[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Proposed Rules]
[Pages 42208-42217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20736]


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DEPARTMENT OF TRANSPORTATION
14 CFR Part 255

[Docket No. OST-96-1145 [49812]; Notice No. 96-21]
RIN 2105-AC56


Fair Displays of Airline Services in Computer Reservations 
Systems (CRSs)

AGENCY: Office of the Secretary, Transportation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department is proposing to adopt two rules to further 
ensure that travel agents using computer reservations systems (CRSs) 
can better obtain a fair and complete display of airline services. One 
proposed rule would require each CRS to offer a display that lists 
flights without giving on-line connections any preference over 
interline connections. The second proposed rule would require that any 
display offered by a system be based on criteria rationally related to 
consumer preferences. As an alternative to the latter proposal (or as 
an additional rule), the Department is also proposing to bar systems 
from creating displays that neither use elapsed time as a significant 
factor in selecting flights from the data base nor give single-plane 
flights a preference over connecting services in ranking flights. The 
Department believes that these rules are necessary to promote airline 
competition and ensure that travel agents and consumers can obtain a 
reasonable display of airline services. The Department is acting on the 
basis of informal complaints made by Frontier Airlines, Alaska 
Airlines, and Midwest Express Airlines.

DATES: Comments must be submitted on or before October 15, 1996. Reply 
comments must be submitted on or before November 12, 1996.

ADDRESSES: Comments must be filed in Room PL-401, Docket OST-96-1145 
(49812), U.S. Department of Transportation, 400 7th St. SW., 
Washington, DC 20590. Late filed comments will be considered to the 
extent possible. To facilitate consideration of comments, each 
commenter should file twelve copies of its comments.

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

SUPPLEMENTARY INFORMATION: Airline travelers in the United States 
usually rely upon travel agents to advise them on airline service 
options and to book airline seats. Travel agents in turn largely depend 
on CRSs to determine what airline services and fares are available in a 
market, to book seats, and to issue tickets for their customers. Travel 
agents rely so much on CRSs because they can perform these functions 
much more efficiently than any other means currently available. Each of 
the CRSs operating in the United States is owned by, or is affiliated 
with, one or more airlines, each of which has the incentive to use its 
control of a system to prejudice the competitive position of other 
airlines. We therefore found it necessary to adopt regulations 
governing CRS operations, 14 CFR Part 255, in order to protect 
competition in the airline industry and to help ensure that consumers 
obtain accurate and complete information on airline services. 14 CFR 
Part 255, adopted by 57 FR 43780 (September 22, 1992), after 
publication of a notice of proposed rulemaking, 56 FR 12586 (March 26, 
1991). Our rules readopted and strengthened the rules originally 
adopted by the Civil Aeronautics Board (``the Board'') and published at 
49 FR 11644 (March 27, 1984) (the Board was the agency that formerly 
administered the economic regulatory provisions of the Federal Aviation 
Act, now Subtitle VII of Title 49 of the U.S. Code).
    One of our major goals in adopting the rules was to assure that CRS 
displays would provide an accurate and complete display of airline 
services when a travel agency customer requested airline information. 
When the CRSs were unregulated, each system biased its display of 
airline services in favor of its airline owner's flights in order to 
generate more bookings for its owner. Our rules, like the Board's 
rules, accordingly prohibit each CRS from using factors related to 
carrier identity in editing and ranking airline services in its 
displays. Section 255.4.
    While our display rules also impose some other restrictions on CRS 
displays in order to reduce the likelihood of bias, our rules generally 
do not regulate the criteria used by each system to edit and rank the 
airline services shown in its displays. In particular, we have not 
prescribed the display algorithm that each system must use (the 
algorithm is the set of rules for editing and ranking airline services 
in a particular display). In our last CRS rulemaking we declined to 
adopt stronger rules on CRS displays, in part because we believed that 
the systems' competition for subscribers (the travel agencies using a 
CRS) would keep each system from offering irrational displays designed 
to gain additional bookings for its owner airlines.
    Recent experience suggests that the systems' competition for 
subscribers may not adequately check the desire of the airline owners 
of each system to create displays that will increase their airline 
bookings, even if those displays list airline services in a way that is 
contrary to consumer preferences. We are therefore proposing to revise 
our rules on CRS displays. One rule would require each CRS to offer a 
display that does not give on-line connections a preference over 
interline connections. The other rule would require that any display 
offered by a system be based on criteria rationally related to consumer 
preferences. As an alternative to the latter proposal (or as an 
additional rule), we are also asking for comments on a possible rule 
prohibiting displays that neither use elapsed time as a significant 
factor in selecting flights from the data base nor give single-plane 
flights a preference over connecting services in ranking flights.
    In considering these issues, we are relying in large part on the 
findings made in our 1991-1992 rulemaking, in the Board's rulemaking, 
and in our last study of the CRS business, Airline Marketing Practices: 
Travel Agencies, Frequent-Flyer Programs, and Computer Reservation 
Systems, prepared by the Secretary's Task Force on Competition in the 
Domestic Airline Industry (February 1990) (Airline Marketing 
Practices). That study and our rulemaking notices present a detailed 
analysis of CRS operations and their impact on airline competition and 
consumers. We are proposing to impose additional requirements on CRS 
displays because our reexamination of CRS issues and further experience 
with

[[Page 42209]]

CRS practices have caused us to believe that further regulation is 
necessary, despite our finding to the contrary in the previous 
rulemaking.
    We have also relied on the pleadings filed in Docket 48671 in 
connection with Galileo's use of its exemption authority to change the 
display of single-plane flights in a way that assertedly benefits the 
interests of Galileo's principal owners, United Air Lines and USAir, at 
the expense of competing airlines like Alaska Airlines and Midwest 
Express Airlines, and denies travel agents using Galileo and their 
customers a useful display of airline services.

Background

    We have found it necessary to regulate CRSs because of their 
predominant role in the marketing of airline services to consumers. 
Travel agents sell about 70 percent of all airline tickets sold in the 
United States. Travel agencies generally hold themselves out as neutral 
sources of travel information rather than as promoters of the services 
of one or a few airlines, so travelers rely on them for impartial 
advice on airline service options. 57 FR at 43782.
    To determine what airline services are available when a customer 
requests information, travel agents usually rely on a CRS, because the 
CRSs provide information on the services offered by the great majority 
of airlines more efficiently than any other source. 56 FR at 12587. 
Most travel agency offices, moreover, rely entirely or predominantly on 
one CRS rather than use multiple CRSs. 57 FR 43783.
    Each of the four CRSs operating in the United States is owned by 
one or more airlines or airline affiliates. The parent corporation of 
American Airlines owns the largest system, Sabre. Apollo, the second 
largest system, is operated by Galileo International Partnership, which 
is owned by United Air Lines, USAir, Air Canada, and several European 
airlines. Worldspan is owned by Delta Air Lines, Northwest Airlines, 
Trans World Airlines, and Abacus, a group of Asian airlines. System One 
is controlled by Amadeus, a major European CRS firm, in which 
Continental Air Lines has an ownership interest.
    The editing and ranking of airline flights in creating CRS displays 
are important because a flight's display position affects the number of 
bookings made on the flight. No system can display all of the available 
airline services in most markets on a single screen, for a CRS can 
display only five or six flights on each screen. If a travel agent 
wants to see additional service options, the agent must call up 
additional screens of information. The CRS therefore must use some 
method for ranking flights.
    Travel agents are more likely to book a flight when it appears on 
the first screen of the display, and the flight most often booked is 
the first flight shown on the first screen. The first flights displayed 
are booked more frequently in part because those flights are likely to 
be the flights that best meet the customer's needs, but, as the 
airlines owning the systems have long known, those flights will also be 
booked more often merely because of their better display position. 56 
FR at 12608.
    Given the importance of CRSs to airline marketing, the airlines 
owning each system have an incentive to use it to prejudice the 
competitive position of rival airlines. Downgrading the display 
position of the flights operated by competing airlines would be an 
effective method of distorting airline competition if there were no CRS 
rules. As the Board found, before CRS displays were regulated, each of 
the airline-owned systems biased its displays in favor of the owner 
airline. At least one of the systems, Apollo, was attempting to make 
its bias both more effective and less visible to travel agents. Systems 
sometimes used display bias to prejudice specific airline competitors 
as well. For example, Sabre had imposed a substantial display penalty 
on all of New York Air's flights in order to force New York Air out of 
one important American market. 56 FR at 11656, 12593. Consumers 
obviously suffer when a system hides or eliminates information on 
potentially attractive service options.

