, the online travel agency being started by five major airlines, seems to be suffering the same problem that has plagued some of its backers recently.
Instead of celebrating the Web site's introduction this month as initially planned, Orbitz executives found themselves apologizing for a delayed takeoff. The full rollout of the Web site has now been postponed until June 2001, while the company works to perfect its product.
Still, though it does not plan to book its first flight for at least six months, Orbitz has already signed up more than 50,000 potential customers who have requested updates on the site's progress.
The project has also already attracted the scrutiny of lawmakers and government investigators, and complaints from travel agents and others who fear that the airlines that own Orbitz will use the site and its advanced technology to dominate the market for online tickets.
New Search Engine
Rather than rely solely on the databases used by the leading online travel sites, Orbitz is investing in a newly designed search engine so powerful that it will be able to sort through nearly every fare offered by airlines -- including those now available only on the airlines' own sites. Orbitz's executives attributed the site's delayed introduction in part to the complexity of developing and testing the new technology.
Jeff Katz, CEO of Orbitz
Photo: The New York Times
"When you look at engineering complexity -- this is a task that's never been done before. It's like the difference between Windows 2000 and DOS," said Jeff Katz, who stepped down as chief executive of
in July to lead the company. "Orbitz is the only travel planning tool that simultaneously searches 100% of flights and fares available."
Yet that feature has well-established travel agencies worried that they will not have access to the same fares and questioning whether Orbitz will get preferential treatment from its owners:
Fighting for the Bigger Slice of the Pie
Industry analysts say it was only a matter of time before the airlines tried to claim a bigger chunk of the online travel market, which is estimated to reach about $8 billion this year and as much as $28 billion a year by 2005, or about 14% of all travel bookings. Consumers already have a broad selection of travel sites to choose from, including
"We realize that no matter how good our site is, there will always be a large number of customers who will shop at independent Web sites," said Kurt Ebenhoch, a United Airlines spokesman. "We wanted a vehicle to compete for those customers as owners, rather than suppliers."
United, which now sells about 5% of its tickets online, also invested an undisclosed amount of money -- along with American,
, and Northwest -- to help start
next month. The Web site will concentrate on selling empty seats on the airlines' flights at a discount.
Orbitz officials project that the site will get a whopping 175 million page views in its first month.
"There were a lot of brick-and-mortar companies in e-commerce that lost business that was rightfully theirs. To some degree, that may have happened with the airlines," said David Stempler, president of the
Air Travelers Association,
a consumer group. "They said, 'Why should Travelocity and Expedia have the business that should rightfully be ours?'"
Still, Stempler said the disclosure that some airlines would begin offering fares on Orbitz that are usually available only on the carriers' individual Web sites "raised red flags all over the place."
Association of Retail Travel Agents
filed a formal complaint earlier this year, prompting a congressional hearing in July on antitrust concerns associated with the airlines' control of the Orbitz site.
"The fare collusion, the fare games, they have the potential to play -- that's what bothers me, and that should bother every consumer and every nonparticipant on their site," said Thomas Nulty, president and chief operating officer at
, one of the world's largest travel management companies.
Department of Transportation
, which is considering new regulations aimed specifically at online ticket sales, says it continues to monitor the Orbitz project.
But Inspector General Ken Mead told the
Senate Transportation Committee
that Orbitz's arrangement with the airlines does not, at face value, appear to be anticompetitive. "We do not see anything unique to the structure of Orbitz that would encourage or facilitate collusion on pricing," Mead said.
antitrust division is still investigating the project.
In the meantime, Orbitz next month will begin offering consumers access to the search engine on its Web site. Travelers will be able to see the fares, but they cannot book the flights through the site until next summer -- unless they are among a limited number of participants in tests scheduled to begin early next year.
Private Equity Also
Orbitz also hired
Morgan Stanley Dean Witter
to raise $100 million in private equity to help pay remaining costs associated with the project, including a huge marketing campaign that will accompany the full rollout of the Web site. That's in addition to the $50 million in start-up funds from the five airlines.
The travel company plans to collect a typical commission of about 5% of the value of tickets it sells. But because it owns most of the technology it uses, Orbitz says it can provide a discount on the booking fees, saving carriers about $3 to $5 per flight booked. Those discounts can add up to millions of dollars in annual savings for an airline.
Orbitz has so far set up arrangements with 23 carriers that have agreed to provide nearly all their fares -- including special "e-fares," or those typically restricted just to the airlines' own Web sites -- in return for the discounted booking fee.
It Doesn't Fly With Southwest
One airline conspicuously absent from the list is
, the nation's seventh-largest carrier, whose own Web site has already generated more than $1 billion in ticket sales this year -- nearly 12% of the online ticket revenues expected for all airlines in 2000. A Southwest spokeswoman, Linda Rutherford, said the low-cost carrier had "no interest in diluting our brand to participate in those sites."
Southwest, however, was concerned enough about Orbitz that it testified at a Senate Transportation Committee hearing this summer, where company representatives raised concerns about price collusion among participating airlines and the "stifling effect on competition" caused by combining data from competing Web sites of individual airlines onto a single Web site.
While Orbitz insists that the airlines are free to advertise their fares on any other site, critics fear the carriers will be more inclined to restrict their deeply discounted e-fares to Orbitz and their own sites where they pay low, or no, booking fees.
Access Is the Key
"The real debate here is over access to information: The technology is just a smoke screen," said Bruce Charendoff, senior vice president of government affairs at Travelocity, which is 70% owned by
. "You can develop the best search tools, but if you don't have the data to have it work on, you cannot succeed in the marketplace."
Orbitz responds that it will actually be more "neutral" than other sites because its search engine displays the most information available on one site, and sorts results based solely on the price and duration of the flights.
If airlines are forced to offer those fares to all travel agencies, however, Expedia contends it should be able to offer as many fares as Orbitz will, and probably just as fast. The travel site, an offshoot of
, developed and introduced its own fare search engine earlier this year that it says is able to display more fares than those available on any other site.
Charendoff similarly claims that Travelocity "can do everything
Orbitz says it can do, and we can do it sooner."
"I would not underestimate Expedia and Travelocity," said Heidi Kim, an online travel analyst at
. "Orbitz has yet to prove itself. I'm not sure if, in the eyes of consumers, it's any different from any online agency selling airline tickets. The promise of lower prices alone doesn't make a difference."
Orbitz acknowledges that it faces stiff competition from the leading travel sites, which already have a well-established customer base, an extensive network of links with a variety of Web sites, and partnerships with the world's most popular portals.
"The main threat we see is that the portals are locked up. That's one of the biggest obstacles. We couldn't do this if we weren't funded by strong backers," said Katz, Orbitz's president, chairman and chief executive. "The other big market challenge is having a level of service above and beyond the rest."
But he remains optimistic that Orbitz will pull it off. Nine months away from its formal introduction, Orbitz has already received so many inquiries that the company is projecting it will get a whopping 175 million page views in its first month -- as much as or more than any of its competitors, and rivaling Internet retail giant