    [House Hearing, 108 Congress]
    [From the U.S. Government Publishing Office]

                                                       S. Hrg. 102-000 deg.

           CRS REGULATIONS AND SMALL BUSINESS IN THE TRAVEL INDUSTRY

    =======================================================================

                                    HEARING

                                   before the

                SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT

                                     of the

                          COMMITTEE ON SMALL BUSINESS
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                   __________

                         WASHINGTON, DC, JUNE 26, 2003

                                   __________

                               Serial No. 108-22

                                   __________

             Printed for the use of the Committee on Small Business

     Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                     house

                                     ______

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                                WASHINGTON : 2003
    ____________________________________________________________________________
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                          COMMITTEE ON SMALL BUSINESS

                     DONALD A. MANZULLO, Illinois, Chairman

    ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
    Chairman                             JUANITA MILLENDER-McDONALD,
    SUE KELLY, New York                    California
    STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
    PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
    JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
    SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
    EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
    TODD AKIN, Missouri                  GRACE NAPOLITANO, California
    SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
    BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
    MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
    TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
    JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
    JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
    BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
    CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
    STEVE KING, Iowa                     BRAD MILLER, North Carolina
    THADDEUS McCOTTER, Michigan

             J. Matthew Szymanski, Chief of Staff and Chief Counsel

                         Phil Eskeland, Policy Director

                      Michael Day, Minority Staff Director

                                      (ii)
    ?

                                C O N T E N T S

                                  ----------

                                   Witnesses

                                                                       Page
    Sullivan, Tom, U.S. Small Business Administration................     3
    Ruden, Paul, American Society of Travel Agents...................     5
    Cooper, Richard, National Travel Systems.........................     6
    Rojahn, David, DTR Travel........................................     8
    Pratt, Norma, Rodgers Travel, Inc................................    10
    Schwarte, David, Sabre Inc.......................................    12

                                    Appendix

    Opening statements:
        Schrock, Hon. Edward L.......................................    25
    Prepared statements:
        Sullivan, Tom................................................    28
        Cooper, Richard..............................................    32
        Ruden, Paul..................................................    37
        Pratt, Norma.................................................    58
        Schwarte, David..............................................    61
        Rojahn, David................................................    71

                                     (iii)

           CRS REGULATIONS AND SMALL BUSINESS IN THE TRAVEL INDUSTRY

                                  ----------

                            THURSDAY, JUNE 26, 2003

                      House of Representatives,
       Subcommittee on Regulatory Reform and Oversight,
                                    Committee on Small Business
                                                       Washington, D.C.
        The Subcommittee met, pursuant to call, at 10:01 a.m. in
    Room 2360, Rayburn House Office Building, Hon. Ed Schrock
    [Chairman of the Subcommittee] presiding.
        Present: Representatives Schrock, Gonzalez and Majette.
        Chairman Schrock. We will go ahead and bring the Committee
    to order. I am sure other Members will come in. As you just
    heard, we are going to have votes in about 15 minutes,
    unfortunately. That will be one 15 minute vote and two five
    minute votes. Then we will come back in here.
        Good morning, ladies and gentlemen. Our hearing today
    addresses the Department of Transportation's notice of proposed
    rulemaking on computer reservation systems. Computer
    reservation systems, or CRSs, are the means by which our
    nation's travel agents have automated. They provide the real
    time access to airline schedules and seat availability that
    travel agents and most internet websites rely on to allow
    customers to book airline tickets.
        The Department of Transportation regulates the relationship
    between the airlines and the IRS's because at one time most
    airlines owned CRSs. The circumstances of the industry have
    changed, and these rules are supposed to sunset every five
    years. The last time they were set to sunset was 1997, and the
    travel industry has been waiting since then for an updated set
    of rules.
        Now as Chairman of the Subcommittee on Regulatory Reform
    and Oversight of the House Committee on Small Business, I pay
    very close attention to regulations that will have an impact on
    small businesses. My mandate, in fact, is to investigate any
    and all regulations that will impact small businesses.
        The Department of Transportation, as required by law, made
    the determination that this rule would significantly impact
    small businesses. The problem is they pretty much stopped right
    there. They did not quantify how much it might cost small
    business or how many it would affect, which they are required
    to do.
        In fact, the DOT asserts that some of the proposals would
    benefit small businesses, and a few of the proposals might
    increase cost to travel agencies, but would affect only the
    larger travel agencies. The Department provided no information
    or analysis to back up their assumptions about the impact on
    small business.
        Based on the comments from travel agents and other affected
    parties, DOT must never have consulted with a single affected
    business. Travel agents have consistently, insistently asserted
    the exact opposite of the Department's analysis. The Small
    Business Administration's independent Office of Advocacy also
    asserted that DOT's initial analysis was incomplete and will be
    joining us to testify on this matter today.
        The travel agents and the CRSs are not the only parties
    interested in this rule. Even the Department of Justice has
    weighed in with their concerns and suggested that regulations
    concerning travel agents be dropped. The National Federation of
    Independent Business stated in their comments, and I quote:
    ``We are concerned that DOT has not conducted a thorough impact
    analysis on this rule, and we strongly encourage the Agency to
    consider performing one.''
        The National Business Travel Association was disappointed
    with the initial notice of rulemaking and said: ``The
    regulation is supposed to give consumers, not competing
    interests, more choice, lower costs and enhanced reliability.''
    The NBTA believes it would be a disservice to the traveling
    public if the DOT did not direct the implied benefits of CRS
    deregulation towards the consumer rather than airlines and
    other travel suppliers.
        I want to state clearly that this hearing was not scheduled
    to pick winners between competing interests and businesses in
    this industry. My goal in holding this hearing is to hold an
    agency accountable to the standard that Congress and the
    President has set for taking small businesses into proper
    account during rulemakings. It is also not the job of the
    Department of Transportation to pick winners in this
    regulation. I hope they realize that as they develop the final
    rule.
        We have an excellent group of witnesses today who are going
    to help shed some light on the Department's analysis of the
    rule's impact on their businesses. I look forward to their
    testimony.
        I was going to move at this point to any other Member
    comments, but since they are not here we will just go right on
    into the testimony. Before we begin receiving testimony,
    however, I want to remind everyone that we would like each of
    the witnesses to hold their testimony to five minutes if they
    can. In front of you on the table you will see a box that will
    let you know when your time is up. When the light turns yellow,
    you have one minute to go, and when the red light comes on a
    trap door opens.
        [Laughter.]
        Chairman Schrock. Once the red light is on, the Committee
    would like you to wrap up your testimony as soon as you feel it
    is comfortable.
        Our first person we are going to hear from this morning is
    our friend, Tom Sullivan, who is the Chief Counsel in the
    Office of Advocacy at the Small Business Administration. We are
    happy to have you here, Tom, and look forward to your
    testimony.
        [Mr. Schrock's statement may be found in the appendix.]

