Airline Site-Backed Study Attacks Reservation Fees

Claims the travel industry is controlled by a computer reservation system 'oligopoly'

Almost a year ago, the federal government began investigating airline-owned travel Web site Orbitz LLC for alleged anticompetitive activities. Now, an Orbitz-commissioned study seeks to defang the airlines and paint fee-based computer reservations systems as the unchecked power in the travel industry.

The study, which was released last Wednesday, claims that computer reservations systems, which charge fees to the travel agencies and airlines that use them, are able to dictate their prices because the industry is dependent upon the information that they provide.

Online travel sites such as Chicago-based Orbitz, however, can give consumers more direct access to travel information and decrease the artificially inflated costs, the study contends.

The findings were presented by John Ash, chairman of Washington-based airline consulting firm Global Aviation Associates Ltd., and Aaron Gellman, professor of management and strategy at Evanston, Ill.-based Northwestern University's Kellogg School of Management.

Fees Are Up

"Booking fees continue to rise, and they continue to rise steadily," said Ash. "Why? Basically because you have an oligopoly formed by the four major [reservations systems] which controls the distribution of the tickets."

The major computer reservations systems, Sabre Holdings Corp., Galileo International Inc., Amadeus Global Travel Distribution SA and Worldspan LP, were formed by the airlines, and some are still owned by them.

Yet the study found that airlines have lowered their reservations and sales expenses an average of 3.2% per year over the past five years, while computer reservations systems fees have increased 5.1% per year.

"Fundamentally, the cost of technology is going down, but the cost of booking fees is going up," said Bill Brunger, vice president of revenue, planning and distribution at Orbitz co-owner Continental Airlines Inc. He argued that online sales channels are the only way airlines can remove that additional cost from their tickets.

Suzi LeVine, a spokeswoman for travel Web site Expedia Inc. in Bellevue, Wash., said her firm doesn't view the situation as an online/off-line conflict but as an airline-owned/nonairline-owned conflict.

"It's about the independence of the distribution channels and whether everyone is able to compete on a level playing field," she said.

Orbitz, which began beta testing last month, is scheduled to debut in June. Owned by the nation's five largest airlines, the online marketplace promises to present travelers with unbiased screen displays that show flights ranked by lowest cost, fewest legs or most favorable times.

Yet officials from rival Web sites and computer reservations systems have argued that no airline-sponsored venture is free of bias and that Orbitz could possibly open the doors to price collusion.

The Senate Commerce Committee last summer held hearings to determine if Orbitz's airline ownership violates antitrust laws, and the U.S. Department of Justice still has an open investigation into Orbitz's business model.

But study co-author Gellman said that government regulation, which was imposed upon the computer reservations systems a decade ago, will only stifle needed technological development in the travel arena.

Reservations systems "avoid making the investment needed to move to new technology because they don't have much competition," he said.


Copyright © 2001 IDG Communications, Inc.

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