[Federal Register Volume 65, Number 142 (Monday, July 24, 2000)]
[Proposed Rules]
[Pages 45551-45558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18573]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Dockets Nos. OST-97-2881, OST-97-3014, and OST-98-4775]


Computer Reservations System (CRS) Regulations

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Supplemental advance notice of proposed rulemaking.

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[[Page 45552]]

SUMMARY: The Department is inviting interested persons to submit 
supplemental comments in this proceeding where the Department is 
reexamining its rules on computer reservations systems. The Department 
is issuing this supplemental advance notice for two reasons: to invite 
parties to update the comments submitted earlier in this proceeding and 
to address the impact of industry developments that have occurred since 
the comments were filed, and to invite them to comment on whether the 
Department should consider adopting rules governing the use of the 
Internet for airline distribution.

DATES: Comments must be submitted on or before September 22, 2000. 
Reply comments must be submitted on or before October 23, 2000.

ADDRESSES: To make sure your comments and related material are not 
entered more than once in the docket, please submit them (marked with 
docket numbers OST-97-2881, OST-97-3014, and OST-98-4775) by only one 
of the following means:
    (1) By mail to the Docket Management Facility, U.S. Department of 
Transportation, room PL-401, 400 Seventh Street SW., Washington, DC 
20590-0001.
    (2) By hand delivery to room PL-401 on the Plaza level of the 
Nassif Building, 400 Seventh Street SW., Washington, DC, between 9 a.m. 
and 5 p.m., Monday through Friday, except Federal holidays. The 
telephone number is 202-366-9329.
    (3) Electronically through the Web Site for the Docket Management 
System at http://dms.dot.gov. Comments must be filed in Dockets OST-97-
2881, OST-97-3014, and OST-98-4775, U.S. Department of Transportation, 
400 7th St. S.W., Washington, D.C. 20590. Late filed comments will be 
considered to the extent possible.

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

Electronic Access

    You can view and download this document by going to the webpage of 
the Department's Docket Management System (http://dms.dot.gov/). On 
that page, click on ``search.'' On the next page, type in the last four 
digits of the docket number shown on the first page of this document. 
Then click on ``search.'' An electronic copy of this document also may 
be downloaded by using a computer, modem, and suitable communications 
software from the Government Printing Office's Electronic Bulletin 
Board Service at (202) 512-1661. Internet users may reach the Office of 
the Federal Register home page at: http://www.nara.gov/fedreg and the 
Government Printing Office's database at: http://www.access.gpo.gov/nara/ index.html.

SUPPLEMENTARY INFORMATION:
    Eight years ago the Department readopted the regulations governing 
CRSs, 14 CFR Part 255, because each of the systems was then controlled 
by one or more airlines and airline affiliates and because, if CRS 
firms were unregulated, their owners could use the systems to injure 
airline competition and deny consumers and travel agents access to 
accurate and complete information on airline services. Those rules 
called for a Department reexamination of whether the rules were 
necessary and effective. We began a proceeding to reexamine our 
regulations to see whether they are still necessary and, if so, whether 
they should be changed, by publishing an advance notice of proposed 
rulemaking. 62 FR 47606 (September 10, 1997).
    The comment period set by our advance notice closed two years ago. 
We recognize the importance of reexamining our rules to see whether 
they remain necessary and effective in light of the changes in the 
computer reservations system business and airline distribution. We now 
wish to move forward on the rulemaking. Doing so requires us to ask the 
parties to submit updated comments due to the significant changes that 
have occurred in airline distribution and the computer reservations 
system business in the last two years.
    In addition, we wish to obtain comments on whether we should adopt 
any rules covering the distribution of airline services through the 
Internet. The use of the Internet for airline distribution raises 
issues that are similar to those traditionally considered in our CRS 
rulemakings. On-line travel agencies, for example, use the systems as 
their booking engines.
    We therefore ask all interested persons to submit comments in 
response to this supplemental advance notice of proposed rulemaking. 
Commenters should discuss the specific issues set forth in this notice 
and, to the extent necessary to address changes in the CRS business and 
airline distribution practices, the issues listed in the advance 
notice, 62 FR at 47609-47610.
    The advance notice described the CRS business and summarized our 
findings in earlier proceedings on the need for CRS rules. In this 
notice we will describe the history of CRS regulation and our past 
findings insofar as necessary to explain our requests that the 
supplemental comments address certain specific issues.

