[Federal Register Volume 66, Number 62 (Friday, March 30, 2001)]
[Rules and Regulations]
[Pages 17352-17356]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7978]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Docket No. OST-2001-9054]
RIN 2105-AD00


Extension of Computer Reservations Systems (CRS) Regulations

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Final rule.

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SUMMARY: The Department is revising its rules governing airline 
computer reservations systems (CRSs) by changing

[[Page 17353]]

the rules' expiration date from March 31, 2001, to March 31, 2002. If 
the expiration date were not changed, the rules would terminate on 
March 31, 2001. This 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 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: This rule is effective on March 31, 2001.

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: Section 255.12 of the rules establishes a 
sunset date for the rules to ensure that we periodically reexamine the 
need for the rules and their effectiveness. The original sunset date 
was December 31, 1997. We have changed it three times, so the current 
sunset date is 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.
    We are now changing the sunset date to March 31, 2002, because we 
have been unable to complete our reexamination of the current rules by 
March 31, 2001. Since we believed that the rules should remain in 
effect until we complete that process, we proposed an additional 
extension of the rules' expiration date to March 31, 2002, to achieve 
that result. 66 FR 13860 (March 8, 2001). Our notice of proposed 
rulemaking gave interested parties an opportunity to comment on our 
proposal. Comments were filed by America West, Delta, Orbitz, and 
Worldspan, each of whom supported the proposal, and the Air Carrier 
Association of America, which urged us to suspend one of the rules 
pending reexamination.

Background

    In 1992 the Department adopted its rules governing CRS operations, 
14 CFR Part 255, because they were necessary to protect airline 
competition and to ensure that consumers can obtain accurate and 
complete information on airline services. 57 FR 43780 (September 22, 
1992). Because almost all airlines found it essential to participate in 
each system, market forces did not discipline the price and quality of 
services offered airlines by the systems. Travel agents depended on 
CRSs to provide airline information and make bookings for their 
customers, and agencies typically relied on one system to obtain 
information on airline services and to make bookings. One or more 
airlines or airline affiliates, moreover, owned each of the systems and 
could operate the system in ways designed to prejudice the competitive 
position of other airlines.
    The rules have always had a sunset date to ensure that we would 
periodically reexamine whether the rules were necessary and effective. 
14 CFR 255.12; 57 FR 43829-43830 (September 22, 1992). 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). 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). Almost all of the parties responding to our 
supplemental advance notice of proposed rulemaking (and the initial 
advance notice of proposed rulemaking) contend that CRS rules remain 
necessary. Few parties argue that the continued regulation of the CRS 
business is harmful and 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.
    We have also been informally studying recent developments in 
airline distribution and the proposed business plan and operational 
strategy of Orbitz, a travel website being developed by five major U.S. 
airlines. See July 20, 2000, Statement of A. Bradley Mims, Deputy 
Assistant Secretary for Aviation and International Affairs, before the 
Senate Committee on Commerce, Science, and Transportation. In addition, 
in recent years we have amended the rules twice to further promote 
competition. 62 FR 59784 (November 5, 1997); 62 FR 66272 (December 18, 
1997).

Our Proposed Extension of the CRS Rules

    We proposed again to change the expiration date for our CRS rules 
to March 31, 2002, so that the rules would remain in effect while we 
complete our reexamination of the need for the rules and their 
effectiveness. 66 FR 13860 (March 8, 2001). We could not finish the 
steps required for our overall reexamination of our rules by the 
current expiration date, March 31, 2001. In addition, we wished to 
complete our informal studies of airline distribution developments 
before we determine whether to propose readopting the rules.
    Changing the sunset date to March 31, 2002, would preserve the 
status quo until we determine whether the rules should be readopted 
and, if so, how they should be modified. Maintaining the current rules 
would be consistent with the expectations of the systems and their 
users--airlines and travel agencies--that each system would operate in 
compliance 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.
    In addition, extending the rules seemed necessary to protect 
airline competition and consumers against unreasonable and unfair 
practices. Our past examinations of the CRS business and airline 
marketing showed that CRSs were still essential for the marketing of 
the services of almost all airlines. 66 FR 13862 citing 57 FR 43780, 
43783-43784 (September 22, 1992). CRS rules were necessary because the 
airlines relied heavily on travel agencies for distribution, because 
travel agencies relied on CRSs, because most travel

