[Federal Register Volume 64, Number 38 (Friday, February 26, 1999)]
[Proposed Rules]
[Pages 9457-9460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-4780]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
14 CFR Part 255
[Docket No. OST-99-5132; Notice No. 99-3]
RIN 2105-AC75
Second Extension of Computer Reservations Systems (CRS)
Regulations
AGENCY: Office of the Secretary, Department of Transportation.
ACTION: Notice of Proposed Rulemaking.
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SUMMARY: For the second time, the Department is proposing to revise its
rules governing airline computer reservations systems (CRSs), 14 C.F.R.
part 255, by changing the rules' expiration date from March 31, 1999,
to March 31, 2000. If the Department does not change the expiration
date in the rules (14 CFR part 255), the rules will terminate on March
31, 1999. The proposed extension of the current rules will cause the
rules to remain in effect while the Department carries out its
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. The rules were
previously extended from December 31, 1997, to March 31, 1999.
DATES: Comments must be submitted on or before March 12, 1999.
ADDRESSES: Comments must be filed in Room PL-401, Docket OST-99-5132,
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: In 1992 the Department 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 the United States. 57 FR 43780 (September 22, 1992). We
determined that the rules were necessary to ensure that the owners of
the systems--all of which were then 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. We found that regulations were
needed because travel agents relied on CRSs to provide airline
information and bookings for their customers and because almost all
airlines received most of their bookings from travel agencies. Our
rules will expire on March 31, 1999, unless we readopt them or extend
the expiration date. 62 FR 66272 (December 18, 1997). By issuing an
advance notice of proposed rulemaking, we began a proceeding to
determine whether the rules are necessary and should be readopted and,
if so, whether they should be modified. 62 FR 47606 (September 10,
1997). We are proposing here to extend the expiration date for the
current rules to March 31, 2000, so that they will remain in force
while we conduct our overall reexamination of the rules.
We have set a short comment period of fourteen days so that we can
publish a final decision on this proposal before the rules' current
expiration date. Our advance notice of proposed rulemaking has given
interested persons an opportunity to comment on whether the rules
should be maintained. Almost all of the commenters support a
continuation of the rules, albeit with changes, and virtually none urge
us to end the rules.
The CRS Business
The CRS business in the United States consists of four CRSs, each
of which is affiliated with one or more U.S. airlines. A CRS contains
information on airline services and other travel services sold through
the system and provides that information to system users. A CRS enables
travel agents and other users to find out what airline seats and fares
are available and book a seat on each airline that ``participates'' in
the system, that is, that makes its services saleable through the CRS.
Travel agents--the major users of the systems--access a CRS 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.
The fees paid by airlines and other travel suppliers participating
in a system generate most of the revenues received by each CRS. An
airline participant pays a fee whenever a booking on that airline is
made through the system (most of the systems also charge fees for
related transactions, such as booking changes and cancellations). Other
travel suppliers pay similar fees. Many, but not all, travel agencies
subscribing to a system also pay fees, but such subscriber fees, unlike
airline fees, are generally disciplined by competition.
Regulatory Background
CRSs became essential for airline distribution in the early 1980s,
when travel agents came to depend on the systems to find out what
services were available and to make bookings. At that time each of the
systems operating in the United States, with one minor exception, was
owned by a single airline, and each owner airline used its system to
prejudice competing airlines and to give consumers biased or incomplete
information in order to obtain more bookings. These practices 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
and to prevent consumers from being misled. 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 sale of airline transportation. The Board's
rules were affirmed on review. 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 rules also
prohibited certain contract terms that limited the travel agencies'
ability to switch systems or use more than one system.
We assumed the Board's responsibilities for airline regulation
after the Board's sunset on December 31, 1984. See United Air Lines,
supra, 766 F.2d at 1109. To ensure that the rules would be reexamined,
the Board?s rules contained a sunset date, December 31, 1990. We
reexamined the rules and
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adopted revised rules. 57 FR 43780 (September 22, 1992). To maintain
the Board?s rules in effect pending the completion of that
reexamination, we extended their expiration date. 55 FR 53149 (December
27, 1990); 56 FR 60915 (November 29, 1991); 57 FR 22643 (May 29, 1992).
