01-7978. Extension of Computer Reservations Systems (CRS) Regulations

AGENCY:

Office of the Secretary, Department of Transportation.

ACTION:

Final rule.

SUMMARY:

The Department is revising its rules governing airline computer reservations systems (CRSs) by changing the rules' expiration date from March 31, 2001, to March 31, 2002. If the expiration date were not changed, the rules would terminate on March 31, 2001. This extension of the current rules will keep them in effect while the Department carries out its reexamination of the need for CRS regulations. The Department has concluded 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, then to March 31, 2000, and then to March 31, 2001.

DATES:

This rule is effective on March 31, 2001.

FOR FURTHER INFORMATION CONTACT:

Thomas Ray, Office of the General Counsel, 400 Seventh St. SW., Washington, DC 20590, [phone].

Electronic Access

You can view and download this document by going to the webpage of the Department's Docket Management System (http://dms.dot.gov/​). On that page, click on “search.” On the next page, type in the last four digits of the docket number shown on the first page of this document. Then click on “search.” An electronic copy of this document also may be downloaded by using a computer, modem, and suitable communications software from the Government Printing Office's Electronic Bulletin Board Service at [phone]. Internet users may reach the Office of the Federal Register's home page at: http://www.nara.gov/​fedreg and the Government Printing Office's database at: http://www.access.gpo.gov/​nara/​index.html.

SUPPLEMENTARY INFORMATION:

Section 255.12 of the rules establishes a sunset date for the rules to ensure that we periodically reexamine the need for the rules and their effectiveness. The original sunset date was December 31, 1997. We have changed it three times, so the current sunset date is March 31, 2001. 62 FR 66272 (December 18, 1997); 64 FR 15127 (March 30, 1999); and 65 FR 16808 (March 30, 2000). We concluded that these extensions were necessary to prevent the harm that would arise if the CRS business were not regulated and that extending the rules would not impose substantial costs on the industry.

We are now changing the sunset date to March 31, 2002, because we have been unable to complete our reexamination of the current rules by March 31, 2001. Since we believed that the rules should remain in effect until we complete that process, we proposed an additional extension of the rules' expiration date to March 31, 2002, to achieve that result. 66 FR 13860 (March 8, 2001). Our notice of proposed rulemaking gave interested parties an opportunity to comment on our proposal. Comments were filed by America West, Delta, Orbitz, and Worldspan, each of whom supported the proposal, and the Air Carrier Association of America, which urged us to suspend one of the rules pending reexamination.

Background

In 1992 the Department adopted its rules governing CRS operations, 14 CFR Part 255, because they were necessary to protect airline competition and to ensure that consumers can obtain accurate and complete information on airline services. 57 FR 43780 (September 22, 1992). Because almost all airlines found it essential to participate in each system, market forces did not discipline the price and quality of services offered airlines by the systems. Travel agents depended on CRSs to provide airline information and make bookings for their customers, and agencies typically relied on one system to obtain information on airline services and to make bookings. One or more airlines or airline affiliates, moreover, owned each of the systems and could operate the system in ways designed to prejudice the competitive position of other airlines.

The rules have always had a sunset date to ensure that we would periodically reexamine whether the rules were necessary and effective. 14 CFR 255.12; 57 FR 43829-43830 (September 22, 1992). We began a proceeding to determine whether the rules are necessary and should be readopted and, if so, whether they should be modified, by issuing an advance notice of proposed rulemaking. 62 FR 47606 (September 10, 1997). Last year we published a supplemental advance notice of proposed rulemaking that asked the parties to update their comments in light of recent developments and to comment on whether any rules should be adopted regulating the use of the Internet in airline distribution. 65 FR 45551 (July 24, 2000). Almost all of the parties responding to our supplemental advance notice of proposed rulemaking (and the initial advance notice of proposed rulemaking) contend that CRS rules remain necessary. Few parties argue that the continued regulation of the CRS business is harmful and unnecessary. An extension of the current rules pending completion of the current reexamination of those rules would be consistent with the positions taken by most of the commenters.

