[Federal Register Volume 65, Number 41 (Wednesday, March 1, 2000)]
[Proposed Rules]
[Pages 11009-11012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-4922]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Docket No. OST-2000-6984]
RIN 2105-AC75


Third 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: The Department is proposing to revise its rules governing 
airline computer reservations systems (CRSs), 14 CFR Part 255, for the 
third time by changing the rules' expiration date from March 31, 2000, 
to March 31, 2001. If the Department does not change the expiration 
date, the rules will terminate on March 31, 2000. The proposed 
extension of the current rules will keep them in effect while the 
Department carries out its reexamination of the need for CRS 
regulations. The Department 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, and then to March 31, 2000.

DATES: Comments must be submitted on or before March 13, 2000.

ADDRESSES: Comments must be filed in Room PL-401, Docket OST-2000-6984, 
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 almost all airlines 
operating in the United States relied on the CRSs in marketing their 
airline services. 57 FR 43780 (September 22, 1992). We found 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. Travel agents relied on CRSs to provide airline information 
and make bookings for their customers, and almost all airlines received 
most of their bookings from travel agencies. These factors made CRS 
rules necessary. As revised, our rules will expire on March 31, 2000, 
unless we readopt them or extend the expiration date. 64 FR 15127 
(March 30, 1999). We began a proceeding to determine whether the rules 
are necessary and should be readopted and, if so, whether they should 
be modified, by issuing an advance notice of proposed rulemaking. 62 FR 
47606 (September 10, 1997). We are proposing here to extend the 
expiration date for the current rules to March 31, 2001, so that they 
will remain in force while we conduct our overall reexamination of the 
rules.
    We have set a short comment period of ten 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 
urges us to end the rules.

The CRS Business

    Four firms provide CRS services in the United States. Each of them 
is affiliated with one or more U.S. or foreign airlines, although 
public shareholders now hold a significant amount of stock in three of 
them. A CRS provides information on airline services and other travel 
services sold through the system to its users, who are typically travel 
agents but include consumers using Internet reservations services and 
corporate travel departments. A person using a CRS can 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 access a CRS through computer 
terminals.
    Most of the revenues received by the systems consist of the fees 
paid by airlines and other travel suppliers participating in a system. 
An airline participant pays a fee whenever a booking on that airline is 
made through the system (most 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. The systems' 
competition for subscribers enables some travel agencies to obtain CRS 
equipment and services at little or no charge.

Regulatory Background

    The Civil Aeronautics Board (``the Board''), the agency formerly 
responsible for the economic regulation of the airline industry, 
initially adopted the CRS rules. The Board did so because the systems 
had become essential for airline distribution in the early 1980s due to 
the travel agents' reliance on the systems for investigating and 
booking airline services. 49 FR 32540 (August 15, 1984). At that time 
each system operating in the United States, with one minor exception, 
was owned by a single airline, and each owner airline was using its 
system to prejudice competing airlines and to give consumers biased or 
incomplete information in order to obtain more bookings. The Board 
found that regulations were essential to keep the systems from 
substantially injuring airline competition and from misleading 
consumers. 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

[[Page 11010]]

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 CRS contract terms that limited the 
travel agencies' ability to switch systems or use more than one system.
    The Board's rules contained a sunset date to ensure that they would 
be reexamined, December 31, 1990. Since we became responsible for 
airline economic regulation after the Board's sunset on December 31, 
1984, we conducted that reexamination. During our reexamination we 
maintained the rules by extending their expiration date. 55 FR 53149 
(December 27, 1990); 56 FR 60915 (November 29, 1991); 57 FR 22643 (May 
29, 1992).
    Our reexamination caused us to readopt the rules with several 
revisions designed to strengthen them. 57 FR 43780 (September 22, 
1992). We determined that the rules were still necessary. Market forces 
did not discipline the price or level of service offered participating 
airlines by the systems. In addition, without rules CRS owners could 
use their control of the systems to prejudice airline competition, and 
the systems could bias their displays of airline services. 57 FR at 
43783-43787.
    Like the Board, we included a sunset date--December 31, 1997--in 
our rules. 14 CFR 255.12; 57 FR at 43829-43830 (September 22, 1992). We 
began our current reexamination of the rules by publishing an advance 
notice of proposed rulemaking requesting comments on whether we should 
readopt the rules and, if so, with what changes. 62 FR 47606 (September 
10, 1997). We then 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 the CRS firms' terms for airline 
participation.
    Almost all of the parties responding to our advance notice of 
proposed rulemaking urged us to maintain CRS rules, although they also 
argued that the rules required changes, mostly changes that would 
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 could not complete our reexamination of the rules by the 
original sunset date, December 31, 1997, we have amended the rules 
twice to extend them, first to March 31, 1999, and then to March 31, 
2000. 62 FR 66272 (December 18, 1997); 64 FR 15127 (March 30, 1999). We 
found the extensions necessary to prevent the harm that would arise if 
the CRS business were not regulated, and we concluded that extending 
the rules would not impose substantial costs on the industry. The only 
party that commented on the first proposed extension--America West 
Airlines--supported it, as did three parties that commented on the 
second proposed extension--Amadeus Global Distribution System, America 
West, and the Association of Asia-Pacific Airlines. Worldspan's comment 
on the second proposed extension did not oppose the extension.

