[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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