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U.S. drops investigation into Orbitz

The Justice Department said Thursday it was ending its antitrust probe into travel site Orbitz, having found no evidence the company stifled competition.
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Orbitz has not squelched competition in the booming online travel industry, the Justice Department said Thursday as it closed its two-year investigation of the airline-owned travel portal. Competitors had claimed Orbitz’s agreements with airlines to get access to their best prices were ultimately harmful to consumers, but federal antitrust investigators could find no evidence that was the case.

"After an extensive investigation of the available facts, the antitrust division concluded that the Orbitz joint venture has not reduced competition or harmed airline consumers,” the Justice Department’s R. Hewitt Pate said in a statement.

In clearing Orbitz of the various allegations it had considered, the Justice Department’s antitrust division “considered several theories of harm, none of which was ultimately borne out by the information collected,” Pate, the assistant attorney general for antitrust issues, said.

Key among those was a claim by Orbitz’s competitors — travel sites such as Travelocity and Expedia — that Orbitz could use its industry clout to secure deals for low airfares that made it impossible to compete in the white-hot online travel market.

At the heart of the criticism were provisions known as “Most Favored Nation” or “MFN” deals, which require airlines to give Orbitz the lowest fares they offer any of its competitors. That deal, other sites argued, made it impossible for airlines doing business with Orbitz to give better deals to anyone else. Orbitz’s five airline owners — American, Continental, Delta, Northwest and United — control the majority of the U.S. airline business. Their participation in the MFN deals, critics argued, gave Orbitz a serious leg up that it could eventually leverage to force customers to pay higher prices.

But the Justice Department disagreed, saying it “found that those terms did not result in higher fares or make Orbitz dominant in online air travel distribution.”

Nor, investigators concluded, had Orbitz reduced the number of discount fares available to customers. They noted that air carriers continue to compete fiercely on their own Internet sites for customers.

Orbitz has maintained since its creation in June 2001 that the MFN deals are less of a problem than the exclusive deals some airlines pen with its competitors, and the access to low prices was a net benefit to consumers. In a statement Thursday, Orbitz called the closure of the probe “a great victory.”

“We’ve always maintained that Orbitz has invigorated competition in the online travel industry to the benefit of consumers, who now have easier access to low fares, and travel suppliers, who now enjoy lower distribution costs,” Orbitz Chairman Jeffrey Katz said in a statement.

'Energized competition'
Katz said the Justice Department decision “is the clearest and most important statement that Orbitz has increased and energized competition in the online travel marketplace.”

Critics had also worried that Orbitz’s clout might make it the dominant way for consumers to buy tickets, despite its No. 3 standing in the online travel business behind Expedia and Travelocity. But it had not taken on a dominant role in the industry, Pate noted.

In addition to the five founding members, Orbitz signed up over 40 other airlines as “charter associates” — giving them steep discounts on the booking fees it charged them in return for access to the lowest fares they provided online. But there are some notable exceptions to Orbitz’s roster, including low-fare leader Southwest, along with JetBlue, Air Tran and ATA. Those low-cost carriers “exert pressure on Orbitz owners and charter associates to offer more competitive fares,” a Justice Department statement said.

Though federal officials noted they did “extensive empirical analyses of airline booking data,” some of Orbitz’s rivals were unswayed by Justice’s decision and said federal probe may not have fully considered all the evidence.

“I think it’s a blow to consumers,” said Antonella Pianalto, executive director of the Interactive Travel Services Association, which represents several online ticket sellers. “They were evaluating it at a very difficult period in the industry, and I think perhaps they closed it prematurely.”

Growing industry
Internet sales now represent about 15 percent of airline tickets sold in the United States, according to the Justice Department, and some estimates range higher.

The online travel business is expected to account for between $16 and $19 billion in revenues this year. Travel agents have scrambled to match the profileration of low fares available online, and Orbitz has taken steps to help smaller offline agencies get more access to online fares. Still, some travel agents have voiced concerns about Orbitz’s ownership.

The investigation found that Orbitz grew quickly after it was launched and then leveled off, selling about a quarter of online air travel tickets as of December 2002, according to the Transportation Department. And the investigators noted that other sites have access to many of the same Internet-only fares.

At least one of Orbitz’s biggest competitors agreed, and noted that the complaints on which Justice’s probe were based had long since become irrelevant.

“Orbitz’s marketplace advantage no longer exists, and the industry has not stood still waiting for this ruling,” said Bruce Charendoff, senior vice president of government affairs for Sabre Holdings, which owns Travelocity.

To that end, Travelocity announced Thursday it had matched perhaps the biggest of Orbitz’s MFN deals, signing a three-year pact with American Airlines to get access to American’s best fares in trade for lower booking fees. The deal, similar to Orbitz’s charter associate deals, means both Travelocity and Sabre’s offline travel agents have access to the lowest fares from all five of Orbitz’s parent airlines. Said Charendoff: “We have completed the royal flush.”

Though American’s parent company, AMR Corp., formerly owned Sabre, American was the last of the five Orbitz owners to sign a lowest-fare deal with Travelocity. American is the largest of the U.S. airlines.

Push for deregulation
While Charendoff said the Orbitz probe was essentially old news, he also felt its conclusion would lend additional weight to the Justice Department’s support for deregulation of the lucrative computer reservation system industry, which controls travel bookings for millions of Americans and is Sabre’s core business. The Justice Department has supported full deregulation of the CRS business, which is controlled by the Department of Transportation. The travel industry has been waiting for federal regulators to unveil new rules governing the industry, which has been heavily regulated because of its prior ownership by the airlines.

Meantime, other Orbitz competitors are weighing whether to pursue further investigations either by regulators or on Capitol Hill. Numerous DOT probes into Orbitz largely presaged the Justice Department findings and found Orbitz was playing fair, and lawmakers appear reluctant to take action, though they have said they may continue to look into the matter. It is not clear how much lobbying Orbitz’s competitors are ready to engage in, but, said Pianalto, “I think there are other perspectives that others could address.”

The Associated Press contributed to this report.