Regulatory Background: The Board's Rulemaking and Subsequent Events

    The injuries caused consumers and airline competition by display 
bias were among the factors that caused the Board to adopt rules 
regulating CRS operations. In adopting its rules the Board relied 
primarily on its authority to prevent unfair methods of competition and 
unfair and deceptive practices in the marketing of airline 
transportation under section 411 of the Federal Aviation Act, codified 
then as 49 U.S.C. 1381, since recodified as 49 U.S.C. 41712. 57 FR at 
43789-43791. On review the Seventh Circuit affirmed the Board's 
prohibition of display bias (and its other CRS rules). United Air Lines 
v. CAB, 766 F.2d 1107 (7th Cir. 1985).
    The Board's principal rule on CRS displays prohibited each system 
from using carrier identity as a factor for editing and ranking airline 
services. To reduce the likelihood of bias and incomplete or misleading 
displays of airline services, the Board adopted several other rules 
related to CRS displays. These rules required each system, among other 
things, to use a minimum number of connect points in constructing 
displays of connecting services for any market and, on request, to give 
participating airlines and subscribers a description of its display 
algorithms.
    The Board determined that these rules were necessary because travel 
agencies and their customers could neither prevent the systems from 
offering biased displays nor offset the effect of bias. The airlines 
participating in a system--the airlines which paid fees in order to 
have their services displayed and available for sale through a CRS--
also did not have the power to keep the systems from biasing their 
displays. 49 FR at 32543-32544, 32547-32548.
    The Board's rules did not end efforts by the airlines controlling 
the CRSs to improve the display position of their own flights at the 
expense of the flights operated by competitors. First, the Board's 
rules applied only to each system's principal display and did not 
regulate other displays offered by a CRS. Some systems created biased 
secondary displays in order to regain the benefits of display bias. 
This caused the Department to obtain each system's agreement not to 
offer biased secondary displays. Marketing Practices at 81-82. We later 
amended the rules to extend the prohibition on display bias so that it 
barred biased secondary displays. 57 FR at 43802.
    Another example of CRS manipulation involved flight times. Since 
the systems commonly ranked flights on the basis of elapsed time, some 
airlines allegedly began publishing schedules with unrealistically 
short elapsed times so that their nonstop flights would be displayed 
before the flights of airlines using accurate schedules. To stop this 
abuse each system agreed that it would no longer rank nonstop flights 
on the basis of elapsed time. Airline Marketing Practices at 83.
    Despite the Board's prohibition of carrier-specific display bias 
and our later actions on displays, an airline with an ownership 
interest in a system could still give its own flights better display 
positions by choosing facially-neutral display criteria matching the 
predominant characteristics of its airline operations. While other 
airlines with similar operational characteristics would also benefit, 
those airlines that had chosen different strategies would suffer, 
although that result was not inevitably unfair. The Justice Department 
thus stated in its initial

[[Page 42210]]

comments in our last reexamination of the CRS rules, Comments of the 
Department of Justice on the Advanced Notice of Proposed Rulemaking at 
17:

    [V]endors continue to manipulate their algorithms to improve 
their own flights' display relative to that of other carriers. The 
CRS vendors select for their algorithm the particular non-carrier-
specific criteria, such as elapsed time, departure time, circuitry, 
and connect time, that due to differences in the route 
configurations and schedules of carriers, optimize the position of 
their airlines' flights in the display.

    While the Board chose not to adopt detailed rules on CRS displays, 
European governments took a different approach when they adopted their 
own CRS rules. The European Union's rules, which were derived from 
guidelines adopted by the European Civil Aviation Conference 
(``ECAC''), impose more detailed regulations than did either the Board 
in its rulemaking or we when we revised the Board's rules in 1992. 
Insofar as displays are concerned, the European Union rules allow each 
system to offer only one display, the so-called ECAC display, unless 
the travel agency customer's needs require the use of a different 
display. The ECAC display lists all nonstop flights first, followed by 
single-plane flights (such as one-stop flights), with connecting 
services being shown last. The display may not use an on-line 
preference.

Regulatory Background: The Department's Rulemaking

    Several years ago we held a proceeding to reexamine the Board's CRS 
rules. We determined to readopt them with several changes designed to 
promote competition in the airline and CRS businesses. 57 FR 43780 
(September 22, 1992) and 56 FR 12586 (March 26, 1991). Like the Board, 
we adopted the CRS rules under our authority to prevent unfair methods 
of competition and unfair and deceptive practices in the marketing of 
airline transportation under section 411 of the Federal Aviation Act, 
now 49 U.S.C. 41712. 57 FR at 43789-43791.
    Among the issues considered in our rulemaking were CRS display 
issues. Our notice of proposed rulemaking recognized, as the Department 
of Justice pointed out, that vendors could be choosing seemingly 
neutral display criteria in order to improve the display position of 
their own flights. However, we did not propose a rule prescribing the 
ranking and editing criteria that must be used in CRS displays. We 
doubted that there was a single best way for displaying airline 
services, and we agreed with the Justice Department that it would be 
inefficient for us to try creating the best possible display. We also 
believed that the vendors' ability to choose their display criteria was 
not causing significant competitive harm in the airline industry. 56 
FR. at 12609.
    While we did not propose a rule banning the use of an on-line 
preference, we invited the parties to comment on whether the preference 
should be banned. We noted that giving on-line connections a preference 
over interline connections was consistent with consumer preferences, 
since travellers generally preferred on-line service. 56 FR at 12609. 
Nonetheless, we also recognized that the systems' use of the preference 
could overstate travellers' usual preference for on-line service. We 
further noted that the systems' use of on-line preferences could put 
small airlines at a competitive disadvantage, 56 FR at 12610:

    The on-line preference may also unduly strengthen the vendor 
carriers' competitive position against smaller U.S. carriers, since 
the vendors have nationwide route systems with several hubs that 
enable them to offer on-line service to points throughout the 
nation. Smaller carriers, on the other hand, cannot match that 
service since they have few hubs and often operate only in one 
region.