The CRS Business

    A CRS provides information on the travel services sold through the 
system and enables users to book those services. Traditionally the most 
important users of the systems have been travel agents, but corporate 
travel departments and consumers also use the systems. Travel agents 
and corporate travel departments usually access a system through 
computer terminals linked with the system's database, while consumers 
access systems through on-line services, such as Expedia and 
Travelocity. Airline transportation is the most important service sold 
through a system, but the systems also provide information and make 
bookings on rental cars, hotels, and other travel services. A CRS 
enables users to find out what airline seats and fares are available, 
to book a seat, and to purchase transportation on each airline that 
``participates'' in the system, that is, that makes its services 
saleable through the CRS.
    The four CRSs operating in the United States--Sabre, Galileo, 
Amadeus, and Worldspan--were each developed by one or more airlines. 
When we last reexamined our rules, each of the systems was owned and 
controlled by one or more airlines and airline affiliates. 57 FR 43780, 
43782-43783 (September 22, 1992). Since then, however, the systems' 
ownership has changed--public shareholders now own all of Sabre's 
stock, and two of the other three systems have some public 
shareholders.

History of the Department's Regulation of CRSs

    The Civil Aeronautics Board (``the Board'') concluded that CRS 
rules were essential to protect airline competition and prevent 
consumer deception due to the systems' role in airline distribution. 49 
FR 32540 (August 15, 1984). Airlines relied on travel agencies for 
distribution, travel agencies relied on the systems to obtain 
information on airline flights and fares and make bookings, and each 
system's owner airline had the ability and incentive to use the system 
to prejudice airline competition and give consumers misleading or 
incomplete information in order to obtain more airline bookings. The 
Board adopted its rules primarily under its authority under section 411 
of the Federal Aviation Act, later recodified as 49 U.S.C. 41712, to

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prevent unfair methods of competition and unfair and deceptive 
practices in air transportation and the sale of airline transportation 
(we will refer to the statute by its traditional and still commonly-
used name, section 411). On review the Seventh Circuit upheld the 
Board's rules. United Air Lines v. CAB, 766 F.2d 1107 (7th Cir. 1985).
    We assumed the Board's responsibility to enforce section 411 and 
its regulation of the systems upon the Board's sunset on December 31, 
1984. After reexamining the rules, as they required us to do, we 
readopted them with changes designed to strengthen them. 57 FR 43780 
(September 22, 1992). We did not expand the coverage of the rules, 
which govern systems operated by airlines or airline affiliates insofar 
as they provide services to travel agencies. 57 FR at 43794-43795. We 
concluded that CRS rules remained necessary to promote airline 
competition and to help ensure that consumers did not receive 
inaccurate or misleading information on airline services. Like the 
Board, we found that CRSs remained essential for the marketing of the 
services of virtually all airlines. 57 FR at 43783-43784.
    We based our decision to continue regulating the systems on their 
control by airlines and airline affiliates. One or more airlines or 
airline affiliates then owned and controlled each of the systems, and 
the systems' owners could still use their control of the systems to 
prejudice airline competition if there were no rules. 57 FR at 43783-
43787, 43794.
    Our rules included a sunset date, December 31, 1997, to ensure that 
we would reinvestigate the need for the rules and their effectiveness. 
14 CFR 255.12; 57 FR at 43829-43830 (September 22, 1992).

Advance Notice

    To begin the formal reexamination of our rules, we issued an 
advance notice of proposed rulemaking that asked interested persons to 
comment on whether our CRS rules are still necessary and, if so, 
whether they should be changed. 62 FR 47606 (September 10, 1997). We 
intended to focus ``on rule proposals that will increase competitive 
market forces in the CRS industry rather than on proposals for detailed 
regulation of CRS practices.'' 62 FR at 47609. To help us resolve the 
issues, we listed a series of questions that we asked the parties to 
address in their comments, 62 FR at 47609-47610.
    We received comments from over sixty parties, virtually all of whom 
stated that we should maintain CRS rules.
    In addition to those comments, we have received petitions for 
rulemaking from America West Airlines on booking fee issues, Docket 
OST-97-3014, and by the Association of Retail Travel Agents on certain 
travel agency contract issues, Docket OST-98-4775. We will consider the 
issues raised by those petitions in this proceeding.
    Amadeus Global Travel Distribution filed a petition asking that we 
interpret the existing rules as prohibiting the tying of a travel 
agency's access to an airline's corporate discount fares with the 
travel agency's choice of the CRS affiliated with that airline, Docket 
OST-99-5888. We are reviewing that petition to determine how best to 
proceed with the issue that it raises.
    We have maintained the current rules in place while we conduct our 
reexamination of the need for the rules and the rules' effectiveness. 
62 FR 66272 (December 18, 1997); 64 FR 15127 (March 30, 1999); 65 FR 
16808 (March 30, 2000).

