Airline-backed travel Web site Orbitz readies for launch day scrutiny

Orbitz is probably the only Internet start-up that requires employees to attend a four-hour seminar on antitrust law, signaling just how much scrutiny the travel Web site, which officially launches on Monday, faces from rivals, consumer advocates and federal authorities.
The watchfulness is only going to intensify, said chief executive Jeffrey Katz, which is why ``we`ve taken a lot of steps to make sure that we live within the bounds of the law.``
Critics say Orbitz, backed by $145 million in seed money from five major airlines, will reduce, if not eliminate, competition and pave the way for higher prices. Orbitz, which also lists vacation packages, hotel rooms and rental cars, denies the allegations. Katz said Orbitz will enhance competition by listing fares from all airlines without bias. A lot is at stake. Roughly $12 billion was spent online in 2000 for airline tickets, approximately 6 percent of all airplane ticket sales. That figure is expected to more than double by 2004, according to Forrester Research of Cambridge, Mass.
A Department of Transportation investigation of Orbitz, which is owned by American, Continental, Delta, Northwest and United airlines, found no evidence of monopolistic behavior, but the agency said it would monitor the company in the months ahead. The Justice Department is conducting a separate probe.
Regardless, Katz said, the success or failure of Orbitz—barring any Justice Department intervention - is now ``an issue of do consumers like Orbitz or not.`` As a bonus to people who register with Orbitz over the next six weeks, the company will regularly raffle off domestic and international plane tickets.
The cheapest tickets anywhere is the main promise of Orbitz, but the company is also promoting customer services, such as automated e-mails to alert travelers in case of plane delays, a practice that has become an industry standard.
``Travelocity and Expedia already send alerts,`` said Henry Harteveldt, senior analyst at Forrester, referring to the No.1 and No. 2 online travel sites, respectively.
At least two-dozen airlines have agreed to provide Orbitz with all of their published fares, including so-called Web fares, which are heavily discounted tickets promoted on their own Internet sites. The agreement stipulates that airlines cannot publish cheaper fares anywhere else without making them available at
Consumer advocates say, by definition, this will wipe out price competition. ``You`ve got the nation`s major airlines, except for Southwest, agreeing that they won`t sell to any other travel agency tickets that are cheaper than those they sell through (Orbitz),`` said Mark Silbergeld, co-director of the Washington office of Consumers Union, which publishes Consumer Reports magazine.
``In effect, it`s a platform for maintaining high prices,`` Silbergeld said.
Southwest Airlines Inc., which blocks Orbitz from selling its tickets or displaying its online fares, sued Orbitz last month, saying the industry-backed start-up was deceiving consumers with the slogan ``always the lowest fares.`` Southwest said it routinely has less expensive fares on its own Web site.
Katz believes that what really scares competitors is Orbitz` ``disruptive technology,`` which essentially enables it to search available flights with less reliance on computerized reservation systems, or CRS.
CRS companies such as Galileo, Worldspan and Sabre, typically charge airlines between $12 and $15 for each ticket booked and kick back a rebate to the travel agent or Web site responsible for the sale.
Orbitz says it will cut airlines` spending on CRS services by about 60 percent and save them about 30 percent on each transaction compared with travel agents or Web sites.
The CRS industry an ``oligopoly`` that ``needs competition,`` Katz said.
However, critics worry about the disappearance of this industry middleman.
``Orbitz would be a very welcome competitor if it were not owned by the suppliers,`` said Silbergeld of Consumers Union.