     STATEMENT OF THE HONORABLE THOMAS M. SULLIVAN, CHIEF COUNSEL,
         OFFICE OF ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION

        Mr. Sullivan. Thank you, Chairman Schrock. Good morning,
    and thank you for the opportunity to appear here to address
    whether the Department of Transportation is following the Reg
    Flex Act in its proposal to revise the rules regarding computer
    reservation systems, CRSs.
        My name is Tom Sullivan. I am the Chief Counsel for
    Advocacy at the United States Small Business Administration.
    Pursuant to our statutory authority, Advocacy actively solicits
    input from small entities to assist our office in setting
    policy priorities and identifying rules that will affect them.
    Advocacy's involvement in the CRS rulemaking is a result of
    those outreach activities.
        Please note that the statement expressed here this morning
    independently represents the views of Small Business and does
    not necessarily reflect the official position of the
    Administration or of the U.S. Small Business Administration.
        Mr. Chairman, let me start by expressing my sincere
    appreciation for your statements on the House Floor two days
    ago in support of H.R. 1772, the Small Business Advocacy
    Improvement Act of 2003, which passed the House of
    Representatives unanimously. My entire staff was flattered by
    your praise, and I want to thank you and assure you that we
    will continue to serve as a small business watchdog. We will be
    ever more effective once H.R. 1772 is signed into law.
        As Chief Counsel for Advocacy, I am charged with monitoring
    federal agencies' compliance with the Reg Flex Act, as amended
    by the Small Business Reg Enforcement Act of 1996. There is an
    acronym called SBREFA. My written testimony provides an
    overview of the Reg Flex Act and our office's responsibility.
    My written testimony also details President Bush's attention to
    the Reg Flex Act memorialized through Executive Order 13272 and
    gives the Committee an update on our progress in implementing
    President Bush's Executive Order.
        With the Chairman's permission, I would like to submit the
    written statement for the record and skip right to matters
    related to Transportation CRS rulemaking.
        In November 2002, Transportation published the proposed
    rule on CRS regulations. The proposal examines whether the
    existing CRS rules are necessary and, if so, whether they
    should be modified. Transportation's stated intent is to
    eliminate some of the existing rules to promote competition in
    the airline industry, to lower costs and to provide travel
    agencies with protection from costly contracts.
        The analysis provided by Transportation in their proposal
    lacked some of the elements that we believe should be part of
    an initial regulatory flexibility analysis, which is a
    requirement under the Reg Flex Act. Although Transportation
    admits that the economic impact of the proposal will be
    significant, the Agency provides only general statements about
    increased cost and potential savings rather than specific
    information to provide the public with insight into the
    potential magnitude of these costs.
        For example, Transportation states that the proposal to
    restrict or prohibit productivity pricing may increase CRS
    costs for some travel agencies, but the affected travel
    agencies would be larger agencies only. Transportation's
    analysis should provide insight into how this assumption was
    made and what those potential costs could be.
        The Reg Flex Act requires an agency to provide a
    description of the estimated number and types of small entities
    to which the proposed rule will apply. Although Transportation
    states that the proposal will have an impact on segments of the
    small business community, there appears to be no specific
    information on the number of small entities that will be
    specifically affected by the rule.
        It is my opinion, Mr. Chairman and Mr. Gonzalez, that a
    supplemental Reg Flex analysis by Transportation will provide
    the public with greater insight into this rulemaking process,
    as well as provide the necessary information to achieve
    compliance with the Reg Flex Act.
        I urge the Department of Transportation to carefully
    consider the economic impact of this rule on Small Business and
    to examine and fully flush out any alternatives that may
    minimize that impact. I further urge Transportation to fully
    consider the comments submitted by small businesses, many
    represented by the panel this morning, to the rulemaking record
    and the testimony provided by small businesses at the hearing
    in May that Transportation held on this issue.
        The Office of Advocacy is certainly available to work with
    Transportation to assure compliance with the Reg Flex Act while
    accomplishing their desire to improve the CRS system.
        Thank you for the opportunity to appear this morning, and I
    am happy to answer any questions that the Subcommittee may
    have.
        [Mr. Sullivan's statement may be found in the appendix.]
        Chairman Schrock. Thank you very much, Tom.
        Let me recognize the presence of our Ranking Member, my
    good friend from Texas, Mr. Gonzalez.
        Mr. Gonzalez. Mr. Chairman, thank you very much. First of
    all, I need to apologize to the Chair and to the Committee and
    staff, but especially to the witnesses who have taken the time
    and trouble to be here to educate us on what is going on with a
    very important aspect that we are trying to accomplish here.
        I know Mr. Sullivan and I have discussed exactly his role
    and some of his frustration, which I think is demonstrated
    today. I really do appreciate that you are truly an advocate
    and a watchdog for small businesses.
        Mr. Chairman, I have another Committee hearing going on
    with Homeland Security. They are marking up a bill, so if I get
    up it is just to go and vote. I will be back. I promise to
    catch up with as much as I can. Again, my apologies and also my
    appreciation.
        Chairman Schrock. No problem. In fact, the buzzers are
    going to ring in a couple minutes. We have three votes on the
    Floor, and they understand that. Thank you, Charlie.
        Our next witness is Paul Ruden, who is the Senior Vice
    President for Legal and Industry Affairs for the American
    Society of Travel Agents. Paul, we are happy to have you here.
    Thank you.

      STATEMENT OF PAUL M. RUDEN, ESQUIRE, SENIOR VICE PRESIDENT,
     LEGAL AND INDUSTRY AFFAIRS, AMERICAN SOCIETY OF TRAVEL AGENTS

        Mr. Ruden. Thank you, Mr. Chairman, very much. We
    appreciate the chance to share our views on the serious
    problems that this pending DOT rulemaking on computer
    reservation systems is going to pose for our industry.
        I also want to thank you at the beginning for the crucial
    role that the Small Business Committee played in the recent
    extension of the SBA Economic Injury Disaster Loan Program to
    qualified agencies throughout the country and the increase in
    the size standard that allowed more small businesses to qualify
    for those loans. Those actions by your Committee and the
    Congress saved the businesses of hundreds of small travel
    agencies in the wake of the September 11 attacks.
        In a way, today's issue is related to those. You know the
    basic history. Mr. Sullivan quite well summarized the problem
    of years of delay and the issuance last November of a massive
    notice of proposed rulemaking to consider whether to continue
    the rules and, if so, what they should be.
        This NPRM somewhat uniquely, in my all too long experience,
    posed a multitude of conflicting questions and mutually
    contradictory outcomes for consideration by the government and
    the parties. One of those outcomes was to eliminate the rules
    entirely, but DOT then went on to propose a specific set of
    regulations.
        The adoption of those rules, even for a transition period,
    poses the gravest difficulties for our industry. Those rules
    are aimed directly at the economic viability of small business
    travel agencies, fully 98 percent of our industry.
        The proposed rules would make it unlawful for any CRS to
    offer a travel agency a payment of any kind or a discount from
    its fees or any inducement that is designed or intended to
    encourage or reward the Agency's more frequent use of the
    system. These commercial inducements are in many cases the
    margin of survival for small travel agencies, arising in what
    everyone concedes is the most competitive part of the air
    transportation marketplace, yet DOT would ban those rewards.
        While conceding that the proposed rules have a significant
    economic impact on a substantial number of small business
    entities, the NPRM, as Mr. Sullivan has testified, does not
    identify how many will be affected or how large the effect will
    be. Instead, it argues that the rules will increase travel
    agency efficiency by providing greater opportunities to use
    multiple CRS systems, a concept we labeled in our testimony as
    a pipedream.
        To the same effect is DOT's treatment of the productivity
    pricing provisions whereby travel agencies are able to reduce
    the cost of their systems by booking more business. DOT says
    that when these payments are forbidden travel agencies will
    gain flexibility in switching from one CRS system to another.
        While they eventually also recognize that agencies will
    lose revenue because of the proposed rules, they say, and again
    without providing any data whatsoever, that the losers will all
    be the larger agencies and, therefore, presumably of no
    concern. Those are the two percent of our industry who are not
    small business under existing standards.
        Mr. Chairman, this is simply not right. Congress did not
    intend the Regulatory Flexibility Act requirements for impact
    analysis to be empty formalities or broad recitations of
    statutory language followed by general reassurances that all
    will be well, but that is pretty much what we have in this
    rulemaking.
        DOT has the means to obtain very specific information about
    the magnitude and the identity of the recipients of the
    inducement payments made by the CRSs, and from that data you
    could make rational inferences about the likely effects of the
    proposed rules. DOT did none of those things in its initial
    regulatory analysis. Why not?
        That is a very important question because we believe that
    the proposed rules will be fatal to many small business travel
    agencies. Only DOT has the power to determine how many. It has
    the responsibility to collect that information, to do the
    analysis and present it on the public record for evaluation and
    comment before the final rules are adopted, not afterward, when
    the only remedy is going to be a trip to the Court of Appeals.
    If that trip were successful, the rulemaking would get
    reopened. We would start this whole process over again to the
    detriment of everyone.
        We hope this Subcommittee will agree with us on this and
    call upon DOT to conduct the evaluation that we have suggested
    and that Mr. Sullivan has just suggested for each of the rules
    that may reduce the revenue stream or raise the cost that our
    struggling industry now receives or incurs.
        I mentioned, Mr. Chairman, early on that the DOT had talked
    about the alternative of simply eliminating the rules. The
    evaluation they purported to do under the Reg Flex Act, of
    course, did nothing to help there either, and I have some other
    comments I will address during the question and answer period
    perhaps.
        Thank you very much. I would ask that our full statement be
    included in the record, the written statement.
        [Mr. Ruden's statement may be found in the appendix.]
        Chairman Schrock. Without objection. Thank you very much.
        Mr. Ruden. Thank you.
        Chairman Schrock. All the way from Lubbock, Texas, where it
    is probably as hot there as it is here today, is Richard
    Cooper, the president of National Travel Systems. We are
    delighted to have you here.