Factual Background

    Our rules currently require each system to allow all airlines to 
participate 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 
chooses to generate from its system. The rules also prohibit certain 
contract terms that restrict the travel agencies' ability to choose 
between systems. They give travel agencies the right to use third-party 
hardware and software, subject to certain compatibility conditions, and 
to access any system or database with airline information from the 
agency's terminals, unless the terminals are owned by a system. The 
rules cover systems controlled by an airline or airline affiliate 
insofar as the systems provide information and booking services to 
travel agencies.
    Our rules are designed to prevent practices by systems and airlines 
related to CRS operations that are either anti-competitive or likely to 
cause consumers to be misled. We have not otherwise tried to prescribe 
how airlines must distribute their services, with the exception of the 
requirement that airlines with a significant ownership interest in a 
system must participate in competing systems, section 255.7. As a 
result, airlines with no significant system ownership interest are free 
to decide whether to participate in any system and to choose their 
level of participation. Southwest, for example, has been unwilling to 
pay for participation in any system but Sabre. And we adopted a rule 
barring system from unreasonably restricting the ability of 
participating airlines to choose a different level of service in each 
system. 62 FR 59784 (November 5, 1997).
    Airlines have chosen to use a wide variety of channels for 
distributing their services, and they do not treat all firms within 
each channel the same. Airlines, for example, commonly give favored 
travel agencies access to discount fares and marketing benefits not 
made available to other agencies and enable favored agencies to waive 
some restrictions on discount fares and to book customers on oversold 
flights. General Accounting Office, ``Effects of Changes in How Airline 
Tickets Are Sold'' (July 1999), at 15; Secretary's Task Force on 
Competition in the U.S. Domestic Airline Industry, ``Airline Marketing 
Practices'' (February 1990), at 25, 26. Travel suppliers have also used 
consolidators to sell seats at low fares not made directly available 
from travel agencies and airline reservations agents. Bear, Stearns, 
``Point, Click, Trip: An Introduction to the On-Line Travel Industry'' 
(April 2000) at 58.
    Our CRS rules with few exceptions regulate neither the manner in 
which travel agencies operate nor their use of the information and 
transaction capabilities provided by a system. Those regulations do not 
prescribe the kind of advice that travel agencies must give customers 
seeking information on airline services and do not prohibit travel 
agencies from reshaping the information provided by a system into 
displays biased in favor of the agency's preferred suppliers. 57 FR at 
43809. See also Midwest Express Comments at 26 (one major travel agency 
allegedly biases its displays in favor of its preferred suppliers). We 
have, however, adopted rules applicable to both traditional and on-line 
travel agencies that state that certain practices will be considered 
unfair and deceptive. See, e.g., 14 CFR Part 257 and section 399.80.
    Travel agencies, of course, have different operating strategies--
some primarily handle corporate travel while others primarily handle 
leisure travel. Some hold themselves out as generalists while others 
specialize, for example, on travel to a particular destination. In 
doing business over the Internet, on-line travel agencies must cope 
with an environment different from that within which traditional travel 
agencies operate. On-line agencies must use new methods of attracting 
customers, such as creating links with web portals like Yahoo! On-line 
agencies have also begun to buy blocks of airline seats and

[[Page 45554]]

hotel rooms at negotiated prices substantially below the supplier's 
published rates. Bear, Stearns, ``Point, Click, Trip,'' at 48, 49. 
While giving consumers an opportunity to bid on a ticket price, 
Priceline only sells seats according to negotiated deals with airlines 
and other suppliers. Id. at 53-55.

