[Federal Register Volume 62, Number 212 (Monday, November 3, 1997)]
[Proposed Rules]
[Pages 59313-59317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29001]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
14 CFR Part 255
[Docket No. OST-97-3057; Notice No. 97-11]
RIN 2105-AC67
Computer Reservations System (CRS) Regulations (Part 255)
AGENCY: Office of the Secretary, (DOT).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Department is proposing to revise its rules governing
airline computer reservations systems (CRSs) by changing the rules'
expiration date from December 31, 1997, to March 31, 1999. If the
Department does not change the expiration date in the rules (14 CFR
Part 255), they will terminate on December 31, 1997. The proposed
extension of the current rules will cause those rules to remain in
effect while the Department carries out an extensive reexamination of
the need for CRS regulations. The Department tentatively believes that
the current rules should be maintained because they appear to be
necessary for promoting airline competition and helping to ensure that
consumers and their travel agents can obtain complete and accurate
information on airline services.
DATES: Comments must be submitted on or before November 18, 1997.
[[Page 59314]]
ADDRESSES: Comments must be filed in Room PL-401, Docket OST-97-3057,
U.S. Department of Transportation, 400 7th St. SW., Washington, DC
20590. Late filed comments will be considered to the extent possible.
To facilitate consideration of comments, each commenter should file six
copies of its comments.
FOR FURTHER INFORMATION CONTACT: Thomas Ray, Office of the General
Counsel, 400 Seventh St. SW., Washington, DC 20590, (202) 366-4731.
SUPPLEMENTARY INFORMATION: The Department in 1992 adopted its rules
governing CRS operations--14 CFR Part 255--because CRSs had become
essential for the marketing of airline services for almost all airlines
operating in this country. 57 FR 43780, September 22, 1992. We
concluded that the rules were necessary to ensure that the owners of
the systems--all of which were airlines or airline affiliates--did not
use them to unreasonably prejudice the competitive position of other
airlines or to provide misleading or inaccurate information to travel
agents and their customers. CRS practices can injure airline
competition because travel agents rely on CRSs to provide airline
information and bookings for their customers and because almost all
airlines rely heavily on travel agencies to distribute their services.
Our rules will expire on their sunset date, December 31, 1997, unless
we readopt them or extend the expiration date. We have begun a
proceeding to determine whether the rules are necessary and should be
readopted and, if so, with what modifications. 62 FR 47606, September
10, 1997. We are proposing here to extend the expiration date for the
current rules to March 31, 1999, so that they will remain in force
while we conduct our overall reexamination of the rules.
We have set a short comment period of fifteen days so that we can
publish a final decision on this proposal before the rules' current
expiration date. We note that our advance notice of proposed rulemaking
has already given interested persons notice of our intent to propose an
extension of the rules' expiration date. 62 FR at 47610-47611.
The CRS Business
Four CRSs--each affiliated with one or more U.S. airlines--operate
in the United States. A CRS consists of a periodically-updated central
database that contains information on airline services and other travel
services sold through the system. The major users of the information
and transaction capabilities provided by CRSs are travel agents, who
access CRSs through computer terminals, which are normally leased from
the system. Consumers can also access a CRS through an on-line computer
service or an Internet website. A CRS enables travel agents and other
users to find out what airline seats and fares are available, book a
seat, and issue a ticket on each airline that ``participates'' in the
system, that is, that makes its services saleable through the CRS.
Each CRS obtains most of its revenues from airlines and other
travel suppliers participating in the system. An airline participant
pays a fee whenever the system is used to make a booking on that
airline (most of the systems also charge fees for related transactions,
such as booking changes and cancellations). Other travel suppliers pay
similar fees. While travel agencies subscribing to the system may also
pay fees, subscriber fees, unlike airline fees, are disciplined by
competition. Many travel agencies obtain CRS services at little or no
charge.
Regulatory Background
CRSs became essential for airline distribution in the early 1980s.
At that time each of the systems operating in the United States, with
one exception, was owned by a single airline (one system was owned by a
non-airline firm, but it had a small market share and was later sold to
an airline CRS). Each owner airline used its system to prejudice
airline competition and give consumers biased or incomplete information
in order to obtain more bookings. These factors caused the agency
formerly responsible for the economic regulation of airlines, the Civil
Aeronautics Board (``the Board''), to adopt rules governing the
operations of airline-affiliated CRSs. 49 FR 32540, August 15, 1984.