      STATEMENT OF RICHARD A. COOPER, PRESIDENT, NATIONAL TRAVEL
                                SYSTEMS.

        Mr. Cooper. Thank you. Chairman Schrock, Representative
    Gonzalez, my name is Richard Cooper, president of National
    Travel Systems, a small business based in Lubbock, Texas, that
    operates travel agency branch locations primarily in west
    Texas. Thank you for the opportunity to appear today to share
    my views on the impact of the DOT CRS proposal on small
    businesses and consumers.
        The rules that DOT is proposing will have an immediate
    negative impact on travel agents in the communities we serve.
    Due to the unprecedented challenges in the travel and tourism
    industry over the last decade, travel agencies have been forced
    to change their business models continually to survive and
    serve the consumer interest.
        I believe we have done a remarkable job of adapting despite
    many hardships in the economy and in the airline industry and
    in an increasingly uncertain world. Despite our progress and
    for no sound reason, the DOT is proposing to deliver a major
    regulatory blow to us and our future.
        What would the DOT's proposed CRS rules do to small travel
    agencies like National Travel? Well, there are a number of
    things, the worst of which is a senseless outline of
    productivity pricing incentives for our travel bookings made
    through the CRS.
        Since the airlines reduced our commissions to zero, these
    incentives, which the CRS pays us to reach booking volume
    targets, are an extremely important source of revenue for small
    agencies. My understanding is that the DOT is required to
    assess the impact of the proposed regulations on small business
    and consider whether there are less costly alternatives.
        I would like to know which travel agencies the DOT talked
    to before publishing the NPRM. I suspect the answer is none. I
    do know that every travel agent I have talked to, and I have
    talked to plenty, is extremely unhappy about the rules. Without
    productivity incentives, our agency would have to shift the
    financial burden of each segment booked onto the back of the
    consumer.
        Today, National Travel charges our clients a $35 service
    fee for booking an airline reservation. Without productivity
    incentives, National Travel Systems would have to raise the
    service fee to as much as $50 just to break even. Many
    consumers would find a service fee increase of this magnitude
    excessive. This would force consumers away from travel agents
    and into the arms of the airline owned distribution systems,
    the result that DOT apparently and incredibly wants to
    engineer.
        Why should anybody care? I am going to tell you why. The
    viability of unbiased consumer advice and consumer choice is in
    jeopardy. Independent travel agents play an extremely important
    role in the travel distribution system. We add value to many
    purchasing decisions and often make a difference between a
    successful trip and a disaster.
        For example, during the 9-11 tragedy a corporate customer
    was desperately trying to locate its employees that were
    scheduled out that week. At the request of the CEO, we promptly
    located all of the staff except for the individuals traveling
    using an on-line service. Needless to say, he changed the
    policy shortly thereafter.
        In this rulemaking, the DOT has put the brand of personal
    and consumer oriented service at risk. There is no question
    that major airlines have a very tough road ahead to return to
    financial health. However, any actions taken by the DOT to help
    the airlines should not come at the expense of other travel
    industry participants, especially small travel agencies like
    mine, and certainly not at the expense of consumer choice and
    price.
        The proposed CRS rules shift a disproportionate financial
    burden to travel agents and are, therefore, anti-competitive.
    The NPRM would create an unlevel playing field with a wealth
    transfer from traditional, non-airline owned entities to
    airline owned channels of distribution. This is not the proper
    role of government.
        Other issues that the DOT should have considered, but did
    not have a negative impact on the NPRM, are small carriers and
    other sectors of the travel and tourism industry and on small
    American towns and rural areas. I would hope we have a chance
    to explore some of these impacts at the hearing.
        DOT extols the internet in its rulemaking and, rather than
    let market forces work, seeks to engineer its greater use. The
    internet is an important source of information for some, but it
    is not for everyone. As a father of three and a husband, the
    absolute last thing I want to do when I get home is subject
    myself to navigational confusion, viruses, spamming,
    unsolicited e-mails and knowing Orbitz's pop-ups while surfing
    for an airline fare without an opinion about price fairness.
        Many consumers, particularly rural consumers, do not have
    and cannot afford internet access, let alone high speed access,
    or they simply do not own credit cards. Many that do have
    credit cards do not want to risk identity theft. Furthermore,
    many seniors and baby boomers were raised in an era of doing
    business face-to-face with folks you know in your community.
    That is a preference worth preserving.
        Again, the internet works for some people, but it does not
    work for all. The DOT should be trying to preserve consumer
    choice instead of undermining it through the NPRM.
        In conclusion, the regulation, open markets and consumer
    freedom of choice are far better alternatives to defective
    rulemaking, which utterly fails to take into account the impact
    on small business and consumers and utterly fails to consider
    less intrusive alternatives. I hope the process of undoing this
    neglect has now begun.
        Thank you for the opportunity to share my views.
        [Mr. Cooper's statement may be found in the appendix.]
        Chairman Schrock. Thank you very much, Mr. Cooper.
        I think we are going to recess here for a short time, and
    Mr. Gonzalez and I will go do our duty and vote. We will be
    back as quickly as we can get back. Thanks.
        [Recess.]
        Chairman Schrock. Thank you for your indulgence. This is
    apparently going to happen every hour or so all day today, so
    please bear with us.
        We are glad to have David Rojahn here, who is the president
    of DTR Travel, Inc. He is from Englewood, Colorado. We are
    delighted you are here. Thank you.

       STATEMENT OF DAVID L. ROJAHN, PRESIDENT, DTR TRAVEL, INC.

