Orbitz Cleared for Takeoff

The U.S. Department of Transportation (DOT) announced late Friday that it has cleared controversial travel site Orbitz to begin operations in June, despite complaints that it will pose an anti-competitive risk.

The DOT said it had “concluded it did not have evidence that would justify stopping the company from beginning operations.” However, the DOT added that it would require Orbitz to report within six months of its launch and to disclose any deviations from the plans and procedures examined by the DOT.

“After an exhaustive review of our business plan and corporate documents, the DOT has clearly confirmed our position that Orbitz is pro-competitive and fully compliant with the law,” said Orbitz chairman, president and chief executive officer Jeff Katz.

The DOT’s investigation was sparked by complaints that Orbitz would be threaten competition in the travel sector because it is backed by a consortium including the five largest U.S. airlines: American Airlines, Continental Airlines, Delta Airlines, Northwest Airlines and United Airlines.

In January of this year, 20 U.S. states filed a letter with DOT voicing their concerns about Orbitz. The letter questions the legality of Orbitz’s business model, contending that the joint venture “has the potential to harness the vast power of the Internet for anti-competitive purposes.”

Reduced Risk

The DOT concluded that because Orbitz would obtain its fare and schedule information from “sources already used in the marketing of air transportation,” there was a reduced risk of collusion on fares by its owners.

Although competitors have argued that Orbitz will decrease competition and make it harder for independent airline ticket sites to have access to airlines’ lowest fares, the DOT concluded that that was not the case, because Orbitz is not requiring airlines to give it exclusive access to any fares.

In fact, the DOT noted that “Orbitz may create new competition in the online travel agency business, which is inherently desirable.”

Bitter Blow

The DOT’s decision to clear Orbitz for takeoff is a bitter blow for Internet-based rivals Travelocity, Expedia, and other members of the Interactive Travel Services Association (ITSA).

Last month, Massachusetts Institute of Technology (MIT) economics professor released a report, sponsored by the ITSA, that denounced Orbitz and predicted that the mega-travel Web site would become a “market power ringmaster” that will force U.S. consumers to pay US$183 million more annually for airfare.

MIT professor Jerry Hausman said that “the likely resultant monopoly power over Internet ticket distribution will cause significant consumer harm by eliminating or harming the sources of the most important price discipline and innovation over the last few years — low-fare carriers and multiple-airline independent Web sites.”

However, Orbitz general counsel Gary Doernhoefer said that “the author of the ITSA-sponsored paper has neither had contact with Orbitz nor asked Orbitz for any corporate documents, thus raising serious credibility questions.”

Orbitz is still being reviewed by the U.S. Department of Justice, but sources close to the DOJ have reportedly said that the DOJ is unlikely to offer an opinion until the site has launched.