The Board found that regulations were essential to keep the systems
from causing substantial harm to airline competition. The Board adopted
its regulations primarily under its authority under section 411 of the
Federal Aviation Act, later recodified as 49 U.S.C. 41712, to prevent
unfair methods of competition and unfair and deceptive practices in air
transportation and the marketing of airline transportation. On review
the Seventh Circuit upheld the Board's rules. United Air Lines v. CAB,
766 F.2d 1107 (7th Cir. 1985).
The Board's major rules required each system to make participation
available to all airlines on non-discriminatory terms, to offer at
least one unbiased display, and to make available to each airline
participant any marketing and booking data from bookings for domestic
travel that it chose to generate from its system. The Board's rules
also prohibited certain contract terms that limited the travel
agencies' ability to choose which system to use.
We assumed the Board's responsibilities for airline regulation,
including its regulation of CRSs, after the Board's sunset on December
31, 1984. See United Air Lines, supra, 766 F.2d at 1109.
To ensure that we would reexamine the need for the rules and their
effects, the Board included a sunset date of December 31, 1990, in its
rules. To carry out that reexamination we held a rulemaking proceeding
to determine whether the rules should be readopted or modified. 54 FR
38870, September 21, 1989, (advance notice of proposed rulemaking); 56
FR 12586, March 26, 1991, (notice of proposed rulemaking); and 57 FR
43780, September 22, 1992, (the final rule). Since we did not complete
that rulemaking by December 31, 1990, the rules' original expiration
date, we extended that date to keep the rules in effect until the
rulemaking's completion. 55 FR 53149, December 27, 1990; 56 FR 60915,
November 29, 1991; 57 FR 22643, May 29, 1992. In the rulemaking we
relied in part on the findings made in the staff's study of the rules
and the CRS business. Secretary's Task Force on Competition in the U.S.
Domestic Airline Industry, Airline Marketing Practices: Travel
Agencies, Frequent-Flyer Programs, and Computer Reservation Systems
(February 1990).
In our rulemaking we concluded that CRS rules remained necessary:
market forces still did not discipline the price or level of service
offered participating airlines by the systems, CRS owners would still
use their control of the systems to prejudice airline competition if
there were no rules, and systems could still bias their displays of
airline services if there were no rules requiring unbiased displays. 57
FR at 43783-43787. We therefore readopted the Board's rules with
several changes intended to further promote competition in the airline
and CRS industries.
To ensure that we would reexamine the need for our rules and their
effectiveness, our rules, like the Board's rules, included a sunset
date, December 31, 1997. 14 CFR 255.12; 57 FR, 43829-43830, September
22, 1992. If we do not readapt the rules or extend their expiration
date, the rules will end on that date.
We recently published an advance notice of proposed rulemaking
asking interested persons to comment on whether we should readapt the
rules and, if so, with what changes. 62 FR 47606, September 10, 1997.
We did not issue the advance notice earlier due to
[[Page 59315]]
the on-going study of the CRS business and the impact of the rules
being conducted by the staff, which was begun by Order 94-9-35
(September 26, 1994) and is examining such recent developments as the
growth in Internet booking services.
Since we adopted the rules, we have proposed two amendments to
them. One proposed rule would prohibit each system from imposing
contract terms on participating airlines that require an airline to
participate in a system at least as high a level as the airline
participates in any other system, at least when the airline participant
did not own or market a competing system. 61 FR 42197, August 14, 1996.
The second proposal would revise our rules on CARS displays to promote
airline competition and ensure that systems provide reasonable displays
of airline services. 61 FR 42208, August 14, 1996.
Our Proposed Extension of the CARS Rules
We are proposing to change the expiration date for our CARS rules
to March 31, 1999, so that the rules will remain in effect while we
conduct our reexamination of the need for the rules and the rules'
effectiveness. Given the time required for completing the overall
reexamination of our rules, including the need to give parties an
adequate opportunity to file comments and reply comments in response to
the advance notice of proposed rulemaking and to our future notice of
proposed rulemaking, we will not be able to complete that proceeding by
the current expiration date of our rules.
A temporary extension of the current rules will preserve the status
quo until we determine which rules, if any, should be adopted. Allowing
the current rules to expire could be disruptive, since the systems,
airlines, and travel agencies have been conducting their operations in
the expectation that each system will comply with the rules. Systems,
airlines, and travel agencies, moreover, would be unreasonably burdened
if the rules were allowed to expire and if we later determined that
those rules (or similar rules) should be adopted, since they could have
changed their business methods in the meantime.