We have also been informally studying recent developments in airline distribution and the proposed business plan and operational strategy of Orbitz, a travel website being developed by five major U.S. airlines. See July 20, 2000, Statement of A. Bradley Mims, Deputy Assistant Secretary for Aviation and International Affairs, before the Senate Committee on Commerce, Science, and Transportation. In addition, in recent years we have amended the rules twice to further promote competition. 62 FR 59784 (November 5, 1997); 62 FR 66272 (December 18, 1997).

Our Proposed Extension of the CRS Rules

We proposed again to change the expiration date for our CRS rules to March 31, 2002, so that the rules would remain in effect while we complete our reexamination of the need for the rules and their effectiveness. 66 FR 13860 (March 8, 2001). We could not finish the steps required for our overall reexamination of our rules by the current expiration date, March 31, 2001. In addition, we wished to complete our informal studies of airline distribution developments before we determine whether to propose readopting the rules.

Changing the sunset date to March 31, 2002, would preserve the status quo until we determine whether the rules should be readopted and, if so, how they should be modified. Maintaining the current rules would be consistent with the expectations of the systems and their users—airlines and travel agencies—that each system would operate in compliance 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.

In addition, extending the rules seemed necessary to protect airline competition and consumers against unreasonable and unfair practices. Our past examinations of the CRS business and airline marketing showed that CRSs were still essential for the marketing of the services of almost all airlines. 66 FR 13862 citing 57 FR 43780, 43783-43784 (September 22, 1992). CRS rules were necessary because the airlines relied heavily on travel agencies for distribution, 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 would be difficult, and because non-owner airlines were unable to cause agencies to use a CRS that provided airlines better or less expensive service instead of another that provided poorer or more expensive service. 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. As a result of the importance of marginal revenues in the airline industry, an airline could not afford to lose access to a significant source of revenue. Almost all airlines therefore had to participate in each CRS, and CRSs did not need to compete for airline participants. We believed that these findings were still valid despite such developments as the increasing importance of the Internet for airline distribution. 66 FR 13862.

We are well aware that we need to reexamine the rules in light of recent developments, such as the growing use of the Internet and the weakening of ties between some of the systems and their former airline owners. 66 FR 13862. We noted, however, that most of the parties that responded to the advance notice of proposed rulemaking and the supplemental advance notice of proposed rulemaking had alleged that the rules remained necessary, and most of them urged us to strengthen them further to protect airlines and travel agencies against potential abuses by system owners.

We therefore tentatively concluded that our past findings on the need for CRS rules are sufficiently valid to justify a short-term extension of the rules' expiration date. 66 FR 13862.

We further noted that 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 supported an extension of the rules. Many of those bilateral agreements assure the airlines of each party a fair and equal opportunity to compete, and our rules provide an assurance of fair and nondiscriminatory treatment for foreign airlines. 66 FR 13862.

We recognized that the delay in completing the rules' reexamination was regrettable in view of the need to revise our rules to reflect current industry conditions, possibly including an extension of the rules to cover the Internet. We explained that we have had to address other airline competition issues that appeared to be more urgent and that the current rules seem to address the most serious potential competitive and consumer protection issues created by the use of computer reservations systems in airline distribution. 66 FR 13861-13862.

The need to make the final rule effective by March 31, 2001, the current sunset date, caused us to shorten the comment period to ten days. 66 FR 13860.

Comments

Worldspan supports the proposed extension on the ground that we need to undertake a thorough review of the issues raised in our advance notices of proposed rulemaking and the parties' comments. Worldspan argues that we should conduct a comprehensive review of the issues without attempting to address certain issues individually. Delta supports the extension but urges us to proceed as quickly as possible with issuing new rules. America West supports the extension but contends that we should take immediate action to control the level of the booking fees charged airlines participating in the systems. Orbitz, which has filed comments asserting that the existing rules have shortcomings, supports the extension if we have decided that we need more time for our overall reassessment of the complex issues presented by the rules.

