitz days there were serious contentions that many of them were skewing the data.
The rise in availability of unbiased information helps consumers directly. It is also triggering another saving. Major airlines recently ended the practice of paying per-ticket commissions to travel agents. While commission payments had declined from a peak of about 11 percent of the ticket price a decade ago to about 5 percent, they still represented a large cost paid, ultimately, by travelers. The saving is possible because the Internet is providing information that used to be provided by agents.
These developments are good for the airlines, which benefit greatly from the existence of good public information and the consequent savings in distribution costs. They are good for travelers, whose interest in eliminating unnecessary costs is at one with the airlines. Innovative travel agents are also happy because they are establishing new niches by creating airline/hotel/car/recreation packages to sell to the public.
There are also some losers, such as existing computer reservation system companies, travel agents who would prefer to be passive order takers, other on-line companies that dislike the additional competition and some low-fare airlines with an interest in forcing competitors to incur high distribution costs.
All these would like to use the club of antitrust to beat these innovations to death. If they cannot kill them, they can at least raise Orbitz' costs and thus reduce its efficiency, and delay it by creating uncertainty and interfering with its access to capital markets.
It is time to return to common sense. Any innovation that improves information and reduces transaction costs is good for consumers. This is, or at least should be, the very definition of "pro-competitive." So DOT should end its investigation and Orbitz opponents should be told to compete in the market, not in the corridors of the bureaucracy.
Then we can all go find a bargain fare and take a trip.

James V. Delong is a senior fellow in the Competitive Enterprise Institute's Project on Technology and Innovation.

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