Senate Studies Airline E-Ticketing Venture

Critics: With most major U.S. carriers on board, Orbitz could turn into a cartel

The U.S. Senate Commerce Committee has set a new date of Thursday for a planned hearing on potential antitrust issues involving the Orbitz online ticketing venture that's being funded by the nation's five largest airlines.

The hearing originally was scheduled to take place last month, but it was delayed after the announcement of a proposed merger between United Air Lines Inc. and US Airways Group Inc. - a deal that took higher priority on the Senate committee's schedule. Orbitz is also being investigated by the U.S. Department of Justice.

The Senate hearing will revolve around questions such as whether United, American Airlines Inc., Continental Airlines Inc., Delta Air Lines Inc. and Northwest Airlines Inc. should be able to band together to sell tickets in competition with existing online and brick-and-mortar travel agencies.

Jeffrey Katz, who was hired earlier this month as president, CEO and chairman of Chicago-based Orbitz, is expected to testify at the hearing, although a final witness list hadn't been released at press time. Katz hasn't discussed the antitrust accusations in a public forum. But Alex Zoghlin, chief technology officer at Orbitz, last month said the company will act like any other online travel agency that does business with multiple airlines.

Since the Commerce Committee and the DOJ announced their separate probes of Orbitz, a second online venture funded by many of the same airlines has announced its plans to challenge Inc. in the discount ticket business. But that company, Hotwire, differs from Orbitz in that its airline investors only own nonvoting shares and aren't represented on its board of directors.

Paul Ruden, senior vice president of legal affairs at the American Society of Travel Agents Inc. (ASTA), which asked the government to investigate Orbitz, said he intends to testify at this week's Senate hearing. Ruden said the Hotwire plans only add to the competition concerns ASTA members have about the new ticketing ventures.

"We now have the major airlines moving jointly into every dimension of the marketplace," Ruden said. "It has the potential to create a cartel run by a concentrated few carriers."

Henry Harteveldt, an analyst at Forrester Research Inc. in Cambridge, Mass., said he expects government officials to compare the organizational structures of Orbitz and Hotwire as part of their investigations. "At the very least, Orbitz should be forced to reveal [details about the airlines'] ownership," Harteveldt said. "Who owns what and how much? It never looks good when you hide anything."

Discounts a Key Issue

Harteveldt added that ticket discounts will be a central issue in the Orbitz debate. If Orbitz can undersell its competitors or seeks to eliminate the discounts offered through competing channels, it could raise red flags, Harteveldt said.

Analyst Fiona Swerdlow at Jupiter Communications Inc. in New York, said the real issue is that airlines have used technology to become more aggressive about controlling the distribution channel for their tickets.

"Any and every avenue the airlines will explore," Swerdlow said. "Honestly, it's just too early to tell what the effects of that will be."

Copyright © 2000 IDG Communications, Inc.

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