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ELIZABETH BRACKETT: With the summer travel season in full swing, consumers are shopping for the best fares they can find, and many travelers are looking for those fares online. Last year, $10 million in ticket sales were done online. There are hundreds of online sites through Travelocity and Expedia dominate with 70% of the market. This year’s new online entrant could soon tower over its competitors. Orbitz was launched by five major airlines– American, Continental, Delta, Northwest and United– who put up $100 million for the new site. Orbitz CEO Jeffrey Katz:
JEFFREY KATZ: What Orbitz does for the first time is introduce some really revolutionary new technology that for the first time allows a traveler, shopper, a consumer to see literally all the flights, all the fares. Billions of possibilities searched in seconds and we bring back all the flights, all the fares, including the airlines’ Web-only fares in one display.
ELIZABETH BRACKETT: The Orbitz Web site does look different than other sites. Price comparisons can be made easily as all possibilities are laid out horizontally across the screen. That’s what frequent traveler Jesse Rotman liked about the site. He was asked to test out the site by Orbitz.
JESSE ROTMAN: It was much easier to use and much more comprehensive because if I would book a fare on the other flight, I was kind of taking a chance that I was getting a very good fare. I was even taking a chance that there weren’t better schedules, better times, better connections.
ELIZABETH BRACKETT: But Orbitz has provoked cries of unfair competition and antitrust violations from other online travel sites and travel agents. Paul Ruden heads the American Society of Travel Agents.
PAUL RUDEN: Orbitz is owned and operated by a cartel of airlines who account for most of the domestic air transportation in the United States. Whenever a cartel is involved in distribution in the manner that they are in Orbitz, the inevitable long-run result is that supplies go down, output is reduced, prices go up, service options are limited, and consumers are harmed in the end result.
ELIZABETH BRACKETT: Given the major airlines’ past history of trying to control bookings, Antonella Pianalto, executive director of the Interactive Travel Services Association, says this new partnership of five big airlines is ominous.
ANTONELLA PIANALTO: I think it’s difficult to say that there is not some sort of collusion when you have the… Five of the major airlines that control– if all of the mergers go through– 85% of the U.S. air traffic now trying to also control distribution.
ELIZABETH BRACKETT: But Katz insists that competition remains so intense among all the airlines– particularly among the five Orbitz founders– that there is no chance for any kind of collusion that would lead to higher fares.
JEFFREY KATZ: The airlines control the supplies. They compete literally to the death. We’ve seen airlines be birthed and die. They set the prices, they decide how many seats for sell. We’re literally a pipe. We’re a view to that. 80% of all travel in America is purchased through travel agents. That’s still by far the biggest channel. We’re not controlling anything.
ELIZABETH BRACKETT: The reason behind the airlines’ agreement to bankroll Orbitz was their need to cut down on distribution costs– the costs of selling and booking of tickets. Airlines now pay hefty fees to computerized reservation systems like Sabre, used by travel agents, and online sites such as Travelocity. Fees have skyrocketed in the last few years, even as computing costs have gone down. Distribution fees can be as much as $15 per ticket. Orbitz has by and large bypassed the old computerized reservation systems, or CRS’s, by building its own system.
JEFFREY KATZ: Orbitz is the first travel site really built from scratch for the Internet. So we’re using all the latest, very efficient, very scalable technology.
SPOKESMAN: Arrivals from the West will get caught by it.
ELIZABETH BRACKETT: There are some aids for consumers who book through Orbitz, like the traveler care center. It begins with former FAA air traffic controller Rolando Caparas scanning his computer for the latest flight information to feed to Orbitz customers. Travel alerts are created in the care center here in Chicago and sent out via phone, telephone or e-mail. Ben Dial runs the center.
SPOKESMAN: I’ll show you what one looks like. This one is a text pager. You can see what it says. It says ATA flight – and arrives Seattle-Tacoma today at noon.
ELIZABETH BRACKETT: So that customer got that on his pager?
SPOKESMAN: Yeah. Three hours prior to the flight. And then what we will do is we will monitor that flight to two hours, one hour, 30 minutes, and if there is any change, you’ll receive an additional message.
ELIZABETH BRACKETT: Orbitz says it’s the traveler care program that will draw customers. But its competitors say it is the deals Orbitz has made with the airlines that will bring the eyeballs to the Orbitz site, and the competitors say those deals are unfair.
ANTONELLA PIANALTO: It’s not a level playing field because Orbitz has in its contract with its participating carriers two clauses that we are concerned about; one being the most favored nations clause that says that any deal that a participating carrier makes with an independent site, they also have to give to Orbitz. And then they also offer incentives to the participating carriers that will provide exclusive fares to Orbitz that will not be available anywhere else.
ELIZABETH BRACKETT: 38 airlines have joined the five founder airlines in agreeing to put their low Web-only fares on the Orbitz site, along with the airlines’ own site. The airlines make the deal because Orbitz offers them lower distribution costs in exchange for the Web fare. Katz says there’s nothing that prohibits other sites from offering similar deals to the airlines. But Pianalto says that’s unrealistic.
ANTONELLA PIANALTO: They own… The five major airlines own Orbitz, so what’s the incentive? Why would they give special deals to independent sites when they will have to give them to Orbitz? And why wouldn’t they choose to give them to Orbitz instead of an independent site?
ELIZABETH BRACKETT: As pressure from the critics rose, the department of transportation did launch an investigation. Then in April, the Department concluded that there was no reason to block the launch of Orbitz or to conclude that Orbitz would cause collusion among the airlines, impacting fares. But the Department did express concerns about the Most Favored Nation clause and said it would closely monitor its impact on the marketplace over the next six months. There is one airline that won’t make any deals with Orbitz. Southwest Airlines is so angry about having its fares on Orbitz, it has taken the Web site to court. Bob Kneisley is the general counsel for Southwest Airlines.
BOB KNEISLEY: We filed a lawsuit against Orbitz when we discovered to our surprise, first, that Orbitz was displaying Southwest fares and services on its Web site without our permission; and secondly, that they were doing so in many cases inaccurately. We asked Orbitz to remove us from the Web site. They refused, and we filed the lawsuit.
ELIZABETH BRACKETT: Southwest sells more tickets online than any other airline and doesn’t want to lose those bookings to Orbitz. Orbitz did remove Southwest’s logo from its Web site and doesn’t sell Southwest tickets, but Southwest flight information is still available.
SPOKESMAN: We legally license and we accurately display their published flights and their published schedules. Southwest Airlines is America’s fourth biggest airline. In a market like California, if one doesn’t display Southwest Airlines, sometimes you’re leaving out half the flights. We think that’s bad consumer proposition.
ELIZABETH BRACKETT: Complaints from Southwest and other Orbitz competitors has caused the Justice Department to follow the Department of Transportation with another investigation into possible anti-competitive or antitrust violations from Orbitz. While the investigations continue, Orbitz is up and running. In its first two weeks online, Orbitz had five million visitors and booked $20 million of travel.