[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24167]
[[Page Unknown]]
[Federal Register: September 30, 1994]
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DEPARTMENT OF TRANSPORTATION
14 CFR Part 255
[Docket No. 48808]
Computer Reservations System (CRS) Regulations
AGENCY: Office of the Secretary, Department of Transportation.
ACTION: Termination of proceeding on petition for rulemaking on rules
governing computer reservations systems.
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SUMMARY: The Department is granting a request by the American Society
of Travel Agents (ASTA) that ASTA be allowed to withdraw its petition
for a rulemaking to amend the Department's rules on computer
reservations systems (CRSs). ASTA had asked the Department to amend its
CRS rules (14 CFR Part 255) to include a prohibition against the
inclusion of lost booking fees in the damages recoverable by a CRS
vendor when a travel agency breaches its contract for CRS services
before the end of the contract's term. ASTA is now asking the
Department for leave to withdraw its petition on the ground that the
largest CRS vendor has agreed to change its CRS contract practices in a
way which will eliminate ASTA's need for a rulemaking.
FOR FURTHER INFORMATION CONTACT: Thomas Ray, Office of the General
Counsel, 400 Seventh St. S.W., Washington, D.C. 20590, (202) 366-4731.
SUPPLEMENTARY INFORMATION: In the United States travel agencies sell
the great majority of all airline tickets. In selling air
transportation (and other travel services) travel agencies primarily
rely on computer reservations systems to find out what airline services
and fares are available for their customers, to make bookings, and to
issue tickets. Each of the CRSs operating in the United States is owned
by one or more airlines or airline holding companies. The nature of the
CRS and the airline businesses gives each operator of a CRS (``the
vendor'') a significant ability to prejudice the competitive position
of other airlines and to limit the information on airline services
given travel agencies and their customers. The Civil Aeronautics Board,
the agency which had been responsible for airline economic regulation
through 1984, therefore adopted rules regulating CRS operations under
section 411 of the Federal Aviation Act (``the Act''), 49 U.S.C. 1381.
Two years ago we revised those rules to further protect airline
competition. 14 CFR Part 255, adopted by 57 FR 43780 (September 22,
1992).
One of the major issues in our rulemaking concerned the contract
terms sought by CRS vendors from travel agencies using a CRS
(``subscribers''), since several commonly-used contract terms
restricted the subscribers' ability to add or switch systems. We
revised our CRS rules to prohibit certain subscriber contract clauses
that appeared to unreasonably interfere with a travel agency's ability
to use more than one system, but we did not adopt other proposals for
regulating subscriber contracts.
A number of parties in the rulemaking had complained that vendors
made it difficult for subscribers to switch systems before the end of
the term of their CRS contract by making a subscriber liable for
substantial liquidated damages if it breached the contract. The
liquidated damages formulas used by the vendors typically included an
element for ``lost booking fees.'' Booking fees--the fees paid by
airlines and other travel suppliers whenever an agency uses a system to
book a travel service--provide most of each vendor's CRS revenues. Lost
booking fees are the amount of booking fees the vendor would have
received if the subscriber had continued to use its system during the
remaining term of the contract. In calculating lost booking fees the
vendor typically assumed that the subscriber would have used its system
for most of its bookings. The inclusion of lost booking fees in the
damages due a vendor on a subscriber's breach of contract greatly
increases the damages obtainable by the vendor from the subscriber and
thereby makes it much more costly for an agency to breach its CRS
contract.
While we decided not to adopt a prohibition against the inclusion
of lost booking fees in liquidated damages, we stated that our rules
were intended to give travel agencies the ability to use more than one
system and that therefore no vendor should expect a subscriber to use
its system for most of the agency's bookings during the term of the
contract. No vendor could therefore reasonably expect that a subscriber
contract would produce a substantial flow of booking fees. As a result,
we concluded that the contract law principles governing liquidated
damages would make unenforceable any contract that required a
subscriber to pay damages based on lost booking fees. 57 FR 43827-
43828.
ASTA, the nation's largest travel agency trade association, filed a
petition for rulemaking. ASTA urged us to adopt an express prohibition
against the inclusion of lost booking fees in liquidated damages
clauses. ASTA alleged that American Airlines' Sabre system was
continuing to use such contract clauses since American argued that its
contract terms were consistent with our rules. ASTA proposed that we
amend Sec. 255.8 of our rules by adding a subsection that would
prohibit a vendor from requiring a subscriber to pay liquidated damages
to the extent that the damages enable the vendor to recover from the
subscriber the booking fees that the vendor would have obtained from
participating airlines.
