Prospects for Orbitz, the proposed online travel website being founded by American, Continental, Delta, Northwest and United Airlines to sell their Internet-only discount fares, were somewhat dampened by formal opposition of the attorneys general of 20 US states and Puerto Rico.
In a letter to officials at the Department of Transportation (DoT) and Department of Justice (DoJ), the attorneys general - who are also reviewing the operations of Orbitz - say they have "serious antitrust concerns" about the proposed website. They claim it "has the potential to harness the vast power of the Internet for anticompetitive purposes".
Specifically, they call Orbitz "a joint selling venture among direct competitors. Such ventures are unusual in any context precisely because they provide opportunities for collusion". They also say that Orbitz "combines nearly all the competitors in the industry", which is a departure from the "typical joint venture model [that] does not appear to be justified".
They conclude that Orbitz "presents a number of new and serious issues that go well beyond whether DoT's existing CRS [computer reservation system] rules should be extended to an Internet site operated jointly by the airlines. The claimed benefits from Orbitz seem too slight to compensate for what may be the scheme's inherent dampening of competition".
Responding to this letter, Rosalind Knapp, acting general counsel of DoT, says the agency is continuing to study Orbitz. "If we conclude that [its] operations seem to involve conduct that could constitute an unfair method of competition or an unfair and deceptive practice, we will decide what further action may be needed to resolve the matter," she notes.
The DoJ has no comment on the letter, but confirms that it continues to study Orbitz. Neither agency has a firm timetable to complete its study, and Orbitz can begin operating without the DoJ's approval.
Responding to the letter of the attorneys general, Gary Doernhoefer, Orbitz's general counsel, calls it "clearly premature", noting as it does "that they are still reviewing the proposed operation. "Where regulatory agencies have invested the time and resources to thoroughly understand Orbitz's infrastructure and the market, they have found [it] will have a procompetitive impact," he claims.
Doernhoefer also believes that the initiative of the attorneys general was part of a "well-financed campaign by Sabre and Travelocity" to "fight back against an Internet start-up". Orbitz begins operating in a test mode in late February, with a full launch in June.
"We think the concern of the law enforcement officials speaks for itself," says Jeffrey Goodell, Travelocity's vice- president of government affairs, adding that "it's laughable that we're afraid to compete with Orbitz".
Source: Airline Business
