WASHINGTON, Aug. 14 (UPI) -- A leading airline industry expert has asked the Federal Trade Commission to review Travelocity, Expedia and other online travel sites for failure to disclose preferential airfare deals and for offering "biased" pricing and inventory on their Web sites.
Darryl Jenkins, director of the Aviation Institute at George Washington University, claims these online travel sites failed to fully disclose "preferred carrier" contracts and other relationships that are designed to shift market share away from competing airlines, hotels and rental car firms.
"Worse, in the sale of hotel rooms and rental cars, over which I believe FTC has jurisdiction, entire companies may be dropped or given prominence without any disclosure, depending on the agreed-upon compensation scheme," Jenkins wrote in a letter obtained by United Press International.
The Federal Trade Commission does not regulate airline practices, which fall under the Department of Transportation, but has jurisdiction over consumer Web sites. A Federal Trade Commission spokesman told UPI that the agency does not comment on any specific actions, and could not comment on the Jenkins letter, which was addressed to Heather Hippsley, acting associate director of the commission's division of advertising practices.
The letter comes amid a fierce debate in the travel industry over the growth of online travel sites, like Expedia, Travelocity and Orbitz, the later of which was created last year and is owned by five top U.S. airlines.
The Department of Transportation and the Justice Department recently reviewed allegations that Orbitz is an anti-competitive stalking horse for the airline industry to control access to cheap airfares, while the Department of Transportation is considering whether to update rules for its existing computer reservation system, known by its acronym CRS, to regulate online travel sites. A final decision on whether to update the CRS rules is not expected until 2003.
The Department of Transportation earlier this year gave Orbitz a clean bill of health, but the Justice Department has not yet made any public ruling on the online travel site. Orbitz officials, however, say their hands are clean.
"When you get a search result from Orbitz, it's strictly displayed based on price, the number of connections and the length of the trip," Orbitz representative Stacey Spencer told UPI. "Orbitz had absolutely adhered to its commitment to remain unbiased."
The Department of Transportation's original CRS rules were designed to regulate bias in the major airline reservation systems, including the four major U.S. systems, Sabre Holdings Corp. of Southlake, Texas; Worldspan L.P., of Atlanta; Galileo International, of Parsippany, N.J.; and Madrid-based Amadeus Global Travel Distribution S.A.
Travelocity is a unit of Sabre Holdings.
When the rules were originally designed, these companies were owned by individual airlines and the aim was to make sure the reservations systems didn't give preferential treatment to certain carriers, according to legal experts. However, some recent studies have alleged that airfares listed on Travelocity, Expedia and other sites are biased.
Jenkins, in a report issued in May, said that Expedia altered the displays on certain United Airlines flights after that carrier cut commissions to zero, citing a report in The Washington Post. Jenkins also says that Travelocity failed to show a United fare on a New York to Las Vegas route, which he cites as another example of bias.
Jenkins says these online sites often shift biased fares and availability toward certain airlines in exchange for payment under preferred airline contracts, which is similar to a practice commonly used by retail travel agencies, called override agreements. Airlines have often paid override commissions to agencies in return for moving market share. Currently, there are no regulations that require this bias to be disclosed to consumers.
Jenkins told UPI that he does not want to restrict the ability to enter preferred relationships, but says that consumers should know if one exists. "I think as long as the consumer knows they have these relationships, it's perfectly good and reasonable," Jenkins said.
Travel industry attorney Mark Pestronk, of Fairfax, Va., says he believes that Internet sites have the right to give preferential treatment to airlines with better airfares, and argues that if Travelocity and Expedia are forced to disclosed preferred agreements, then retail travel agencies may have to disclose the same deals.
"Since Expedia is not a CRS, it can be biased, Pestronk told UPI. "Is bias giving preference to consumers where they can get the best deal?"
Suzi Levine, director of product management at Expedia, denied charges that the online travel site is biased or anti-consumer.
"For hotels, consumers do not want lowest prices first," Levine told UPI, arguing that while airfare searches are usually based on price, consumers often shop for hotels based on location, property size or other criteria, before they search for price. Levine also said that preferred vendor contracts with cars and hotels are standard practices within the travel industry.
Levine also took a swipe on Jenkins' research methods, saying he never contacted Expedia for the study, therefore had no firsthand knowledge about its methodology.
Officials at Travelocity were not immediately available for comment.
(Reported by David Jones in Newark, N.J.)
