The Federal Trade Commission is "seriously" looking into charges that airlines are unfairly cutting the commissions of online travel agents and thereby stifling the growth of one of electronic commerce's biggest potential moneymakers, sources told CNET's NEWS.COM today.
Regulators are examining whether airlines are attempting to manipulate the market by paying lower commissions to online travel agents than they do to their traditional counterparts, the sources said. The FTC has been looking into the matter for three to four weeks, they added.
Sources describe the FTC's inquiry as preliminary so far. If the commission decides to open a formal investigation, they add, it could face significant jurisdictional hurdles.
For example, jurisdiction over airlines may belong to the Justice Department or the Transportation Department, rather than the FTC. In addition, airlines may be exempt from laws that regulate the anticompetitive practices being charged, such as the Robinson-Patman Act, because they are selling services, not goods. In any case, whatever information the FTC finds could be given to the appropriate federal or state agencies for further review.
A spokeswoman for the Air Transport Association, the trade group for airlines, said today that she was not aware of the FTC action but added that the group typically does not comment on such matters. Spokesmen for American Airlines and United Airlines said the same thing but defended their practices. A spokesman for the FTC would not comment.
The stakes in the online travel business are high: According to a study by Jupiter Communications, revenues could reach $9 billion in five years, up from $276 million last year. However, as reported by CNET's NEWS.COM last month, the fledgling industry says this potential growth is being stunted because airlines keep cutting commissions to online agencies.
Last month, United Airlines quietly cut the commission paid for booking online tickets to $10 each. That's down from the ten percent that United pays traditional travel agencies, with $50 maximum per ticket. Because the average cost of an online ticket is estimated at nearly $350, that puts the commission at less than 4 percent, the agents complained.
The airlines contend the lower rates are justified because online customers typically handle their own itineraries, pricing, and ticketing without the assistance of travel agents.
Online agents, however, say that airlines are underestimating the cost of providing their service and are potentially grounding the young industry. "We think the [airline] commissions action is like throwing cold water on the channel," Preview Travel president Ken Orton said. "If an investigation happened, we would cooperate."
Agents also complain that airlines are trying to get travelers to bypass agencies and use carriers' own Web sites to book flights, a charge that the airlines deny. Many carriers, including United, Southwest, and Alaska Airlines, let travelers buy and book tickets online. Today, Reno Air said it also would let customers buy tickets on its Web site.
Preview Travel, one of the leading companies, said it has spent millions of dollars building a consumer-friendly network to book flights.
Another online pioneer, PCTravel, recently shut down its electronic booking service, largely blaming the commission cuts. It called for a boycott of Northwest last summer after the airline lowered commissions.
The industry is not limited to start-ups, however. Microsoft has launched an online booking service called Expedia, while Sabre Group is an owner in another service, Travelocity. American Airlines owns 83 percent of Sabre.
The agencies are forming a trade association to protect their interests.