We readopted the rules with revisions, because we found that the
rules were still necessary: (1) Market forces did not discipline the
price or level of service offered participating airlines by the
systems, (2) CRS owners could use their control of the systems to
prejudice airline competition if there were no rules, and (3) systems
could bias their displays of airline services if there were no rules
requiring unbiased displays. 57 FR at 43783-43787.
Our rules, like the Board's rules, included a sunset date, December
31, 1997. 14 CFR 255.12; 57 FR at 43829-43830 (September 22, 1992). To
begin our current reexamination of the rules, we published an advance
notice of proposed rulemaking asking interested persons to comment on
whether we should readopt the rules and, if so, with what changes. 62
FR 47606 (September 10, 1997). Shortly after issuing that advance
notice, we amended the rules twice to further promote competition. 62
FR 59784 (November 5, 1997); 62 FR 66272 (December 18, 1997). We
adopted those amendments largely because market forces did not appear
to discipline CRS firms insofar as terms for airline participation were
concerned.
Almost all of the parties responding to our advance notice of
proposed rulemaking have urged us to maintain CRS rules, although these
parties also argued that various changes should be made to the rules,
mostly to strengthen them. No party urged us to eliminate the rules,
and few disputed the need for the continued regulation of the CRS
business. Thus we believe that an extension of the current rules
pending completion of the current reexamination of those rules would be
consistent with the positions already taken by the commenters.
Previous Extension of the Rules' Sunset Date
Because we were unable to complete our reexamination of the rules
by the original sunset date, December 31, 1997, we amended the rules to
extend them until March 31, 1999. 62 FR 66272 (December 18, 1997). We
found that the extension was necessary to prevent the potential harm
that would arise if the CRS business were not regulated and that it
would not impose substantial costs on the industry. The only party that
commented on the proposed extension, America West Airlines, supported
it.
Our Proposed Extension of the CRS Rules
We are again proposing to change the expiration date for our CRS
rules to March 31, 2000, so that the rules will remain in effect while
we conduct our reexamination of the need for the rules and the rules'
effectiveness. The completion of our overall reexamination of our
rules, including the need to give parties an adequate opportunity to
file comments and reply comments in response to our future notice of
proposed rulemaking, will require substantial time and cannot be
finished by the current expiration date, March 31, 1999.
We regret our inability to complete the reexamination of the rules
by our target date, since the Department is fully aware of the
importance of maintaining rules governing CRS operations that reflect
current industry conditions, but the process has taken more time than
anticipated. In addition, the Department has had to address other
airline competition issues that appeared to be more urgent, such as the
development of enforcement guidelines on unfair exclusionary behavior,
63 FR 17919 (April 10, 1998) and the exercise of the Department?s
responsibility to review the competitive effects of the three alliances
between major U.S. airlines that were announced in early 1998.
Furthermore, several recent developments in airline distribution, such
as the growth of Internet services and the cuts in travel agency
commissions made by major airlines for bookings made both by
traditional travel agencies and Internet services, are requiring
additional study by the staff.
We recognize that a number of parties contend that there is a
compelling need for certain additional CRS regulations, such as rules
limiting airline booking fees and giving travel agency subscribers
additional rights to cancel CRS contracts. See 62 FR 60195 (November 7,
1997), requesting comments on a petition filed by America West, and the
Emergency Petition for Rulemaking filed on November 18, 1998, by the
Association of Retail Travel Agents, Docket OST-98-4775. We are
considering whether some issues are of such overriding importance that
they should be addressed before the completion of the overall
reexamination of the rules.
