Feds Scrutinize Airlines' Ticket Site

BOSTON (05/20/2000) - An online venture about to be launched by the nation's largest airlines hit political turbulence last week when the Justice Department and the Senate Commerce Committee both opened antitrust investigations.

The online ticketing venture - dubbed T2 by the travel industry - is scheduled to open for business this summer as an independent company funded by Delta Air Lines Inc., Continental Airlines Inc., Northwest Airlines Inc., United Air Lines Inc. and American Airlines, with at least 23 other smaller, nonequity partners.

But before T2 sells its first ticket, the Senate committee will hold a hearing June 22 to examine the business model for the site.

Sam Whitehorn, senior Democratic counsel to the Commerce Committee, said the issue at hand is whether T2 should be allowed to publish fares on its site that are available nowhere else.

"It smells fishy," he said.

Justice Department spokeswoman Jennifer Rose would confirm only that the probe had been launched. She wouldn't comment on the time line or scope of a potential report.

The Federal Trade Commission and the Justice Department have started an informal investigation into a business-to-business exchange planned by General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Renault and Nissan Motor Co., because of its size and profile. Meanwhile, farmers in western Minnesota have also filed complaints with the federal government over an electronic exchange announced by major meat distributors last month.

The investigations will lead to a better understanding of how such exchanges can operate within U.S. antitrust laws. However, experts doubt that an actual set of guidelines specifically written for exchanges will be produced. Thus far, the federal government has shied away from writing rules to deal with specific industries except, notably, health care. Most experts say the rules produced will mirror those already used to govern joint-purchasing arrangements among competing companies.

Alex Zoghlin, chief technology officer at T2, said his organization needs to do a better job of explaining how it will gather and distribute fares.

"There will be no bias or preferential treatment," he said. "I was not convinced when I got here [in January] this was a truly independent company, but it is and that's why I'm still here."

He said the chief advantage the site will have over competitors like Travelocity.com Inc. and Microsoft Corp.'s Expedia.com will be its search engine, capable of sorting through billions of fare combinations and retrieving the lowest fares available in seconds.

While T2 will be given some special fares by the airlines, Zoghlin said, those fares will be posted so that other distributors have access to them. Meanwhile, member airlines will feed those fares to T2 individually, not as a cartel.

"We're interested in giving people better access to what's out there, not in creating some club where nobody else is allowed," he said.

Nevertheless, the American Society of Travel Agents (ASTA) and the Association of Retail Travel Agents have filed separate complaints with the FTC and the Justice Department charging that T2 will offer discounted rates available only through its Web site. The groups claim the T2 site would freeze out third-party distributors and wipe out competition in the travel marketplace.

"It is actually the opposite of innovation," said Paul Ruden, senior vice president of legal affairs at Alexandria, Va.-based ASTA. Ruden, who plans to testify at the Senate's hearing, said ASTA has asked the FTC and the Justice Department to investigate T2's plans. ASTA also amended its complaint to include a similar effort being launched by major European air carriers, he added.

Lorraine Sileo, an online travel analyst at PhoCus Wright Inc. in Sherman, Connecticut, said airlines already provide low fares to many third-party vendors in an effort to fill planes.

"You're certainly not going to abandon a distribution channel that's working for you, especially for an unproven channel," she said. Sileo added that traditional travel agencies are experiencing "overall frustration" because of encroachment by Internet ventures that sell directly to consumers, thereby bypassing the travel agent.

Zoghlin characterized the T2 investigations as a litmus test for Internet business.

"If it stops here, then it's the automakers next," he said. "If I were Citibank, I'd be shaking in my boots, because all it will take is a complaint to the government to prevent someone from starting a large-scale online business."

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