    In their comments on our notice of proposed rulemaking, some 
airlines argued that stricter display rules were essential because the 
systems' owners were using ranking and editing criteria that favored 
their own services at the expense of competing services.
    ECAC and three airlines asked us to prescribe the algorithm that 
would be used for all CRS displays. We declined to take such action, 
largely on the basis of the reasoning set forth in the notice of 
proposed rulemaking. However, we also noted that the systems' 
competition for travel agency subscribers appeared to make additional 
display regulation unnecessary: ``[S]ubscriber demands seem to be 
causing vendors to offer travel agents alternative displays using some 
algorithms similar to European standards.'' 57 FR at 43803.
    We also decided not to prohibit the use of an on-line preference. 
Despite our concern with the preference's potential impact on U.S. 
airline competition, no U.S. airline filed comments opposing the 
preference, and one smaller airline--Alaska Airlines--filed comments 
supporting the preference. 57 FR at 43804.
    Finally, we declined to adopt the proposal by the Orient Airlines 
Association that we require each system to demonstrate that its ranking 
and editing criteria met consumer demands. We thought that that 
specific proposal was unwise, since it could require us to review and 
second-guess system decisions on display criteria. We also considered 
the proposal unnecessary, since it ``would be unlikely to lead to 
significant changes in the vendors' display algorithms.'' 57 FR at 
43803. But, while we chose not to require vendors to demonstrate that 
they were basing their algorithms on consumer preferences, we expressly 
stated that the vendors would not have unlimited discretion to select 
display criteria. An airline dissatisfied with a vendor's algorithm 
could complain to us. 57 FR at 43803.
    In addition, we found that our new rule on third-party hardware and 
software, Sec. 255.9, would give travel agencies the ability to use 
software programs that could improve the quality of airline service 
displays. If travel agencies obtained programs that reconfigure the 
information provided by a system, they could create displays that might 
be more useful for their customers by better reflecting consumer travel 
preferences. 57 FR at 43797.
    As explained below, recent developments in the CRS business have 
caused us to question the validity of our previous finding that no 
additional regulation of CRS displays was needed. But before explaining 
the basis for our doubts, we will describe the algorithms offered by 
each system.
    With respect to one provision in the rules, we have allowed three 
of the systems to provide a display that differs from the rules' 
requirements. We have given several systems exemptions from one 
provision of our rules, Sec. 255.4(b)(1), which requires that the 
system use the same algorithm for displaying services in all markets. 
Orders 90-8-32 (August 14, 1990) and 94-3-44 (March 24, 1994) (Sabre); 
Order 93-8-2 (August 13, 1993) (Galileo); Order 91-7-41 (July 26, 1991) 
(Worldspan). As a result, as described below, some of the systems use 
one algorithm for airline services within North America and a different 
algorithm for services not entirely within North America, such as 
transatlantic flights.

The Vendors' Current Algorithms

    Sabre. Sabre offers two displays, a category display and an 
integrated display. Sabre's category display ranks airline services as 
follows: nonstop flights are listed first, direct flights (single-plane 
flights) are listed second, and connections are listed last. Sabre uses 
several factors to rank flights within each category, such as 
displacement time (the difference between the flight's departure time 
and the traveller's requested departure time). Sabre also uses elapsed 
time to a limited extent in ranking airline services other

[[Page 42211]]

than nonstop flights (and in selecting flights from the data base for 
the display), although flights whose elapsed time does not exceed the 
elapsed time of the fastest service in that category by more than 90 
minutes are treated as having the same elapsed time as the fastest 
service. Sabre uses this display for both international and domestic 
services, and the display has used an on-line preference only for 
ranking connecting services within North America. April 20, 1994 letter 
of David Schwarte, Associate General Counsel, Docket 49318.
    Sabre's other display--the integrated display--is available only if 
both the origin and the destination of the traveller's itinerary are 
within North America. Like the category display's algorithm, the 
algorithm uses factors like displacement time and elapsed time to rank 
flights and to determine which flights in the data base are displayed, 
but it does not automatically show connecting services after all 
nonstop flights and single-plane flights. The algorithm ranks each 
service on the basis of the penalty points assigned the flight on the 
basis of how well the flight satisfies the ranking criteria; for 
example, a flight with a departure time close to the traveller's 
requested departure time will receive fewer penalty points than a 
flight with a departure time that is farther away from the requested 
departure time. When a connecting service has fewer penalty points than 
a nonstop flight, the algorithm will display it before the nonstop 
flight. The integrated display uses an on-line preference.
    Apollo. Apollo also offers travel agents in the United States two 
displays, the Basic Display and the U.S. ECAC Display. The Basic 
Display ranks flights by category--first nonstop flights, then single-
carrier ``one-stop service'' (Apollo treats as one-stop service both 
one-stop flights and single connections between two nonstop flights), 
then interline ``one-stop service'', then on-line ``two-stop service'', 
then interline ``two-stop service'', then on-line service with three or 
more stops, and finally interline service with three or more stops.
    Despite its name, Apollo's U.S. ECAC Display does not apply ECAC's 
display guidelines. Like the Basic Display, the U.S. ECAC Display 
displays flights by category: nonstop flights are listed first, then 
one-stop services (that is, one-stop single-plane flights and 
connections between two nonstop flights) are displayed, followed by 
two-stop services, with services involving three or more stops being 
shown last. This display does not use an on-line preference.
    The display offered travel agents in Europe using Apollo's 
affiliated system, Galileo, complies with the ECAC display guidelines. 
Like Apollo's U.S. ECAC display, it lists all nonstop flights first, 
but, unlike the U.S. display, it then lists all single-plane flights 
before showing any connecting services.
    Some airlines and many travel agents believe that both of the 
Apollo displays offered U.S. travel agents unreasonably rank airline 
services in order to give Apollo's airline owners a competitive 
advantage over other airlines. These airlines and travel agents 
consider the algorithms unreasonable because they give no preference to 
single-plane flights over connecting services and select flights from 
the database in a manner which gives a better display position to 
flights with less displacement time, as explained below. As a result, 
two airlines--Alaska and Midwest Express--and a major travel agency 
trade association have complained about the Apollo displays, as 
described below.
    Worldspan. Worldspan also offers U.S. subscribers two types of 
displays, one referred to as an EEC display, the other referred to as a 
U.S. display. The so-called EEC display is consistent with the European 
CRS rules (and so has no on-line preference). The U.S. display that 
comes in two variants. In one variant of the U.S. display (and the only 
version available for airline services not entirely within North 
America), the display ranks airline services by category but uses an 
on-line preference.
    In the other variant, which can be used only for services entirely 
within North America, the algorithm assigns penalty points to different 
services on the basis of such factors as displacement time, elapsed 
time (except that all nonstop flights are treated as having the same 
elapsed time), numbers of stops, and number of connections required. 
The algorithm uses an on-line preference.
    System One. System One, like Worldspan, offers an ECAC display that 
is consistent with the European CRS rules. System One also offers a 
second display, the departure time display, which is also a category 
display. The departure time display ranks airline services in the 
following order: nonstop flights, then single-plane flights, then two-
segment nonstop on-line connections, then two-segment nonstop interline 
connections, and so on.

Problems With Current CRS Displays

    As noted, several airlines and a major travel agency trade 
association, the American Society of Travel Agents (``ASTA''), have 
complained about Apollo's display practices. Although these complaints 
only involve Apollo, we believe that a rulemaking is appropriate 
because other systems may be considering the adoption of similar 
display practices. Apollo's conduct suggests that travel agent and 
consumer desires for reasonable displays do not provide as much of a 
check on unreasonable CRS displays as we had thought and that systems 
may therefore create displays that serve the interests of their airline 
owners while possibly denying the system's users a reasonable ranking 
and display of airline services.
    We will discuss first the on-line preference used by Apollo and 
other systems and then the problems caused by Apollo's other display 
practices.

The Systems' On-line Preference

    Frontier Airlines has complained that Apollo's display algorithm 
gives an unreasonable preference to on-line connections and that this 
preference is worsened because connections between code-sharing 
partners (two airlines using one airline's code for both airlines' 
service) are treated as on-line connections. Frontier considered 
Apollo's display unfair because it injured Frontier's ability to 
compete in North Dakota markets. Frontier was offering jet service from 
North Dakota points to Denver in competition with a commuter airline 
operating under United's code. Since the commuter airline's flights 
were listed in CRSs under United's two-letter code, connections between 
the commuter airline and United at Denver, United's hub, were treated 
as on-line connections and given preference in Apollo's display over 
connections between Frontier and United at Denver. United had provided 
most of the nonstop service to points beyond Denver, so the poor 
display position given the connections between Frontier and United made 
it difficult for Frontier to obtain bookings from consumers who 
travelled to or from North Dakota points over Denver. Since Frontier, 
unlike the United commuter airline, used jet aircraft to serve the 
Denver-North Dakota routes, Frontier considered its service more 
attractive to travellers. According to Frontier, travellers nonetheless 
often were unaware of Frontier's service because Apollo's penalty for 
interline connections gave an unreasonably poor display position to 
connections over Denver between Frontier and United or another airline.
    While a system's use of an on-line preference is usually consistent 
with the preferences of many travellers, an on-line preference also 
benefits the airlines with CRS ownership interests, since it reflects 
the characteristics of their

[[Page 42212]]

services. Each of those U.S. airlines is one of the largest U.S. 
airlines and operates a hub-and-spoke route system, that is, it 
operates a large number of flights connecting over a hub and relatively 
few point-to-point flights that do not either depart from or arrive at 
a hub. An airline operating a hub-and-spoke route system has little 
interest in capturing interline traffic, since its route structure and 
flight schedules are designed to keep travellers on its own connecting 
flights when nonstop and single-plane flights are unavailable. Such an 
airline benefits from CRS displays that show on-line connections before 
interline connections.
    We recognize, as we have stated before, that consumers generally 
prefer on-line services over interline services. 56 FR at 12609. 
However, a system's use of an on-line preference also promotes the 
interests of its airline owners, and a system's preference may 
overstate the desirability of on-line service.
    We believe that Apollo's treatment of interline connections, in 
combination with Apollo's other ranking and editing criteria, may cause 
consumer harm. The on-line preference used in the Apollo Basic Display 
makes it harder for travel agents to find interline connections, even 
though such connections at times may offer the best service for 
consumers, since the display shows all on-line connections in a 
category (for example, services involving a single connection) before 
displaying any interline connections in that category. Since consumers 
usually prefer on-line connections, giving on-line connections a 
preference in CRS displays will often be rational. In some markets, 
however, many consumers may consider an interline connection the best 
service. Frontier, for example, was offering service with jet aircraft, 
which many travellers prefer to the commuter aircraft operated by 
United's code-sharing affiliate (of course, other travellers may prefer 
the more frequent flights and on-line service offered by United's code-
sharing partner). In addition, as we discussed in our last rulemaking, 
the systems' on-line preferences may well overstate the attractiveness 
of on-line connections. On-line connections should normally appear 
before interline connections in a display that uses elapsed time as a 
principal ranking factor, even without an on-line preference, because 
the airline offering on-line connecting service usually coordinates the 
flight arrival and departure times to minimize layover time at the 
intermediate airport. 56 FR at 12609. Since on-line connections do not 
necessarily offer the best service, however, the systems' use of 
algorithms that always give on-line connections a preference over 
interline connections will at times interfere with a travel agent's 
ability to find the best service for the agent's customers.

Apollo's Treatment of Single-Plane Flights

    The other complaint involving Apollo's displays originated in the 
dissatisfaction of Alaska Airlines, Midwest Express Airlines, and the 
American Society of Travel Agents (``ASTA''), the largest travel agent 
trade association, with Apollo's treatment of single-plane services. In 
essence, Apollo has created displays that give a better display 
position to the hub-and-spoke operations of its major U.S. owners, 
United and USAir, and a poorer position to the services of carriers 
like Alaska Airlines and Midwest Express Airlines that do not operate a 
hub-and-spoke route system.
    Apollo's algorithms often give an unreasonably low display position 
to single-plane flights that are more convenient for the traveller than 
connecting services given a better display position. This results from 
the undue importance given displacement time (the time difference 
between the traveller's requested departure time and the departure time 
of the flight being displayed) in ranking flights.
    Although the complaint involves only Apollo's displays, the 
material submitted by vendors and airlines in our current CRS study 
suggests that another vendor may be considering creating a similar 
display, a factor that makes it appropriate to address this issue (and 
the issue informally raised by Frontier) through a rulemaking 
proceeding.
    Apollo offers U.S. travel agents two different displays, the Basic 
Display and the U.S. ECAC Display. The algorithms for both displays 
build displays in groups (work areas or ``playpens'') of sixteen flight 
items (a flight item is a nonstop flight, a single-plane flight, or one 
of two or more connecting flights). In creating the group of sixteen 
flight items, Apollo proceeds first by category. Thus all nonstop 
flights are displayed before any other services. The next category 
includes both one-stop flights and single connections. Within each 
category the system uses only displacement time (the time difference 
between the traveller's requested departure time and the flight's 
departure time) in selecting flights from the database for each work 
area. In ranking the flight items within each work area, Apollo uses 
both displacement time and elapsed time in the Basic Display and only 
elapsed time in the U.S. ECAC Display.
    The current Apollo algorithms replace algorithms that placed 
nonstop flights and single-plane flights in the top category and 
connecting services in a lower category. Since Apollo now puts single-
plane flights in the same category as connecting services and uses a 
method for selecting flights from the database for each playpen that 
gives heavy weight to displacement time, Apollo's current displays give 
a relatively high display position to connecting services leaving close 
to the traveller's requested departure time and a low position to 
single-plane flights involving a greater displacement time, even if the 
latter involve less elapsed time.
    When Apollo downgraded the position of single-plane flights, two 
airlines that operate a relatively large number of single-plane flights 
and do not have large hub-and-spoke systems, Alaska Airlines and 
Midwest Express Airlines, urged us to compel Apollo to restore its 
earlier placement of single-plane flights in the same category as 
nonstop flights. ASTA supported their request. They alleged that 
Galileo changed the displays in order to benefit its U.S. airline 
owners, United and USAir. Those two airlines rely on hub-and-spoke 
systems. In the markets they serve, some of their flights will 
inevitably have departure times close to any traveller's requested 
departure time and thus will gain a high display position solely 
because of the undue weight given displacement time when flights are 
selected from the database. Alaska and Midwest Express, on the other 
hand, operate a smaller number of single-plane flights that may not 
depart as close to a traveller's requested departure time but which 
would still be preferred by most travellers if their arrival times are 
comparable to those of the competing connecting services. Travellers 
tend to prefer the single-plane flights because they typically require 
less travel time than connecting services and because they avoid the 
inconveniences and risks of missed connections and lost baggage that 
can arise when travellers use connecting services. Alaska estimated 
that it may lose $15 million in potential revenues each year as a 
result of the new Apollo displays, while Midwest Express estimated that 
its annual revenue losses would equal several million dollars. See 
Order 94-8-5 (August 3, 1994) at 17.
    As a result of the initial complaints made by Alaska and Midwest 
Express, we partially revoked the exemption that Galileo had obtained 
in order to make the Basic Display usable only for