Legal Background

    When we readopted the rules in 1992, we primarily relied on our 
authority under section 411 to prohibit unfair and deceptive practices 
and unfair methods of competition in air transportation and the sale of 
air transportation. We also relied to some extent on our obligation to 
act consistently with the United States' international obligations when 
we adopted our current rules. 57 FR at 43791-43792.
    Section 411 reads, ``[T]he Secretary may investigate and decide 
whether an air carrier, foreign air carrier, or ticket agent has been 
or is engaged in an unfair or deceptive practice or an unfair method of 
competition in air transportation or the sale of air transportation.'' 
Section 411 authorizes us to regulate the practices of U.S. and foreign 
airlines and ``ticket agents.'' The statute, 49 U.S.C. 40102(a)(40), 
defines a ticket agent as a person ``that as principal or agent sells, 
offers for sale, negotiates for, or holds itself out as selling, 
providing, or arranging for, air transportation.''
    An unfair method of competition is a practice that violates the 
antitrust laws or antitrust principles. United Air Lines v. CAB, supra. 
We concluded in our last rulemaking that the practices barred by the 
rules were unfair methods of competition, since those practices--
display bias and discriminatory booking fees, for example--violated 
antitrust principles. Those practices were analogous to conduct 
prohibited by the antitrust laws: a firm's refusal to allow competitors 
to obtain access to an essential facility on reasonable terms and 
monopoly leveraging (the use of market power in one line of business to 
obtain unfair competitive advantages in a second line of business). 
These antitrust analogies were applicable because each of the systems 
was controlled by airlines that competed with other airlines whose 
ability to successfully market their services depended on their ability 
to participate in the systems on reasonable terms. 57 FR at 43789-
43791.
    Congress modeled section 411 on the Federal Trade Commission's 
authority under section 5 of the Federal Trade Commission Act, 15 
U.S.C. 45, to prohibit unfair methods of competition and unfair and 
deceptive practices in most U.S. industries. See, e.g., United Air 
Lines, 766 F.2d at 1111-1112. As a result, the judicial decisions on 
the scope of the FTC's authority are relevant to the analysis of our 
own authority under section 411. The courts have held that the FTC may 
not prohibit practices as unfair methods of competition in order to 
improve competitive conditions in an industry unless the FTC finds that 
the practices violate antitrust laws or antitrust principles. E.I. 
DuPont de Nemours & Co. v. FTC, 729 F.2d 128 (2nd Cir. 1984). The 
Second Circuit has held that the FTC may not regulate the conduct of a 
firm with monopoly power in one industry in order to promote 
competition in a second industry unless the firm competes in the second 
industry as well. Official Airline Guides, Inc. v. FTC, 630 F.2d 920 
(2nd Cir. 1980). But see LaPeyre v. FTC, 366 F.2d 117 (5th Cir. 1966).
    Moreover, section 411 does not gives us the authority to determine 
how airline services should best be distributed. Since airline 
deregulation began twenty years ago, the airlines have been generally 
free to determine how to distribute and sell their services, including 
sales through travel agencies. This result is consistent with the 
antitrust laws, which generally allow individual firms to choose how to 
distribute their products and services. See, e.g., Paschall v. Kansas 
City Star Co., 727 F.2d 692 (8th Cir. 1984) (en banc); Auburn News Co. 
v. Providence Journal Co., 659 F.2d 273, 278 (1st Cir. 1981).
    As noted above, we also relied on our section 411 authority to 
prohibit unfair and deceptive practices when we readopted the rules. 57 
FR at 43791. Section 411 gives us broad authority to prohibit unfair 
and deceptive practices by airlines and ticket agents. See United Air 
Lines. 
    We also held that 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 supported our continuation of the CRS 
regulations. 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. Foreign governments--the European 
Union, Canada, and Australia, for example--have similarly adopted rules 
giving airlines fair and non-discriminatory access to CRS services.
    Congress, moreover, recently reaffirmed the importance of 
preventing anticompetitive and discriminatory practices by systems and 
affiliated airlines that would distort international competition. The 
Wendell H. Ford Aviation Investment and Reform Act for the 21st 
Century, Public Law 106-181 (April 5, 2000) (``AIR 21''), includes a 
provision, section 741, that expands our authority under 49 U.S.C. 
41310 to take countermeasures against an activity that involves airline 
service of a foreign system or foreign airline owning a system that 
constitutes an unjustifiably discriminatory or anticompetitive practice 
against a U.S. CRS or represents the imposition of unjustifiable 
restrictions on access by a U.S. system to a foreign market.

Industry Developments

    We are interested in obtaining supplemental comments for two 
reasons: our decision to consider Internet issues in this proceeding 
and our wish to consider the changes that have occurred in the CRS 
business and airline marketing practices since we issued our advance 
notice of proposed rulemaking.
    One of these changes is the airlines' diminishing control of the 
systems. Since we published our advance notice, airlines affiliated 
with the systems have substantially divested their CRS ownership 
interests. As a result, Sabre is now entirely owned by the public, and 
only one-fourth of Galileo's stock is owned by airlines and airline 
affiliates. October 7, 1999, United Supplemental Comments at 4. While 
Amadeus is still controlled by three foreign airlines, Lufthansa, Air 
France, and Iberia, Continental has sold all of its stock, and the 
public now holds a significant portion of Amadeus' stock. Only 
Worldspan is still owned entirely by airlines and airline affiliates. 
However, every system still has ties with one or more airlines. 
American and Southwest market Sabre, and United provides some marketing 
support for Galileo.
    A second major change is the increasing use of the Internet for 
airline distribution. The Internet gives airlines, like other travel 
suppliers, new ways to sell their services and inform consumers as well 
as opportunities to significantly cut distribution costs. The Internet 
similarly makes it easier for many travellers to obtain information and 
make bookings. General Accounting Office, ``Effects of Changes in How

