Orbitz Will Result In Higher Airfares?

A new study released today concludes that consumers will be forced to pay an estimated $3.2 billion more in higher airfares as a result of Orbitz, the joint venture of the five largest U.S. airlines.
According to MIT Professor of Economics Jerry Hausman, Orbitz will be the “`market power ringmaster,` which will allow its airline-owners to jointly agree on anti-competitive provisions that they could not enforce individually. The result is likely to chill price competition and reduce innovation, and harm low-fare airlines ... consumers are likely to be harmed immediately and irreversibly.”
The government “should act now to prevent the largest U.S. airlines from launching in full a competitive collaboration that will confer on its members the power to increase prices and reduce innovation,” argues Hausman. “Intervention would preserve the consumer welfare gains resulting from the advent of independent, multi-airline Web sites, from low-fare airlines, and from those gains associated with traditional, off-line travel agencies.”
Professor Hausman`s study is right on the mark,” said ITSA Executive Director Antonella Pianalto. “If the Federal Government doesn`t take action on Orbitz before the June launch, competition will be seriously damaged and consumers will end up paying much higher prices for airline tickets and other travel services.”
Professor Hausman`s study, supported by ITSA, Southwest Airlines and the American Society of Travel Agents, analyses the consumer benefits of low-fare airlines and independent online travel service providers and the impact on competition and costs associated with Orbitz. “The likely resultant monopoly power over Internet ticket distribution will cause significant consumer harm by eliminating or harming the sources of the most important price discipline and innovation over the last few years, low-fare carriers and multiple-airline independent Web sites,” says Hausman.
In his study, Professor Hausman urges the federal government to “act now either to prevent the continuing Orbitz launch, or to prevent Orbitz from restricting airlines from distributing whatever fares they want, in whatever manner they want, through whatever channels they want.”
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