We tentatively conclude that we should amend the rules to change
the sunset date from March 31, 1999, to March 31, 2000. As we stated in
proposing the earlier extension, 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 we later determined that those rules (or similar rules)
should be adopted, since they could have changed their business methods
in the meantime.
The primary basis for extending the rules is the need to protect
airline competition and consumers against unreasonable practices. Our
past examinations of the CRS business and airline marketing caused us
to conclude that CRSs were still essential for the marketing of the
services of almost all airlines. 57 FR 43780, 43783-43784 (September
22, 1992). We found that rules were needed because the airlines
depended on travel agencies as their principal distribution arm,
because travel agencies relied on CRSs, because most travel agency
offices used only one CRS, because creating alternatives for CRSs and
getting travel agencies to use them had been difficult, and because
airlines were unable to cause agencies to use one CRS instead of
another. 57 FR at 43783-43784, 43831. If an airline did not participate
in a system used by a travel agency, that agency was less likely to
book its customers on that airline. Since marginal revenues are
important in the airline industry, an airline could not afford to lose
access to a significant source of revenue. An airline (or other firm)
could not practicably create a system that could compete with the
existing systems. Almost all airlines therefore had to participate in
each CRS, and CRSs did not need to compete for airline participants. 57
FR at 43783-43784.
We doubt that industry developments since our last major rulemaking
have undermined our earlier findings. We believe that most airline
bookings in the United States are still made by travel agencies, that
travel agencies still rely almost entirely on CRSs to determine what
airline services are available and to make bookings, and that few
travel agency offices make extensive use of more than one CRS. For
example, while several low-fare airlines initially operated without
participating in any system, most of those airlines have concluded that
they need to participate in each system. 62 FR at 47608. While consumer
use of the Internet to make bookings is growing dramatically,
[[Page 9459]]
Internet bookings still make up a very small percentage of total
airline bookings. Moreover, Internet sites (except airline sites)
typically use a system as their booking engine.
As noted above, almost all of the parties that responded to the
advance notice of proposed rulemaking stated that the rules remained
necessary, and most urge us to strengthen them further to protect
airlines and travel agencies against potential abuses by system owners.
Thus, while our staff has not completed its current study of the
CRS business and we have not issued a notice of proposed rulemaking
finding that the rules should be readopted, we tentatively believe that
our past findings on the need for CRS 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 would
otherwise occur, given our earlier findings on the market power of the
systems and each airline owner's potential interest in using its
affiliated CRS 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.
Finally, there is an additional basis for our tentative
determination that we should maintain the current rules in effect
pending our reexamination of the rules. We adopted the rules in part to
carry out 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. The European Union, Canada, and
Australia, among other countries, have adopted rules regulating CRS
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 rulemaking 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
complying with those rules on a continuing basis 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
might otherwise obtain incomplete or inaccurate information on airline
services. The rules also contain provisions that are designed to
prevent abuses in the systems' competition with each other for travel
agency subscribers.
When we conducted our last major CRS 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.
Small Business Impact
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 final rule
in our last major CRS rulemaking contained a regulatory flexibility
analysis on the impact of the rules. As a result of that analysis, we
determined that this regulation did not have a significant economic
impact on a substantial number of small entities. 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 CRS 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
CRS 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 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 CRS rules affect the operations of smaller travel agencies,
primarily by prohibiting certain CRS practices that could unreasonably
restrict the travel agencies' ability to use more than one system or to
switch systems. The rules prohibit CRS 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
[[Page 9460]]
multiple systems. By prohibiting display bias based on carrier
identity, the rules also enable travel agencies to obtain more useful
displays of airline services.
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. 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 revised to read as follows:
Sec. 255.12 Termination.
Unless extended, these rules shall terminate on March 31, 2000.
Issued in Washington, DC on February 22, 1999, under authority
delegated by 49 CFR 1.56a (h) 2.
Charles A. Hunnicutt,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 99-4780 Filed 2-25-99; 8:45 am]
BILLING CODE 4910-62-P