The Air Carrier Association of America, a trade association for low-fare airlines, took no position on whether the rules should be extended. The Association instead argued that we should immediately suspend section 255.10(a), which requires each system to make available to its participating airlines any marketing and booking data that it chooses to generate from the bookings made through the system.

Final Rule

We are changing the rules' sunset date to March 31, 2002, as we proposed. Delta, America West, Worldspan, and Orbitz support our proposal, and no one has objected to it. We based our proposal on the findings made by us in earlier CRS rulemakings and the position of most of the parties in the underlying rulemaking (Docket OST-97-2881) that CRS rules are still necessary. 65 FR at 11011. In our overall reexamination of the rules we will, of course, consider whether recent developments, such as the divestiture by several airlines of their CRS ownership interests, indicate that the justification and need for some or all of the CRS rules has ended.

America West urges us to act quickly on the specific rule proposals of interest to it. We will consider its arguments as part of our consideration of procedures for completing the reexamination of the rules and for updating the rules to reflect current industry conditions.

We are not suspending section 255.10(a) as requested by the Air Carrier Association. A suspension of the section would not achieve the result sought by the Association, the denial of access by large airlines to the marketing and booking data produced and sold by the systems. Suspending the section would only end the systems' obligation to make the data available to all participating airlines. Unless we adopted a rule prohibiting the release of the data, the systems would be able to continue selling it to airline and non-airline firms. We recognize the importance of reexamining the provision, as we stated in our original advance notice of proposed rulemaking, 62 FR 47610, and we intend to see whether we should change the systems' obligation and ability to sell marketing and booking data. We prefer to do so in the context of our overall reexamination of the rules, since we must also consider the arguments made by United and others that the rules should be terminated. The Association based its request on the need for the Department to take steps to promote a competitive airline industry. We agree that we have a responsibility to ensure competition, and we are considering options for carrying out that responsibility.

As we noted, we have issued a supplemental notice last year asking the parties to update their comments in light of recent developments, and we are completing our informal studies of airline distribution. These steps will enable us to move forward promptly on the rulemaking. 66 FR 13862.

Effective Date

We have determined for good cause to make this amendment effective on March 31, 2001, rather than thirty days after publication as required by the Administrative Procedure Act, 5 U.S.C. 553(d), except for good cause shown. To maintain the current rules in force, we must make this amendment effective by March 31, 2001. Since the amendment preserves the status quo, it will not require the systems, airlines, and travel agencies to change their operating methods. As a result, making the amendment effective less than thirty days after publication will not burden anyone.

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. The rulemaking is also not significant under the regulatory policies and procedures of the Department of Transportation, 44 FR 11034.

As stated in our notice of proposed rulemaking, we tentatively concluded that maintaining the current rules would not impose significant costs on the systems. They 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 them. Maintaining the rules would benefit participating airlines, since otherwise they could be subjected to unreasonable terms for participation, and would benefit consumers, who might otherwise be given incomplete or inaccurate information on airline services. The rules also contain provisions designed to prevent certain types of abuses in the systems' contracts with travel agency subscribers. 66 FR 13862-13863.

Our last major CRS rulemaking included our preparation of a tentative economic analysis published with our notice of proposed rulemaking and our decision to make that analysis final when we issued our final rule. Since we believed that that analysis remained applicable to our proposal to extend the rules' expiration date, we reasoned that no new regulatory impact statement appeared to be necessary. We stated, however, that we would consider comments from any party on that analysis before making our proposal final. 66 FR 13863.

No one filed comments on the economic analysis, so we are basing this rule on the analysis used in our last comprehensive CRS rulemaking. We will prepare a new economic analysis as part of our review of the existing rules, if we determine that rules remain necessary.

This rule does not impose unfunded mandates or requirements that will have any impact on the quality of the human environment.

