Travelocity CEO seeks to ground airlines' planned site

The leader of the online travel site blasts a plan by U.S. airlines to form a ticket-selling consortium that could create extreme turbulence for the industry.

3 min read
VAIL, Colo.--The leader of the largest online travel site today blasted a plan by U.S. airlines to form a ticket-selling consortium that could shut out independent agencies and create extreme turbulence for the online travel industry.

Travelocity CEO Terrell Jones said today that his disdain for the airlines' own virtual marketplace was "definitely not a case of sour grapes" toward a potential rival. Jones said the proposed site, to be called Orbitz.com and also known as "T2," would allow the five participating airlines to restrict access to flight information and low-priced tickets and ultimately kill off competition.

"We think that deserves to be looked at by the Department of Transportation (DOT) and the Department of Justice (DOJ), and both of those groups think so too," Jones said at the Pacific Crest 2000 e.conference.

"I don't have a problem with competition," Jones said. "We didn't complain about Priceline, and there are airlines that own a piece of Priceline. This is an issue of competitive regulation over producers coming together and owning 100 percent of a distribution outlet and saying, 'This is the only place to buy tickets.'"

The DOT and DOJ are investigating the airlines' proposal. The U.S. Senate is also conducting a hearing about whether the Web site, which has been referred to as "T2," can be developed. The DOT has said it will issue a decision on the proposal by the end of the year.

The airlines' site, which was originally scheduled to be running this summer but is now on hold, would allow customers to book flight tickets, hotel rooms, car rentals and tours. Participating airlines include Continental Airlines, UAL's United Airlines, Delta Air Lines, Northwest Airlines and AMR's American Airlines.

More than 30 other airlines would participate as "charter associates," marketing T2 through in-flight videos and magazines and by offering the most inexpensive fares listed on their own Web sites in a central marketplace. The site would compete with similar services such as Expedia and Travelocity and be independently managed and operated.

Fort Worth-based Travelocity is not the only foe of T2. In a complaint filed with the DOJ in February, the American Society of Travel Agents (ASTA) charged that the service would use its members less and would lead to price fixing.

The T2 controversy comes at a pivotal time in the online travel industry, which is entering its first wave of consolidation. Similar to shakeouts that are now paring the business-to-consumer and business-to-business e-commerce sectors, some experts predict that as many as eight out of 10 travel sites will disappear within five years.

Earlier this year, Travelocity acquired Preview Travel. Expedia, Travelocity's fiercest rival to date, bought discount hotel site Travelscape.com and VacationSpot.com. There are more than 1,000 independent travel sites with Internet operations.

Airline bookings make up nearly 60 percent of Travelocity's revenue, and the company is loath to surrender that lucrative market. Jones responded this morning to inquiries from the government about what the airlines' proposal would mean to his business, and he has testified in Senate hearings.

The future of Travelocity and other agencies may be riding on whether T2 becomes a reality. Based in part on fears about T2, investors have become skittish about online travel agencies.

Travelocity's stock rested at $12.63 today, well below its 52-week high of $51.87. The stock has plummeted 21 percent this month. Expedia shares closed today at $15.50, down 56 percent for the year and roughly one-quarter their 52-week high of $65.87.

Although the prospects for individual travel agencies may seem grim, the overall outlook for the online travel industry is bright. Forrester Research predicted that online travel sales will quadruple from last year's level to $29 billion in 2003--and that represents just 10 percent of projected total travel spending.

According to Jupiter Communications, 66 percent of online consumers have used the Web to research or book travel online. According to PhoCus Wright, 40 percent of online consumers have bought airline tickets. By comparison, 44 percent have purchased computers or software, and 42 percent have purchased books.