[Federal Register Volume 64, Number 38 (Friday, February 26, 1999)]
[Proposed Rules]
[Pages 9457-9460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-4780]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Docket No. OST-99-5132; Notice No. 99-3]
RIN 2105-AC75


Second Extension of Computer Reservations Systems (CRS) 
Regulations

AGENCY: Office of the Secretary, Department of Transportation.
ACTION: Notice of Proposed Rulemaking.

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SUMMARY: For the second time, the Department is proposing to revise its 
rules governing airline computer reservations systems (CRSs), 14 C.F.R. 
part 255, by changing the rules' expiration date from March 31, 1999, 
to March 31, 2000. If the Department does not change the expiration 
date in the rules (14 CFR part 255), the rules will terminate on March 
31, 1999. The proposed extension of the current rules will cause the 
rules to remain in effect while the Department carries out its 
reexamination of the need for CRS regulations. The Department 
tentatively believes that the current rules should be maintained 
because they appear to be necessary for promoting airline competition 
and helping to ensure that consumers and their travel agents can obtain 
complete and accurate information on airline services. The rules were 
previously extended from December 31, 1997, to March 31, 1999.

DATES: Comments must be submitted on or before March 12, 1999.

ADDRESSES: Comments must be filed in Room PL-401, Docket OST-99-5132, 
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 six 
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: In 1992 the Department adopted its rules 
governing CRS operations--14 CFR part 255--because CRSs had become 
essential for the marketing of airline services for almost all airlines 
operating in the United States. 57 FR 43780 (September 22, 1992). We 
determined that the rules were necessary to ensure that the owners of 
the systems--all of which were then airlines or airline affiliates--did 
not use them to unreasonably prejudice the competitive position of 
other airlines or to provide misleading or inaccurate information to 
travel agents and their customers. We found that regulations were 
needed because travel agents relied on CRSs to provide airline 
information and bookings for their customers and because almost all 
airlines received most of their bookings from travel agencies. Our 
rules will expire on March 31, 1999, unless we readopt them or extend 
the expiration date. 62 FR 66272 (December 18, 1997). By issuing an 
advance notice of proposed rulemaking, we began a proceeding to 
determine whether the rules are necessary and should be readopted and, 
if so, whether they should be modified. 62 FR 47606 (September 10, 
1997). We are proposing here to extend the expiration date for the 
current rules to March 31, 2000, so that they will remain in force 
while we conduct our overall reexamination of the rules.
    We have set a short comment period of fourteen days so that we can 
publish a final decision on this proposal before the rules' current 
expiration date. Our advance notice of proposed rulemaking has given 
interested persons an opportunity to comment on whether the rules 
should be maintained. Almost all of the commenters support a 
continuation of the rules, albeit with changes, and virtually none urge 
us to end the rules.

The CRS Business

    The CRS business in the United States consists of four CRSs, each 
of which is affiliated with one or more U.S. airlines. A CRS contains 
information on airline services and other travel services sold through 
the system and provides that information to system users. A CRS enables 
travel agents and other users to find out what airline seats and fares 
are available and book a seat on each airline that ``participates'' in 
the system, that is, that makes its services saleable through the CRS. 
Travel agents--the major users of the systems--access a CRS through 
computer terminals, which are normally leased from the system. 
Consumers can also access a CRS through an on-line computer service or 
an Internet website.
    The fees paid by airlines and other travel suppliers participating 
in a system generate most of the revenues received by each CRS. An 
airline participant pays a fee whenever a booking on that airline is 
made through the system (most of the systems also charge fees for 
related transactions, such as booking changes and cancellations). Other 
travel suppliers pay similar fees. Many, but not all, travel agencies 
subscribing to a system also pay fees, but such subscriber fees, unlike 
airline fees, are generally disciplined by competition.

Regulatory Background

    CRSs became essential for airline distribution in the early 1980s, 
when travel agents came to depend on the systems to find out what 
services were available and to make bookings. At that time each of the 
systems operating in the United States, with one minor exception, was 
owned by a single airline, and each owner airline used its system to 
prejudice competing airlines and to give consumers biased or incomplete 
information in order to obtain more bookings. These practices caused 
the agency formerly responsible for the economic regulation of 
airlines, the Civil Aeronautics Board (``the Board''), to adopt rules 
governing the operations of airline-affiliated CRSs. 49 FR 32540 
(August 15, 1984). The Board found that regulations were essential to 
keep the systems from causing substantial harm to airline competition 
and to prevent consumers from being misled. The Board adopted its 
regulations primarily under its authority under section 411 of the 
Federal Aviation Act, later recodified as 49 U.S.C. 41712, to prevent 
unfair methods of competition and unfair and deceptive practices in air 
transportation and the sale of airline transportation. The Board's 
rules were affirmed on review. United Air Lines v. CAB, 766 F.2d 1107 
(7th Cir. 1985).
    The Board's major rules required each system to make participation 
available to all airlines on non-discriminatory terms, to offer at 
least one unbiased display, and to make available to each airline 
participant any marketing and booking data from bookings for domestic 
travel that it chose to generate from its system. The rules also 
prohibited certain contract terms that limited the travel agencies' 
ability to switch systems or use more than one system.
    We assumed the Board's responsibilities for airline regulation 
after the Board's sunset on December 31, 1984. See United Air Lines, 
supra, 766 F.2d at 1109. To ensure that the rules would be reexamined, 
the Board?s rules contained a sunset date, December 31, 1990. We 
reexamined the rules and

