AAI and 15 Consumer Organizations Urge Rejection of Orbitz Airline Joint Venture

Apr 08 2001
Testimony and Interventions

CONSUMER GROUPS URGE BLOCKAGE OF ORBITZ AIRLINE JOINT VENTURE

Sixteen consumer and antitrust advocacy organizations have urged Transportation Secretary Norman Y. Mineta to block a joint venture that is being launched by most of the nation's airlines. The joint venture, called Orbitz, is under investigation by both the Transportation Department and the Justice Department for possible antitrust violations.

The letter, prepared by the Consumer Federation of America, the National Consumers League, The Consumer Alliance, the Aviation Consumer Action Project, the American Antitrust Institute, and twelve other groups, states: "Air transportation is at a fundamental decision point, and Orbitz is an important part of that decision. We could very well end up with three major airlines and no independent travel agent industry helping consumers navigate to the best terms and conditions of travel. This would be very different from anything we have ever known, and it bodes poorly for consumers..."

Orbitz combines the five largest competitors in the airline industry-who together account for four out of five tickets sold in the United States-as owners in a joint selling venture that also includes 28 additional airlines as associate members. (Only Southwest and a few other low-fare airlines appear to be staying out.) The joint venture is designed to place the airlines' lowest fares exclusively with Orbitz, withholding this competitively critical information from other sellers of air transportation. Twenty-three State Attorneys General have stated that the joint venture contains features that "may produce negative consequences outweighing any benefits to consumers," and have suggested that it may constitute an illegal group boycott.

The consumers' letter notes that finding the best prices and routes for an air trip requires the availability of "navigators" who are aligned with consumers. Independent navigators (such as Expedia, Travelocity, and independent non-electronic agents) are readily available today, but may be endangered if Orbitz is permitted to utilize unfair advantages due to its ownership by the airlines. Unless those advantages are eliminated, the role of independent navigators will be reduced and they may be driven from the market, leaving consumers the option of buying their tickets directly from the airlines or from their own travel agency, which would be aligned with its owners' interests rather than consumers'.

The other twelve organizations signing the letter are: the Alliance for Small Business Advocacy, Columbia Consumer Education Council, Center for Consumer Affairs at the University of Wisconsin - Milwaukee, The Arizona Consumer Council, North Carolina Consumers Council, Consumers Alliance of the South East, Democratic Processes Center, Wisconsin Consumers League, Consumers for Affordable and Reliable Services, MANA, and the Michigan Consumer Federation. The letter was signed by Albert A. Foer, President of the American Antitrust Institute.

April 4, 2001

Hon. Norman Y. MinetaSecretary, Department of Transportation400 7th Street, SWWashington, DC 20590

Dear Secretary Mineta:

We understand that the Department of Transportation is close to issuing a report on its investigation into the airlines' Orbitz joint venture. As leading advocates of consumer interests and antitrust, we believe that air transportation is at a fundamental decision point, and that Orbitz is an important part of that decision. We could very well end up with three major airlines and no independent travel agent industry helping consumers navigate to the best terms and conditions of travel. This would be very different from anything we have ever known, and it bodes poorly for consumers, not to mention travel agents and other travel providers.

Concerns with mergers and alliances and with predatory conduct by dominant firms that keeps new entrants out of many major airports are well-known by now. We are taking this opportunity to focus on the Orbitz joint venture, which is due to be launched this spring and is presently under review by both the Justice and Transportation Departments.

Orbitz combines nearly all the competitors of the industry in a joint selling venture, designed to go head-to-head with Travelocity, Expedia, and independent travel agents. Through a "most favored nation" clause, Orbitz appears to be requiring the airlines to withhold from other ticket sellers most fares that are lower than those available on Orbitz itself. Moreover, the agreement includes an incentive structure that penalizes carriers who sell a substantial proportion of tickets outside of Orbitz.

Twenty-three Attorneys General have endorsed a letter underscoring "certain striking features in the Orbitz scheme that may produce negative consequences outweighing any benefits to consumers." The Attorneys General called on the D.O.T. to apply its computer reservation rules to the Internet (thereby covering Orbitz) and raised the potential of separate antitrust action. Because the D.O.T. has now postponed for a year consideration of the computer reservation rules, it becomes more imperative that the government take specific action now, before Orbitz can have a lasting impact on competition in the air industry. We cannot stand back and wait to see if the threatened destruction of competitors actually occurs and later remedy the problem through civil damages. This won't regenerate the competitive industry structure that consumers need for their protection.

The provisions of the Orbitz joint venture, say the Attorneys General, may constitute an illegal group boycott. They also note that the airlines, acting collectively, "have an incentive not to share information fully with competing internet and non-internet travel agencies."

Airlines have followed a strategy of pricing their product in an extraordinarily discriminatory manner. With all the prices and route variations that are available to a consumer, it is critical that "navigators" who are aligned with consumers be in a position to use their expertise to help consumers find the most favorable travel arrangement available for any given trip. The airlines apparently are engaged in an effort to reduce the role of independent navigators, so that consumers will eventually be forced to purchase their seats directly from the airlines or from the collective airlines' own travel agency (namely, Orbitz), which would be aligned with its owners' interests rather than consumers'.

This must not be permitted. We urge you to block Orbitz unless the anticompetitive aspects of its structure are eliminated. I am authorized to advise you that this letter has been co-authored and endorsed by the Consumer Federation of America, the National Consumers League, the Consumer Alliance, and the Aviation Consumer Action Project, as well as by the following:

Alliance for Small Business Advocacy, Columbia Consumer Education Council, Center for Consumer Affairs at the University of Wisconsin - Milwaukee, The Arizona Consumer Council, Detroit Department of Consumer Affairs, North Carolina Consumers Council, Consumers Alliance of the South East, Democratic Processes Center, Wisconsin Consumers League, Consumers for Affordable and Reliable Services, MANA, and the Michigan Consumer Federation.

Sincerely,

Albert A. FoerPresidentAmerican Antitrust Institute

Cc: Hon. John Nannes, Acting Assistant Attorney General, Antitrust Division, U.S. Department of JusticeHon. Bill Lockyer, Attorney General, CaliforniaHon. Tom Miller, Attorney General, IowaHon. Eliot Spitzer, Attorney General, New York