Our Proposed Extension of the CRS Rules

    We are again proposing to change the expiration date for our CRS 
rules to March 31, 2001, 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, 2000. In addition, 
the rulemaking has increasingly come to involve issues related to the 
distribution of airline services over the Internet, which will require 
additional time for analysis.
    We are aware that the delay in completing the reexamination of the 
rules is unfortunate due to the importance of adapting our rules on CRS 
operations to current industry conditions. We have had to address other 
airline competition issues that required expedited action, however. In 
addition, such industry developments as the continuing and rapid growth 
of Internet services and the major airlines' cuts in travel agency 
commissions on bookings made both by traditional travel agencies and 
Internet services require additional study by the staff. At the same 
time, notwithstanding the desirability of updating the current rules, 
those rules appear to address the most serious potential competitive 
and consumer protection issues created by the use of computer 
reservations systems in airline distribution.
    A number of parties have requested prompt action on certain 
additional CRS regulations, such as rules limiting airline booking fees 
and giving travel agency subscribers additional rights to cancel CRS 
contracts. See, e.g., the petition filed by America West on airline 
booking fees; the Emergency Petition for Rulemaking filed by the 
Association of Retail Travel Agents in Docket OST-98-4775 on travel 
agency contracts; and the petition filed by Amadeus in Docket OST-99-
5888 on the tying of an airline's corporate discount fares with the 
agency's use of that airline's CRS. We recognize that some issues may 
be 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, 2000, to March 31, 2001. This proposed 
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 would be disruptive, since the systems, 
airlines, and travel agencies have been conducting their operations in 
the expectation that each system will comply with the rules. Systems, 
airlines, and travel agencies, moreover, would be unreasonably burdened 
if the rules were allowed to expire and we later determined that those 
rules (or similar rules) should be adopted, since they could have 
changed their business methods in the meantime.
    The principal 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 convinced 
us 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 non-owner airlines were unable 
to cause agencies to use a CRS that provided airlines better or less 
expensive service instead of another that provided poorer or more 
expensive service. 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

[[Page 11011]]

