Cheaper Tickets

By Sally B. Donnelly/Washington Sunday, June 02, 2002

    • This may be the best time in history to look for cheap airline tickets. A slow economy and the aftereffects of 9/11 have airlines slashing fares to sell tickets. And the Internet has created real price competition. But can it last? A growing chorus argues that it can't, for one big reason: Orbitz.com .

    The website was created last June by the nation's five largest airlines (American, United, Delta, Northwest and Continental), and is today the third biggest player in the $20 billion-a-year online travel market. Competing websites claim Orbitz is using unfair practices to drive customers to those five airlines and undercut competitors, online and in the air. Last month Congress held what is expected to be the first of several hearings looking into Orbitz's behavior, and the departments of Transportation and Justice are officially examining the site for possible antitrust violations. Orbitz executives retort that their site has energized the online travel industry and point out that the DOT examined their business model last year and found no anticompetitive actions. Late last month Orbitz announced an IPO it hopes will raise $125 million.


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    Critics of Orbitz focus on its unique arrangement with airlines. The website's "most-favored" clause requires all 42 participating airlines to give only Orbitz their lowest fares. But according to smaller carriers that are part of Orbitz, the website often subtly undermines that arrangement by displaying inaccurate fares for a small airline or showing a major carrier's entire fare listing first. Southwest Airlines and JetBlue Airways, two successful low-cost carriers, are so concerned that Orbitz is structured to favor their big competitors that neither allows tickets to be booked on Orbitz.

    The five major-airline owners of Orbitz claim they formed the website to reduce the high cost of booking air travel through traditional computer reservation systems, and they recently eliminated commissions to travel agents. A Travelocity spokesman points out, however, that Orbitz's owner airlines are paying the website a fee of about $14 a ticket — roughly twice as much as Travelocity charges. "Orbitz's special provisions have made the playing field for airline tickets severely uneven," says Antonella Pianalto, head of the Interactive Travel Services Association. Orbitz counters that other websites favor certain carriers by charging them lower fees.

    The good news for travelers is that the market is still attracting providers and investors. In April Cendant Corp. folded Cheaptickets.com into Trip.com and relaunched the new site with a $40 million ad campaign. Trip.com joins established sites like Travelocity (which has a distribution deal with AOL) and Expedia (built by Microsoft and recently sold to USA Network.)

    Jupiter Media Metrix estimates that the online travel industry will bring in $64 billion by 2007. But some online travel agents aren't sure they will make it that far. "Ironically, while the number of users of online services is growing, we and other agencies are effectively being foreclosed from the sale of domestic airline tickets by Orbitz," says OneTravel.com president Michael Thomas. Better buy those tickets today.