Letter to Loretta Lynch, Attorney General and William Baer, Assistant Attorney General, Antitrust Division - Expedia-Orbitz Deal Harms Consumers

Letter

Dear Attorney General Lynch and Assistant Attorney General Baer:

I write to express serious concerns regarding Expedia's proposed acquisition of Orbitz Worldwide ("Orbitz"), which would consolidate the largest and third largest online travel agencies in the world. I urge you to preserve choice and affordability in online travel by ensuring that this transaction does not result in further consolidation in this market or harm consumers.

On February 12, 2015, Expedia, the world's largest online travel agency,[1] announced its agreement to acquire Orbitz, an online travel agency with 8% of the global market for online travel agency booking,[2] for approximately $1.6 billion.[3] The proposed acquisition follows Expedia's acquisition of Travelocity earlier this year,[4] an online travel agency with 14% market share at the time of the transaction.[5] According to recent investment analyses, this acquisition will result in Expedia controlling as much as 80% of the domestic online travel agency market,[6] 38% of the global online travel agency booking market,[7] and roughly 6% of the overall travel-retail market,[8] a $1 trillion industry.[9] Expedia has also already indicated to investors that this "deal-making streak may continue as it seeks to bolster its barriers against competitors."[10] In short, where there were four primary competitors in the online travel booking market as recently as last year, there will only be two dominant competitors following this transaction, and potentially even less should the Justice Department approve the merger and Expedia subsequently pursue other acquisitions.

The Justice Department should narrowly define the relevant market for online travel services to determine whether the proposed transaction is anticompetitive. [11] Consumers rely on online travel agencies for booking reservations and comparing prices of airlines, hotels, and rental cars. As the Justice Department recognized in 2011, only two types of online intermediaries exist for consumers "to search for flight prices, schedules, and seat availability on multiple airlines simultaneously: online travel agencies ("OTAs") such as Expedia, Travelocity and Priceline, and travel meta-search engines ("Metas") such as Kayak, TripAdvisor and Bing Travel."[12] Of these, only OTAs offer booking services, which enable consumers to make purchases directly without clicking on a link to an airline or hotel website.[13] Furthermore, unlike online travel agencies, which appeal to consumers ready to make a travel purchase, the Justice Department has already determined that meta-search engines appeal to consumers who are at "an earlier stage of the travel planning process."[14]

The Justice Department has also observed that functionality and consumer choice are important factors for determining a relevant market for travel. In 2011, the Justice Department noted that reservation lines and other traditional services for travel are not reasonable substitutes for online services because they offer inferior functionality.[15] This logic extends to viewing the online travel market based on the functionality of different services. Separating online travel agencies, which enable booking, from meta-search engines, which only offer price comparisons, is a logical outgrowth the Justice Department's earlier decisions in this area.

Lastly, defining the online travel market broadly would arguably justify the future merger of Expedia and its primary competitor, Priceline. If controlling 80% of the online travel agency market is not anticompetitive, there is little upward limit on further consolidation in online travel agency market. This swift consolidation of a market would frustrate a fundamental purpose of the antitrust laws to preserve consumer choice and "arrest the trend toward consolidation."[16]

Further consolidation in the online travel agency market will have three primary negative impacts. First, it will restrict choice and increase costs for consumers. Many consumers consult online travel agencies when booking hotels to ensure that they "score the best deal" through promotions and other rewards designed to increase consumer loyalty.[17] While ensuring vibrant competition in online travel booking is important for consumer choice, it is also vital to preserving hotel affordability. Further consolidation of this market may increase the cost of booking by removing the incentive to provide the best deals or promotions.[18] Because hotels pay commissions to online travel agencies each time a consumer books a hotel room through an agencies' online travel service, there is also serious cause for concern that any further consolidation in online travel booking will lead to higher commissions, costs that would likely be passed on to consumers. For example, earlier this year Expedia raised the cost of the commissions it charges to hotels in Australia by 25%, according to Australian press reports.[19] This price increase occurred within months of acquiring Wotif, an Australian online travel agency.[20] In Australia, Expedia and Priceline represent a duopoly, controlling about 85% of online hotel booking. There is little to suggest that Expedia would not follow suit in the United States with similar market power following the proposed transaction.

Second, although there are only three main competitors in the online travel agency market, consumers are often confused or unfamiliar with affiliates of online travel agencies.[21] As Amy Hebert, a consumer education specialist at the Federal Trade Commission (FTC), noted last month, confusion associated with third-party affiliates in the online travel agency market has already resulted in consumers paying higher rates, being charged undisclosed fees, and having other difficulties in finding, cancelling, or modifying reservations.[22] There has also been broad, bipartisan congressional concern with this alarming practice.[23] Increased consolidation in this market will only serve to undermine corporate accountability for consumer deception in this market.[24]

Finally, further consolidation in the online travel agency market will endanger innovation and competition by new entrants. Behind Expedia, Priceline, and Orbitz--which control the majority of the global market for online travel agency booking--the market for new entrants is "highly fragmented, making it extremely challenging for smaller new entrants to gain customer traffic and supplier scale."[25] To compete on the same scale as these large competitors, small new entrants would need to spend substantial human capital to build relationships with hotels, while also spending heavily on advertising (last year, the three main competitors spent over $5 billion on marketing).[26] Notwithstanding the recent entry of new competitors, it is unlikely that these entrants will have the human capital and scale necessary to serve as adequate competitors to an Expedia-Priceline duopoly.

In light of these strong reservations, I urge you to take all appropriate actions to promote competition and ensure consumer affordability and choice in online travel. If you have any questions, please do not hesitate to contact me or Slade Bond on my staff at (202) 225-1605.

Sincerely,

Henry C. Hank Johnson, Jr

Member of Congress

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