Airline travel site's low-fare dominance feared

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WASHINGTON (Reuters) -- An online travel site funded by five major airlines could benefit consumers if steps were taken to stop it becoming the only source of the lowest air fares, a senior Department of Transportation (DOT) official said Thursday.

The venture has sparked a review by regulators and evoked skepticism that an airline-funded retail travel venture will ultimately benefit consumers.

"Orbitz could potentially benefit consumers and airlines by providing a wider range of fare options, bias-free displays, and reduced booking fees," DOT Inspector General Ken Mead told a Senate Commerce Committee hearing.

QUICKVOTE What do you think Orbitz will do to competition among online travel sites? Increase it Squash it Nothing View Results     SEE FOR YOURSELF Compare booking engines to see which has the lowest fares: Orbitz.com (test version) Travelocity.com Expedia.com

"But red flags raised by competitive issues, such as airlines potentially restricting their lowest fares exclusively to Orbitz, must first be resolved," said Mead.

Orbitz is owned by UAL Corp.'s United Airlines, AMR Corp.'s American Airlines, Delta Air Lines Inc. , Continental Airlines Inc. and Northwest Airlines Corp.

Orbitz has said it will be the most comprehensive source of unbiased travel information on the Web for consumers while benefiting participating airlines by slashing ticket distribution costs.

Critics, including travel agents and competing Internet travel sites, charge that Orbitz will reduce competition and cut them out of selling certain low fares.

Thirty other airlines have agreed to join as affiliates. The site, which hopes to add hotel, car rental and other services, has not been launched for customers yet.

The Justice Department is also reviewing Orbitz's plans.

Orbitz requires member airlines to provide the venture with their lowest Internet fares. But mindful of antitrust law, the contracts specifically permit members to sell those same fares on their own Web sites or through travel agents and other Internet sites.

Mead and others worry that there is little incentive for airlines to offer their lowest Internet fares outside of Orbitz, since the venture will discount computer reservation fees to participating carriers.

As a solution, Mead suggested airlines be required to make available any fares they offer to Orbitz to other reservation system willing to give the same rebates on booking fees.

But Orbitz Chief Executive Jeffrey Katz said after the hearing that competitors with reservation systems could recoup those discounts by charging, for example, more for booking through travel agents. "That's not fair," Katz said. "I think that complexity needs to be considered."

Competitors have mounted a fierce lobbying campaign against Orbitz through the Interactive Travel Services Association, which has declined to consider Orbitz's membership application until it passes antitrust review.

ITSA's members include Travelocity.com Inc., 62 percent owned by Sabre Holdings Corp., and Expedia Inc., 70 percent owned by Microsoft Corp.

Travelocity and Expedia are the first and second largest players respectively in the online travel business. Orbitz's Katz said they were a potent duopoly that needed competition. "Orbitz is part of that solution," he told the hearing.

Commerce Committee Chairman Sen. John McCain said Orbitz's search engine for fares was impressive, but he was skeptical given the history of anticompetitive behavior by airline owners of computer reservation systems.

"We need to look at the down-the-road market power of a site that may be the only outlet for the best deals that the airlines have to offer," said McCain, an Arizona Republican.

Oregon Democrat Ron Wyden said he was very skeptical of the Orbitz venture, noting it was created by the same airlines that recently received a mixed grade from DOT's Mead for patchy implementation of pledges to improve customer service.

"I think this is part of a pattern of anticonsumer activity we've seen from the airlines," Wyden said.

Mead also warned lawmakers that existing individual airline Web sites and phone reservation systems could deceive consumers into paying high last-minute fares when the same seats are being sold elsewhere on the airline Web sites at deep, last-minute discounts to fill the planes.

He said airlines should be required to disclose their lowest fares regardless of the forum.

As part of their "customer first" plans announced last year, airlines pledged to inform consumers of the lowest fares available by telephone but did not extend that promise to Internet fares.

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