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agency offices used only one CRS, because creating alternatives for 
CRSs and getting travel agencies to use them would be 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. 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. As a result of 
the importance of marginal revenues in the airline industry, an airline 
could not afford to lose access to a significant source of revenue. 
Almost all airlines therefore had to participate in each CRS, and CRSs 
did not need to compete for airline participants. We believed that 
these findings were still valid despite such developments as the 
increasing importance of the Internet for airline distribution. 66 FR 
13862.
    We are well aware that we need to reexamine the rules in light of 
recent developments, such as the growing use of the Internet and the 
weakening of ties between some of the systems and their former airline 
owners. 66 FR 13862. We noted, however, that most of the parties that 
responded to the advance notice of proposed rulemaking and the 
supplemental advance notice of proposed rulemaking had alleged 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.
    We therefore tentatively concluded that our past findings on the 
need for CRS rules are sufficiently valid to justify a short-term 
extension of the rules' expiration date. 66 FR 13862.
    We further noted 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 an extension of the rules. 
Many of those bilateral agreements assure the airlines of each party a 
fair and equal opportunity to compete, and our rules provide an 
assurance of fair and nondiscriminatory treatment for foreign airlines. 
66 FR 13862.
    We recognized that the delay in completing the rules' reexamination 
was regrettable in view of the need to revise our rules to reflect 
current industry conditions, possibly including an extension of the 
rules to cover the Internet. We explained that we have had to address 
other airline competition issues that appeared to be more urgent and 
that the current rules seem to address the most serious potential 
competitive and consumer protection issues created by the use of 
computer reservations systems in airline distribution. 66 FR 13861-
13862.
    The need to make the final rule effective by March 31, 2001, the 
current sunset date, caused us to shorten the comment period to ten 
days. 66 FR 13860.

Comments

    Worldspan supports the proposed extension on the ground that we 
need to undertake a thorough review of the issues raised in our advance 
notices of proposed rulemaking and the parties' comments. Worldspan 
argues that we should conduct a comprehensive review of the issues 
without attempting to address certain issues individually. Delta 
supports the extension but urges us to proceed as quickly as possible 
with issuing new rules. America West supports the extension but 
contends that we should take immediate action to control the level of 
the booking fees charged airlines participating in the systems. Orbitz, 
which has filed comments asserting that the existing rules have 
shortcomings, supports the extension if we have decided that we need 
more time for our overall reassessment of the complex issues presented 
by the rules.
    The Air Carrier Association of America, a trade association for 
low-fare airlines, took no position on whether the rules should be 
extended. The Association instead argued that we should immediately 
suspend section 255.10(a), which requires each system to make available 
to its participating airlines any marketing and booking data that it 
chooses to generate from the bookings made through the system.

Final Rule

    We are changing the rules' sunset date to March 31, 2002, as we 
proposed. Delta, America West, Worldspan, and Orbitz support our 
proposal, and no one has objected to it. We based our proposal on the 
findings made by us in earlier CRS rulemakings and the position of most 
of the parties in the underlying rulemaking (Docket OST-97-2881) that 
CRS rules are still necessary. 65 FR at 11011. In our overall 
reexamination of the rules we will, of course, consider whether recent 
developments, such as the divestiture by several airlines of their CRS 
ownership interests, indicate that the justification and need for some 
or all of the CRS rules has ended.
    America West urges us to act quickly on the specific rule proposals 
of interest to it. We will consider its arguments as part of our 
consideration of procedures for completing the reexamination of the 
rules and for updating the rules to reflect current industry 
conditions.
    We are not suspending section 255.10(a) as requested by the Air 
Carrier Association. A suspension of the section would not achieve the 
result sought by the Association, the denial of access by large 
airlines to the marketing and booking data produced and sold by the 
systems. Suspending the section would only end the systems' obligation 
to make the data available to all participating airlines. Unless we 
adopted a rule prohibiting the release of the data, the systems would 
be able to continue selling it to airline and non-airline firms. We 
recognize the importance of reexamining the provision, as we stated in 
our original advance notice of proposed rulemaking, 62 FR 47610, and we 
intend to see whether we should change the systems' obligation and 
ability to sell marketing and booking data. We prefer to do so in the 
context of our overall reexamination of the rules, since we must also 
consider the arguments made by United and others that the rules should 
be terminated. The Association based its request on the need for the 
Department to take steps to promote a competitive airline industry. We 
agree that we have a responsibility to ensure competition, and we are 
considering options for carrying out that responsibility.
    As we noted, we have issued a supplemental notice last year asking 
the parties to update their comments in light of recent developments, 
and we are completing our informal studies of airline distribution. 
These steps will enable us to move forward promptly on the rulemaking. 
66 FR 13862.

Effective Date

    We have determined for good cause to make this amendment effective 
on March 31, 2001, rather than thirty days after publication as 
required by the Administrative Procedure Act, 5 U.S.C. 553(d), except 
for good cause shown. To maintain the current rules in force, we must 
make this amendment effective by March 31, 2001. Since the amendment 
preserves the status quo, it will not require the systems, airlines, 
and travel agencies to change their operating methods. As a result, 
making the amendment effective less than thirty days after publication 
will not burden anyone.