        Mr. Rojahn. Thank you. Chairman Schrock, Members of the
    Subcommittee. I am honored to have this opportunity to testify
    before you today as a small business owner on the notice of
    proposed rulemaking on the computer reservation systems pending
    before the Department of Transportation.
        My name is David Rojahn. I am the president of DTR Travel,
    Inc., in Englewood, Colorado, which is a suburb of Denver. My
    wife and I opened our agency back in 1993. DTR Travel employs
    three travel agents. Our business mix is primarily leisure and
    small corporate accounts. DTR is a member of the American
    Society of Travel Agents where I have recently served as
    president of the Rocky Mountain Chapter.
        I request that my written statement be part of the
    Subcommittee's hearing record.
        Mr. Chairman, I believe my business is pretty typical of
    the small businesses that constitute the vast majority of
    travel agencies still serving millions of travelers from every
    corner of the United States. My business has grown up under CRS
    rules that have been in effect since 1984. We have never known
    another regime.
        The existing CRS rules have worked well. Small travel
    agents have obtained more and more services through their CRSs,
    and options for subscriber contracts have increased over time.
    CRSs have shown flexibility, especially in helping small travel
    agents deal with the economic pressures since September 11.
        This is not to say that we think continued regulation is
    the best approach. In fact, I can tell you that we strongly
    share ASTA's view that no regulation at all would be far
    preferable to the regulations now being proposed by DOT, which
    seem to be aimed squarely at making my business extinct.
        The proposed rules seem to be heavily weighted in favor of
    the largest airlines and Orbitz. This seems unhealthy, and it
    will likely have a negative effect on CRS services and the
    economics of small travel agencies. As Paul Ruden testified on
    May 22 before the DOT, the large airlines are the problem, not
    the CRSs. The airlines are attempting to take as much business
    away from small agencies as they can. The proposed rules
    support the large airlines in this regard and should not be
    adopted.
        Specifically, the proposal to prohibit productivity pricing
    and other CRS incentives is inappropriate. Productivity bonuses
    are a means by which the CRSs share rewards of good performance
    by the agency, something that the large network airlines seem
    to be determined to avoid. They want to keep the rewards a more
    efficient means of doing business for themselves and to shut
    out travel agencies from any meaningful source of supplier paid
    revenue.
        A small travel agent may decide that another type of
    contract is preferable, but all agents have and should continue
    to have the option of choosing productivity pricing if it makes
    good business sense.
        Also, small travel agents have subscriber contract options
    that allow them to choose the model that best fits their needs.
    Small agents on the Galileo system, for example, can choose the
    Select and Connect option and avoid production requirements
    altogether. Moreover, agents can choose different contract
    lengths that are available, and an agent should be able to
    choose the length that best fits their needs.
        Some small agents still prefer a five year contract, which
    provides stability and better economics, while others want more
    flexibility. The CRSs have generally provided that flexibility,
    a business approach that once again seems lacking in the large
    network of airlines.
        DOT says it needs to make some changes in order to allow
    travel agents to use alternatives to CRSs. Though I embrace
    having many alternatives to include in my tool kit, it does not
    make sense for a small travel agent to use more than one CRS,
    for the training would be costly and unproductive, not to
    mention the additional technical cost to support multiple
    network connections.
        Subscriber contracts provide room to use such alternatives
    if the travel agent wishes. As technology develops, maybe this
    will make more sense as a practical matter, but changes in the
    rules to prevent travel agents from making deals with the CRSs
    are absolutely inappropriate.
        DOT and some parties suggest that travel agents should pay
    for more of the CRS cost and fees. Airlines are the ones that
    derive the primary benefit from CRS services, and they should
    pay the lion's share. Travel agents are just agents of the
    airlines. Small travel agents should not and could not pay more
    since they are financially stretched, particularly since
    airlines stopped paying base commissions and small agents have
    a limited opportunity for revenue from override commissions.
        The idea that we or our customers can or should pay
    directly the airlines' booking fee expenses is uniquely a bad
    idea and one that I understand even the Justice Department is
    no longer pressing.
        Travel agents need access to a broad inventory to service
    their customers well and retain their base of business. We do
    not want to be pawns in the power struggle between the airlines
    and the CRSs over listing and delisting.
        Mr. Chairman, I am not a lawyer nor an expert on CRS rules.
    What I am is a small businessman who understands what he needs
    to do business in today's technology based world. It is beyond
    the understanding that the Department of Transportation, with
    no apparent study to the specific consequences for businesses
    like mine, would propose to ban CRSs, the area of the
    marketplace where the competition is strong.
        In conclusion, I thank the Subcommittee for the opportunity
    to testify today on DOT's proposed CRS rules. I strongly urge
    the Small Business committee to convince DOT any new CRS rules
    should retain flexibility in the travel agent agreements with
    the CRSs, especially productivity and other incentives.
        Thank you.
        [Mr. Rojahn's statement may be found in the appendix.]
        Chairman Schrock. Thank you very much. You do not have to
    apologize for not being a lawyer. I am not either.
        Mr. Rojahn. Okay.
        Chairman Schrock. There is nothing to apologize for. Thank
    you.
        Our next witness Norma Pratt, who is the president of
    Rodgers Travel in Philadelphia, Pennsylvania. We are glad to
    have you here. Thank you.

      STATEMENT OF NORMA R. PRATT, PRESIDENT, RODGERS TRAVEL, INC.

        Ms. Pratt. Yes, Mr. Chairman. My name is Norma Pratt, and I
    am president of Rodgers Travel in Philadelphia. Rodgers Travel
    is the oldest African-American travel------.
        Chairman Schrock. Mr. Pratt, could you please pull the
    microphone closer?
        Ms. Pratt. Sorry.
        Chairman Schrock. It is not the greatest system in the
    world. We are doing it on the cheap, which should make the
    taxpayer feel happy.
        Ms. Pratt. Rodgers Travel is the oldest African-American
    travel agency in the United States. Our agency is an 8(a) firm
    and holds several DOD and GSA contracts to perform services for
    federal agencies in California, Colorado, Delaware, New Jersey
    and some other states. We also are certified locally and
    regionally for other minority type things. We are also long-
    term members of ASTA and SGTP and ITAS.
        Since our founding in 1949, Rodgers Travel has been
    dedicated to providing professional and cost efficient travel
    services to government, corporate and leisure travelers
    worldwide. I have been personally active in Rodgers Travel
    since 1974.
        Today, we employ 40 persons. We have worked hard to build a
    business that is important to our community, to our customers
    and to our employees, but it has not been easy. We have stayed
    in business and continued to serve our customers by being
    innovative, flexible, patient and always focused on those
    things that cause people to want to do business with us, but
    the obstacles have been high and the hours long.
        Most of our problems have been caused by the airlines'
    inability to conduct their business as efficiently and as
    innovative as I run mine. Perhaps they should pay more
    attention to those things that cause people to want to do
    business with them rather than paying attention to their stock
    options and undeserved bonuses.
        My company, Rodgers Travel, has gone from handwriting
    tickets for walk-in customers to having our own website, yet we
    estimate that 50 percent of our traditional African-American
    clients and a very large percentage of the military enlisted
    personnel we serve do not have internet access, and for them
    our agency is the only place in their immediate neighborhood
    where they can learn about all their options and independently
    exercise the freedom to select travel methods of their own
    choosing.
        We need to be able to continue to provide objective advice
    to our traditional walk-in clients and our government clients
    nationwide, yet under DOT's proposal airlines will be able to
    put their fares only on some CRSs and not in others. I believe
    that all airlines should be required to put all of their fares
    in all CRSs. This will help ensure that the lower income folks
    are not being discriminated against because they do not have
    personal internet access to all airlines and all fares. Travel
    agencies need all fares and all inventory content in one CRS to
    make this happen.
        Our customers tell us that they appreciate the value we
    give them, even when we are forced to start charging them a fee
    that became necessary when the airlines told us they would not
    pay us for selling their seats.
        If the Department of Transportation's proposed changes in
    the rules governing travel distribution are allowed to go
    forward as proposed, not only would lower income people without
    internet access be denied fare access equality, but also small
    businesses such as ours will be harmed in many ways, harm that
    is unnecessary and completely preventable.
        Under our present CRS contracts, the more productively we
    use the CRS system the more money we either make or save
    depending on our volume. In effect, we are paid a commission by
    our CRS vendor for each booking. This is a vital source of
    revenue for our company and for most other travel agencies.
    Without this income, we will be forced again to raise the cost
    of an airline ticket to those who can least afford it, or the
    travel agency will be out of business.
        Mr. Chairman, I cannot understand why the DOT believes that
    it should prohibit us from being paid based on our performance,
    which I always thought was a hallmark of the free enterprise
    system. In other words, I cannot understand why the government
    would pick winners and losers in the travel distribution area,
    and the losers would be us, the small businesses that are the
    backbone of our nation's economy.
        As I see it, there can only be one possible explanation for
    these proposals. DOT does not have a clue about how the travel
    distribution system works and how it affects Americans in the
    real world. I understand that DOT is supposed to fully consider
    the impact of rulemaking on small business, but it seems
    obvious to me that DOT has not spent 10 minutes thinking about
    Rodgers Travel and other small businesses like mine.
        Neither have they spent any time considering how it will
    affect the internet unconnected Americans. It seems to me that
    it will only help the airlines continue to operate their
    businesses poorly.
        The end.
        [Ms. Pratt's statement may be found in the appendix.]
        Chairman Schrock. Thank you very much. Your next paragraph
    was going to be very interesting, but I will make sure it is in
    the record as well.
        Ms. Pratt. Okay.
        Chairman Schrock. Our last witness this morning is David
    Schwarte, who is the Executive Vice President and General
    Counsel for Sabre Holdings Corporation. We welcome you, David.
    Thanks for being here.

