Twenty States Oppose Airlines` Proposal For Joint Venture in Online Reservations

Twenty states signaled opposition to a planned industrywide Internet airline-reservation system, citing fears of online collusion in ticket pricing by the major carriers.
In a filing with federal regulators, attorneys general in New York, Iowa and California raised sweeping antitrust issues arising from the planned joint venture, known as Orbitz and backed by the five major airlines and scores of others world-wide.
American Air Says Huge Deal Will Benefit Business TravelersAirline-Funded Web Site Plans to Delay Its Launch to Improve Offering, Service (Sept. 8, 2000) The filing to the Transportation Department and federal antitrust enforcers was signed by 17 other states and Puerto Rico. Orbitz remains under review by the Justice Department, a spokeswoman confirmed.
“This joint venture by the dominant airlines has the potential to harness the vast power of the Internet for anticompetitive purposes, such as neutralizing the emerging market of electronic-distribution services and facilitating oligopolistic pricing,” the three attorneys general warned.
In a statement last night, officials at Orbitz called the states` concerns “clearly premature.” They said the site “is about fair competition and consumer choice,” offering travelers a neutral and lower-cost service than traditional distribution channels such as travel agents.
Orbitz, founded a year ago by AMR Co.`s American Airlines, United Air Lines, Northwest Airlines and Continental Airlines, has attracted participation by rental-car companies and other travel-service providers, in addition to airlines. It is expected to begin operation by summer, unless challenged by the government and promises to offer consumers lower airfares and faster online-reservation and schedule searches.
A wave of consolidation sweeping the industry has fueled new concerns about the joint venture. In the latest moves, American is moving to acquire Trans World Airlines Inc. and United is seeking approval to buy US Airways Inc. “The proposed mergers make the possibility of weakened competition even a greater concern,” Iowa Attorney General Tom Miller said.
More broadly, Mr. Miller said, “if the five largest competitors control the distribution system, it raises not only questions about possible collusion, but more significantly, the prospect of `comfortable` competition where airlines do not really feel the need to compete aggressively, and of exclusion, in which other reservations channels and smaller airlines are kept out, denying consumers the benefit of that competition.”
The proposed joint venture has met with opposition from smaller airlines, consumer and business-travel groups and from the travel agents, who see Orbitz as a threat to their industry`s existence. Leading online travel sites, Inc. and Microsoft Corp.`s Expedia, also have raised questions about it.
Southwest Airlines, one of the largest and most successful low-fare airlines, isn`t a member of Orbitz, and its executives have warned that it could lead to collusion among the major carriers. In a Transportation Department filing, Southwest called Orbitz “inherently anticompetitive due to its collective ownership by major airlines” as well as its restrictive contract terms.
“The airline owners of Orbitz have a long record of conspiring to eliminate competition, especially from low-fare airlines,`` Southwest said.
Restrictive contract terms on Orbitz participants were cited by the attorneys general as a main reason for their concern. Orbitz owners and partners “reportedly have agreed to ... provisions that would appear to significantly weaken competition from other distribution channels” since participants might keep their lowest fares for Orbitz. “If included in the Orbitz scheme, these provisions could well constitute a group boycott, which may be illegal,” the states said.
The states note that “pressure to join Orbitz obviously is high as reflected by the rush to get on board.” But the filing notes that carriers, “especially new entrants that are aggressive price competitors, could suffer if they are prevented from featuring special fare offerings on Web sites or other channels where, unlike Orbitz, their competitors wouldn`t be instantly aware of the price cutting.``