Small Business Impact

Congress enacted the Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., to keep small entities from being 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. airlines and smaller travel agencies.

Our notice of proposed rulemaking set forth the reasons for our proposed extension of the rules' expiration date and the objectives and legal basis for that proposed rule. 66 FR 13863. We additionally noted that maintaining the current rules would not modify the existing regulation of small businesses. We cited our final rule in our last major CRS rulemaking, which contained a regulatory flexibility analysis on the impact of the rules. We determined on the basis of that analysis that the rules did not have a significant economic impact on a substantial number of small entities. Our notice proposing to extend the rules' sunset date stated that that analysis appeared to be valid for that proposed extension. We therefore adopted that analysis as our tentative regulatory flexibility statement, and we stated that we would consider any comments filed on that analysis in connection with this proposal. 66 FR 13863.

Continuing our current CRS rules would primarily affect two types of small entities, smaller airlines and travel agencies. If the rules enable airlines to operate more efficiently and reduce their costs, they would also affect all small entities that purchase airline tickets, since airline fares may be somewhat lower than they would otherwise be, although the difference may be small.

The maintenance of the rules would protect smaller non-owner airlines from several potential system practices that could injure their ability to operate profitably and compete successfully. The rules, for example, limit the ability of each system to bias its displays in favor of its affiliated airlines and against other airlines, since the rules prohibit systems from ranking and editing displays of airline services on the basis of carrier identity. The rules also prohibit charging participating airlines discriminatory fees. No smaller airline has a CRS ownership interest. Market forces do not significantly influence the systems' treatment of airline participants. Thus, if we did not regulate the systems, the systems' owners could use them to prejudice the competitive position of other airlines. The rules, moreover, 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 multiple systems. By prohibiting display bias based on carrier identity, the rules also enable travel agencies to obtain more useful displays of airline services.

We invited interested persons to address our tentative conclusions under the Regulatory Flexibility Act in their comments submitted in response to this notice of proposed rulemaking. 66 FR 13863.

No one commented on our Regulatory Flexibility Act analysis. We will adopt the analysis set forth in the notice of proposed rulemaking.

This 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 this rule.

I certify 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 rule contains no collection-of-information requirements subject to the Paperwork Reduction Act, Public Law. No. 96-511, 44 U.S.C. Chapter 35.

Federalism Assessment

We stated that we had reviewed this rule in accordance with the principles and criteria contained in Executive Order 13132, dated August 4, 1999, and determined that the rule would not have a substantial direct effect 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. This rule will not limit the policymaking discretion of the States. Nothing in this rule would directly preempt any State law or regulation. We are adopting the rule primarily under the authority granted us by 49 U.S.C. 41712 to prevent unfair methods of competition and unfair and deceptive practices in the sale of air transportation. Our notice of proposed rulemaking stated our belief that the policy set forth in the proposed rule is consistent with the principles, criteria, and requirements of the Federalism Executive Order and the Department's governing statute. We welcomed comments on our conclusions. 66 FR 13863.

None of the comments addressed our federalism assessment. Therefore, we will make that assessment final. Because the rule will have no significant effect on State or local governments, as discussed above, no consultations with State and local governments on this rule were necessary.

List of Subjects in 14 CFR Part 255

• Air carriers
• Antitrust
• Consumer protection
• Reporting and recordkeeping requirements
• Travel agents

Accordingly, the Department of Transportation amends 14 CFR Part 255 as follows:

PART 255—[AMENDED]

1. The authority citation for Part 255 continues to read as follows:

Authority: 49 U.S.C. 40101, 40102, 40105, 40113, 41712.

2. Section 255.12 is revised to read as follows:

§ 255.12.

Termination.

The rules in this part terminate on March 31, 2002.

Issued in Washington, D.C. on March 27, 2001, under authority delegated by 49 CFR 1.56a (h) 2.

Susan McDermott,

Deputy Assistant Secretary for Aviation and International Affairs.