Regulatory Process Matters

Regulatory Assessment

    This rule is a nonsignificant regulatory action under section 3(f) 
of Executive Order 12866 and has not been

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reviewed by the Office of Management and Budget under that order. The 
rulemaking is also not significant under the regulatory policies and 
procedures of the Department of Transportation, 44 FR 11034.
    As stated in our notice of proposed rulemaking, we tentatively 
concluded that maintaining the current rules would 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 them. Maintaining the rules 
would benefit participating airlines, since otherwise they could be 
subjected to unreasonable terms for participation, and would benefit 
consumers, who might otherwise be given incomplete or inaccurate 
information on airline services. The rules also contain provisions 
designed to prevent certain types of abuses in the systems' contracts 
with travel agency subscribers. 66 FR 13862-13863.
    Our last major CRS rulemaking included our preparation of a 
tentative economic analysis published with our notice of proposed 
rulemaking and our decision to make that analysis final when we issued 
our final rule. Since we believed that that analysis remained 
applicable to our proposal to extend the rules' expiration date, we 
reasoned that no new regulatory impact statement appeared to be 
necessary. We stated, however, that we would consider comments from any 
party on that analysis before making our proposal final. 66 FR 13863.
    No one filed comments on the economic analysis, so we are basing 
this rule on the analysis used in our last comprehensive CRS 
rulemaking. We will prepare a new economic analysis as part of our 
review of the existing rules, if we determine that rules remain 
necessary.
    This rule does not impose unfunded mandates or requirements that 
will have any impact on the quality of the human environment.

Small Business Impact

    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. airlines and smaller 
travel agencies.
    Our notice of proposed rulemaking set forth the reasons for our 
proposed extension of the rules' expiration date and the objectives and 
legal basis for that proposed rule. 66 FR 13863. We additionally noted 
that maintaining the current rules would not modify the existing 
regulation of small businesses. We cited our final rule in our last 
major CRS rulemaking, which contained a regulatory flexibility analysis 
on the impact of the rules. We determined on the basis of that analysis 
that the rules did not have a significant economic impact on a 
substantial number of small entities. Our notice proposing to extend 
the rules' sunset date stated that that analysis appeared to be valid 
for that proposed extension. We therefore adopted that analysis as our 
tentative regulatory flexibility statement, and we stated that we would 
consider any comments filed on that analysis in connection with this 
proposal. 66 FR 13863.
    Continuing our current CRS rules would primarily affect two types 
of small entities, smaller airlines and travel agencies. If the rules 
enable airlines to operate more efficiently and reduce their costs, 
they would 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.
    The maintenance of the rules would protect smaller non-owner 
airlines from several potential system practices that could injure 
their ability to operate profitably and compete successfully. The 
rules, for example, limit the ability of each system to bias its 
displays in favor of its affiliated airlines and against other 
airlines, since the rules prohibit systems from ranking and editing 
displays of airline services on the basis of carrier identity. The 
rules also prohibit charging participating airlines discriminatory 
fees. No smaller airline has a CRS ownership interest. Market forces do 
not significantly influence the systems' treatment of airline 
participants. Thus, if we did not regulate the systems, the systems' 
owners could use them to prejudice the competitive position of other 
airlines. The rules, moreover, 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.
    We invited interested persons to address our tentative conclusions 
under the Regulatory Flexibility Act in their comments submitted in 
response to this notice of proposed rulemaking. 66 FR 13863.
    No one commented on our Regulatory Flexibility Act analysis. We 
will adopt the analysis set forth in the notice of proposed rulemaking.
    This rule contains no direct reporting, recordkeeping, or other 
compliance requirements that would affect small entities. There are no 
other federal rules that duplicate, overlap, or conflict with this 
rule.
    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 rule 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

    We stated that we had reviewed this rule in accordance with the 
principles and criteria contained in Executive Order 13132, dated 
August 4, 1999, and determined that the rule would 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 rule 
will not limit the policymaking discretion of the States. Nothing in 
this rule would directly preempt any State law or regulation. We are 
adopting the rule 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. Our notice of proposed 
rulemaking stated our belief that the policy set forth in the proposed 
rule is consistent with the principles, criteria, and requirements of 
the Federalism Executive Order and the Department's governing statute. 
We welcomed comments on our conclusions. 66 FR 13863.
    None of the comments addressed our federalism assessment. 
Therefore, we will make that assessment final. Because the rule will 
have no significant effect

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on State or local governments, as discussed above, no consultations 
with State and local governments on this rule were necessary.

List of Subjects in 14 CFR Part 255

    Air carriers, Antitrust, Consumer protection, Reporting and 
recordkeeping requirements, Travel agents.

    Accordingly, the Department of Transportation amends 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, D.C. on March 27, 2001, under authority 
delegated by 49 CFR 1.56a (h) 2.
Susan McDermott,
Deputy Assistant Secretary for Aviation and International Affairs.
[FR Doc. 01-7978 Filed 3-28-01; 11:38 am]
BILLING CODE 4910-62-P