owned; expiration date extension,

[Federal Register: February 15, 2002 (Volume 67, Number 32)]

[Proposed Rules]

[Page 7100-7104]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr15fe02-25]

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Docket No. OST-2002-11577]

RIN 2105-AC75

Extension of Computer Reservations Systems (CRS) Regulations

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Department is proposing to amend its rules governing airline computer reservations systems (CRSs), 14 CFR part 255, by changing the rules' expiration date from March 31, 2002, to March 31, 2003. If the expiration date is not changed, the rules will terminate on March 31, 2002. The proposed 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 tentatively 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, then to March 31, 2001, and most recently to March 31, 2002.

DATES: Comments must be submitted on or before March 18, 2002. Late filedcomments will be considered to the extent possible.

ADDRESSES: To make sure your comments and related material are not entered more than once in the docket, please submit them (marked with docket number OST-2002-11577) by only one of the following means:

(1) By mail to the Docket Management Facility, U.S. Department of Transportation, room PL-401, 400 Seventh Street SW., Washington, DC 20590-0001.

(2) By hand delivery to room PL-401 on the Plaza level of the Nassif Building, 400 Seventh Street SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

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The telephone number is 202-366-9329.

(3) Electronically through the Web Site for the Docket Management System at http://dms.dot.gov. Comments must be filedin Docket OST- 2002-11577.

However, due to security procedures in effect since October 2001 on mail deliveries, mail received through the Postal Service may be subject to delays. Commenters should consider using an express mail firm to ensure the timely filing of any comments not submitted electronically or by hand.

FOR FURTHER INFORMATION CONTACT: Thomas Ray, Office of the General Counsel, 400 Seventh St., SW., Washington, DC 20590, (202) 366-4731.

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 (202) 512-1661. 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: The Department adopted its rules governing CRS operations, 14 CFR part 255, because almost all airlines operating in the United States relied on the CRSs in marketing their airline services and each system was then controlled by one or more airlines or airline affiliates. 57 FR 43780 (September 22, 1992). We concluded that the rules were necessary to ensure that each of the airlines and airline affiliates that controlled the systems did not use them to unfairly prejudice the competitive position of other airlines and to ensure that travel agents and their customers could obtain accurate and unbiased information from the systems. CRS rules were necessary because almost all airlines received most of their bookings from travel agencies and because travel agents relied on the systems to obtain airline information and make bookings for their customers. Our rules as revised will expire on March 31, 2002, unless we readopt them or extend the expiration date. 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). We are proposing here to extend the rules' expiration date to March 31, 2003, so that they will remain in force while we complete that proceeding. The Department expects to issue a notice of proposed rulemaking regarding the substantive issues that might be addressed in revised CRS rules later this year.

We are allowing thirty days for comments on this proposal. That comment period will enable us to publish a final decision on this proposal before the rules' current expiration date. Our advance notice of proposed rulemaking and our supplemental advance notice of proposed rulemaking have given interested persons an opportunity to comment on whether the rules should be maintained.

The CRS Business

A CRS provides information and booking capabilities on airline services and other travel services sold through it to its users, who are primarily travel agents (both traditional agencies and on-line agencies). Consumers using Internet reservations services and corporate travel departments also use the systems. Users access the systems through computer terminals. Someone using a CRS can investigate what airline seats and fares are available and can book a seat on each airline that ``participates'' in the system, that is, that makes its services saleable through the CRS.

Four CRSs operate in the United States. Two of them--Worldspan and Amadeus--are owned in whole or part by one or more U.S. or foreign airlines, and the other two--Sabre and Galileo--are marketed by one or more U.S. airlines and until recently were also controlled by one or more airlines.

The systems charge participating airlines and other travel suppliers fees when a user books travel services through the system or changes an existing booking (these fees are called ``booking fees''). The fees paid by travel suppliers produce most of each system's revenues. Many travel agencies also pay fees for using a system, although other travel agencies obtain system services without charge. Since the systems compete for travel agency customers (``subscribers''), market forces usually discipline subscriber fees.

Regulatory Background

The Civil Aeronautics Board (``the Board''), the agency formerly responsible for the airline industry's economic regulation, initially adopted CRS rules because the systems had become essential for airline distribution due to the travel agents' reliance on them for investigating and booking airline services. 49 FR 32540 (August 15, 1984). Each system then operating in the United States, with one minor exception, was owned by a single airline, and each owner airline was using its system to prejudice competing airlines and to give consumers biased or incomplete information in order to obtain more bookings. The Board determined that regulations were necessary to keep the systems from substantially injuring airline competition and from misleading consumers. The Board adopted the rules under the authority granted it by 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 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 that the system chose to generate from bookings for domestic travel. The rules also prohibited certain CRS contract terms that unreasonably kept travel agencies from switching systems or using more than one system.

The Board's rules contained a sunset date, December 31, 1990, to ensure that we would reexamine the rules after we assumed the Board's responsibilities for airline economic regulation. We conducted such a reexamination and concluded that the rules remained necessary and should be strengthened in certain respects. 57 FR 43780 (September 22, 1992). The rules were still necessary, because market forces did not discipline the price or level of service offered participating airlines by the systems. CRS owners could use their control of the systems to prejudice airline competition, and the systems could bias their displays of airline services, if there were no rules. 57 FR at 43783- 43787.

Our rules also included a sunset date, December 31, 1997. 14 CFR 255.12; 57 FR at 43829-43830 (September 22, 1992). We began our current reexamination of the rules by publishing an advance notice of proposed rulemaking requesting comments on whether we should readopt the rules and, if so, whether they should be changed. 62 FR 47606 (September 10, 1997). We thereafter published a

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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). We have also been conducting informal studies of recent developments in airline distribution and of the proposed business plan and operational strategy of Orbitz, a travel website owned by five major U.S. airlines.

Almost all of the parties responding to our advance notice of proposed rulemaking and supplemental advance notice of proposed rulemaking have urged us to maintain CRS rules, although many have argued that the rules required changes. Few parties have argued that we should eliminate the rules or that the continued regulation of the CRS business is 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.

Previous Extension of the Rules' Sunset Date

Previously, we have extended the sunset date four times, first to March 31, 1999, and most recently to March 31, 2002. 62 FR 66272 (December 18, 1997); 64 FR 15127 (March 30, 1999); 65 FR 16808 (March 30, 2000); and 66 FR 17352 (March 30, 2001). We concluded that these extensions were necessary to prevent the harm that would arise if the CRS business were not regulated and in view of the fact that extending the rules would not impose substantial costs on the industry. The only party that commented on the first proposed extension--America West Airlines--supported it, as did three parties that commented on the second proposed extension--Amadeus Global Distribution System, America West, and the Association of Asia-Pacific Airlines. Worldspan's comment on the second proposed extension did not oppose the extension. The parties that took a position on the third proposed extension--Delta, Amadeus, Worldspan, and the American Society of Travel Agents--all supported the proposal. Worldspan, Delta, America West, and Orbitz supported our fourth proposed extension, while the Air Carrier Association did not oppose it. The Air Carrier Association, Delta, and America West urged us to revise the rules on some issues as soon as possible.

Status of Our Review

The Department recognizes that our reexamination of the rules should be completed as soon as possible, and the staff is moving forward promptly to bring the rulemaking to completion. Our rules must be updated to reflect current industry conditions, and we must consider whether the rules should be extended to the Internet, which is becoming increasingly important in airline distribution.

CRS-related issues may arise that may require a decision before we complete our overall reexamination of the rules. The importance of some issues related to Orbitz, for example, caused us to review Orbitz' business plan before it launched its service to the public, and we are conducting a further review of Orbitz to see whether its actual operations present competitive issues. When expedited action is needed on other issues, we will address them promptly. We are aware that several parties have requested expedited action on specific proposed revisions to the CRS rules, such as rules limiting airline booking fees and giving travel agency subscribers additional rights to cancel CRS contracts. See, e.g., the petition filedby America West on airline booking fees; the Emergency Petition for Rulemaking filedby the Association of Retail Travel Agents in Docket OST-98-4775 on travel agency contracts; the petition filedby Amadeus in Docket OST-99-5888 on the tying of an airline's corporate discount fares with the agency's use of that airline's CRS; and the comments filedby several travel agency parties and the Association of Air Carriers of America requesting expedited action on an amendment that would bar or restrict systems from providing booking and marketing data to airlines. While we currently intend to address all of the rulemaking issues in the overall reexamination, and to do so promptly, we will consider acting more quickly on specific issues as necessary.

Our Proposed Extension of the CRS Rules

We are again proposing to extend the expiration date for our CRS rules by one year, to March 31, 2003, to maintain the rules while we complete our reexamination of the need for the rules and their effectiveness. 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, cannot be completed within the several weeks remaining before the current expiration date, March 31, 2002. Our proposed amendment would preserve the status quo until we determine which rules, if any, should be adopted. Allowing the current rules to expire would 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.

We are proposing to maintain the rules for another year primarily in order to protect airline competition and consumers against unreasonable and unfair practices. In our past reviews of the need for CRS rules, we found that CRSs were still essential for the marketing of the services of almost all airlines. 57 FR 43780, 43783-43784 (September 22, 1992). We concluded that rules were necessary because travel agencies were the airlines' principal method of distribution, because travel agencies relied on CRSs, because most travel agency offices used only one CRS, because airlines and other firms had not successfully encouraged travel agencies to use alternatives for CRSs, and because non-owner airlines were unable to induce agencies to use CRSs that provided better or less expensive service to the airlines. 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. The importance of marginal revenues in the airline industry meant that no airline could 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.

These findings still appear to be valid. Travel agencies still make most airline bookings in the United States, travel agencies still rely heavily on CRSs to obtain information on airline services and to make bookings, and most travel agency offices rely entirely or predominantly on one system to carry out these tasks. The decisions of most low-fare airlines to participate in each system, even though several initially believed that they could reduce their costs while not forfeiting much traffic by declining to participate in the systems, support these findings. 62 FR at 47608. As noted above, most of the

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parties that responded to our advance notice of proposed rulemaking and supplemental advance notice of proposed rulemaking have stated that the rules remained necessary, and most of them have urged us to strengthen them further to protect against potential abuses by system owners.

Thus, while we have not made a determination 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. Maintaining the current rules 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 the systems' ability to engage in practices that could prejudice airline competition and lead to consumer deception. 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.

Furthermore, 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 further supports our continuation of the rules. 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 recognize that the airline distribution system and the CRS business are changing. The Internet's role in airline distribution is growing rapidly. Two of the systems--Sabre and Galileo--are no longer controlled by airlines. American and Southwest market Sabre, however, and United markets Galileo, so these two systems each have significant airline ties which could potentially lead to deceptive or unfair competitive practices if our rules expired. Whether the rules should be readopted in light of the changes in system ownership is, of course, an issue that we are carefully considering in our reexamination of the rules. 65 FR at 45554, 45556. As stated above, we recognize the importance of updating the rules to reflect all such developments.

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. 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 not impose significant costs on the systems. They have already taken the steps necessary for compliance 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. Keeping the rules in force will benefit participating airlines, since otherwise they could be subjected to unreasonable terms for participation, and consumers, who might otherwise obtain incomplete or inaccurate information on airline services. The rules also prevent some types of abuses by systems in their competition for travel agency subscribers.

When we conducted our last major CRS rulemaking, we included a tentative economic analysis 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. 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.

Furthermore, maintaining the current rules 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 filedon 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 rules will 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.

Continuing the rules will protect smaller non-owner airlines from several 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 airlines affiliated with the systems 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 multiple systems. By prohibiting display bias based on carrier identity, the rules also enable travel agencies to

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obtain more useful displays of airline services.

Our proposed rule contains no direct reporting, record-keeping, 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.

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

Federalism Assessment

This proposed rule has been reviewed in accordance with the principles and criteria contained in Executive Order 13132, dated August 4, 1999, and it has been determined that this action does 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 proposed rule will not limit the policymaking discretion of the States. Nothing in this proposal would directly preempt any State law or regulation. We are proposing this amendment 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. We believe that the policy set forth in this proposed rule is consistent with the principles, criteria, and requirements of the Federalism Executive Order and the Department's governing statute. Comments on these conclusions are welcomed and should be submitted to the docket.

List of Subjects in 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 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:

   Sec. 255.12. Termination.

   The rules in this part terminate on March 31, 2003.

   Issued in Washington, DC on February 12, 2002, under authority delegated by 49 CFR 1.56a (h) 2. Read C. Van de Water, Assistant Secretary for Aviation and International Affairs.

   [FR Doc. 02-3924Filed2-13-02; 1:03 pm]

   BILLING CODE 4910-62-P