     STATEMENT OF DAVID A. SCHWARTE, EXECUTIVE VICE PRESIDENT AND
              GENERAL COUNSEL, SABRE HOLDINGS CORPORATION

        Mr. Schwarte. Thank you. Good morning, Mr. Chairman and
    Congressman Gonzalez. Thank you for the opportunity to appear
    here this morning.
        Through the Sabre computer reservation system, we provide
    automated tools for selling all types of travel products for
    our travel agency customers. In the United States, about 5,600
    of those are small businesses. The Sabre CRS is one of four
    systems that competes across the globe. We are not a small
    business ourselves, but we are intimately involved in helping
    small businesses, like the witnesses here this morning,
    succeed.
        Sabre's bottom line is this. First, the Department of
    Transportation's NPRM is headed in exactly the wrong direction.
    It is designed to favor the large carriers over all others in
    the industry, including small businesses. If adopted, the NPRM
    would have an enormously detrimental effect on many in the
    travel industry, particularly our smaller travel agency
    customers, and you have heard much about that already this
    morning. The NPRM is nothing more than pork barrel regulation
    at its worst.
        Second, because of the tremendous changes that have
    occurred in the CRS industry since the rules were last
    readopted in 1992, rules are no longer needed in the United
    States in our view, period, full stop. Worse yet, the rules
    actually distort the market.
        As the Department of Justice recently noted, nearly all of
    the provisions of the CRS have been ineffective, and they carry
    an unjustifiable cost burden for consumers. To be blunt, the
    CRS industry is the poster child for the law of unintended
    consequences of government regulation.
        This industry is so dynamic that it is simply impossible
    for any regulator to accurately predict the consequences of
    new, more intrusive rules. It should be lost on no one that
    core provisions of the existing rules that DOT thought were
    essential in its first draft of the NPRM in April 2002 it now
    says actually hurt competition.
        A simpler, better alternative to the NPRM is to deregulate
    this industry once and for all. A solution that relies on the
    free marketplace will produce a far better outcome than
    bureaucratic central planning.
        Mr. Chairman, what is fatally wrong with the NPRM and why
    is it met with a tsunami of criticism? The answer is that DOT
    has constructed a proposed rule that is imbalanced and
    misguided. With respect to airlines, it seeks to eliminate the
    present obligations of fair dealing that large carriers have
    under the CRS rules. In addition, the NPRM would forbid CRSs
    from negotiating contract terms with airlines that provide
    safeguards for our travel agent users.
        For example, DOT proposes to prohibit systems from
    negotiating deals with even the largest airlines that would
    insure access to all of those airlines' fares, including web
    fares, for our travel agency users. Travel agents cannot serve
    their customers if they are denied the ability to offer those
    customers the full range of travel options. How can such an
    attempt by DOT to hand greater leverage to some of the largest
    carriers in the world be in the best interest of consumers or
    travel agents or, for that matter, anybody but the large
    airlines?
        In sharp contrast, DOT seeks to increase the regulatory
    burden on travel agents and CRSs. You have heard much about
    that this morning, but let me elaborate for a minute. Among
    other things, the Department of Transportation has suggested
    that it might shorten by decree the length of contracts we and
    travel agents are allowed to negotiate to perhaps three years
    and maybe one, irrespective of what the CRSs or the travel
    agents think is in their best interest as a business.
        Even though the travel agents have been badly bloodied by
    the airline industry deciding to pay them zero for the valuable
    services that they render, DOT wants to inflict a further wound
    by restricting CRSs from compensating subscribers for making
    productive use of our systems. Take away this income stream,
    and many travel agents would be forced to close their doors.
        In six years in which this rulemaking has dragged on, the
    marketplace for travel distribution has changed dramatically.
    Once nearly 90 percent of all tickets were sold through the
    CRSs. Today, it is just over half. Even more importantly,
    airlines have shed their interest in the CRSs, and if the World
    Span sale closes as announced this summer the vertical
    integration between airlines and CRSs that was the reason the
    rules were adopted in the first place will have evaporated.
    With that link having evaporated, the need for regulation will
    have disappeared as well.
        In conclusion, Mr. Chairman, the NPRM is fatally flawed. It
    should not be adopted in any form. DOT should simply let the
    rules lapse on January 31, 2004, when they are scheduled to
    expire. There is no market failure in this industry that would
    justify continued command and control regulation.
        Like every other industry in America, vigorous enforcement
    of antitrust laws and unfair competition laws by the Department
    of Justice and by the FTC will be more than adequate to assure
    that any misconduct is dealt with if it arises in a deregulated
    environment.
        I thank you very much for your attention and look forward
    to answering your questions.
        [Mr. Schwarte's statement may be found in the appendix.]
        Chairman Schrock. Thank you very much, and thank you all
    for your testimony. It was very good.
        Tom, your office filed comments on this rule letting the
    Department of Transportation know that its analysis was
    inadequate. You offered your assistance.
        I am curious. Has the Department of Transportation
    responded to your assistance, and do any other agencies require
    your assistance from time to time on certain issues?
        Mr. Sullivan. Mr. Chairman, with regard to this specific
    rule, no, the Department of Transportation has not requested
    our assistance in moving forward on the CRS regulations. They
    have received our comments certainly offering our assistance,
    but, no, they have not taken us up on this.
        With regards to other agencies taking advantage of the
    resources that we have in the Office of Advocacy, the answer is
    yes, other agencies do contact us frequently, and those
    requests range from help doing regulatory analysis, because we
    do have a team of regulatory economists on staff, all the way
    through to folks just in the regulatory community wondering
    what types of small businesses may be affected.
        From time to time, agencies do call us and ask whether or
    not we can put together a round table of small business groups
    so that they can flush out how certain proposals will affect
    broad members of the small business community, which really
    benefits the ultimate decisionmaking that we see lacking in
    this particular rule.
        Chairman Schrock. Why do some agencies do it and DOT, for
    instance, does not? Any ideas?
        Mr. Sullivan. I do not know, Mr. Chairman.
        Chairman Schrock. Okay. I do not either.
        What would a really good reg flex analysis have looked
    like, and how would it have helped us notice a proposed
    rulemaking?
        Mr. Sullivan. Mr. Chairman, with your permission I will
    answer and also turn it over to the panel to answer if you
    would like------.
        Chairman Schrock. Sure.
        Mr. Sullivan.--because they know how this rule will impact
    their own businesses.
        We are starting to train government agencies on what
    constitutes a good reg flex analysis, and we actually have a
    training guide that uses as an example a Federal Trade
    Commission rule. In that training document, it lays out what
    constitutes good analysis. That is simply dollar amounts,
    burden amounts of what different regulatory approaches would
    mean to a small business.
        For instance, if the Department of Transportation says that
    efficiencies will lead to lower airline prices, ticket prices,
    then that should be backed up with some economic analysis of
    what those lower prices would mean.
        What we see are statements, Mr. Chairman, but not backed up
    with economic analysis that should be part of their submission
    under the Regulatory Flexibility Act.
        Chairman Schrock. Mr. Sullivan suggested you all might want
    to have a crack at that. Any of you want to comment on that?
    Paul?
        Mr. Ruden. Mr. Chairman, I mentioned in my testimony that
    the amounts of money at stake in the productivity/ signing
    bonus/incentives area, of which there are many different
    approaches. The marketplace is very vibrant and dynamic in this
    respect. A lot of negotiating goes on and so these payments and
    cost reductions take many forms, but they are not particularly
    mysterious. We are not talking about secret formulas.
        Had DOT reached out to the CRSs and to the airlines, they
    could quantify to a very substantial degree, if not 100
    percent, exactly how much money is involved, which agencies are
    getting it, and we are not suggesting that they name the names
    obviously. They would aggregate the data in an appropriate
