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VOL. 126 | NO. 33 | Thursday, February 17, 2011

Google's Travel Deal Faces Regulatory Turbulence

JOELLE TESSLER & MICHAEL LIEDTKE | AP Technology Writers

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SAN FRANCISCO (AP) – Google wants to become the hub of online travel, promising better bargains and more convenience by melding the Internet search leader's wizardry with the Web's top airline-fare tracker, ITA Software.

That has existing online travel sites such as Kayak, Expedia and Travelocity worried that they won't stand a chance of competing, a scenario that could lead to higher fares.

The U.S. Justice Department is expected to decide soon on whether to let Google Inc. buy ITA for $700 million. The deal would give Google control over software that has helped power the reservation systems of most major U.S. airlines and a fleet of online fare-comparison services for the past decade.

The government review could serve as a test of how aggressively U.S. antitrust regulators intend to police Google as the company uses the wealth and influence gained from its dominance in Internet search to expand into other lucrative markets. The U.S. market for online travel bookings totals about $80 billion annually, according to Forrester Research.

Google says owning ITA, the brainchild of computer scientists specializing in artificial intelligence at the Massachusetts Institute of Technology, would lead to lower prices and more convenient ways to shop for tickets on the Internet. For instance, travelers might tell Google how much they could afford to spend to visit a warm place on certain dates, and the search engine would turn into a travel guide.

But critics contend that Google would be able to hobble other travel services by burying them in its search results or denying them ITA's latest technical innovations. Google so far has only promised to honor all of ITA's current contracts, which expire over the next few years.

"Google will have leverage over the entire online flight industry," said Thomas Barnett, a former leader of the Justice Department's antitrust division. Now an attorney in private practice, Barnett represents Expedia Inc., which has banded with such online travel services as Microsoft Corp.'s Bing, Travelocity, Kayak Software Corp. and Farelogix Inc. to oppose the ITA deal.

Google has promised it won't sell airline tickets or book other travel arrangements on its own site. Rather, Google would refer people elsewhere to buy tickets and make reservations for hotels and rental cars. Those sites would earn commissions.

But competitors say there is no guarantee on who would get the traffic. Google, for instance, could simply send travelers directly to the selected airline or hotel and bypass the existing referral and booking services, denying them the commissions.

Google, however, seems less interested in making commissions itself. Rather, it appears to want to improve its travel results so that it can retain users and sell more ads. By some estimates, travel advertisers account for about 10 percent, or nearly $3 billion, of Google's annual revenue.

Some online travel services are convinced that Google will try to draw even more ads by placing its own travel recommendations at the top of its search results page, putting rivals a disadvantage.

Google's search results already highlight some of the company's own services, such as mapping, video and finance. That reflects the popularity of those services and users' desire for conveniently packaged results, according to Google. But European regulators and the Texas attorney general have opened inquiries into whether the preferential treatment and other business practices at Google unfairly stifle competition.

If ITA's technology enables Google to attract an even larger share of travel searches, Google would be in a better position to command higher ad rates from airlines, hotels, rental car agencies and other leisure services.

More frequent searches for air fares would also give Google more insights into when people are planning to travel and how much money they're willing spend. That's data that the company could sell to advertisers, said Forrester Research travel analyst Henry Harteveldt.

Not all the deal's opponents rely on ITA. Expedia, for one, uses its own software, although two of the company's other travel services, TripAdvisor and Hotwire, depend on ITA. Other major services that don't need ITA include Travelocity, which uses the Sabre system, and Priceline.

Google believes those alternative tools show there would still be ample competition if it gains control of ITA.

But ITA has the most comprehensive database because of its ties to most major U.S. airlines, said Robert Birge, Kayak's chief marketing officer. ITA also has the best tracking system to monitor the latest changes as carriers adjust their fares, Birge said.

"They have access to data that no one else has," he said. "They know what airline seats are available at what price right now."

Tessler reported from Washington.

Online: Google's arguments for approving the acquisition: www.google.com/press/ita

Travel sites opposing the deal: www.fairsearch.org

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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