Orbitz: Encyclopedia II - Orbitz - History and controversy

Orbitz - History and controversy

Orbitz constituted the airline industry's response to the rise of online travel agencies such as Expedia and Travelocity and trailed its major competitors by several years. Continental Airlines, Delta Air Lines, Northwest Airlines, and United Airlines, subsequently joined by American Airlines, invested a combined $145 million to start the project in November 1999. It was code-named T2— some claimed, meaning "Travelocity Terminator"— but adopted the name Orbitz when it commenced corporate operations in February 2000. Beta testing began early the next year, and Orbitz.com officially launched in June 2001.

Even before the site began operating, however, the company faced intense antitrust scrutiny— after all, five of the six oligopolist "major" airlines, controlling 80 percent of the US air travel market, were collaborating. Several consumer organizations lobbied the United States Department of Transportation to block the project from the outset, and some 23 state attorneys general also voiced concerns. When the DOT permitted the company to move ahead in April 2001, the effort was switched to the Antitrust Division of the Department of Justice and the U.S. House Committee on Energy and Commerce.

Among the concerns raised were these:

• above all, the so-called Most Favored Nation provision, by which the airlines agreed not to cut deals with competing sites under more favorable terms than with Orbitz
• the airlines' agreement to release certain discount fares only to Orbitz, at the expense of its online and offline competitors
• that Computer Reservation System fee discounts extended to partner airlines would undermine competitors and damage the fledgling online travel industry
• that the airlines would coordinate efforts secretly to reduce discounts
• technical problems on Orbitz.com were misrepresenting the true costs of tickets to customers

The Interactive Travel Services Association (ITSA), an organization of Internet travel agencies, issued a report in December 2001 arguing that Orbitz was stifling its members.

Partly in response, Orbitz announced in May 2002 it would make its fares available to travel agents offline.

Separately, Southwest Airlines filed a lawsuit against Orbitz for trademark infringement and false advertising in May 2001. Southwest, which had opposed the project from the outset, claimed Orbitz misrepresented its prices and used its trademarks without permission. In July, it withdrew its fares from Orbitz altogether.

In July 2003, the Department of Justice ruled that Orbitz was not a cartel and did not pose a threat to competition. Orbitz's rapid growth had leveled off, its online competitors' businesses had continued to grow apace, and no evidence was found of price fixing. Additionally, changes in the marketplace had eroded both the advantages of the Most Favored Nation clause and the initial technological superiority of the Orbitz engine.

On September 29, 2004 Orbitz was acquired for $1.2 billion by New York-based Cendant Corporation.

Given Cendant's spate of acquisitions in Europe, there has been some speculation about Orbitz being exported to Europe as a brand or the continued use of acquired Cendant brands like ebookers and Octopus Travel

Adapted from the Wikipedia article "History and controversy", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki