25 Consumer Groups Ask Justice to Modify Orbitz Launch Vehicle

23rd May 2001

A delegation representing 25 leading antitrust and consumer advocates met with senior officials of the Department of Justice Antitrust Division on May 15 to present a letter calling on the Division to stop a joint venture of the airline industry unless changes are made that will assure it competes on a level playing field.
The delegation consisted of the American Antitrust Institute, the Aviation Consumer Action Project, the Consumer Alliance, the Consumer Federation of America, and Consumers Union.
Orbitz is a joint venture owned by five major airlines, with most of the remaining airlines (other than Southwest and a few low-fare carriers) participating. It offers an on-line air reservation service that is operating experimentally and will soon launch its national effort in competition with ticket agents and e-commerce agencies like Expedia
and Travelocity
. The Department of Transportation announced on April 13 that, despite concerns about possible anticompetitive aspects of the joint venture, it will monitor activity of Orbitz, but not intervene in its launching. The consumer delegation argued that this decision is ``shortsighted and dangerous,`` requesting antitrust authorities to require amendments to the joint venture in order to avoid problems that will be very difficult to correct once the venture has been launched.
The group raised questions about several aspects of the joint venture, particularly exclusivity and the ``most favored nation`` provision. Exclusivity refers to the incentive structure of the joint venture that makes it likely that the airlines will provide their lowest fares only to Orbitz, thereby substantially disadvantaging the independent ``navigators`` who help consumers find the lowest fares and best routes. The ``MFN`` clause assures that airlines will not make better deals with independent navigators than with Orbitz, thereby dampening competition and restricting the possibility of secret deals that can undercut cartel behavior.
The combination of the MFN and exclusivity will allow Orbitz to advertise that it offers the only one-stop shopping and that lower fares cannot be obtained elsewhere. This, the group said, will represent a powerful marketing tool that has the potential of driving competitors from the market. If this occurs, after-the-fact antitrust intervention will be too late and too uncertain to restore competition.
``We are very pleased that the Justice Department is concerned with the interests of the millions of American consumers that will lose out if Orbitz becomes fully operational and succeeds in pulling the wool over the eyes of government regulators,`` said Mark Silbergeld, a spokesperson for the Consumer`s Union.


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