[[Page 42213]]

services within North America, Order 94-8-5 (August 3, 1994). When 
Apollo responded to that order with display changes that generated 
further complaints from Alaska, Midwest Express, and ASTA, we required 
Galileo to provide information on its justification for changing the 
treatment of single-plane flights and on related issues. Order 94-11-9 
(November 15, 1994).
    We have tentatively determined that Galileo's ability and 
willingness to create seemingly unreasonable and unfair displays 
requires us to propose an additional rule on CRS displays. Our 
proposal, as explained below, would require CRSs to use editing and 
ranking criteria in their displays that reasonably reflect consumer 
preferences. Before discussing our proposal we will explain why 
Apollo's displays appear to be so troublesome.
    First, the information submitted by the parties in Docket 48671 
included the following four examples where Galileo's algorithm for the 
Apollo Basic Display produced an unreasonable display of airline 
services.

    Seattle to Burbank. Alaska operated two one-stop flights that 
each had an elapsed time of about 3\1/4\ hours and left Seattle at 
1:40 p.m. and 4:15 p.m. However, if a travel agent requested a 
display of services in that market with a departure time of 3 p.m., 
the Alaska flights appeared only on the third screen after the 
display of seven on-line connections. The first screen showed three 
connections, one operated by Alaska and two by United. One of the 
two United connecting services left Seattle almost two hours before 
Alaska's 4:15 flight and arrived at Burbank sixteen minutes after 
the Alaska flight. Another United connection given a higher display 
position left Seattle more than one hour before the 4:15 Alaska 
flight and arrived at Burbank almost one hour later than the Alaska 
flight. October 5, 1994 Letter of Marshall Sinick.
    San Francisco to New Orleans. A travel agent using the Apollo 
Basic Display with a requested departure time of 8 a.m. would not 
see an 8:40 one-stop Delta flight until the sixth screen; the 
earlier screens listed nineteen on-line connections, 18 of which had 
a longer elapsed time than the Delta flight. One of the connecting 
services listed on the third screen was an 8 a.m. connection over 
O'Hare that arrived at New Orleans more than one hour after the 
Delta flight. January 12, 1995 Letter of Marshall Sinick.
    Milwaukee to Los Angeles. If a travel agent requested a display 
of service departing at 8 a.m., the first screen offered by the 
Apollo Basic Display showed two United connections that arrived at 
11:52 a.m. and 12:49 p.m. and had elapsed times of 5:42 and 6:39, 
respectively. Midwest Express operated a single-plane flight in the 
market that arrived at 11:45 a.m., earlier than either United 
connection, and had a shorter elapsed time, 5:05. That flight, 
however, did not appear until Galileo's fourth screen, three screens 
after the less convenient connections. Midwest Express Comments 
(December 5, 1994) at 5.
    Orange County to Seattle. Alaska operated a one-stop flight that 
departed at 1:59 p.m. and arrived at 5:42 p.m., while Reno Air 
operated a one-stop flight that departed at 2:10 p.m. and arrived at 
6 p.m. An agent using the Apollo Basic Display to see what service 
was available with a 1 p.m. departure time would not see either of 
those flights until the fifth screen, after the display of over 
three screens of connecting services. The first connecting service 
listed consisted of a 1:30 p.m. United flight to Los Angeles 
connecting with a second United flight arriving at Seattle at 6:01 
p.m. Among the other connecting services given preference over the 
two one-stop flights were connections over Salt Lake City and 
Phoenix, each of which departed from Orange County about one hour 
before either one-stop flight and arrived at Seattle at least 55 
minutes after Reno's flight. Galileo Response to Order 94-11-9 
(November 23, 1994).

    In cases like these examples, the Apollo displays harm competition 
by favoring the services offered by the carriers that rely on hub-and-
spoke networks, which are usually the largest carriers, and disfavoring 
the flights offered by airlines that do not rely so much on hub-and-
spoke networks. When the better single-plane service is displayed after 
less convenient connecting services, airlines will have more difficulty 
competing for passengers on the basis of the merits of their service.
    The displays also harm consumers and travel agents by making it 
difficult for agents to find single-plane flights that are likely to be 
more attractive for consumers than the connecting services given a 
better display position. ASTA, a major spokesman for travel agents, 
states that Galileo's displays ``make it harder for travel agents to 
find flights meeting the priority goals of air travel consumers.'' ASTA 
continues, ``We have never heard or seen an argument that would 
overcome the consumer benefits of one-stop single-plane service over 
on-line connections and * * * only a compelling reason (which is 
difficult to imagine) would warrant displacing such superior services 
in favor of on-line connections of longer elapsed time.'' According to 
ASTA, ``[t]ravel agents should not have to search through five screens 
of information to find a one-stop single plane service with superior 
elapsed times to intervening connections,'' and ``[t]his waste of time 
is a disservice to agents and their clients with no apparent offsetting 
benefit.'' Furthermore, when single-plane flights receive the poor 
display position cited in Alaska's examples, ``the existence of the 
one-stop flight may not become known to the agent at all.'' ASTA Reply 
(December 19, 1994) at 2-3, Docket 48671.
    We directed Galileo to support its claims that it changed the 
Apollo displays in order to benefit travel agents and their customers. 
Order 94-1-9 (November 15, 1994) at 5. Galileo primarily claims that 
travel agents would be disadvantaged if all single-plane flights were 
listed before all connecting services, because an agent must then 
scroll through the complete listing of single-plane flights before 
seeing any connecting services, even though few, if any, of the single-
plane flights leave at the time desired by the agency customer. Galileo 
Response to Order 94-11-19 at 8-9. Galileo, however, provided no 
evidence that travel agents complained when its displays listed all 
single-plane flights before displaying any connections. Moreover, as we 
noted earlier in that proceeding, few markets have many single-plane 
flights, according to the statistics provided by Galileo itself. 
Airlines operate an average of only 1.5 single-plane flights each day 
in each of the hundred largest domestic city-pair markets. Order 94-8-5 
at 16. Since so few single-plane flights are offered in most markets, a 
travel agent wishing to see connecting flights instead of single-plane 
flights could easily get to the connecting service listings. Thus the 
earlier inclusion of single-plane flights in the same display category 
as nonstop flights could have caused little, if any, inconvenience for 
travel agents. While Galileo cites three markets--Washington, D.C.-San 
Francisco, Phoenix-Washington, D.C., and Boston-Greensboro--as examples 
of how its new displays are easier for travel agents to use, we believe 
these examples are unrepresentative and cannot show that the new 
displays' treatment of single-plane flights provides better displays in 
general.

