WASHINGTON (07/20/2000) - Orbitz, an online travel agency being developed by the nation's five largest airlines, ran into major turbulence at a hearing held today by the U.S. Senate Commerce Committee to examine potential antitrust issues involving the Internet venture.
Consumer groups, travel agents, online competitors and one federal investigator urged the federal government to prevent Orbitz from getting a monopoly on ultra-low airline fares -- an outcome that they fear could occur if the company proceeds with its plans.
Beginning this fall, Orbitz claims it will offer Web consumers the lowest airline fares available, using a Java-based fare search engine developed at MIT. But the fact that the Chicago-based joint venture is owned by the major airlines has led to antitrust investigations by the U.S. Departments of Justice and Transportation in addition to the Commerce Committee's inquiry. Neither of those probes is finished.
The big concern among Orbitz opponents is that the airlines involved in the venture could post their most deeply discounted fares only on the Orbitz site, cutting out travel agents and other travel Web sites. There's "a deep-rooted suspicion that when the major air carriers get together, some mischief is afoot," said Kenneth Mead, inspector general at the Department of Transportation (DOT), during today's hearing.
Mead said the DOT hasn't finished its investigation of Orbitz. But he recommended that the agency should use its regulatory authority to require that all fares provided to Orbitz by the airlines also be made available to any other travel entity.
Terrell Jones, CEO of rival Travelocity.com Inc. in Fort Worth, Texas, agreed.
"The issue is fair and open access to [fare] information," he testified.
But Orbitz CEO Jeffrey Katz said his rivals are just seeking government intervention to block a new competitor from entering the online travel business. Katz repeatedly said his company is merely trying to use advanced search technology to break into a business that's now dominated by what he characterized as the "online travel duopoly" of Travelocity.com and Expedia Inc.
"Some have characterized us as Internet big boys backed by airline bad boys," Katz said. "But we're an Internet start-up. We have huge obstacles to overcome to even become No. 3 [in online travel bookings]."
Concerning the hot issue of deep-discount fares, Katz flatly asserted that Orbitz will "have no exclusivity on any fare." But he added: "We're the low-cost channel, so it's more interesting for airlines to sell through us."
Mark Silbergeld, a spokesman for Consumers Union and the Consumer Federation of America in Washington, claimed Orbitz "is operating in the realm of verbal assurances" that it will be unbiased. He said that could lead to problems and called for extensive antitrust regulation of the joint venture.
Some of the senators also voiced concerns about the monopolistic potential of Orbitz. "I'm very, very skeptical about this Orbitz effort," said Sen. Ron Wyden (Democrat-Oregon) "We need safeguards or else the consumers will get fleeced again."
The Commerce Committee held hearings in the 1980s about anticompetitive activity by airline-owned reservation systems. Looking directly at Katz, committee chairman Sen. John McCain (Republican-Arizona) said: "Given that history . . . can you appreciate the skepticism we have here [about the Orbitz plans]?"
Katz replied that he's aware of the suspicions, but said Orbitz "is really about competition, not collusion." The company -- which is being funded by United Airlines Inc., Delta Air Lines Inc., Continental Airlines Inc., Northwest Airlines Inc. and American Airlines Inc. -- plans to launch its Web site later this year.