    manner to protect the confidentiality of business information.
        They have the power to get that information, and it is
    there. It is there to be had. It is the essence really. Each
    one of these rules will have identified effects on streams of
    income or cost burdens that can have numbers put to them. They
    also, it seems to me, should be asking and looking into the
    extent to which travel agents, small businesses, already hang
    on the edge of failure because of all the consequences.
        We hear this in the airlines all the time about how much
    money they are losing and they were hurt by 9-11 and hurt by
    the economy and hurt by the war and hurt by SARS. They are not
    alone. The entire industry has been impacted in exactly the
    same way by those things, and so they alone should not be the
    people who get taken care of.
        All we are asking in this respect is that the government do
    their homework, and then if they can still justify these rules
    so be it. We will have a nice argument about that at that
    point, but it would not be an argument just about philosophy.
        Chairman Schrock. Any other comments? Mr. Cooper?
        Mr. Cooper. Mr. Chairman, I would like to bring it to a
    different framework, and that is the area where my travel
    agency and our branch locations operate.
        Generally the rules are about economies of scale, and if
    you look at where my branch locations are west of Dallas to El
    Paso, north of San Antonio to the top of the panhandle, there
    are numerous communities, very few of them over 200,000. My
    headquarters happens to be in Lubbock, Texas. Amarillo, Texas,
    is 200,000. You have Midland. I know Odessa, Texas, is about
    200,000, but everything else in between that area is generally
    anywhere from 5,000 to 50,000 in population.
        The financial burden that is being shifted in these rules
    proposed will cause basic business analysis to go forth, and
    consolidation will continue. I have full service, independent
    travel agents in these marketplaces, and right now the
    financial pressure that we are under if these rules are put in
    place, I am not so sure that I would be able to operate in any
    community under 100,000 at least. That would be a very
    troublesome thing.
        You are taking, in my opinion, away choice. The people of
    this area make up anywhere around say 100 plus counties. It is
    two point some odd million in population, and I think these
    folks deserve to have human interaction and human choice and
    unbiased opinions.
        If DOT shifts these rules back onto us and forces us to
    have that financial burden passed back down to the consumer, we
    are going to have to make changes, and we are going to have to
    deny some of these folks obviously travel opinion.
        Chairman Schrock. Sure. Thank you. My time has expired.
        Before I turn it over to Mr. Gonzalez, let me welcome
    Congresswoman Majette from Georgia. We are glad to have you
    here, Judge. Thanks.
        Mr. Gonzalez?
        Mr. Gonzalez. Thank you very much, Mr. Chairman.
        There really is just the threshold question that is before
    us today, even though I understand the testimony of the
    witnesses other than Mr. Sullivan. That obviously tells us that
    DOT did not inquire of the small business community the
    potential impact of the changes, which is a requirement.
        I think Mr. Sullivan is putting us on notice that it has
    been inadequate. There needs to be a supplemental study, again
    an analysis, an evaluation. It does not appear that we really
    do have all the evidence before us.
        The lawyers would know what I am talking about. My
    colleague to my left was a former Judge, and I know you had
    said there is no reason to apologize not being a lawyer. There
    is no reason to apologize for being a lawyer.
        [Laughter.]
        Mr. Gonzalez. That really is a question before the
    Committee, and we take it very seriously. I do appreciate the
    way this was presented.
        I do not want to take sides over what size travel agency a
    reg will help or what it does in the industry. I do not want
    anything to be unfair. I love a level playing field, and then
    your own talent and industry will decide whether you succeed in
    this wonderful capital system. That is what this is all about,
    that before the government promulgates this regulation that we
    understand the impact.
        I think there was one statement made, and I think it was
    the ability to offer a full range of travel options. Are we
    going to have regulations that will actually impact that? That
    serves the consumer. All the testimony from the individuals
    that have their own outfits, their own enterprise, seems to
    point out that none of this was taken into consideration. I am
    convinced that it was not, and I will base that not just on the
    testimony of what I refer to as the lay witnesses, but from
    counsel.
        I do not really have a whole lot to add to this whole
    discussion other than I would join counsel, and I appreciate,
    Mr. Sullivan, the fine job that you continue doing. We were
    trying to figure out how we would give you more independence
    and such, but you are doing a great job, and I appreciate your
    analysis and would be joining you in your request and look
    forward to working with you.
        Again to the witnesses, thank you very, very much.
        Chairman Schrock. Thank you.
        Judge Majette?
        Ms. Majette. Good morning, ladies and gentlemen. I
    apologize. I was not here for the oral testimony. I do have a
    question for Mr. Sullivan, though.
        Other than the letter that you sent to Secretary Mineta
    that would urge the Agency to prepare the supplemental IRFA,
    what additional steps do you foresee you could take to ensure
    that the DOT complies with the Reg Flex Act in the context of
    this rulemaking process and otherwise?
        Mr. Sullivan. Judge Majette and Judge Gonzalez and Mr.
    Chairman, this certainly is a distinguished panel with two
    Judges and a distinguished Chair.
        You asked a very good question about what else can we do. I
    think I would like to start even before the March letter. My
    office does not send over comment letters prior to contacting
    the agencies in the first place. I think it is just
    professional courtesy that you give a heads to agencies to say
    look, we do not think you are proceeding the right way. That
    happens within the federal decision making before the public
    has an opportunity to see proposals.
        We actually take great pride in that because the changes
    that occur that help small businesses usually can be
    accomplished before the ink is dry on a regulatory proposal. We
    are very proud of the fact that we do accomplish tremendous
    victories that no one really knows about, but I guess Small
    Business most of the time can sleep well at night knowing that
    that work is going on behind the scenes before a rulemaking is
    proposed.
        Once the rule is proposed then we do comment, and you have
    seen our comments in March. We then follow up with the
    regulatory agencies to make sure, one, that they received the
    comment letter and, two, whether or not there is an opportunity
    to help the Department get it right.
        In this particular instance, I think there is a tremendous
    amount of activity by the small businesses and the folks that
    the small businesses have to represent them in Washington, D.C.
    to actually fill in the gaps. I mean, we can talk about the
    need for regulatory analysis, but we do not necessarily have
    all the numbers and all the impact.
        The folks here that are represented at this table, they
    know how this rule is going to impact them, and they rose to
    the occasion to tell the Department of Transportation exactly
    how this will impact them and pleaded with them to take those
    comments into account before finalizing the rule.
        Now, in addition to echoing those types of things and
    certainly working with this Subcommittee to impress upon the
    record and impress upon Department of Transportation, who
    undoubtedly is aware of this hearing, we then will let that
    decisionmaking take its course with the optimistic hope that
    these comments be incorporated into their final approach,
    whatever that final approach may be.
        Ms. Majette. Thank you. Maybe you just need to get another
    press secretary so you can get the word out about the wonderful
    work that you do that perhaps goes unappreciated.
        With respect to the effect of these regulations on the day-
    to-day operations of travel agents, and I guess you all can in
    the time remaining jump in and address that for me, but it
    seems to me that it becomes increasingly burdensome to impose
    fees or to charge fees on individual clients who want to use
    the services that you offer.
        Just speaking from a personal perspective, sometimes I go
    on the internet and will make travel arrangements, but I like
    it when there is somebody that I can talk to who will sort of
    do that work for me and work through the situation and give me
    lots of options that perhaps I was not aware of and really
    provide that important customer service.
        I think it is important that we preserve that. What do you
    really think that we can do about this situation with
