New entrants in search for low airfares

While the government has been investigating Orbitz for possible antitrust violations, travel-related software companies have already developed lightning-fast search engines to scour the Web and find airfares that are routinely less expensive than the airline-backed Orbitz, according to several software executives.

Their services could weaken criticism of Orbitz by rivals Expedia and Travelocity and the Washington-based trade group Interactive Travel Services Association (ITSA). These critics want federal regulators to force Orbitz, founded by the nation's largest airlines, to drop a clause from its contracts that ensures more than 40 airlines provide their best fares to the Chicago-based company.

But one executive asserts that his customers find better fares than those found on Orbitz at least 40 percent of the time. Daniel Ko, chief executive of San Francisco-based Qixo, said his company's software aggregates data from at least 27 independent travel sites, including Expedia, Orbitz, the airlines' own sites and smaller sites specializing in travel to certain destinations.

In fact, Qixo searches reveal that United Airlines and American Airlines, which helped found Orbitz, post cheaper fares on their own sites--despite the fact that the airlines are technically required to pass along their cheapest fares to Orbitz, Ko said here last week before a meeting of the National Commission to Ensure Consumer Information and Choice in the Airline Industry. His company's engineers can also easily circumvent any technology that the airlines or Orbitz try to create to make searching the sites and aggregating prices more difficult, he added.

"We're very, very confident that technology can prevent a Web site from being blocked or never being searched," Ko said. "Maybe it's just because I'm a technologist, but I believe that, from the technology front, we've figured out many ways around any block that they might throw up."

Faster, simpler searches
Other travel software executives agreed with Ko, adding that Orbitz's search technology wasn't particularly impressive or reliable.

Brian Barth, CEO of Santa Clara, Calif.-based Sidestep, said his bare-bones Web-based application actually produces lists of fares and flight combinations more efficiently than Orbitz. It generally takes Orbitz 10 seconds or less to produce a list of several dozen airfares to any domestic destination. Many airline sites take several times longer, in part because customers must wade through graphics of Hawaiian beaches or Parisian skylines before the data appears.

"It may actually be faster to use our system than the other sites because many of them are so graphically rich," Barth said Thursday. "With our site, you don't have to go through a picture of a sunset."

The executives' comments deflate the storm of criticism Orbitz has received for allegedly having a lock on the lowest prices of any travel site. Orbitz has negotiated its "most favored nation" (MFN) status with more than 40 airlines, which pass along the lowest fares they publish online in exchange for discounts on distribution fees.

Foes argue that Orbitz has starved smaller travel sites of cheap fares. They fear that Orbitz will eventually monopolize online travel--then jack up prices to online consumers. In a report last month, the Department of Transportation said that Orbitz could "evolve in ways that could harm airline competition."

Antonella Pianalto, executive director of ITSA, dismissed claims that other companies can often find fares that are hundreds of dollars cheaper than those on Orbitz. She pointed to the MFN clause, which specifically guarantees that member airlines will pass along the lowest fares, also known as Web fares, to Orbitz.

"American Airlines is contractually obligated to give Orbitz its lowest fares, no matter what," Pianalto said. "If what they're saying is true, it's an extremely interesting situation."

Ko said American's Web site in particular often features lower Web fares than those on Orbitz. Ko speculated that American's software or servers may take anywhere from a few minutes to a few hours to send the data to Orbitz--but Qixo software could spot the fare almost instantly. He also said that his search engine mines smaller sites or charter airlines, which often undercut the 40 member airlines of Orbitz.

Les Ottolenghi, president and CEO of Atlanta-based AgentWare, asserts that his software allows travel agents to mine the Web for fares far more thoroughly than through any single site or computer database, such as Orbitz, or the giant computerized reservation systems, such as that of Sabre Holdings, which many agents pay to access now. AgentWare software, which costs about $40 per month, provides agents with a snapshot of all fares available--both online and through the databases.

"The travel agents simply don't have the tools now to make these searches effective," Ottolenghi said Thursday.

Slow technology or no bias?
The debate over the effectiveness of Orbitz goes to the heart of the company's reputation and business plan. The 190-person company filed in May with the Securities and Exchange Commission to raise $125 million in an initial public offering, but it's unclear whether Orbitz will be a hit on Wall Street.

It lost $8.9 million on sales of $32.2 million in the first quarter of 2002, according to SEC documents, while its larger rivals are profitable. Some Wall Street analysts say they're waiting to see how Orbitz performs in upcoming quarters--as well as whether the Department of Justice clears the company. Rival travel sites question whether Orbitz, now the third largest travel site, would have grown so quickly were it not for the MFN clause.

The DOJ launched an investigation into Orbitz in May 2000 to determine whether the five airlines involved in the project established proper safeguards to ensure the site does not violate federal antitrust laws. However, the DOJ has been very tight-lipped about its findings. It is expected to issue a report later this year.

Orbitz spokeswoman Stacey Spencer doesn't doubt that Qixo, Sidestep and other software companies can find lower fares, but she insists this was not an indictment of Orbitz's technology. Rather, she said, it reflects Orbitz's commitment to unbiased fare displays.

Orbitz has a strict "no bias" policy, meaning that the site lists fares by price, time or number of stops--without regard for the carrier. If an airline offers Orbitz an extremely low price in exchange for a special advertising promotion on its site, Spencer said, Orbitz would not accept the fare.

"There's always going to be a site with another offer," Spencer said. "That's competition. It makes sense, absolutely."

A Travelocity spokeswoman called that explanation "ridiculous." She said the Fort Worth, Texas-based company, wholly owned by Sabre Holdings, prioritizes fare lists by price, date and time--not by marketing promotions or preferences. Airlines will occasionally let Travelocity sell Web fares, but Travelocity does not have guaranteed access to such fares, as Orbitz has.

"We've said all along that we've got marketing programs that on occasion feature Web fares, but we don't have the long-term Web fare deals that Orbitz has," the spokeswoman said.

Expedia spokeswoman Suzi LeVine said that Expedia's occasional ability to undercut Orbitz has nothing to do with bias. Rather, it has everything to do with the Seattle-based company's technology and customer service.

"We might be finding semi-obscure routings and providing other choices," Levine said Friday. "We always default sort by lowest fare first--that's the baseline. If we happened to negotiate for the lowest fare, is that a problem?"

The bias issues and technological complexity of the online travel niche is tough to fathom for politicians and people on the commission, who are trying to figure out whether regulators should force changes to Orbitz's business contracts. The commission's San Francisco meeting last week was the third and final one on the subject--but it was the only time that panelists included technology executives.

The executives' presentations about the speed and efficiency of their software complicate the regulation issue, said Patrick Murphy, an aviation consultant at Washington-based Gerchick-Murphy Associates who was appointed to the commission by the Secretary of Transportation Norman Mineta.

"Trying to get government intervention when there are metabrowsers and technology companies like this out there is very challenging indeed," Murphy said.

Other commission members were unmoved by the technology panelists. Paul Ruden, senior vice president for legal and industry affairs at the American Society of Travel Agents, dismissed the argument that technology could help curb a company's monopolist tendencies.

"That's the argument that the Standard Oil Trust gave more before the Sherman Act," he said of the famous antitrust act of 1890.