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Airline Tickets Are Sold'' (July 1999) at 13.
    Many airlines have websites, and a number of airlines offer special 
discount fares and other benefits to travellers who book seats through 
their own websites instead of another distribution channel. Southwest 
now obtains one fourth of its bookings on-line, and several other 
airlines--Alaska and America West, for example--obtain at least one-
tenth of their bookings on-line. February 28, 2000, Southwest Airlines 
Press Release. In addition, five major airlines are creating a website 
in which dozens of airlines and other travel suppliers will 
participate. Several major on-line travel agencies now exist, including 
Travelocity, affiliated with Sabre; Expedia, developed by Microsoft; 
and Priceline, a firm that allows consumers to bid for tickets at fares 
they choose.
    Using the Internet for bookings appears to be much less costly for 
airlines than the traditional methods of selling airline tickets. 
According to a 1999 study, for example, each booking made through 
traditional travel agencies cost America West $23, a booking made 
through an electronic travel agency cost $20, a booking made through 
the airline's reservations agents cost $13, and a booking made through 
the airline's website cost $6. GAO, ``Effects of Changes in How Airline 
Tickets Are Sold'' at 17. The Internet also benefits the marketing 
efforts of travel suppliers, especially smaller suppliers. A tourism 
official for the Maldive Islands thus stated, ``Marketing is quite 
expensive and we are working on a very small budget. Because of the 
Internet we are able to do a lot of marketing with less expense.'' 
``Travel industry suffers Internet growing pains,'' March 15, 2000, 
Reuters story published on Yahoo (we are placing in the docket a copy 
of this article and other less widely-available material cited in this 
notice).
    Distribution through the Internet, however, seems unlikely to end 
the airlines' dependence on CRS participation. The on-line travel 
agencies so far have not provided airlines a way of bypassing the 
systems, because on-line agencies use one of the systems as a booking 
engine. Expedia, for example, uses Worldspan, and Travelocity uses 
Sabre. Even the website being established by five major airlines--
United, Delta, Northwest, Continental, and American--will use Worldspan 
as its booking engine. Thus airlines continue to need CRS access and 
remain obligated to pay CRS fees, although future developments may in 
time lessen their reliance on the systems.
    While the growing use of the Internet and other changes in 
distribution practices will likely make it harder for some travel 
agencies to remain in business, these changes should not cause travel 
agencies to disappear. A Sabre official has predicted, for example, 
that travel agencies will account for 65 percent of all airline 
bookings in 2005 (45 percent by traditional travel agencies and 20 
percent by travel agency websites). ``Sabre: Agents could retain 65% of 
air sales by 2005,'' TRAVEL WEEKLY (April 3, 2000) at 10. An 
independent research firm specializing in on-line travel issues 
recently stated that consumers prefer using a travel agency website 
since they believe that they are likely to get a better price from a 
travel agency website than from an airline website. April 17, 2000, 
PhoCusWright Press Release. Travel agents provide services that benefit 
many travellers. The GAO found, for example, that consumers are more 
likely to obtain the lowest available fare from a travel agent than 
from other sources of airline information. General Accounting Office, 
``Effects of Changes in How Airline Tickets Are Sold'' (July 1999) at 
13.