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adopted revised rules. 57 FR 43780 (September 22, 1992). To maintain 
the Board?s rules in effect pending the completion of that 
reexamination, we extended their expiration date. 55 FR 53149 (December 
27, 1990); 56 FR 60915 (November 29, 1991); 57 FR 22643 (May 29, 1992).
    We readopted the rules with revisions, because we found that the 
rules were still necessary: (1) Market forces did not discipline the 
price or level of service offered participating airlines by the 
systems, (2) CRS owners could use their control of the systems to 
prejudice airline competition if there were no rules, and (3) systems 
could bias their displays of airline services if there were no rules 
requiring unbiased displays. 57 FR at 43783-43787.
    Our rules, like the Board's rules, included a sunset date, December 
31, 1997. 14 CFR 255.12; 57 FR at 43829-43830 (September 22, 1992). To 
begin our current reexamination of the rules, we published an advance 
notice of proposed rulemaking asking interested persons to comment on 
whether we should readopt the rules and, if so, with what changes. 62 
FR 47606 (September 10, 1997). Shortly after issuing that advance 
notice, we amended the rules twice to further promote competition. 62 
FR 59784 (November 5, 1997); 62 FR 66272 (December 18, 1997). We 
adopted those amendments largely because market forces did not appear 
to discipline CRS firms insofar as terms for airline participation were 
concerned.
    Almost all of the parties responding to our advance notice of 
proposed rulemaking have urged us to maintain CRS rules, although these 
parties also argued that various changes should be made to the rules, 
mostly to strengthen them. No party urged us to eliminate the rules, 
and few disputed the need for the continued regulation of the CRS 
business. Thus we believe that an extension of the current rules 
pending completion of the current reexamination of those rules would be 
consistent with the positions already taken by the commenters.

Previous Extension of the Rules' Sunset Date

    Because we were unable to complete our reexamination of the rules 
by the original sunset date, December 31, 1997, we amended the rules to 
extend them until March 31, 1999. 62 FR 66272 (December 18, 1997). We 
found that the extension was necessary to prevent the potential harm 
that would arise if the CRS business were not regulated and that it 
would not impose substantial costs on the industry. The only party that 
commented on the proposed extension, America West Airlines, supported 
it.

