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E-travel site takes off
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May 25, 2001: 1:26 p.m. ET
Online airfare site goes live in June, but at what cost to consumers?
By Staff Writer Carmina Perez
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NEW YORK (CNNfn) - Orbitz.com, the online travel site being launched next month by five of the nation's leading airlines, is raising eyebrows.
Proponents of the free Web-based search tool claim it offers consumers the largest selection of discount airfare, hotel rates, and rental car prices on the Internet, providing insider discounts not available on Travelocity and Expedia.
They also argue that Orbitz provides a one-stop-shop alternative for Internet surfers who don't have the time, or speedy enough modem connections, to hunt for bargains on individual airline Web sites.
But critics contend this new 800-pound gorilla, sure to offer short-term discounts, could put a world of hurt on competition, consumer purchasing power and the nascent online travel industry as a whole.
The Web site, after all, is funded by United Airlines (UAL: up $0.49 to $38.39, Research, Estimates), Continental Airlines (CAL: up $0.45 to $50.04, Research, Estimates) , Delta Airlines (DAL: up $0.01 to $47.30, Research, Estimates) , Northwest (NWAL: Research, Estimates) , and American Airlines (AMR: down $0.02 to $37.80, Research, Estimates) , which control 90 percent of the domestic air travel business.
"There's going to be a strong incentive for airlines to give their best prices to Orbitz, which could definitely hurt the other online sites," said Langdon Healy, an analyst at Morningstar.
More important, he noted, Orbitz could force airlines to lower fares in the immediate future, but short-term consumer benefits can be detrimental if too much competition is sapped from the market.
Langdon's concerns are not unfounded.
A report commissioned by the Interactive Travel Services Association, Southwest Airlines, and the American Society of Travel Agents predicts the airline-backed Web site could cost consumers billions of dollars in higher airfares, kill price competition and hurt low-fare carriers like Southwest Airlines.
Southwest Airlines, which has blocked the site from selling its tickets, filed suit against Orbitz in May, claiming the site gives consumers incorrect information on fares and flights.
The discount airline said its own Web site offers better fares, despite Orbitz's claims to have the lowest prices. It also notes that Orbitz creates unusual itineraries for trips. Southwest has blocked the Web site from selling its tickets, as it has done with Travelocity and Expedia in the past.
Orbitz spokeswoman Carol Jouzaitis said the fares promoted on Orbitz are permissible and consistent with Southwest's own rules.
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A piece of the pie
It's no secret why the major airlines are banding together in the race for e-travel market share: dollars and demand.
Last year, online consumers spent $14 billion in leisure travel online, a figure that's expected to grow to $32 billion in 2006, according to Jupiter Media Metrix. The U.S. air travel industry as a whole is valued at $220 billion.
In preliminary testing since late February, Orbitz already sold more than $2 million in airline, hotel and car-rental tickets, bringing in about 100,000 registered users.
The site displays flights and fares from more than 450 airlines giving no preferential treatment to any one carrier, the Web site insists. The search engine was developed by computer scientists from the MIT Artificial Intelligence Lab, allowing consumers to track down the lowest fares and flight options for any travel request.
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While other reservation systems examine a limited number of options at a time, Orbitz executives said their Web site examines all possible fare and flight combinations available, sometimes going through more than a billion options.
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 DISCOUNTS
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Orbitz offers Web-only fares from 35 airlines, which can be discounted by 50 percent or more off regular prices.
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"The Internet is already the No. 2 place consumers go to plan and buy travel," Orbitz CEO Jeff Katz said. "But consumers are confused and frustrated by the mind-boggling amount of information online -- in too many places -- and the lack of customer care."
One of the main features of Orbitz, he said, is its large selection of Web-only fares from 35 airlines. Such proprietary fares, which can be discounted by 50 percent or more off regular prices, are otherwise available only on individual airline Web site.
The airlines generally post such discounted fares at the last minute to sell seats that otherwise would go empty, or to offer them with advance purchase.
According to Jupiter Media Metrix analyst Fiona Swerdlow, United, Delta and Continental's e-travel Web sites already rank among the top 10 in terms of consumer demand. By teaming with other competitors on Orbitz, the airlines are looking for new ways to compete, she said.
"Airlines are interested in working with any agency that can move product and get consumers to choose their airline over others," she said. "Expedia and Travelocity have done a lot to show they're leaders in selling tickets online, so the airlines won't shun them because they do good business for them."
The founders of Orbitz are selling "good fares" but they're putting more emphasis on ease of use, Swerdlow added.
"The most cost-effective way to sell tickets for the airlines is directly on their own Web sites, but not all consumers have the time to go from one site to another," she said. "They want to go to the one place that has the broadest product selection."
As for direct competitors, Orbitz has few.
SideStep.com, which launched in November, is a similar Internet travel service that searches for the best deals then links the consumer to the airline's site to make the purchase.
Chief Executive Brian Barth said he believes SideStep.com operates on a better system. By linking consumers directly to the suppliers, he said, they gain access to extra incentives, like bonus miles and extra awards that airlines offer for buying directly from their sites.
Also, he said, SideStep offers only flights and fares that are bookable, while Orbitz offers some options that may not all be available when you go to buy them.
Besides competition, Swerdlow said she sees other challenges in store for the airlines: "Orbitz is not a household name and they have to build their brand, while Expedia and Travelocity have five years experience each on selling travel online."
It could be later this year before it's clear to consumers how useful the Orbitz product will be. In the meantime, however, the Web site, its discounted fares and competitive pressures will be closely watched by regulators.
The Department of Transportation, which gave Orbitz the green light in mid-April, said it will continue to monitor its operations. And the Justice Department still is reviewing the site, saying it will reserve an opinion until it sees how the Web site operates in the marketplace. 
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