We tentatively find that a short-term continuation of the current
rules is necessary, primarily because of the need to protect airline
competition and consumers against unreasonable practices. Before
adopting our current rules we carefully considered the CARS business
and airline marketing, both as part of the Secretary's study of
domestic airline competition and through the rulemaking. We concluded
in that CARS rulemaking, completed in 1992, that CRSs were still
essential for the marketing of the services of virtually all airlines.
57 FR 43780, 43783-43784, September 22, 1992. Each airline's need to
participate in each system meant that market forces did not discipline
the terms offered by the systems for airline participation.
Although the staff has not completed its current study of the CARS
business and although we have only begun a rulemaking to reexamine the
need for the rules, we tentatively believe that the findings made in
our last CARS rulemaking on the need for CARS rules are still valid, at
least for the purpose of a short-term extension of the rules'
expiration date. If we continue the current rules, those regulations
will protect airline competition and consumers against the injuries
that might otherwise occur, given our earlier findings on the market
power of the systems and each airline owner's potential interest in
using its affiliated CARS to prejudice the competitive position of
other airlines. Continuing the rules in effect should not impose
significant costs on the systems and their owners, since they have
already adjusted their operations to comply with the rules and since
the rules do not impose costly burdens of a continuing nature on the
systems.
The need for the rules results from the airlines' dependence on
travel agencies, the agencies' dependence on CRSs, the use by most
travel agency offices of only a single CARS, the difficulty of creating
alternatives for CRSs and getting travel agencies to use them, and the
airlines' inability to cause agencies to use one CARS instead of
another. Because of these factors, almost all airlines must participate
in each CARS, and the CRSs have no need to compete for airline
subscribers.
In recent years seventy percent of all airline bookings in the
United States have been made by travel agencies, and travel agencies
have relied almost entirely on CRSs to determine what airline services
are available and to make reservations for their customers. 57 FR at
43782. Few travel agency offices make extensive use of more than one
CARS. 57 FR at 43783.
If an airline does not participate in one system, the travel agents
using that system must call the airline to obtain information and make
bookings, which is substantially less efficient than using a CARS.
Travel agents are less likely to book an airline when doing so is
significantly more difficult than booking a competing airline
participating in the agents' CARS. As a result, the non-participating
airline will receive fewer bookings than it would obtain if it
participated in the agents' system. The importance of marginal revenues
in the airline industry means that an airline's loss of a few bookings
on each flight is likely to substantially reduce its profitability. 57
FR at 43783-43784.
Most airlines do not have practicable alternatives to CARS
participation. An airline could try to mitigate the loss of bookings
caused by non-participation in a system by establishing a direct
electronic link between the travel agencies using that system and its
own internal reservations system, but doing so is expensive and
potentially less convenient for travel agents.
We doubt that any airline could successfully create a new CARS,
since doing so would be extremely costly. In addition, any new system
could not easily obtain a significant number of subscribers. Moreover,
due to the economies of scale in the CARS business, a system without a
large subscriber base is unlikely to be profitable. 57 FR at 43783-
43784. We recognize that U.S. Travel Agency Registry has announced a
plan to create a new CARS, but its system would apparently not be
available until late 1998, and a few industry sources have questioned
USTAR's plans. See Travel Distribution Report, vol. 5, no. 11, August
28, 1997, at 1, 4. We will welcome new competition in the CARS
business, but USTAR's plans do not undermine the apparent need for a
short-term extension of the rules.
Airlines could exert some competitive pressure on the systems if
they could encourage travel agencies to use one system instead of
another, but that has not been practicable. 57 FR at 43831.
In our recent notices of proposed rulemaking on airline parity
clauses and CARS displays, we tentatively concluded that market forces
did not discipline the terms offered by a system for airline
participation. See, e.g., 61 FR at 42198. The Department of Justice
filed comments in the parity clause rulemaking which supported our
tentative findings. The Justice Department thus stated, Justice Dept.
Comments at 2-3, Docket OST-96-1145 (footnote omitted):
Each CARS provides access to a large, discrete group of travel
agents, and unless a carrier is willing to forego access to those
travel agents, it must participate in every CARS. Thus, from an
airline's perspective, each CARS constitutes a separate market and
each system possesses market power over any carrier that wants
travel agents subscribing to that CARS to sell its airline tickets.
