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5 Travel Agencies Suing Major Airlines, Orbitz

The California firms seek class-action status for claim that Web site owned by the five biggest U.S. carriers is anti-competitive.

November 04, 2002|Bonnie Harris | Times Staff Writer

Five California-based travel agencies are suing major U.S. airlines and online travel site Orbitz Inc. for anti-competitive practices and have asked a federal judge to certify their lawsuit as a class action.

Their antitrust suit claims travel agents are going out of business "by the carloads" because airlines have cut commissions and steered consumers to Web-only fares that are sold on the airlines' own Internet sites. The plaintiffs filed the suit this year in U.S. District Court in Los Angeles, and last week sought class-action status.

The lawsuit asks that travel agents be compensated for the commissions they would have been paid for selling tickets over the last four years if airlines hadn't kept shaving their fees, all the while pushing travelers to book via the Internet.

No damages were specified. Plaintiffs' attorney Max Blecher said that if more agencies were to join the suit, their claims for back commissions could be "well in the billions" of dollars.

This year, airlines stopped paying commissions to agents booking domestic flights, drastically thinning the ranks of the nation's traditional travel agents and forcing surviving agencies to charge fees to customers for such routine services as making reservations.

"They have to do something, because they need relief," said Tom Parsons, who runs Bestfares.com, a travel Web site. "They're basically saying, 'Let us have fair access.' To them, the airlines are going to make them extinct."

The lawsuit also seeks to dissolve Orbitz. The online site is owned by the five biggest carriers: AMR Corp.'s American Airlines, UAL Corp.'s United Airlines, Delta Air Lines, Northwest Airlines and Continental Airlines, though only American, United and Delta are named in the suit.

The carriers maintain that they formed the site to guard against the rising dominance of Expedia Inc. and Travelocity.com -- the two biggest online travel agencies.

Orbitz's online rivals as well as traditional travel agents claim Orbitz's arrangement with the carriers gives it exclusive access to its owners' lowest rates, severely curbing competition. Orbitz says it saves airlines about 30% on each transaction compared with other travel agents or Web sites.

"Orbitz is destined to become a monopoly," Blecher said. "Its arrangement to offer deeply discounted seats from the largest airlines, seats that aren't available to other travel agencies, amounts to nothing short of collusion."

The complaint is not the first to be filed against Orbitz. In September, the Transportation Department dismissed complaints by the American Society of Travel Agents that Orbitz had waged an anti-competitive campaign against travel agencies.

The Transportation Department said it would not investigate further complaints by the 26,000-member trade group. Orbitz remains under investigation by antitrust regulators at the Justice Department, however.

Citing the Transportation Department's ruling, Orbitz asked U.S. District Judge Edward Rafeedie in Los Angeles to dismiss the California case. Orbitz officials said "times have changed" in the travel-booking market and accused the plaintiffs of being unable to accept new technology and learn to compete with lower-cost ticket distributors.

In addition, Orbitz said it sold less than 4% of all online airline tickets last year and therefore is nowhere near to becoming a monopoly. Analysts said Orbitz has a 20% market share and is only 3 or 4 percentage points behind Travelocity and Expedia.

"Theirs is really a nothing lawsuit," said Orbitz spokeswoman Stacey Spencer. "They are trying to drum up publicity for a case that's similar to what's already been dismissed by the DOT. It's old news."

But Rafeedie rejected Orbitz's motion to dismiss the case and will rule on the certification for class action in January. The five plaintiffs are Travel Galore in Encino, Albany Travel in Albany, International Travel Bureau Inc. in San Francisco and JAS Travel Inc. and Miyamoto Travel Service, both in Sacramento.

In 1996, a class suit was filed by travel agents alleging that the airlines violated antitrust laws by conspiring to lower commissions and cap how much they would pay agents. Several big carriers, which denied any wrongdoing, paid a combined $87 million to settle the claims.

"The idea is, if you have to keep paying commissions in the form of damages, you might as well keep paying them upfront in the first place," Blecher said.

Meanwhile, some analysts said consumers probably don't realize they are potential losers if the system doesn't change, because Orbitz's arrangement with the five largest U.S. airlines gives the airline industry near total control over pricing.

"Orbitz is looking like a global distribution system, a travel agency and an airline all at the same time," said Bob Jones, an analyst with the online site OneTravel.com. "It's in the perfect position to quickly go from a benevolent oligopoly to a brutal monopoly."

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