After a year of complaints and protests by travel agents and competitors, Orbitz has been given a green light by the U.S. Department of Transportation (DOT). The federal agency has concluded that it will not prevent Orbitz, an online travel agency being developed by five major airlines, from beginning operations or requiring the Web-based travel agency to change its business strategy.
DOT began its investigation to determine whether Orbitz would unfairly reduce competition in the airline and airline ticket distribution businesses. In a letter today to Orbitz outlining the status of its investigation, DOT said there is no evidence to justify stopping the company from beginning operations. However, DOT also told Orbitz that it would review the company’s operations after its scheduled launch in June to ensure that its actual operation will not be anticompetitive.
“DOT will require Orbitz to report within six months from the date of official launch on the implementation of its business model and to disclose any changes from the plans and procedures examined by the Department,” the agency said in an announcement of the decision. “If Orbitz conducts its operations in a way that violates antitrust laws or principles, the department has the power to take effective action at that time and has said that it will do so.”
The announcement noted that Orbitz “will obtain its fare and schedule information from sources already used in the marketing of air transportation, thereby reducing concerns that it would enable its owners to collude on fares.”
As for concerns that Orbitz would have exclusive access to the airlines’ lowest fares, DOT noted that the company is not requiring airlines to give it exclusive access to any fares or denying access to such fares to competing travel agencies. Orbitz will give rebates to airlines that make all of their publicly available fares available for sale through its system, but the airlines are free to offer such fares through other travel agencies.
DOT said that Orbitz “may create new competition in the online travel agency business, which is inherently desirable.” DOT further noted that federal law gives airlines and their agents as much flexibility as firms in other industries to decide how to sell their products and services, as long as they do not use unfair methods of competition.
The federal agency said that it “should not hinder innovation unless and until there is sufficient evidence of anticompetitive conduct, adding that it intends to address related concerns about the airlines’ use of the Internet.” These issues will be addressed through DOT’s current rulemaking on computer reservation systems (CRSs). These issues include consumer protection through adequate disclosure on travel Web sites, and the role of so-called “neutral” sources of information in consumer choice. DOT’s CRS rules currently do not cover online travel agency activities.
“Orbitz continues moving full-speed toward its June launch following today’s release of a DOT letter giving Orbitz the green light,” said Jeff Katz, chairman, president and CEO of Orbitz. “After an exhaustive review of our business plan and corporate documents, the DOT has clearly confirmed our position that Orbitz is pro-competitive and fully compliant with the law. Consumers will soon be the real winners with the launch of an additional competitor in the online travel industry.”
Katz added that Orbitz already has had 25,000 consumers who booked tickets on the Web site. “Orbitz looks forward to continued discussions with DOT as we report our progress in providing consumers with more fare, flight and travel choices in a guaranteed unbiased display, while delivering cost savings to consumers, airlines and other travel providers,” Katz said.
“As the Progressive Policy Institute in Washington has said, travel industry middlemen have led a well-funded, year-long effort to persuade regulators to put barriers in the way of Orbitz’ new Internet technology—technology that promises more cost-efficient delivery of travel products and services to consumers. The DOT’s decision makes it clear that each of these middlemen’s allegations have been examined in depth and found to be baseless,” Katz said.