Our Proposed Revisions to the CRS Display Rules

    Given the apparent unreasonableness of Apollo's current displays, 
the possibility that other systems may adopt similar displays, and the 
likelihood that every system has created an algorithm designed in part 
to benefit the services of airline owners, we have decided to consider 
changes to the CRS display rules that should give non-vendor airlines 
(and travel agents) a greater assurance that they can obtain a fair and 
adequate display of airline services. At the same time, however, we do 
not want to limit each system's ability to offer different displays to 
travel agents, since travel agents are likely to disagree on

[[Page 42214]]

the factors that should be emphasized in editing and ranking airline 
services. Travel agents, moreover, must respond to the preferences of 
their customers, and different customers will consider different 
factors important in judging the quality of airline services. As 
explained, we also do not intend to tightly regulate CRS algorithms.
    Nonetheless, even though travellers and their travel agents will 
disagree on which factors are the most important in choosing airline 
flights, we think that any display made available to travel agents 
should be based on rational criteria and that at least one display 
should rank airline services in a manner which does not favor the 
service characteristics of the biggest airlines, which happen to be the 
owners of each of the U.S. systems.
    We propose to revise our current display rules in two respects. 
First, we propose to require each system to offer a display that does 
not use an on-line preference in ranking and editing connecting 
services. This display must be at least as easy to use as any other 
display offered by the system. We are proposing to make this display an 
alternative to the other displays offered by a system, not the primary 
or default display. Secondly, we propose to require that the criteria 
used by a system for editing and ranking airline services in any 
integrated display be rationally related to consumer preferences (under 
section 255.4(a), every integrated display offered by a CRS must comply 
with our display rules). As noted, however, we also request comments on 
a possible alternative (or addition) to this rule, which would prohibit 
systems from creating displays that neither use elapsed time as a 
significant factor in selecting flights from the data base nor give 
single-plane flights a preference over connecting services in ranking 
flights.
    Our proposal to require each system to offer a display without an 
on-line preference will eliminate the ability of one of the large 
airlines owning a CRS to force the system to use an on-line preference 
in all displays of domestic airline services. That will benefit 
airlines like Frontier that depend more on obtaining interline 
passengers. As indicated, Apollo--the target of Frontier's complaints--
already offers a display without an on-line preference, the U.S. ECAC 
Display. However, that display's seemingly unreasonable treatment of 
single-plane flights and its heavy reliance on displacement time as the 
basis for pulling services out of the data base make the display 
difficult to use. The rule will also require Sabre to create a new 
display without an on-line preference, if, as has been the case, 
Sabre's displays for services within North America all use an on-line 
preference.
    The second rule--the requirement that a system's display criteria 
be rationally related to consumer preferences--should keep systems from 
offering unjustifiable displays. Although we are proposing to require 
the criteria used by a system in constructing an algorithm to be 
rationally related to consumer preferences, we do not intend to embark 
on an extensive review of CRS editing and ranking criteria. We would 
expect to take enforcement action under the rule only in cases where a 
system was using an algorithm that was likely to mislead a significant 
number of consumers by causing services that would meet the consumers' 
travel needs significantly better than other services to be displayed 
after the inferior services, if those criteria appear designed to 
improve the display position of the services of the system's airline 
owners.
    This proposal should benefit smaller airlines like Alaska and 
Midwest Express that do not own a CRS and cannot cause a system to 
adopt algorithms using ranking criteria consistent with the nature of 
their own airline operations and inconsistent with the nature of 
competitors' airline operations. More importantly, the rule should 
benefit travel agents and their customers by barring systems from using 
algorithms that make it unreasonably difficult for travel agents to 
find the best service for their customers. That rule, if adopted, 
should force Apollo to change its algorithms, for we do not see in 
light of our current knowledge how that system's current displays could 
satisfy the rule's requirements.
    We do not intend to use our proposed rule requiring displays to be 
based on rational criteria to second-guess all algorithm criteria that 
airlines find objectionable. We would likely find that a system had 
violated the rule only if the algorithm's unreasonable ranking of 
airline flights was likely to cause a number of travellers in a number 
of markets to choose flights that normal travellers (and travel agents) 
would consider significantly inferior to flights given a lower display 
position and if the display seemed designed to benefit the competitive 
position of the system's airline owners. The comments filed by U.S. and 
foreign airlines in our last major CRS rulemaking demonstrate that 
airlines often disagree over which characteristics of airline services 
should be emphasized in editing and ranking airline services. We 
probably would not consider complaints that an algorithm's ranking and 
editing criteria violate this proposed rule if the system using the 
criteria can make a showing that the challenged criteria are consistent 
with the preferences of a substantial portion of travellers. For 
example, we would not investigate complaints that an on-line preference 
violated the rule, since, as shown, an on-line preference is often (but 
not always) consistent with consumer preferences. Similarly, we would 
be unlikely to investigate a complaint that an algorithm was 
unreasonable where the displays did not seem to provide any competitive 
advantage for the airlines controlling the system. And on some issues 
any algorithm's choice is likely to be arbitrary--one possible example 
is the choice of a default time for use as the departure time when the 
travel agent does not specify a departure time in submitting a 
customer's request for flight information. Because no algorithm can 
result in a perfect display of airline services for every market, we 
would be satisfied if there is a rough correlation between consumer 
travel preferences and an algorithm's editing and ranking criteria. A 
system could use such evidence as travel agent and traveller surveys or 
the results of focus groups to demonstrate that the algorithm's 
criteria reflect consumer preferences, although we assume that less 
evidence would often be needed to show that the display was reasonable.
    While we find it necessary to consider stricter rules for CRS 
displays, we believe it would be unwise for us to attempt to regulate 
CRS displays more closely. Each of the vendors currently offers 
different displays to its subscribers, and we are unwilling to reduce 
the choices currently available to travel agents. Moreover, as we 
stated in our last rulemaking, we doubt that we could create a display 
that would be the best possible display for all markets. 56 FR at 
12609.
    Our proposal to require that the editing and ranking criteria used 
by each algorithm be rationally related to consumer preferences 
reverses our decision in our last rulemaking on a similar proposal made 
by the Orient Airlines Association. Our experience with Apollo's 
displays has convinced us, however, that neither the vendors' 
competition for subscribers nor other factors may be strong enough to 
keep systems from creating unfair displays in order to increase their 
airline owners' airline revenues. We also doubt that our proposal, if 
adopted, would substantially increase our workload or our oversight of 
CRS operations.