Our Proposed Extension of the CRS Rules

    We are again proposing to change the expiration date for our CRS 
rules to March 31, 2000, so that the rules will remain in effect while 
we conduct our reexamination of the need for the rules and the rules' 
effectiveness. The completion of our overall reexamination of our 
rules, including the need to give parties an adequate opportunity to 
file comments and reply comments in response to our future notice of 
proposed rulemaking, will require substantial time and cannot be 
finished by the current expiration date, March 31, 1999.
    We regret our inability to complete the reexamination of the rules 
by our target date, since the Department is fully aware of the 
importance of maintaining rules governing CRS operations that reflect 
current industry conditions, but the process has taken more time than 
anticipated. In addition, the Department has had to address other 
airline competition issues that appeared to be more urgent, such as the 
development of enforcement guidelines on unfair exclusionary behavior, 
63 FR 17919 (April 10, 1998) and the exercise of the Department?s 
responsibility to review the competitive effects of the three alliances 
between major U.S. airlines that were announced in early 1998. 
Furthermore, several recent developments in airline distribution, such 
as the growth of Internet services and the cuts in travel agency 
commissions made by major airlines for bookings made both by 
traditional travel agencies and Internet services, are requiring 
additional study by the staff.
    We recognize that a number of parties contend that there is a 
compelling need for certain additional CRS regulations, such as rules 
limiting airline booking fees and giving travel agency subscribers 
additional rights to cancel CRS contracts. See 62 FR 60195 (November 7, 
1997), requesting comments on a petition filed by America West, and the 
Emergency Petition for Rulemaking filed on November 18, 1998, by the 
Association of Retail Travel Agents, Docket OST-98-4775. We are 
considering whether some issues are of such overriding importance that 
they should be addressed before the completion of the overall 
reexamination of the rules.
    We tentatively conclude that we should amend the rules to change 
the sunset date from March 31, 1999, to March 31, 2000. As we stated in 
proposing the earlier extension, a temporary extension of the current 
rules will preserve the status quo until we determine which rules, if 
any, should be adopted. Allowing the current rules to expire could be 
disruptive, since the systems, airlines, and travel agencies have been 
conducting their operations in the expectation that each system will 
comply with the rules. Systems, airlines, and travel agencies, 
moreover, would be unreasonably burdened if the rules were allowed to 
expire and we later determined that those rules (or similar rules) 
should be adopted, since they could have changed their business methods 
in the meantime.
    The primary basis for extending the rules is the need to protect 
airline competition and consumers against unreasonable practices. Our 
past examinations of the CRS business and airline marketing caused us 
to conclude that CRSs were still essential for the marketing of the 
services of almost all airlines. 57 FR 43780, 43783-43784 (September 
22, 1992). We found that rules were needed because the airlines 
depended on travel agencies as their principal distribution arm, 
because travel agencies relied on CRSs, because most travel agency 
offices used only one CRS, because creating alternatives for CRSs and 
getting travel agencies to use them had been difficult, and because 
airlines were unable to cause agencies to use one CRS instead of 
another. 57 FR at 43783-43784, 43831. If an airline did not participate 
in a system used by a travel agency, that agency was less likely to 
book its customers on that airline. Since marginal revenues are 
important in the airline industry, an airline could not afford to lose 
access to a significant source of revenue. An airline (or other firm) 
could not practicably create a system that could compete with the 
existing systems. Almost all airlines therefore had to participate in 
each CRS, and CRSs did not need to compete for airline participants. 57 
FR at 43783-43784.
    We doubt that industry developments since our last major rulemaking 
have undermined our earlier findings. We believe that most airline 
bookings in the United States are still made by travel agencies, that 
travel agencies still rely almost entirely on CRSs to determine what 
airline services are available and to make bookings, and that few 
travel agency offices make extensive use of more than one CRS. For 
example, while several low-fare airlines initially operated without 
participating in any system, most of those airlines have concluded that 
they need to participate in each system. 62 FR at 47608. While consumer 
use of the Internet to make bookings is growing dramatically,

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Internet bookings still make up a very small percentage of total 
airline bookings. Moreover, Internet sites (except airline sites) 
typically use a system as their booking engine.
    As noted above, almost all of the parties that responded to the 
advance notice of proposed rulemaking stated that the rules remained 
necessary, and most urge us to strengthen them further to protect 
airlines and travel agencies against potential abuses by system owners.
    Thus, while our staff has not completed its current study of the 
CRS business and we have not issued a notice of proposed rulemaking 
finding that the rules should be readopted, we tentatively believe that 
our past findings on the need for CRS rules are still valid, at least 
for the purpose of a short-term extension of the rules' expiration 
date. If we continue the current rules, those regulations will protect 
airline competition and consumers against the injuries that would 
otherwise occur, given our earlier findings on the market power of the 
systems and each airline owner's potential interest in using its 
affiliated CRS to prejudice the competitive position of other airlines. 
Continuing the rules in effect should not impose significant costs on 
the systems and their owners, since they have already adjusted their 
operations to comply with the rules and since the rules do not impose 
costly burdens of a continuing nature on the systems.
    Finally, there is an additional basis for our tentative 
determination that we should maintain the current rules in effect 
pending our reexamination of the rules. We adopted the rules in part to 
carry out our obligation under section 1102(b) of the Federal Aviation 
Act, recodified as 49 U.S.C. 40105(b), to act consistently with the 
United States' obligations under treaties and bilateral air services 
agreements. Many of those bilateral agreements assure the airlines of 
each party a fair and equal opportunity to compete. We have held that 
the fair and equal opportunity to compete includes, among other things, 
a right to have an airline's services fairly displayed in CRSs. Our 
rules against display bias and discriminatory treatment help to provide 
foreign airlines with a fair and equal opportunity to compete in the 
United States. 57 FR at 43791-43792. The European Union, Canada, and 
Australia, among other countries, have adopted rules regulating CRS 
operations that help give U.S. airlines a fair opportunity to sell 
their services in the countries covered by the rules.

