[Federal Register Volume 66, Number 46 (Thursday, March 8, 2001)]
[Proposed Rules]
[Pages 13860-13863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5666]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Docket No. OST-2001-9054]
RIN 2105-AC75


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) by changing the rules' 
expiration date from March 31, 2001, to March 31, 2002. If the 
expiration date is not changed, the rules will terminate on March 31, 
2001. 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 has tentatively concluded 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, then to March 31, 2000, and then to March 31, 
2001.

DATES: Comments must be submitted on or before March 19, 2001. Late 
filed comments will be considered to the extent possible.

ADDRESSES: To make sure your comments and related material are not 
entered more than once in the docket, please submit them (marked with 
docket number OST-2001-9054) by only one of the following means:
    (1) By mail to the Docket Management Facility, US 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 Docket OST-
2001-9054.

FOR FURTHER INFORMATION CONTACT: Thomas Ray, Office of the General 
Counsel, 400 Seventh St. SW., 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's 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: 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 determined that 
the rules were necessary to ensure that each of the airlines and 
airline affiliates that then owned and controlled the systems did not 
use the systems to unfairly prejudice the competitive position of other 
airlines or to provide misleading or inaccurate information to travel 
agents and their customers. Travel agents depended on CRSs to provide 
airline information and make bookings for their customers, and almost 
all airlines received most of their bookings from travel agencies. CRS 
rules were necessary for these reasons. Our rules as revised will 
expire on March 31, 2001, 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 rules' expiration date to March 31, 2002, so that 
they will remain in force while we complete our reexamination of the 
rules.
    We have set a ten-day comment period so that we can publish a final 
decision on this proposal before the rules' current expiration date. 
Our advance notice of proposed rulemaking and our supplemental advance 
notice of proposed rulemaking have given interested persons an 
opportunity to comment on whether the rules should be maintained.

The CRS Business

    Four firms provide CRS services in the United States. Three of them 
are owned in whole or part by one or more U.S. or foreign airlines, and 
the two systems with little or no airline ownership are marketed by one 
or more U.S. airlines. A CRS provides information on airline services 
and other travel services sold through the system to its users. While 
most system users are travel agents (both traditional agencies and on-
line agencies), consumers using Internet reservations services and 
corporate travel departments also use systems. Someone using a CRS can 
investigate what airline seats and fares are available and can book a 
seat on each airline that

[[Page 13861]]

``participates'' in the system, that is, that makes its services 
saleable through the CRS. Travel agents access a CRS through computer 
terminals.
    The systems obtain most of their revenues from the fees paid by 
airlines and other travel suppliers participating in a system when a 
system user books travel services through the system or changes an 
existing booking (these fees are called ``booking fees''). Many, but 
not all, travel agencies subscribing to a system also pay fees. Since 
the systems compete for subscribers, market forces discipline 
subscriber fees, and some travel agencies can 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 CRS rules 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 used 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. In adopting its regulations 
the Board primarily relied on 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 CRS contract terms that unreasonably limited the 
travel agencies' ability to switch systems or use more than one system.
    To ensure that the rules would be reexamined, the Board's rules 
contained a sunset date, December 31, 1990. After we assumed the 
Board's responsibilities for airline economic regulation, we conducted 
such a 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's rules, our 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 requesting comments on whether we should 
readopt the rules and, if so, whether they should be changed. 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). Last year we published a supplemental advance 
notice of proposed rulemaking that asked the parties to update their 
comments in light of recent developments and to comment on whether any 
rules should be adopted regulating the use of the Internet in airline 
distribution. 65 FR 45551 (July 24, 2000).
    We have also been conducting informal studies of recent 
developments in airline distribution and of the proposed business plan 
and operational strategy of Orbitz, a travel website being developed by 
five major U.S. airlines.
    Almost all of the parties responding to our advance notice of 
proposed rulemaking and supplemental 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. Few parties have argued that we should eliminate the rules or 
that the continued regulation of the CRS business is unnecessary. An 
extension of the current rules pending completion of the current 
reexamination of those rules would be consistent with the positions 
taken by most of 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 
three times to extend them, first to March 31, 1999, then to March 31, 
2000, and then to March 31, 2001. 62 FR 66272 (December 18, 1997); 64 
FR 15127 (March 30, 1999); and 65 FR 16808 (March 30, 2000). We 
concluded that these extensions were necessary to prevent the harm that 
would arise if the CRS business were not regulated and 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. The 
parties that took a position on the last proposed extension --Delta, 
Amadeus, Worldspan, and the American Society of Travel Agents --all 
supported the proposal.

Our Proposed Extension of the CRS Rules

    We are again proposing to change the expiration date for our CRS 
rules to March 31, 2002, to keep the rules in effect while we complete 
our reexamination of the need for the rules and their effectiveness. 
The time needed to complete 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 more time than the few months 
remaining before the current expiration date, March 31, 2001. In 
addition, we wish to complete our informal studies of airline 
distribution developments before we determine whether to propose 
readopting the rules.
    We are aware that the delay in completing the rules' reexamination 
is unfortunate due to the importance of adapting our rules on CRS 
operations to current industry conditions and of considering whether 
the rules should be extended to the Internet, which is becoming 
increasingly important in airline distribution. We have had to address 
other airline competition issues that appeared to be more urgent. While 
the current rules should be updated, they do appear to address the most 
serious potential competitive and consumer protection issues created by

[[Page 13862]]

the use of computer reservations systems in airline distribution.
    We have taken steps to enable us to move forward promptly on the 
rules' reexamination. As noted, we issued a supplemental notice last 
year asking the parties to update their comments in light of recent 
developments, including the Internet's growing importance in airline 
distribution. We are also completing our informal studies of 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. As indicated, we are also studying 
Orbitz, since we have received a number of informal complaints that its 
proposed plan of operation would undermine the current distribution 
system. We recognize that the importance of some issues, such as our 
review of Orbitz, may require us to decide them before we complete our 
overall reexamination of the rules.
    We tentatively conclude that we should amend the rules to change 
the sunset date from March 31, 2001, to March 31, 2002. This amendment 
would 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.
    Our principal reason for extending the rules is the need to protect 
airline competition and consumers against unreasonable and unfair 
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 
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 recognize, of course, that Sabre no longer has any airline 
owner, due to American's spin-off of its Sabre stock, and that airlines 
own less than a quarter of Galileo's stock. American and Southwest 
market Sabre, however, and United markets Galileo, so these two systems 
each have significant airline ties which could potentially lead to 
deceptive or unfair competitive practices if our rules expired. Whether 
the rules should be readopted in light of the changes in system 
ownership is, of course, an issue that we will consider carefully in 
our reexamination of the rules. 65 FR at 45554, 45556.
    As noted above, most of the parties that responded to the advance 
notice of proposed rulemaking and the supplemental advance notice of 
proposed rulemaking stated that the rules remained necessary, and most 
of them 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

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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 economic analysis 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. 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 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 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, 2002.

    Issued in Washington, DC on March 2, 2001, under authority 
delegated by 49 CFR 1.56a(h)2.
Susan McDermott,
Deputy Assistant Secretary for Aviation and International Affairs.
[FR Doc. 01-5666 Filed 3-7-01; 8:45 am]
BILLING CODE 4910-62-P