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 believe that these findings are still valid. Travel agencies 
still make most airline bookings in the United States, travel agencies 
still rely heavily on CRSs to determine what airline services are 
available and to make bookings, and few travel agency offices make 
extensive use of more than one CRS. That CRS participation is essential 
for almost all airlines is demonstrated by the decision of the low-fare 
airlines to participate in each system, even though several initially 
believed that they could reduce their costs while not forfeiting much 
traffic by declining to participate in the systems. 62 FR at 47608. The 
rapid growth in the use of the Internet by consumers may not reduce the 
importance of the systems, for Internet sites (except many airline 
sites) typically use a system as their booking engine. We doubt that 
the systems' growing proportion of public shareholders has invalidated 
our earlier findings, although that may change in the future.
    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 urged 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 find that 
our past findings on the need for CRS rules are still valid, at least 
for the purpose of a short-term extension of the rules' expiration 
date. Maintaining the current rules will protect airline competition 
and consumers against the injuries that would otherwise occur, given 
our earlier findings on the market power of the systems and 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, our obligation under section 1102(b) of the Federal 
Aviation Act, recodified as 49 U.S.C. 40105(b), to act consistently 
with the United States' obligations under treaties and bilateral air 
services agreements further supports our continuation of the rules. 
Many of those bilateral agreements assure the airlines of each party a 
fair and equal opportunity to compete. We have held that the fair and 
equal opportunity to compete includes, among other things, a right to 
have an airline's services fairly displayed in CRSs. Our rules against 
display bias and discriminatory treatment help to provide foreign 
airlines with a fair and equal opportunity to compete in the United 
States. 57 FR at 43791-43792. The European Union, Canada, and 
Australia, for example, 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. The proposal is also not 
significant under the regulatory policies and procedures of the 
Department of Transportation, 44 FR 11034.
    Keeping the current rules in force should not impose significant 
costs on the systems. They 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 could 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.
    Furthermore, maintaining the current rules will not modify the 
existing regulation of small businesses. Our final rule in our last 
major CRS rulemaking contained a regulatory flexibility analysis on the 
impact of the rules. As a result of that analysis, we determined that 
this regulation did not have a significant economic impact on a 
substantial number of small entities. Our analysis appears to be valid 
for our proposed extension of the rules' termination date. Accordingly, 
we adopt that analysis as our tentative regulatory flexibility 
statement and will consider any comments 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 rules will also affect all small entities that purchase 
airline tickets, since airline fares may be somewhat lower than they 
would otherwise be, although the difference may be small.
    Continuing the rules will protect smaller non-owner airlines from 
several potential system practices that could injure their ability to 
operate profitably and compete successfully. No smaller airline has a 
CRS ownership interest. Market forces do not significantly influence 
the systems' treatment of airline participants. As a result, if there 
were no rules, the 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

[[Page 11012]]

prohibiting systems from ranking and editing displays of airline 
services on the basis of carrier identity, they limit the ability of 
each system to bias its displays in favor of its owner airlines and 
against other airlines. The rules also prohibit charging participating 
airlines discriminatory fees. The rules, on the other hand, impose no 
significant costs on smaller airlines.
    The CRS rules affect the operations of smaller travel agencies, 
primarily by prohibiting certain CRS practices that could unreasonably 
restrict the travel agencies' ability to use more than one system or to 
switch systems. The rules prohibit CRS contracts that have a term 
longer than five years, give travel agencies the right to use third-
party hardware and software, and prohibit certain types of contract 
clauses, such as minimum use and parity clauses, that restrict an 
agency's ability to use multiple systems. By prohibiting display bias 
based on carrier identity, the rules also enable travel agencies to 
obtain more useful displays of airline services.
    Our proposed rule contains no direct reporting, record-keeping, or 
other compliance requirements that would affect small entities. There 
are no other federal rules that duplicate, overlap, or conflict with 
our proposed rules.
    Interested persons may address our tentative conclusions under the 
Regulatory Flexibility Act in their comments submitted in response to 
this notice of proposed rulemaking.
    I certify under section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. et seq.) that this regulation will not have a significant 
economic impact on a substantial number of small entities.

Paperwork Reduction Act

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

Federalism Assessment

    This proposed rule has been reviewed in accordance with the 
principles and criteria contained in Executive Order 13132, dated 
August 4, 1999, and it has been determined that this action does not 
have a substantial direct effect on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government. 
This proposed rule will not limit the policymaking discretion of the 
States. Nothing in this proposal would directly preempt any State law 
or regulation. We are proposing this amendment primarily under the 
authority granted us by 49 U.S.C. 41712 to prevent unfair methods of 
competition and unfair and deceptive practices in the sale of air 
transportation. We believe that the policy set forth in this proposed 
rule is consistent with the principles, criteria, and requirements of 
the Federalism Executive Order and the Department's governing statute. 
Comments on these conclusions are welcomed and should be submitted to 
the docket.

List of Subjects in 14 CFR Part 255

    Air carriers, Antitrust, Consumer protection, Reporting and 
recordkeeping requirements, Travel agents.
    Accordingly, the Department of Transportation proposes to amend 14 
CFR Part 255, 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. 40101, 40102, 40105, 40113, 41712.

    2. Section 255.12 is revised to read as follows:


Sec. 255.12  Termination.

    The rules in this part terminate on March 31, 2001.

    Issued in Washington, D.C. on February 25, 2000, under authority 
delegated by 49 CFR Sec. 1.56a(h)2.
Robert S. Goldner,
Acting Deputy Assistant Secretary for Aviation and International 
Affairs.
[FR Doc. 00-4922 Filed 2-29-00; 8:45 am]
BILLING CODE 4910-62-P