Two vendors, Worldspan and System One Direct Access, filed answers
supporting ASTA's petition, while American opposed it. American
asserted that its contract provision was merely a means of enforcing
its productivity pricing formula, that the Department determined in the
rulemaking that productivity pricing (a form of pricing that reduces a
subscriber's CRS fees when it increases its use of the CRS) was
permissible, and that the American contract provision as a practical
matter could not keep an agency from using another system.
The Department invited other persons to file comments on ASTA's
petition. 58 FR 41068 (August 2, 1993). In response, System One,
Worldspan, Delta Air Lines (a Worldspan partner), Air France, and three
travel agencies (Hewins Travel Consultants, Travelbound, Inc., and WTT,
Inc., d/b/a Woodside Travel Trust) filed comments supporting ASTA's
proposal or similar restrictions on vendor subscriber contracts.
American again opposed such proposals. Apollo Travel Services, the
marketing arm of the second largest U.S. CRS, Galileo, stated it was
taking no position on ASTA's proposal but took issue with WTT's alleged
misdescription of Apollo's subscriber contracts. In its comments the
Orient Airlines Association asked us to begin a rulemaking on other CRS
issues.
However, ASTA has moved to withdraw its rulemaking petition on the
ground that American had agreed with ASTA that in future subscriber
contracts American would substitute an actual damages clause for a
liquidated damages clause and that American would give its subscribers
the option of replacing the liquidated damages clause in their existing
contracts with an actual damages clause. American would take these
steps within thirty days of our dismissal of ASTA's rulemaking
petition. Since American's agreement had eliminated the cause of ASTA's
request for a rulemaking, ASTA wishes to withdraw its petition.
Despite ASTA's request for withdrawal, System One and Worldspan
contend that ASTA's agreement with American should not keep us from
proposing new rules on subscriber contracts. They contend that American
could demand lost booking fees as part of its actual damages and that
American's productivity pricing formula requires subscribers to
guarantee that American will receive booking fees during the term of
their contracts. WTT, a consortium of very large travel agencies,
initially filed a pleading opposing ASTA's motion to withdraw its
petition. However, WTT later stated that it wished to withdraw that
opposition. WTT, which prefers market solutions to business problems,
has learned that American is willing to negotiate changes in its
subscriber contracts with some agencies. In WTT's opinion, this means
that regulatory action is no longer necessary.
We will grant ASTA's motion to withdraw its petition for
rulemaking, and we will terminate this proceeding. We do not believe
that we should begin a rulemaking of the kind sought by Worldspan,
System One, Delta, and the two smaller agencies at this time, even
though their comments have cited practices by American and Apollo that
may be troublesome. However, we do not now have detailed knowledge on
the effects of our revised CRS rules, which became effective less than
two years ago, nor on other changes that may have affected the
operation of the CRS and airline businesses. Rather than begin a
rulemaking, we prefer to begin an informal investigation into these
issues. In that investigation we are seeking information from vendors,
airlines, travel agency groups and individual agencies, and other
persons with knowledge of CRSs and related airline marketing issues.
That investigation should give us sufficient knowledge to determine
whether we should propose changes to the rules and, if so, what kind of
changes, just as our last rulemaking relied heavily on the examination
of the CRS business undertaken by the Secretary's Task Force on
Competition in the Domestic Airline Industry. Airline Marketing
Practices: Travel Agencies, Frequent Flyer Programs, and Computer
Reservation Systems (February 1990), cited at 57 FR 43782. As part of
that informal investigation, we are issuing an order requiring the
vendors to provide us with certain information and inviting vendors,
airlines, travel agencies, and other interested persons to meet with
our staff to discuss the issues. Our dismissal of ASTA's petition, of
course, will not prevent us from instituting a new rulemaking on CRS
issues if we find one warranted.
Issued in Washington, D.C. on September 26, 1994.
Patrick V. Murphy,
Acting Assistant Secretary of Transportation for Aviation and
International Affairs.
[FR Doc. 94-24167 Filed 9-29-94; 8:45 am]
BILLING CODE 4910-62-P
