[Federal Register Volume 67, Number 32 (Friday, February 15, 2002)]
[Proposed Rules]
[Pages 7100-7104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3924]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Docket No. OST-2002-11577]
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 amend its rules governing 
airline computer reservations systems (CRSs), 14 CFR part 255, by 
changing the rules' expiration date from March 31, 2002, to March 31, 
2003. If the expiration date is not changed, the rules will terminate 
on March 31, 2002. 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, then to March 31, 2001, and most recently to March 31, 2002.

DATES: Comments must be submitted on or before March 18, 2002. 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-2002-11577) 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.

[[Page 7101]]

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-
2002-11577.
    However, due to security procedures in effect since October 2001 on 
mail deliveries, mail received through the Postal Service may be 
subject to delays. Commenters should consider using an express mail 
firm to ensure the timely filing of any comments not submitted 
electronically or by hand.

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: 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 and each system was then controlled by one or more airlines or 
airline affiliates. 57 FR 43780 (September 22, 1992). We concluded that 
the rules were necessary to ensure that each of the airlines and 
airline affiliates that controlled the systems did not use them to 
unfairly prejudice the competitive position of other airlines and to 
ensure that travel agents and their customers could obtain accurate and 
unbiased information from the systems. CRS rules were necessary because 
almost all airlines received most of their bookings from travel 
agencies and because travel agents relied on the systems to obtain 
airline information and make bookings for their customers. Our rules as 
revised will expire on March 31, 2002, unless we readopt them or extend 
the expiration date. 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, 2003, so that they will 
remain in force while we complete that proceeding. The Department 
expects to issue a notice of proposed rulemaking regarding the 
substantive issues that might be addressed in revised CRS rules later 
this year.
    We are allowing thirty days for comments on this proposal. That 
comment period will enable us to 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

    A CRS provides information and booking capabilities on airline 
services and other travel services sold through it to its users, who 
are primarily travel agents (both traditional agencies and on-line 
agencies). Consumers using Internet reservations services and corporate 
travel departments also use the systems. Users access the systems 
through computer terminals. Someone using a CRS can investigate what 
airline seats and fares are available and can book a seat on each 
airline that ``participates'' in the system, that is, that makes its 
services saleable through the CRS.
    Four CRSs operate in the United States. Two of them--Worldspan and 
Amadeus--are owned in whole or part by one or more U.S. or foreign 
airlines, and the other two--Sabre and Galileo--are marketed by one or 
more U.S. airlines and until recently were also controlled by one or 
more airlines.
    The systems charge participating airlines and other travel 
suppliers fees when a user books travel services through the system or 
changes an existing booking (these fees are called ``booking fees''). 
The fees paid by travel suppliers produce most of each system's 
revenues. Many travel agencies also pay fees for using a system, 
although other travel agencies obtain system services without charge. 
Since the systems compete for travel agency customers 
(``subscribers''), market forces usually discipline subscriber fees.

Regulatory Background

    The Civil Aeronautics Board (``the Board''), the agency formerly 
responsible for the airline industry's economic regulation, initially 
adopted CRS rules because the systems had become essential for airline 
distribution due to the travel agents' reliance on them for 
investigating and booking airline services. 49 FR 32540 (August 15, 
1984). Each system then operating in the United States, with one minor 
exception, was owned by a single airline, and each owner airline was 
using its system to prejudice competing airlines and to give consumers 
biased or incomplete information in order to obtain more bookings. The 
Board determined that regulations were necessary to keep the systems 
from substantially injuring airline competition and from misleading 
consumers. The Board adopted the rules under the authority granted it 
by 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 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 that the system chose to 
generate from bookings for domestic travel. The rules also prohibited 
certain CRS contract terms that unreasonably kept travel agencies from 
switching systems or using more than one system.
    The Board's rules contained a sunset date, December 31, 1990, to 
ensure that we would reexamine the rules after we assumed the Board's 
responsibilities for airline economic regulation. We conducted such a 
reexamination and concluded that the rules remained necessary and 
should be strengthened in certain respects. 57 FR 43780 (September 22, 
1992). The rules were still necessary, because market forces did not 
discipline the price or level of service offered participating airlines 
by the systems. CRS owners could use their control of the systems to 
prejudice airline competition, and the systems could bias their 
displays of airline services, if there were no rules. 57 FR at 43783-
43787.
    Our rules also included a sunset date, December 31, 1997. 14 CFR 
255.12; 57 FR at 43829-43830 (September 22, 1992). We began our current 
reexamination of the rules by publishing an advance notice of proposed 
rulemaking requesting comments on whether we should readopt the rules 
and, if so, whether they should be changed. 62 FR 47606 (September 10, 
1997). We thereafter published a