We are aware of the changes in the CARS business and airline
marketing
[[Page 59316]]
practices since our last major CARS rulemaking, but we are reluctant to
change our existing regulations until we have completed our study of
the impact of those changes.
Many airlines and travel agencies and some CRSs now offer booking
sites on the Internet that consumers may use, but few consumers
currently book airline services through the Internet. Despite the rapid
growth in the number of consumers using the Internet for airline
bookings, airlines will probably remain dependent on travel agencies
for most of their revenues for at least the next few years.
Furthermore, many of the websites use a CARS for a booking engine, so
CRSs have captured a significant share of the Internet business.
In addition, several new low-cost airlines began operations without
making their services saleable through any CARS. Initially those
airlines' adoption of that strategy suggested that airlines could
compete successfully without CARS participation. However, some of these
low-cost airlines--Western Pacific and ValuJet, for example--have
recently announced plans to make their services available through CRSs,
and other low-cost airlines--Reno and Frontier, for example--have
always relied on CARS participation in their marketing. As a result,
while Southwest has managed to prosper without participating in any
CARS except Sabre, it appears that virtually no other airline has been
able to duplicate Southwest's method of operations enough to avoid CARS
participation.
Our tentative conclusion that CARS rules remain necessary, at least
on a short-term basis, is supported by current airline complaints about
CARS practices. For example, a number of airlines (including Delta, one
of the three largest airlines in the United States and a part-owner of
a CARS) have complained about the continuing increases in booking fees
and the airlines' inability to exert any check on those increases.
Justice Dept. Comments at 5, Docket OST-96-1145. There are also
disputes between some participating airlines and some systems over the
systems' imposition of booking fees on transactions that participating
airlines believe are of no benefit to them. See, e.g., Travel
Distribution Report, vol. 5, no. 2, April 24, 1997, at 1.
Finally, there is an additional basis for our tentative
determination that we should keep the current rules in place pending
our reexamination of the rules. Our goals of promoting airline
competition and preventing consumer deception were not the only bases
for our adoption of the rules. We also relied on our obligation under
section 1102(b) of the Federal Aviation Act, recodified as 49 U.S.C.
40105(b), to act consistently with the United States' obligations under
treaties and bilateral air services agreements. Many of those bilateral
agreements assure the airlines of each party a fair and equal
opportunity to compete. We have held that the fair and equal
opportunity to compete includes, among other things, a right to have an
airline's services fairly displayed in CRSs. Our rules against display
bias and discriminatory treatment help to provide foreign airlines with
a fair and equal opportunity to compete in the United States. 57 FR at
43791-43792. We note in that regard that the European Union, Canada,
and Australia, among other countries, have adopted rules regulating
CARS operations that help give U.S. airlines a fair opportunity to sell
their services in the countries covered by the rules.
Regulatory Process Matters
Regulatory Assessment
This rule is a nonsignificant regulatory action under section 3(f)
of Executive Order 12866 and has not been reviewed by the Office of
Management and Budget under that order. Executive Order 12866 requires
each executive agency to prepare an assessment of costs and benefits
for each significant rule under section 6(a)(3) of that order. The
proposal is also not significant under the regulatory policies and
procedures of the Department of Transportation, 44 FR 11034.
Maintaining the current rules should impose no significant costs on
the CRSs. The systems have already taken all the steps necessary to
comply with the rules' requirements on displays and functionality, and
operating in compliance with the rules does not impose a substantial
burden on the systems. Maintaining the rules will benefit participating
airlines, since otherwise they would be subjected to unreasonable terms
for participation, and will benefit consumers, who otherwise might
obtain incomplete or inaccurate information on airline services.
Several provisions of the rules, moreover, are designed to prevent
abuses in the systems' competition with each other for travel agency
subscribers.
When we conducted our last major CARS rulemaking, we included a
tentative regulatory impact statement in our notice of proposed
rulemaking and made that analysis final when we issued our final rule.
We believe that analysis remains applicable to our proposal to extend
the rules' expiration date. As a result, no new regulatory impact
statement appears to be necessary. However, we will consider comments
from any party on that analysis before we make our proposal final.
This rule does not impose unfunded mandates or requirements that
will have any impact on the quality of the human environment.
