Competitors call Orbitz tactics into question

The airline-backed Web travel site says it's simply a "better alternative" to the other online travel agencies, and that it fosters competition. But rivals aren't buying it.

Greg Sandoval
Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
3 min read
Airline-backed Web travel site Orbitz has unfair access to the lowest airfares, and the government should act to halt its anti-competitive practices, says a group formed by some of Orbitz's competitors.

The Interactive Travel Service Association (ITSA) issued a statement Tuesday calling on the Department of Transportation to investigate Orbitz, the third-largest online travel agency, which launched operations last June. Orbitz is owned by five of the top airlines, including Continental Airlines, Delta Air Lines and American Airlines. Orbitz says it operates completely independently, however.

ITSA's statement was in response to a report that Orbitz Chief Executive Jeffrey Katz filed with the Department of Transportation last week. In April, the Department of Transportation asked Orbitz to submit a report after six months regarding how it was affecting Web travel. The department's request came at the conclusion of an informal investigation into whether Orbitz violated antitrust laws.

At the time, the Department of Transportation found no reason for blocking Orbitz's launch or altering the company's business plan. But it said it would be concerned if it later found Orbitz had caused airlines to stop offering their lowest fares to other Web travel agencies.

In Katz's report, the company insists all it brought to the sector was "new competition" in a market dominated by Travelocity.com and Expedia.

"It was a marketplace dominated by a 'Big Two,'" Katz said. "The new competition Orbitz has brought to this market has not only offered consumers a better alternative...it has also brought competitive pressure on other online agencies and compelled them to improve their offerings as well."

Online travel is one of the few e-commerce sectors making money, and competition has grown fierce. Travelocity and Expedia, which captured more than half of all airfare bought online before Orbitz arrived, have opposed the site and more than a year ago began lobbying government officials to alter the company's business plan.

Orbitz's competitors argue that the airlines created Orbitz mainly to seize control of the distribution of airline tickets. If Orbitz controls access to the lowest fares, then competitors won't be able to compete.

At the heart of the objections raised by Orbitz's competitors is the Most Favored Nations clause written into the contracts that Orbitz has with about 30 airlines. This gives the company a lock on receiving the lowest published fares that any of its charter airlines has to offer. An airline can offer low fares to a competitor, but under the MFN clause, Orbitz must be offered them as well.

By crying foul, ITSA is just trying to avoid competition, said Orbitz spokeswoman Carol Jouzaitis. Orbitz's technology has attracted swarms of customers, and that has propelled the company's swift rise to become the third-largest Web travel agency, she said. Moreover, Jouzaitis insists that Orbitz has never initiated the MFN clause.

ITSA Executive Director Antonella Pianalto disputed this claim in the written statement. Katz's report "ignores the harmful effects of the Orbitz contract's Most Favored Nations clause," she said.

"Despite its claims about having superior technology, the only 'special sauce' Orbitz has is this cartel clause--it is the reason why Orbitz has achieved its unprecedented size in five short months," Pianalto said.

Henry Harteveldt, a travel analyst for Web study group Forrester Research, called some of ITSA's charges "legitimate concerns" but also noted that Orbitz hasn't hurt business at any of the top travel agencies.

Travelocity and Expedia have exclusive deals, Harteveldt said. Expedia gets preferential pricing with hotels through its Travelscape property. Travelocity does the same with the Hotel Reservation Network.

"Truth be told, none of these guys can wear white down the aisle," Harteveldt said.