U.S. Launches Probe into Airline Supersite

The U.S. Department of Justice (DOJ) announced Thursday that it has launched an investigation into the mammoth Internet venture being formed by 30 airline companies.

The as yet unnamed site, known to insiders as “T2” or “Travelocity Terminator,” is owned by Delta Air Lines, Inc., Continental Airlines, Inc., Northwest Airlines Corp., United Airlines and American Airlines. Twenty-five additional carriers are already committed as affiliate members.

The venture, announced in January, is scheduled to begin offering flight reservations, online ticketing, and other travel-related services directly to consumers in June.

Antitrust Issues

The supersite has come under heavy fire from travel agents and competing travel-related Web sites, including industry leaders Travelocity and Expedia. In February, the American Society of Travel Agents (ASTA) formally requested that the Justice Department block the sale of airline tickets by the site, claiming it would violate antitrust laws and lead to price fixing.

The Association of Retail Travel Agents (ARTA) filed a similar complaint with the Department of Transportation earlier this year.

T2’s critics argue that the airline group will dominate Internet travel sales, killing competition from online travel agencies and small start-up airlines. The end result, they argue, will be higher fares and fewer choices for consumers.

T2 has said that since it will be run independently of its participating airline companies, and that each will be free to run its own Web site, it is not violating the law.

Member airlines will be required to post their lowest Internet fares on T2, but will be free to offer those fares to other sellers as well. Still, competitors have noted that the site will bypass travel agencies and permit the airlines to sell tickets directly to consumers.

Competitors Fight for Survival

“ASTA is elated that Justice is recognizing that there is a serious threat to consumer welfare in the creation of a Web site jointly owned by the major U.S. carriers,” ASTA President Joe Galloway said. “The airline participants, which carry as much as 80 percent of all domestic passengers, cannot be allowed to form joint venture after joint venture unfettered by the antitrust laws that are the basis of a free and open marketplace in this country.”

ASTA will also get a chance to voice its concerns at a U.S. Senate hearing, set to convene on June 22nd. Headlining the panel will be representatives of the U.S. Department of Transportation and T2 Chief Technology Officer Alex Zoghlin.

In addition, the committee will hear from ASTA lobbyist Paul Ruden, Travelocity president Terry Jones, and Consumers Union co-director Mark Silbergeld.

ARTA Appeals to FTC

Earlier this week, ARTA went one step further in its quest to stop T2’s progress, by filing a complaint with the U.S. Federal Trade Commission (FTC).

Saying that the site would enable collusion among the airlines for price signaling and price fixing, ARTA also filed complaints with the Competition Bureau in Canada and the European Union Competition Commission.

Online Travel Business Boom

Internet travel sales enjoyed a boom in 1999 that sparked the launch of many new ticketing services and arguably forced the airlines to get more aggressive with their own online services.

In the United States, consumers booked $6.5 billion (US$) of leisure and business travel online last year, nearly three times the $2.2 billion booked in 1998, according to research firm Jupiter Communications.

Web sales of leisure and unmanaged business travel services could grow to $28 billion by 2005, Jupiter predicts. However, the firm added, competition in the online market will force consolidation that will ultimately benefit the airlines and other first-tier service providers most, because they have key assets such as customer loyalty, long-standing brand awareness and large, well-run call centers.

Wall Street Reaction

News of the Justice Department inquiry sent the stocks of the four public airlines downward Thursday. American and Continental each lost $1 1/16 per share, closing at $33 5/16 and $42 5/16, respectively. Delta lost $1 9/16 to close at $54 15/16, and Northwest dropped $1 9/16 to finish at $24 3/8.