Debate roils over government regulation of online travel companies

At a summit meeting held yesterday in Washington to discuss the topic of competition in the online air travel business, a collection of airline executives, corporate travel managers, politicians, consumer advocates and other attendees sharply disagreed with one another over the need for government regulation of the Internet-based travel market.

Organized by the eBusiness Forum, a group of travel managers at 40 large companies, the Internet Air Competition Summit highlighted just how disjointed the travel industry has become over the question of how best to ensure that the Web doesn't affect competition in the ticketing business.

Attendees such as Bert Foer, president of the Washington-based American Antitrust Institute, called for the federal government to step into the picture in a bigger way. Foer referred to this year as "a Cambrian explosion" in which new Internet-based business models are changing the way companies make money and compete against one another.

Together with the deregulation of the airline industry, the rise of the Web as a ticketing medium has led to a tightly controlled ticket distribution system that features "anticompetitive practices unlike anything we've seen in any other industry," Foer claimed. For that reason, he argued, the government should closely investigate new ventures such as Orbitz, an airline-owned online ticketing Web site that's due to be launched next spring.

Mark Silbergeld, an official at Consumers Union in Yonkers, N.Y., said the notion that the airlines could create an unbiased distribution channel on their own is "something we dismiss out of hand." And Paul Hudson, executive director of the Aviation Consumer Action Project in Washington, said the government should at least require online travel sites to make any biases toward specific airlines clear to their users.

But Warren Dean, a partner at Washington-based legal firm Thompson Coburn LLP, argued that the Internet "is a very poor area for government intervention." If the government does get more involved, Dean said, the barriers facing potential new online travel competitors "will increase as companies figure out they have to hire all these lawyers to go to Washington to deal with the regulators."

Dick Fahey, senior counsel for Boston-based online travel agency Vacation.com, warned that regulation could bring unforeseen consequences. Fahey said he prefers to see the government retain a set of guidelines approved eight years ago that require operators of computerized reservation systems to share flight and fare information with one another.

But Gary Doernhoefer, general counsel for Chicago-based Orbitz, and executives from several small airlines insisted that the mainframe-based technology used by the established reservation systems is itself proving to be a barrier to competition in the online world. Doernhoefer said older airfare search engines have an "architectural bias" that favors larger airlines and freezes out smaller carriers by giving preferences to flights that are scheduled on larger planes or that feature certain food and entertainment packages.

Carol Reda, director of distribution and e-business for Midwest Express Airlines Inc. in Oak Creek, Wis., said flights operated by her company don't appear on existing online travel sites such as Travelocity.com and Expedia.com, even when they're the only direct flights between two locations at a given time.

Reda also claimed that the computerized reservation systems are raising their ticket distribution charges faster than Midwest Express' passenger revenue is increasing. Despite the fact that it's owned by the major airlines, she said, Orbitz represents her company's best chance to gain a level playing field with larger carriers because of its promise to display all available fares found by an advanced search engine the new venture is developing.

David Schwarte, chief counsel at Sabre Holdings Corp. in Fort Worth, Texas, said the online travel giant's Travelocity unit would abide by the government's 1992 guidelines for reservation systems if Orbitz agrees to take a similar step.

But Schwarte also criticized airlines for faulting the business practices of the reservation systems that they helped to create. "I feel a lot like the child who's criticized for coming from a bad family by his father," Schwarte said.

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