The Department's Plans To Study Distribution and CRS Developments

    We have been monitoring the airlines' increasing use of the 
Internet and other changes in airline distribution practices as part of 
our obligation to keep informed of developments in the airline 
industry. Our staff has been studying the CRS business and airline 
marketing practices. See Order 94-9-35 (September 26, 1994). The staff 
has reviewed relevant documents obtained from the systems pursuant to 
Order 94-9-35 and has interviewed officials from the systems, airlines, 
travel agencies and travel agency groups, as well as other industry 
experts. The staff has learned a great deal from this work, which will 
help us consider the issues in this proceeding. We plan to incorporate 
the staff's findings into the notice of proposed rulemaking rather than 
publish a separate report as originally intended. Proceeding in this 
manner should expedite this rulemaking.
    In addition, we have begun to study airline distribution issues in 
other contexts. The cited staff study of the CRS business has not 
focused on the Internet's role in airline distribution. Due to concerns 
raised by travel agency groups and others about the airlines' use of 
the Internet, our staff will be informally studying the airlines' use 
of the Internet for marketing their services. The staff's findings 
will, if practicable, be included in the notice of proposed rulemaking 
and be used in other contexts where we will be addressing airline 
distribution and Internet issues. A related staff study is reviewing 
Orbitz, the joint website being created by five major airlines.
    Other agencies have also investigated airline distribution issues. 
The Department's Inspector General conducted a study of travel agency 
override commissions. Office of the Inspector General, U.S. Dept. of 
Transportation, ``Report on Travel Agent Commission Overrides'' (March 
2, 1999). While the report largely dealt with issues outside the scope 
of this proceeding, the report noted that airlines use the marketing 
and booking data sold by the systems to implement their override 
commission programs. Id. at 8.
    The General Accounting Office (``GAO'') issued a report on several 
issues: whether consumers have been affected by changes in the 
airlines' methods of selling tickets, whether airlines require travel 
agencies to follow different rules on selling tickets than are followed 
by airline reservations agents, what the airlines' policies are for 
making discount fares available to consumers and travel agencies, and 
how the airlines use data on travel agency sales. General Accounting 
Office, ``Effects of Changes in How Airline Tickets Are Sold'' (July 
1999). The GAO's findings thus touch on some of the matters that we 
intend to consider in this proceeding.
    In 1998 Congress requested the Transportation Research Board 
(``TRB'') of the National Research Council to update its 1991 report on 
airline competition, ``Winds of Change: Domestic Air Transport since 
Deregulation.'' The TRB did so by publishing a report, ``Entry and 
Competition in the U.S. Airline Industry: Issues and Opportunities'' 
(1999), which addresses among other competition issues the impact of 
changes in airline distribution. TRB Report at 124-129.
    In addition, Congress has required three studies of issues related 
to airline distribution. The Department of Transportation and Related 
Agencies Appropriations Act, 2000, Public Law 106-69, 113 Stat. 985 
(1999), requires the Department's Inspector General to submit a report 
``on the extent to which actual or potential barriers exist to consumer 
access to comparative price and service information from independent 
sources on the purchase of passenger air transportation.'' 113 Stat. at 
1014.
    Section 207 of AIR 21 requires the Secretary to review airline 
marketing

[[Page 45556]]

practices that may keep small and medium-sized communities from 
receiving quality, affordable airline services. Section 228 of AIR 21 
will create the National Commission to Ensure Consumer Information and 
Choice in the Airline Industry. The commission will study (i) whether 
the financial condition of travel agencies is declining and, if so, the 
effect on consumers; and (ii) whether there are impediments to 
information on airline services and the effect of any such impediments 
on travel agencies, Internet-based distributors, and consumers. The 
Commission shall make recommendations it considers necessary to improve 
the condition of travel agents, especially smaller travel agents, and 
to improve consumer access to travel information.
    To the extent that the findings and recommendations of these 
studies are relevant, we will take them into account in developing our 
notice of proposed rulemaking in this proceeding, if practicable. If 
not, we will consider them in other proceedings.
    Finally, two travel agency trade associations have filed formal 
complaints involving airline distribution practices related to the 
issues in this proceeding. The American Society of Travel Agents filed 
a complaint against several airline practices that assertedly 
constitute unfair methods of competition because they will allegedly 
eliminate travel agencies as a source of unbiased information for 
consumers (Docket OST-99-6410). The Association of Retail Travel Agents 
has filed a complaint against the airlines that plan to create a joint 
website for the sale of airline tickets and other travel services 
(Docket OST-99-6691). It alleges that any joint airline site will 
threaten competition and therefore be an unfair method of competition. 
Despite whatever action is taken by the Enforcement Office on these 
complaints, we also intend to analyze some of these issues in this 
proceeding, and the staff will be examining some in their informal 
study of the airlines' use of the Internet and other distribution 
practices.