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., was
enacted by Congress to ensure that small entities are not unnecessarily
and disproportionately burdened by government regulations. The act
requires agencies to review proposed regulations that may have a
significant economic impact on a substantial number of small entities.
For purposes of this rule, small entities include smaller U.S. and
foreign airlines and smaller travel agencies. Our notice of proposed
rulemaking sets forth the reasons for our proposed extension of the
rules' expiration date and the objectives and legal basis for that
proposed rule.
In addition, we note that keeping the current rules in force will
not modify the existing regulation of small businesses. Our notice of
proposed rulemaking in our last major CARS rulemaking contained an
initial regulatory flexibility analysis on the impact of the rules, and
we discussed the comments on that analysis in our final rule. Our
analysis appears to be valid for our proposed extension of the rules'
termination date. Accordingly, we adopt that analysis as our tentative
regulatory flexibility statement and will consider any comments filed
on that analysis in connection with this proposal.
The continuation of our existing CARS rules will primarily affect
two types of small entities, smaller airlines and travel agencies. To
the extent that airlines can operate more efficiently and reduce their
costs, the rule will also affect all small entities that purchase
airline tickets, since airline fares may be somewhat lower than they
would otherwise be, although the amount may not be large.
Continuing the rules will protect smaller non-owner airlines from
certain potential system practices that could injure their ability to
operate profitably and compete successfully. No smaller airline has a
CARS ownership interest. Market forces do not significantly influence
the systems' treatment of airline participants. As a result, if there
were no rules, the systems' airline owners could use them to prejudice
the
[[Page 59317]]
competitive position of other airlines. The rules provide important
protection to smaller airlines. For example, by prohibiting systems
from ranking and editing displays of airline services on the basis of
carrier identity, they limit the ability of each system to bias its
displays in favor of its owner airlines and against other airlines. The
rules also prohibit charging participating airlines discriminatory
fees. The rules, on the other hand, impose no significant costs on
smaller airlines.
The CARS rules affect the operations of smaller travel agencies,
primarily by prohibiting certain CARS practices that could unreasonably
restrict the travel agencies' ability to use more than one system or to
switch systems. The rules prohibit CARS contracts that have a term
longer than five years, give travel agencies the right to use third-
party hardware and software, and prohibit certain types of contract
clauses, such as minimum use and parity clauses, that restrict an
agency's ability to use multiple systems. By prohibiting display bias
based on carrier identity, the rules also enable travel agencies to
obtain more useful displays of airline services.
The Regulatory Flexibility Act also requires each agency to
periodically review rules which have a significant economic impact upon
a substantial number of small entities. 5 U.S.C. 610. Our rulemaking
reexamining the need for the CARS rules and their effectiveness will
constitute the required review of those rules.
Our proposed rule contains no direct reporting, recordkeeping, or
other compliance requirements that would affect small entities. There
are no other federal rules that duplicate, overlap, or conflict with
our proposed rules.
Interested persons may address our tentative conclusions under the
Regulatory Flexibility Act in their comments submitted in response to
this notice of proposed rulemaking.
The Department certifies under section 605(b) of the Regulatory
Flexibility Act (5 U.S.C. et seq.) that this regulation will not have a
significant economic impact on a substantial number of small entities.
Paperwork Reduction Act
This proposal contains no collection-of-information requirements
subject to the Paperwork Reduction Act, Pub. L. No. 96-511, 44 U.S.C.
Chapter 35.
Federalism Implications
The rule proposed by this notice will have no substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, in
accordance with Executive Order 12812, we have determined that the
proposed rule does not have sufficient federalism implications to
warrant preparation of a Federalism Assessment.
List of Subjects for 14 CFR Part 255
Air carriers, Antitrust, Consumer protection, Reporting and
recordkeeping requirements, Travel agents.
Accordingly, the Department of Transportation proposes to amend 14
CFR Part 255, Carrier-owned Computer Reservations Systems, as follows:
PART 255--[AMENDED]
1. The authority citation for Part 255 continues to read as
follows:
Authority: 49 U.S.C. 1301, 1302, 1324, 1381, 1502.
2. Section 255.12 is amended to read as follows:
Sec. 255.12. Termination.
Unless extended, these rules shall terminate on March 31, 1999.
Issued in Washington, D.C. on October 27, 1997.
Rodney E. Slater,
Secretary of Transportation.
[FR Doc. 97-29001 Filed 10-31-97; 8:45 am]
BILLING CODE 4910-62-P