Regulatory Process Matters

Regulatory Assessment

    This rulemaking is a nonsignificant regulatory action under section 
3(f) of Executive Order 12866 and has not been reviewed by the Office 
of Management and Budget under that order. Executive Order 12866 
requires each executive agency to prepare an assessment of costs and 
benefits for each significant rule under section 6(a)(3) of that order. 
The proposal is also not significant under the regulatory policies and 
procedures of the Department of Transportation, 44 FR 11034.
    Maintaining the current rules should impose no significant costs on 
the CRSs. The systems have already taken all the steps necessary to 
comply with the rules' requirements on displays and functionality, and 
complying with those rules on a continuing basis does not impose a 
substantial burden on the systems. Maintaining the rules will benefit 
participating airlines, since otherwise they would be subjected to 
unreasonable terms for participation, and will benefit consumers, who 
might otherwise obtain incomplete or inaccurate information on airline 
services. The rules also contain provisions that are designed to 
prevent abuses in the systems' competition with each other for travel 
agency subscribers.
    When we conducted our last major CRS rulemaking, we included a 
tentative regulatory impact statement in our notice of proposed 
rulemaking and made that analysis final when we issued our final rule. 
We believe that analysis remains applicable to our proposal to extend 
the rules' expiration date. As a result, no new regulatory impact 
statement appears to be necessary. However, we will consider comments 
from any party on that analysis before we make our proposal final.
    This rule does not impose unfunded mandates or requirements that 
will have any impact on the quality of the human environment.

Small Business Impact

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., was 
enacted by Congress to ensure that small entities are not unnecessarily 
and disproportionately burdened by government regulations. The act 
requires agencies to review proposed regulations that may have a 
significant economic impact on a substantial number of small entities. 
For purposes of this rule, small entities include smaller U.S. and 
foreign airlines and smaller travel agencies. Our notice of proposed 
rulemaking sets forth the reasons for our proposed extension of the 
rules' expiration date and the objectives and legal basis for that 
proposed rule.
    In addition, we note that keeping the current rules in force will 
not modify the existing regulation of small businesses. Our final rule 
in our last major CRS rulemaking contained a regulatory flexibility 
analysis on the impact of the rules. As a result of that analysis, we 
determined that this regulation did not have a significant economic 
impact on a substantial number of small entities. Our analysis appears 
to be valid for our proposed extension of the rules' termination date. 
Accordingly, we adopt that analysis as our tentative regulatory 
flexibility statement and will consider any comments filed on that 
analysis in connection with this proposal.
    The continuation of our existing CRS rules will primarily affect 
two types of small entities, smaller airlines and travel agencies. To 
the extent that airlines can operate more efficiently and reduce their 
costs, the rule will also affect all small entities that purchase 
airline tickets, since airline fares may be somewhat lower than they 
would otherwise be, although the amount may not be large.
    Continuing the rules will protect smaller non-owner airlines from 
certain potential system practices that could injure their ability to 
operate profitably and compete successfully. No smaller airline has a 
CRS ownership interest. Market forces do not significantly influence 
the systems' treatment of airline participants. As a result, if there 
were no rules, the systems' airline owners could use them to prejudice 
the competitive position of other airlines. The rules provide important 
protection to smaller airlines. For example, by prohibiting systems 
from ranking and editing displays of airline services on the basis of 
carrier identity, they limit the ability of each system to bias its 
displays in favor of its owner airlines and against other airlines. The 
rules also prohibit charging participating airlines discriminatory 
fees. The rules, on the other hand, impose no significant costs on 
smaller airlines.
    The CRS rules affect the operations of smaller travel agencies, 
primarily by prohibiting certain CRS practices that could unreasonably 
restrict the travel agencies' ability to use more than one system or to 
switch systems. The rules prohibit CRS contracts that have a term 
longer than five years, give travel agencies the right to use third-
party hardware and software, and prohibit certain types of contract 
clauses, such as minimum use and parity clauses, that restrict an 
agency's ability to use

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multiple systems. By prohibiting display bias based on carrier 
identity, the rules also enable travel agencies to obtain more useful 
displays of airline services.
    Our proposed rule contains no direct reporting, recordkeeping, 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 will not have a 
significant economic impact on a substantial number of small entities.

Paperwork Reduction Act

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

Federalism Implications

    The rule proposed by this notice will have no substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. 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 for 14 CFR part 255

    Air carriers, Antitrust, Consumer protection, Reporting and 
recordkeeping requirements, Travel agents.
    Accordingly, the Department of Transportation proposes to amend 14 
CFR part 255, 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. 1301, 1302, 1324, 1381, 1502.

    2. Section 255.12 is revised to read as follows:


Sec. 255.12  Termination.

    Unless extended, these rules shall terminate on March 31, 2000.

    Issued in Washington, DC on February 22, 1999, under authority 
delegated by 49 CFR 1.56a (h) 2.
Charles A. Hunnicutt,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 99-4780 Filed 2-25-99; 8:45 am]
BILLING CODE 4910-62-P