BTC Summit Debates Orbitz

<B>BTC Summit Debates Orbitz</B>

By Barbara Cook

<I>Washington - </I>Concerns that the airline-owned Orbitz Internet booking site could pose an anticompetitive threat to competitors and consumers alike formed the basis of a lively debate at last week's Business Travel Coalition summit here.

Newly named Orbitz general counsel Gary Doernhoefer said that "much of Washington has joined in the search for anticompetitive problems with Orbitz." Conceding that "very real" problems exist with the airline distribution system, Doernhoefer contended that "they lie elsewhere," and not with Orbitz, which has announced plans to begin operations in June. He stressed that the company has promised to inject competition in the online travel industry and lower booking costs that airlines pay to the GDSs.

Doernhoefer added that while Orbitz does not object to government supervision of online booking companies, it is opposed to "blanket application" of the U.S. Department of Transportation's GDS rules to include Internet travel sites. "Because we are airline owned, they would only apply to us, not to Expedia or Travelocity," he said. "This would kill the price/service we are trying to create."

Discounting criticism that Orbitz's airline ownership could lead to such problems as airlines sharing fare information in advance of its display on the site, Doernhoefer pointed out that Orbitz now is undergoing investigation by the U.S. Department of Justice and DOT's Inspector General. "We will be the most well-scrutinized Internet venture to hit the marketplace in some time," he said. He also noted that Orbitz intends to bring in more investors and, at some point, will dilute its airline ownership through a public offering.

David Schwarte, chief legal counsel for Sabre, countered that Orbitz claims "it is a cure for the evils of the GDS world." However, he pointed out that all of the big airline investors in Orbitz once were GDS owners. "So, I guess we are asked to believe that the five Orbitz carriers have gotten religion," he said. "I feel like the child who is criticized for coming from a bad family by his father."

Sabre, which owns Travelocity, has concerns that the Orbitz business plan is to "choke off" data to competing companies, Schwarte said. He said there are "persistent rumblings" within the industry that Orbitz will receive exclusive fare information from its owners and that the company will incentivize carriers to provide fares exclusively to Orbitz. There is a history of carriers who owned distribution channels to withhold data needed for other companies to compete, he added. Schwarte recommended that DOT extend its GDS rules to include any Internet site that offers the services of more than one carrier.

Mark Silbergeld, co-director of Consumers Union, said DOT's GDS rules need to be updated and should apply to all sellers of travel. "There is no point in a carrier putting out competitive prices if they can't get them to consumers," he said.

Carol Reda, director of distribution and e-business for Midwest Express Airlines, underscored that Orbitz' roots began as a multi-carrier initiative to control rising distribution costs. She said her airline joined Orbitz because it offered a guarantee of unbiased displays, lower booking fees and, ultimately, the opportunity to directly connect to carrier booking systems.

Mark Kahan, vice chair and CEO of Spirit Airlines, agreed that Internet access is particularly important to low-fare carriers, but said "some skepticism" is in order about Orbitz's pro-competitive claims. He said, however, that Orbitz has spotlighted the inadequacy of the GDS rules.

Rep. James Oberstar (D-Minn.) keynoted the conference, stating that "two clouds" are on the horizon that could adversely affect the consumer benefits of airline deregulation: the US Airways-United merger and airline-owned Internet travel sites. Oberstar described abuses in the GDSs that led to adoption of the federal rules regulating them and concluded that government must be vigilant "to see that the airlines don't use the Internet for collusion, bias or to run new entrants out of the market." He added that he hasn't yet decided whether GDS-type rules should apply to Internet sites. "There are no silver bullet answers," he said. "We are in a whole new age.