    increasing numbers, increasing amounts of fees? Is there a way
    that we can get rid of that?
        Mr. Ruden. Judge, I can offer a couple thoughts about that.
    I think there is a widespread belief now in the industry that
    fees have reached pretty much the limit of consumer tolerance.
        The airlines' objective when they began, the very first
    announcement of the commission caps in 1995 in February put out
    by Delta Airlines said this will not be a problem capping your
    commissions because you can get the money back from the
    consumers. They put that in the very first announcement of the
    cuts that led to a series of five or six major reductions to
    the point where we have now reached zero.
        Their objective was clear--to shift off of their financial
    books the cost of that particular part of distribution expense
    and make consumers pay it directly. Now we see this repeating
    itself, and it is reflected in this rulemaking, the notion to
    pursue a goal that, as I said in my testimony earlier, was a
    pipedream of having travel agencies have two and three
    different CRS systems. The average agency is, you know, four or
    five people.
        Ms. Majette. Right.
        Mr. Ruden. They are never going to do that no matter what
    the rules say. They are chasing a solution that simply has no
    commercial reality behind it on the theory that the public can
    have these additional costs like CRS booking fees shifted down
    to them as well.
        This is why this analysis is really so important. It comes
    at the end of every rulemaking. It is interesting. You read 65
    pages of Federal Register fine print about all the rules in the
    marketplace and the market power and the abuses and the
    history, and then only at the very end do you come to the
    regulatory flexibility part.
        I think it is a fair conclusion here that they simply did
    not take it seriously. Their constituency is airlines, not
    travel agencies, not small businesses. That is what they are
    focused on. I think this Committee could do an enormous public
    service by communicating to the Department its view that they
    simply have not done the homework.
        It is not enough to do it at the very end. You have to do
    it in time for the agency, community and anyone else who is
    interested to comment upon the analysis as to whether it was
    adequate, whether the numbers they came up with are correct,
    and then and only then can they proceed to adopt regulations
    that impose these kinds of burdens.
        Ms. Majette. Thank you. I see that my time has expired. If
    any of you want to address it more fully, I would certainly
    appreciate receiving any written comments that you would like
    to submit, with the Chair's permission.
        Chairman Schrock. We will have another round here in just a
    few minutes. Thank you, Judge.
        Let me ask a question of Mr. Rojahn, Ms. Pratt and Mr.
    Schwarte. What exactly would these rules do to your business if
    they are implemented? Could you all survive, and could your
    fellow agents survive?
        Mr. Rojahn. Mr. Chairman, I will start. We could survive,
    but it would be extremely difficult. I think there is a
    misperception that some of the productivity incentives that a
    small agency receives is a windfall profit. That is completely
    wrong.
        What a lot of these incentive fees, and productivity is the
    key word. We do not get paid unless we produce. It is used for
    capital investment. A lot of small agencies use that revenue,
    one, to get through poor months like December and/or invest in
    new PCs to be more efficient in order to serve our customers
    better.
        I would like to just follow up on Mr. Ruden's statement
    that we have reached our threshold as far as fees. Our market
    would not bear us increasing fees any more. In fact, our
    revenue stream for small companies and leisure travelers, we
    are already above what the market would bear, so we would have
    to actually charge a fee lower than our cost in order to
    attract some of that business back.
        We have already reached that threshold, and we could not
    bear the cost of additional fees being passed on to our
    business. Thank you.
        Chairman Schrock. Mr. Pratt?
        Ms. Pratt. Yes. Well, there is no way. We do specialize in
    government, mostly government, GSA and DOD. The government does
    not even pay as high a fee as the general public pays. There is
    no way that my company would be able to remain in business.
        I do not think the government is willing to pay us any more
    money. They would have to if they still want our services and
    our management reports and all the things the government
    requires. Without a doubt, Rodgers Travel depends quite a bit
    on the monies that we receive from our CRS system, and we would
    not be able to survive at all.
        We have been in business since 1949, and we managed through
    all these changes to do okay. This would probably be the nail
    in the coffin that would put us out.
        Chairman Schrock. Thank you.
        Mr. Schwarte. Mr. Chairman, thank you for the question. We,
    of course, are a larger company, and we have other lines of
    business as well. We would survive, but let me not understate
    the fact that the rules would hurt us pretty badly.
        In fact, I think they are designed to do just that and
    transfer wealth from the independent computer reservation
    systems to the airlines that once owned them, sold them off,
    collected the money and then went on their merry way.
        What I would be really worried about, however, is that what
    the rules seem to be designed to do is to lessen the role of
    the independent and neutral distributors of travel information
    in the field of distributing air travel and driving people to
    the biased airline websites and other airline controlled
    ventures.
        As independent distributors of air travel, folks like Sabre
    are really aligned with the interests of consumers. We make our
    money selling airline tickets. We do not care on what airline.
    We actually like low fares because we sell more tickets. We
    design features and functions that help you find ways to find
    low fares quicker.
        If the NPRM succeeds in making this business unattractive
    to independent channels, then we will end up pouring less money
    into developing features that are good for travel agents and
    good for consumers. I think at the end of the day the real
    loser, in addition to the small business, is the traveling
    public because they will have to depend on air carriers to buy
    their air tickets. Let me assure you, the air carriers are not
    looking to sell you cheap tickets.
        Thank you.
        Chairman Schrock. Anybody else want to comment on that?
        Paul, let me ask you. Would it have been difficult for the
    Department of Transportation to collect information on your
    industry to approve their analysis?
        Mr. Ruden. It would not be difficult at all, Mr. Chairman.
    There are only four CRS companies operating in the United
    States, and DOT knows who they are and how to find them and how
    to communicate with them. They have information that would bear
    upon this subject.
        The airlines own the Airline Reporting Corporation, which
    produces data that might help in that analysis, and the
    Department knows those folks pretty well, too, so I think
    really this is not mysterious stuff.
        It is basic homework that you have to do under the law and
    under common sense before you put at risk any further a
    business enterprise, a collection of enterprises that is so
    important to so many tens and hundreds of millions of people. A
    simple letter would have sufficed to each of those entities
    asking for the relevant information. Then they would have to
    do, you know, a little work and analysis, but that is what they
    are there for.
        Chairman Schrock. I am assuming you all agree.
        Judge? No questions? That is fine. Everybody has a busy day
    today. There are a lot of markups, and there is a lot of stuff
    going on on the Floor.
        Let me ask one final question. Tom, DOT has proposed to
    improve their analysis and the final rule. Is this typical, or
    is this something they should do now?
        Mr. Sullivan. I am not sure if the Chairman is asking of
    the typical nature of agencies' responses to these types of
    requests where we have asked to do a supplemental or not or if
    the Chair is asking if this is typical of Department of
    Transportation.
        Chairman Schrock. I guess all agencies really, yes.
        Mr. Sullivan. Certain agencies do supplemental analyses.
    Actually, the one analysis that we are using as an example in
    our training guide from the FTC is in fact a supplemental
    request for information.
        The answer to the Chairman's question is some agencies do
    actually put out additional requests for information. Sometimes
    the agencies do additional analyses. Other agencies produce,
    once they realize that they have not done the appropriate
    amount of analyses, actually do a supplemental reg flex
    analysis in the final rule.
        We would prefer that the agencies produce a separate
    regulatory analysis and then receive comment on that rather
    than producing it in the final rule. What we have found is that
    many times if that supplemental analysis is done at the final