Request for Supplemental Comments

    While the studies being undertaken by our staff and by other 
agencies will assist us in analyzing the issues in this rulemaking, we 
cannot wisely resolve those issues without the parties' comments. We 
therefore invite the parties to file supplemental comments in response 
to our advance notice of proposed rulemaking and this notice. Since we 
will decide the issues on the basis of all of the comments, both those 
filed so far and the supplemental comments requested by this notice, 
the parties need not repeat the factual and legal arguments contained 
in their original comments. The supplemental comments should focus on 
discussing the issues in this proceeding in light of the changes in the 
CRS business and airline distribution that have occurred since the end 
of the original comment period.
    In addition, as we have stated, parties are free to make any rule 
proposal related to the questions being considered in this proceeding 
and to present any relevant factual, policy, and legal arguments. 62 FR 
at 47610. We also asked the parties, however, to comment on the 
specific questions set forth in our advance notice. 62 FR at 47609-
47610. We are now asking the parties to address two additional issues, 
the effect of the reduced ties between the systems and the airlines 
that have controlled them, and the advisability of regulating airline 
distribution practices involving the Internet.
    The discussion of the issues set forth in this notice is, of 
course, tentative. We have made no decision on the questions at issue 
in this proceeding.
    We wish to ensure that travellers will continue to benefit from a 
competitive airline industry and have access to accurate and 
comprehensive information on airline services. However, as explained 
above, under section 411 to adopt a rule we must consider whether the 
practice at issue harms consumers by significantly reducing competition 
or potentially causing deception and whether market forces (or 
alternative less intrusive rules) may correct the perceived problem. 
Furthermore, in examining rule proposals we must analyze whether they 
would produce benefits outweighing their costs. We will be hesitant to 
adopt rules when compliance or enforcement is likely to be 
impracticable.
    The Legal Basis for the Department's Rules. The changes in the 
systems' ownership and our wish to consider whether any rules are 
needed with respect to Internet practices require us to reexamine the 
legal predicates for our regulation of system operations.
    The systems' growing independence from airline control raises two 
questions about our authority--(i) whether section 411 authorizes us to 
regulate the conduct of a system that is not owned, controlled, or 
marketed by an airline or airline affiliate, and (ii) whether our 
determinations that the system practices prohibited by our rules are 
unfair methods of competition are still valid, when those 
determinations relied on the systems' control by airlines that competed 
with airlines dependent on the systems for distribution.
    Factual and policy considerations led to our determination in 1992 
and the Board's determination in 1984 to limit the scope of the rules 
to systems owned or marketed by airlines. 57 FR 43794; 49 FR 32549. As 
a result, neither we nor the Board have ruled on whether we may 
regulate a system that has no links to airlines except insofar as 
airlines participate in the system. The changes in the systems' 
ownership now appear to require us to consider this issue.
    The Reduced Ties between the Systems and Airline Owners. As 
discussed above, we readopted CRS rules because the airlines 
controlling the systems could use them to distort airline competition 
and provide misleading information, as shown by the systems' use of 
discriminatory fees and display bias. The airlines controlling the 
systems had an incentive to take such action, since they competed with 
the airlines whose services are sold through the systems.
    The ties between the systems and their former airline owners have 
since diminished greatly, at least with respect to Sabre and Galileo, 
as discussed above. United accordingly has suggested that Galileo is no 
longer covered by the rules, since no airline or airline affiliate 
allegedly controls it, despite United's ownership of seventeen percent 
of Galileo's stock (Galileo, however, has not endorsed this 
suggestion). October 7, 1999, United Supp. Comments at 5, n. 5. Amadeus 
already has public owners and may sell additional shares to the public. 
Finally, the willingness of many airlines, including Continental and US 
Airways, to divest their system interests suggests that airlines may no 
longer believe that control of the systems is essential for protecting 
their ability to market their services.
    Given these developments, we ask the parties to comment on whether 
CRS rules remain necessary and, if so, the basis for our maintenance of 
such rules as to systems that would have few, if any, affiliations with 
airlines. The parties should present their factual and legal arguments 
on whether the reduction in airline control of the systems has reduced 
or eliminated the need to maintain rules governing system operations. 
If commenters believe that the rules remain necessary for other 
reasons, they should explain why and further show that readopting rules 
would be consistent with our authority under section 411.
    Parties should additionally discuss whether the rules, if any, 
should be the same for each system regardless of the

[[Page 45557]]