[[Page 42215]]

    As an alternative to, or in addition to, the proposal that editing 
and ranking criteria be based on consumer preferences, we are also 
considering the addition to the CRS rule of a specific prohibition 
against the kinds of unfair displays created by Apollo's algorithm. 
Under this alternative, the CRS rules would prohibit an algorithm that 
neither uses elapsed time as a significant factor in selecting service 
options from the database nor gives single-plane flights a preference 
over connections in ranking services in displays. Other CRS editing and 
ranking abuses, if not covered by the rule, could be pursued in an 
enforcement context under the general prohibition against unfair and 
deceptive practices and unfair methods of competition in 49 U.S.C. 
41712.
    Since, to date, the Apollo editing and ranking criteria are the 
only ones on which we have received specific complaints that they 
result in unfair displays, it may be wise to limit our proscription to 
the immediate and more clear-cut problem. This proposal would require 
Apollo to change its displays, since its current displays do not use 
elapsed time as a factor in selecting flights from the database yet 
give single-plane flights no preference over connecting services. If 
Apollo used elapsed time as a significant factor in selecting flights 
from the database, single-plane flights would receive a better display 
position since such flights generally require less travel time than 
connecting services. This proposal accordingly would no longer cause 
significantly inferior connecting services to be given a better display 
position than single-plane flights requiring substantially less travel 
time.
    Comments on the merits and drawbacks of the combined requirements 
or each alternative, including the language of the specific prohibition 
against an algorithm that does not use elapsed time as a significant 
factor in selecting flights from the database and does not give single-
plane flights a preference over connecting services, are invited.
    Since each system provides a display without an on-line preference, 
at least for flights not entirely within North America, we doubt that 
requiring a display without an on-line preference would impose 
significant programming costs on the U.S. systems. Only Sabre 
apparently offers no display of North American services without an on-
line preference. We also do not expect the proposed requirement that 
displays be reasonably related to consumer preferences to increase 
system costs significantly. Only Apollo currently offers displays that 
would seem to violate such a requirement, and Apollo's own willingness 
to change displays in recent years suggests that reprogramming would 
not be costly.

Alternatives to Rulemaking

    As discussed above, we believe that vendors can use--and apparently 
have used--their discretion to create displays that injure consumers 
and airline competition. If consumers, travel agencies, and 
participating airlines could easily avoid the harm caused by these 
displays, we would not propose new rules on CRS displays. We 
tentatively find, however, that CRS users cannot readily do so.
    Travel agents could overcome Apollo's unreasonable ranking of 
airline services by carefully searching through several screens for 
each market before recommending a flight to their customer (or by 
requesting a display of single-plane flights). Travel agents are often 
pressed for time, however, and do not believe they can afford to spend 
a lot of time looking for the best service when doing so involves 
looking at several screens or taking extra steps. Cf. Airline Marketing 
Practices at 69-70. And Apollo's treatment of single-plane flights at 
times causes one-stop flights to receive such a poor display position 
that even a diligent agent is unlikely to search long enough to find 
the flight, especially since the agent may not know that the single-
plane flight even exists. ASTA Reply at 2-3.
    Travel agents could also avoid the problem if they requested a 
display of direct flights only or asked for display with different 
departure times. Taking these steps, however, involves additional work 
that the agent prefers to avoid. Apollo's owners benefit from the 
displays precisely because they know that travel agents often will not 
undertake the additional work needed to offset the unreasonable ranking 
of flights offered by Apollo.
    Travel agents also cannot avoid one system's poor displays by 
switching to another system that provides a more reasonable ranking of 
airline services. First, the CRS firms' contracts with travel agencies 
make it difficult for an agency to switch systems or to use an 
additional system. The contracts typically last for five years, and an 
agency terminating the contract before the end of the five-year term 
must pay substantial damages to the system. The systems' contracts use 
pricing formulas which give travel agencies lower prices for the CRS 
but discourage them from using additional systems. In addition, travel 
agencies often consider it necessary to use the system of the major 
airline in the agency's area, even if another system offers lower CRS 
prices or better service. Airline Marketing Practices at 24-26.
    When we reexamined CRS regulation in our last rulemaking, we 
adopted a rule, section 255.9, which allows travel agencies to use 
third-party software and hardware in conjunction with CRS services, 
subject to certain conditions to protect the integrity of the system. 
This rule enables travel agencies to use programs that can reconfigure 
the system's information on airline services. Travel agencies 
dissatisfied with a system's display algorithms accordingly can 
purchase software that would create a more satisfactory display. 56 FR 
at 12605-12606. However, we have no evidence that many travel agencies 
have chosen to use programs that will create displays more useful for 
consumers.
    More importantly, a system's use of an unreasonable and unfair 
display harms two other groups--participating airlines and consumers--
who have no ability to offset the harm caused by unreasonable CRS 
displays. Travel agency customers rely on the travel agent to tell them 
what services are available, and other airlines have little control 
over the recommendations made by an agent. As we have found in our 
earlier examinations of the CRS business, most airlines find it 
essential to participate in each system and therefore have no ability 
to bargain for reasonable participation terms.

Legal Authority for Adopting the Proposed Rules

    Our governing statute authorizes us to investigate and determine 
whether any air carrier or ticket agent has been or is engaged in 
unfair methods of competition or unfair or deceptive practices in the 
sale of air transportation. 49 U.S.C. 41712, formerly section 411 of 
the Federal Aviation Act (and codified then as 49 U.S.C. 1381). Our 
authority, modelled on the Federal Trade Commission's comparable powers 
under section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, 
allows us to define practices that do not violate the antitrust laws as 
unfair methods of competition, if they violate the spirit of the 
antitrust laws. The same statutory provision gives us broad authority 
to prohibit deceptive practices in the sale of air transportation. In 
adopting the original CRS rules, the Board relied upon both its 
authority to prohibit deceptive practices and its authority to prohibit 
unfair methods of competition. The Seventh Circuit affirmed the Board's 
adoption of those rules under what was then section 411 of the Federal 
Aviation Act. United Air Lines, 766 F.2d 1107

[[Page 42216]]

(7th Cir. 1985). As a result, we may clearly regulate CRS display 
practices that create a risk that consumers will be deceived. 57 FR at 
43791.
    We are proposing these rules in order to prevent travel agency 
customers from being deceived and to keep the airlines controlling the 
systems from using their control over CRS displays to unreasonably 
prejudice the competitive position of other airlines. The proposed 
rules would promote airline competition by ensuring that CRS displays 
provide a reasonable and fair ranking of airline services. When a CRS 
offers a display that irrationally ranks airline services for the 
benefit of its airline owners, the CRS makes it more difficult for 
airlines to compete on the basis of price and service with the airlines 
controlling the system. The revenue loss estimates provided by Alaska 
and Midwest Express with respect to Apollo's changed displays, if 
accurate, additionally suggest that an unreasonable and unfair display 
can cause substantial damage to competing airlines.
    When consumers book airline flights on the basis of information 
provided by an irrational display of airline services, they are likely 
to book inferior airline services because the display has hidden 
superior services. Our statute gives us the authority to prohibit 
conduct which has the potential to cause this kind of consumer 
deception.
    We believe our tentative findings in this notice are sufficient to 
support our adoption of our proposed rules on CRS displays.