    action then it precludes significant change to help small
    business in conjunction with a final decision.
        Chairman Schrock. Let me ask a second final question, and I
    would like you all to kind of answer this.
        If all these regulations went away, what would protect the
    travel agents from being treated unfairly by you?
        Mr. Schwarte. What would protect them?
        Chairman Schrock. What would protect the travel agents from
    being treated unfairly by you all?
        Mr. Schwarte. Thank you. The hearing is not what it used to
    be.
        Chairman Schrock. Mine is not either.
        Mr. Schwarte. There are two things, Mr. Chairman, and thank
    you for the question.
        First of all, our business is------.
        Chairman Schrock. David, if you could pull that closer?
    Thank you. My hearing is not good either, and you will have to
    turn it on.
        Mr. Schwarte. Is it on now?
        Chairman Schrock. I think it is, yes.
        Mr. Schwarte. Thank you. Thank you for the question, Mr.
    Chairman.
        There are two things. First of all, our business interests
    are not at odds with the travel agency interests at all. I
    think they are almost totally aligned. We only succeed if our
    travel agency customers succeed. Our future is dependent on our
    travel agencies staying in business and, better yet, being
    healthy.
        I think that the history of the last six years in this
    industry has shown that CRSs have gotten very user friendly for
    travel agents. We offer a variety of lengths of contracts. We
    offer deals that have productivity bonuses in them or out,
    depending upon what the agency wants. I think that was pretty
    well documented in the Department of Transportation record.
        The first thing is our natural alignment is with the travel
    agencies' interest. The second thing, of course, is in a
    deregulated environment you have the possibility for vigorous
    antitrust enforcement and unfair competition enforcement by the
    FTC.
        This business has been treated, unlike most businesses in
    the United States, since 1984 at first for good reason. When
    the airlines owned the systems, they had both the means and the
    incentives to use those systems to distort competition in the
    airline field, they had market power over the travel agencies,
    and they had the incentive to use that as well.
        In today's environment, with independent systems that are
    free of airline control, we should be treated, I think, just
    like every other business in America. The Department of Justice
    and FTC have ample laws that they can use if there are abuses
    that should, contrary to the fact that our interests are
    aligned with the travel agents.
        If a CRS should engage in misconduct, then the FTC or the
    Department of Justice could step in immediately to stop that
    sort of behavior, Mr. Chairman.
        Chairman Schrock. Ms. Pratt? Could you pull the microphone
    close to you? Thanks.
        Ms. Pratt. Would you repeat the question really?
        Chairman Schrock. Yes. If the regulations went away, what
    would prevent people like Sabre Corporation, for instance, from
    treating you all unfairly?
        Ms. Pratt. That is a very interesting question, and I
    really have to put my mind to that actually. Generally, I agree
    with what Sabre is saying. There would be no reason for them,
    if we are producing the business for them. If we are producing
    the segments, the flights, then Sabre has to be on our side
    because we are giving them their business.
        At this point, I do not see anything. I think that the
    statement that he made is correct. That is something I would
    have to think about more fully, but on first thought I really
    believe that all of the CRS systems, if they continue the way
    they have been doing now, and there is no reason why they
    should not other than this DOT business. I is the best thing
    for travel agents.
        Chairman Schrock. What I hear you saying is if you win,
    they win. If they win, you win.
        Ms. Pratt. Right.
        Chairman Schrock. Any other comments you all might want to
    make?
        Mr. Ruden. Yes, I am afraid there is. I said when I gave my
    formal testimony earlier that the issue of deregulation had
    been put into this rulemaking and that we had a position on
    that, which was that deregulation was superior as an outcome to
    what they are proposing to do, but there are conditions to that
    superiority.
        One is the notion that the airlines are in fact no longer
    able to influence the CRSs either through ownership or through
    market agreements. There are marketing agreements in place
    between the CRSs and many of the major network carriers that
    have never been vetted on any public record. No one knows what
    they say. No one has ever had a chance to comment on their
    implications, so we think that is an essential step the DOT is
    also failing to do.
        To your point, the third thought we have about this matter
    of deregulation is it is not just the CRSs who get deregulated
    here. As has been said, the original rules were created because
    of airline conduct. The airlines owned the CRSs and controlled
    their behavior. They invented the very things that they now
    complain bitterly to the government should be reversed in their
    favor. It was their conduct that was the concern originally,
    and for us it is still a concern.
        Now, the Department of Transportation has some very capable
    people, and I do not want to be misunderstood to suggest
    otherwise, but they have not historically had the resources and
    perhaps, therefore, not the zeal to engage in a lot of
    enforcement activity. Most of their time seems to be spent
    addressing advertising infractions.
        Small business people cannot sit around for three years
    waiting for the Department to decide whether a complaint should
    be moved forward and then another year or two while it moves
    forward. By then the complaining party is dead.
        One of the crucial things that has to happen here if we are
    going to move down deregulation road is that the government,
    DOT and any other agencies that are going to be involved must
    have a plan for getting those resources and a commitment to
    zealously use them in a very efficient and aggressive way.
    Ordinary antitrust enforcement is not going to solve these
    kinds of problems that may arise as a result of what the
    airlines may do.
        Chairman Schrock. I gather you agree with that?
        Mr. Schwarte. Yes, I do. The Department of Transportation
    has the enforcement power, if it chooses to use it, to police
    misconduct by airlines.
        I have noted as an observer in this industry that mainly of
    the complaints that ASTA has filed have taken an inordinately
    long time to have processed, so I think Mr. Ruden's worry about
    having misbehavior not corrected quickly at the Department of
    Transportation with respect to the airlines is not unjustified.
        Chairman Schrock. Paul, if all these rules went away
    tomorrow what impact would it have on what is clearly a
    beleaguered airline industry?
        Mr. Ruden. Well, the airlines themselves are quite divided
    on that issue. It is very interesting. Some of them are
    advocating immediate and total deregulation. Others are saying
    oh, no. You cannot do that because the CRSs have residual
    market power that they will use against us.
        American Airlines, for example, is a primary advocate of
    that position, and they argue that booking fees--this was the
    old Justice Department proposal, which Justice has now backed
    away from. American wants travel agents and, therefore,
    consumers directly to pay the booking fees for booking their
    services, to me a remarkable economic idea, but they are very
    serious about it and advocating it in this proceeding.
        I think the airlines' problems are so fundamental this
    rulemaking is not the make and break for their economic future.
    The network carriers have got difficulties that go so far
    beyond the question of distribution. The distribution system--
    even in DOT's rulemaking they notice and say repeatedly--has
    been enormously efficient and effective in selling air carrier
    network services.
        As long as they do not foul it all up, they are still going
    to have an enormously creative, small business focused, widely
    dispersed network of distributors to sell their services to the
    American public. Deregulation in the proper circumstances I
    described is not going to harm, in our view, the airlines. They
    have much bigger problems to deal with.
        Chairman Schrock. Let me thank you all for being here
    today. This is a topic that gets increasingly more interesting
    for me every day that goes by and everything I hear.
        We are led to believe that the rule will come out before
    the end of the year, and we are going to be watching that very
    clearly and am very anxious to see what the rule says and then
    maybe give you all a ring again to see what the impact will be.
        I appreciate your testimony. I appreciate you coming here,
    some of you great distances. We hope to see you again.
        This Committee is adjourned.
        [Whereupon, at 11:52 a.m. the Subcommittee was adjourned.]

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