degree of its ties with one or more airlines. That issue involves the 
question of whether subjecting some systems but not others to 
regulation would impose an unreasonable competitive handicap on the 
systems subject to more regulation. As on all other issues, parties 
seeking to convince us that a regulated system will suffer competitive 
disadvantages (or that a regulated system will not suffer such 
disadvantages) should provide a persuasive factual basis for their 
assertions.
    If we may not regulate non-airline systems directly, our authority 
to regulate airline practices under section 411 may allow us to prevent 
potential abuses. For example, with respect to the regulation of 
Internet sites, potential problems could perhaps be alleviated by 
barring airlines from seeking or obtaining preferential displays or 
discriminatory fees. If justified by the record, we could impose a 
similar ban on airlines with respect to system services provided travel 
agencies. We ask whether such a regulation would adequately resolve any 
potential problems that might arise from the operation of systems that 
have no airlines or airline affiliates as owners or marketers. 
Conceivably certain types of contract clauses in agreements between 
travel agencies and a system could also be prohibited as agreements 
analogous to contracts that unreasonably restrain trade in violation of 
section 1 of the Sherman Act.
    Internet Issues. The Internet--an increasingly important channel 
for airline distribution--provides efficiency benefits for consumers 
and travel suppliers. We will consider whether there is a significant 
risk that some practices associated with the use of the Internet are 
likely to reduce competition in the airline industry or result in 
consumers obtaining incomplete or misleading information. The relevant 
questions may include the following: whether airlines are able to 
participate in on-line services on reasonable terms, whether consumers 
have a reasonable opportunity to obtain non-deceptive information on 
airline services and to make bookings, and whether the Internet's use 
presents questions about the competitiveness of the airline and 
distribution industries.
    The proposals for Internet regulation generally fall into two 
categories--proposals for regulating websites, including those operated 
by on-line travel agencies, and proposals for regulating the airlines' 
use of the Internet, both with respect to airline websites and third-
party websites. No one has yet suggested, however, that we adopt rules 
governing websites operated by individual airlines, although some 
contend that we should bar airlines from offering fares available only 
through their own websites.
    Various parties have alleged in their comments that the operation 
of websites by travel agencies and the systems creates a potential for 
abuse, since the site operator may be induced to bias its displays of 
airline information. Our CRS rules currently apply to system services 
provided to websites operated by travel agencies, 14 CFR 255.1 and 
255.2, but, as noted above, do not govern the use made by travel 
agencies of the information and displays made available by a system. 
Commenters should also state whether any travel agency websites are 
currently biased or provide deceptive information and, if so, provide 
supporting evidence.
    Parties contending that additional rules are necessary for Internet 
services should explain why on-line agencies should be treated 
differently than traditional agencies. As we explained in our advance 
notice, consumers use CRSs differently than they do Internet services. 
62 FR at 47610. Consumers relying on travel agencies for information 
and advice do not see the displays used by the travel agent, but 
consumers using a website do see displays created from the information 
provided by a system. In our past rulemakings we found CRS regulation 
necessary because, among other things, most travel agencies used only 
one system, travel agencies could not easily switch systems or use more 
than one system, and the time pressures on travel agents tend to cause 
them to book one of the first flights shown on a display, even if 
flights displayed later may better suit the traveller's needs. 57 FR at 
43783, 43785-43786. These factors seem unlikely to be as true for 
consumer use of Internet booking sites. Some studies nonetheless have 
shown a substantial variance between the fares quoted by different 
websites. See ``Frictions in cyberspace,'' ECONOMIST (November 20, 
1999).
    In addition to the proposals for regulating websites and the 
airlines' use of the Internet, Delta has asked us to forbid systems 
from tying participation in the system services provided on-line travel 
agencies and other websites with participation in the system services 
provided traditional travel agencies. Our advance notice asked parties 
to comment on that proposal, 62 FR 47610, and a number of parties 
discussed the proposal in their comments. We will consider it along 
with the parties' other proposals.

Regulatory Process Matters

Regulatory Assessment

    Our CRS rules were a significant regulatory action under section 
3(f) of Executive Order 12866 and were reviewed by the Office of 
Management and Budget under that order. As required by section 6(a)(3) 
of that Executive Order, we prepared an assessment of the rules' costs 
and benefits. The rules were also significant under the regulatory 
policies and procedures of the Department of Transportation, 44 FR 
11034.
    As we stated in our advance notice, we do not know now whether we 
will propose new rules that would have a substantial impact and would 
thus be considered significant under the Executive Order. OMB has 
waived review of this supplemental advance notice of proposed 
rulemaking.
    The comments submitted in response to this notice should address 
the potential effects any changes would have on the economy, costs or 
prices for consumers and the government, and adverse effects on 
competition.
    We do not expect that this rulemaking will impose unfunded mandates 
or requirements that will have any impact on the quality of the human 
environment.

Regulatory Flexibility Analysis

    Congress enacted the Regulatory Flexibility Act of 1980, 5 U.S.C. 
601 et seq., to keep small entities from being 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.
    Any rules adopted by us regulating CRS operations are likely to 
affect the operations of many small entities, primarily travel 
agencies, even though they would not be regulated directly if we 
readopted the existing rules. When we publish a notice of proposed 
rulemaking in this proceeding, we will include an initial regulatory 
flexibility analysis as required by the Regulatory Flexibility Act.
    That act also requires each agency to periodically review rules 
which have a significant economic impact upon a substantial number of 
small entities. 5 U.S.C. 610. This rulemaking will constitute the 
required review of our CRS rules.

[[Page 45558]]

Paperwork Reduction Act

    The current rules contain no collection-of-information requirements 
subject to the Paperwork Reduction Act, P.L. No. 96-511, 44 U.S.C. 
Chapter 35. See 57 FR at 43834.

Federalism Implications

    This request for comments 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 13132, dated August 4, 1999, we have determined that it 
does not present sufficient federalism implications to warrant 
consultations with State and local governments.

    Issued in Washington, D.C. on July 17, 2000.
A. Bradley Mims,
Deputy Assistant Secretary for Aviation and International Affairs.
[FR Doc. 00-18573 Filed 7-21-00; 8:45 am]
BILLING CODE 4910-62-P