Regulatory Assessment

    This rule may be a significant regulatory action under section 3(f) 
of Executive Order 12866 and has been reviewed by the Office of 
Management and Budget under that order. Executive Order 12866 requires 
each executive agency to prepare an assessment of costs and benefits 
under section 6(a)(3) of that order. The proposal is also significant 
under the regulatory policies and procedures of the Department of 
Transportation, 44 FR 11034.
    The proposed rule should benefit airline competition and consumers. 
It will provide airlines a greater opportunity to obtain passengers on 
the basis of the quality of their service and their fares by reducing 
the possibility that unreasonable CRS display positions will determine 
the number of bookings received by an airline. In addition, by giving 
travel agents a better ability to obtain useful displays rationally 
related to traveller preferences, the rule would make travel agency 
operations more efficient. The rule would benefit consumers by making 
it more likely that travel agencies will recommend more convenient 
airline service. By promoting airline competition, the rule would 
produce additional savings and other benefits for consumers.
    The Department does not have adequate information to enable it to 
quantify the potential benefits of the proposed rule. However, giving 
travel agents and their customers a better ability to find the best 
available airline service can result in substantial consumer savings, 
as the Justice Department noted in its comments in our last CRS 
rulemaking. 56 FR 12606. Moreover, Alaska and Midwest Express have 
estimated that Apollo's display reduces their revenues by millions of 
dollars each year. If their estimates are valid, the revised Apollo 
display is also causing many travellers to take connecting services 
instead of one-stop flights that may be more convenient.
    While the Department expects the rule to provide significant 
benefits, it does not expect the rule to increase CRS costs 
significantly. The Department does not have sufficient information to 
estimate the systems' programming expenses for complying with the 
proposed rules. However, a rule requiring each system to offer a 
display without an on-line preference should not impose significant 
programming expenses on the systems, since each system currently has a 
display, at least for international services, that does not have such a 
preference.
    A rule requiring systems to use rational criteria for editing and 
ranking flights would only impose significant costs on a system if an 
airline or travel agency subscriber submitted a justified complaint 
about its displays. If the complaint were invalid, it would likely be 
dismissed without a hearing. Only in cases where the display appeared 
to be unreasonable would the system be exposed to an enforcement 
proceeding, which could include a formal hearing, and to potential 
liability.
    The other proposal, which would bar systems from using displays 
that neither use elapsed time as a significant factor in selecting 
flights from the data base nor give single-plane flights a preference 
over connecting services in ranking flights, should impose no costs on 
any system, except the cost of reprogramming displays that do not 
comply with the proposal. At this time Apollo appears to be the only 
system that would incur such costs. We doubt that the reprogramming 
costs would be significant.
    The Department does not believe that there are any alternatives to 
this proposed rule which would accomplish the goal of giving each 
participating carrier a greater opportunity to have its services fairly 
displayed in CRSs.
    The Department asks interested persons to provide information on 
the costs and benefits.

Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., was 
enacted by Congress to ensure that small entities are not unnecessarily 
and disproportionately burdened by government regulations. The act 
requires agencies to review proposed regulations that may have a 
significant economic impact on a substantial number of small entities. 
For purposes of this rule, small entities include smaller U.S. and 
foreign airlines and smaller travel agencies. Our notice of proposed 
rulemaking sets forth the reasons for our proposal of additional CRS 
display rules and the objectives and legal basis for our proposed rule.
    The proposed rule would, as explained above, give smaller airlines 
a better opportunity to obtain a fair display position in CRSs, all of 
which are currently owned or affiliated with one or more large U.S. and 
foreign airlines. Smaller airlines would then be likely to obtain more 
bookings and therefore compete more successfully with larger airlines.
    The proposed rule would also benefit smaller travel agencies by 
making it easier for them to serve their customers more efficiently and 
to give them better advice on airline service options.
    Our proposed rule contains no direct reporting, record-keeping, or 
other compliance requirements that would affect small entities. There 
are no other federal rules that duplicate, overlap, or conflict with 
our proposed rules.
    Interested persons may address our tentative conclusions under the 
Regulatory Flexibility Act in their comments submitted in response to 
this notice of proposed rulemaking.
    The Department certifies under section 605(b) of the Regulatory 
Flexibility Act (5 U.S.C. et seq.) that this regulation would not have 
a significant economic impact on a substantial number of small 
entities.

Paperwork Reduction Act

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

Federalism Implications

    The rule proposed by this notice would have no substantial direct 
effects on the States, on the relationship between the national 
government and

[[Page 42217]]

the States, or on the distribution of power and responsibilities among 
the various levels of government. Therefore, in accordance with 
Executive Order 12812, we have determined that the proposed rule does 
not have sufficient federalism implications to warrant preparation of a 
Federalism Assessment.

List of Subjects in 14 CFR Part 255

    Air carriers, Antitrust, Reporting and recordkeeping requirements.

    Accordingly, the Department of Transportation proposes to amend 14 
CFR Part 255, Carrier-owned Computer Reservations Systems as follows:

PART 255--[AMENDED]

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

    Authority: 49 U.S.C. 1302, 1324, 1381, 1502.

    2. Section 255.4(a) is revised to read as follows:


Sec. 255.4  Display of information.

[Alternative 1]
    (a) All systems shall provide at least one integrated display that 
includes the schedules, fares, rules and availability of all 
participating carriers in accordance with the provisions of this 
section. This display shall be at least as useful for subscribers, in 
terms of functions or enhancements offered and the ease with which such 
functions or enhancements can be performed or implemented, as any other 
displays maintained by the system vendor. No system shall make 
available to subscribers any integrated display unless that display 
complies with the requirements of this section.
    (1) Each system must offer an integrated display that uses the same 
editing and ranking criteria for both on-line and interline connections 
and does not give on-line connections a system-imposed preference over 
interline connections. This display shall be at least as useful for 
subscribers, in terms of functions or enhancements offered and the ease 
with which such functions or enhancements can be performed or 
implemented, as any other display maintained by the system vendor.
    (2) The criteria used by a system for editing and ranking airline 
services in any integrated display must be rationally related to 
consumer preferences. In considering whether an algorithm violates this 
provision, the Department shall consider, among other things, whether 
the editing and ranking criteria are likely to mislead a significant 
number of consumers by causing services that would meet the consumers' 
travel needs significantly better than other services to be displayed 
after the inferior services and whether those criteria seem designed 
systematically to improve the display position of the system owners' 
airline services at the expense of the services offered by other 
airlines.
* * * * *
[Alternative 2]
    (a) All systems shall provide at least one integrated display that 
includes the schedules, fares, rules and availability of all 
participating carriers in accordance with the provisions of this 
section. This display shall be at least as useful for subscribers, in 
terms of functions or enhancements offered and the ease with which such 
functions or enhancements can be performed or implemented, as any other 
displays maintained by the system vendor. No system shall make 
available to subscribers any integrated display unless that display 
complies with the requirements of this section.
    (1) Each system must offer an integrated display that uses the same 
editing and ranking criteria for both on-line and interline connections 
and does not give on-line connections a system-imposed preference over 
interline connections. This display shall be at least as useful for 
subscribers, in terms of functions or enhancements offered and the ease 
with which such functions or enhancements can be performed or 
implemented, as any other display maintained by the system vendor.
    (2) A system may not offer an integrated display that neither uses 
elapsed time as a significant factor in selecting service options from 
the database nor gives single-plane flights a preference over 
connecting services in ranking services in displays.
* * * * *
    Issued in Washington, DC, on August 8, 1996.
Federico F. Pena,
Secretary of Transportation.
[FR Doc. 96-20736 Filed 8-13-96; 8:45 am]
BILLING CODE 4910-62-P