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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 owned 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 have urged us to maintain CRS rules, although many have 
argued that the rules required changes. 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

    Previously, we have extended the sunset date four times, first to 
March 31, 1999, and most recently to March 31, 2002. 62 FR 66272 
(December 18, 1997); 64 FR 15127 (March 30, 1999); 65 FR 16808 (March 
30, 2000); and 66 FR 17352 (March 30, 2001). We concluded that these 
extensions were necessary to prevent the harm that would arise if the 
CRS business were not regulated and in view of the fact 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 third proposed extension--Delta, 
Amadeus, Worldspan, and the American Society of Travel Agents--all 
supported the proposal. Worldspan, Delta, America West, and Orbitz 
supported our fourth proposed extension, while the Air Carrier 
Association did not oppose it. The Air Carrier Association, Delta, and 
America West urged us to revise the rules on some issues as soon as 
possible.

Status of Our Review

    The Department recognizes that our reexamination of the rules 
should be completed as soon as possible, and the staff is moving 
forward promptly to bring the rulemaking to completion. Our rules must 
be updated to reflect current industry conditions, and we must consider 
whether the rules should be extended to the Internet, which is becoming 
increasingly important in airline distribution.
    CRS-related issues may arise that may require a decision before we 
complete our overall reexamination of the rules. The importance of some 
issues related to Orbitz, for example, caused us to review Orbitz' 
business plan before it launched its service to the public, and we are 
conducting a further review of Orbitz to see whether its actual 
operations present competitive issues. When expedited action is needed 
on other issues, we will address them promptly. We are aware that 
several parties have requested expedited action on specific proposed 
revisions to the CRS rules, 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; 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; and the comments filed by several travel 
agency parties and the Association of Air Carriers of America 
requesting expedited action on an amendment that would bar or restrict 
systems from providing booking and marketing data to airlines. While we 
currently intend to address all of the rulemaking issues in the overall 
reexamination, and to do so promptly, we will consider acting more 
quickly on specific issues as necessary.

Our Proposed Extension of the CRS Rules

    We are again proposing to extend the expiration date for our CRS 
rules by one year, to March 31, 2003, to maintain the rules while we 
complete our reexamination of the need for the rules and their 
effectiveness. 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, 
cannot be completed within the several weeks remaining before the 
current expiration date, March 31, 2002. Our proposed 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.
    We are proposing to maintain the rules for another year primarily 
in order to protect airline competition and consumers against 
unreasonable and unfair practices. In our past reviews of the need for 
CRS rules, we found that CRSs were still essential for the marketing of 
the services of almost all airlines. 57 FR 43780, 43783-43784 
(September 22, 1992). We concluded that rules were necessary because 
travel agencies were the airlines' principal method of distribution, 
because travel agencies relied on CRSs, because most travel agency 
offices used only one CRS, because airlines and other firms had not 
successfully encouraged travel agencies to use alternatives for CRSs, 
and because non-owner airlines were unable to induce agencies to use 
CRSs that provided better or less expensive service to the airlines. 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. The importance of marginal revenues in the 
airline industry meant that no airline could 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.
    These findings still appear to be valid. Travel agencies still make 
most airline bookings in the United States, travel agencies still rely 
heavily on CRSs to obtain information on airline services and to make 
bookings, and most travel agency offices rely entirely or predominantly 
on one system to carry out these tasks. The decisions of most 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, support these 
findings. 62 FR at 47608. As noted above, most of the

[[Page 7103]]

parties that responded to our advance notice of proposed rulemaking and 
supplemental advance notice of proposed rulemaking have stated that the 
rules remained necessary, and most of them have urged us to strengthen 
them further to protect against potential abuses by system owners.
    Thus, while we have not made a determination that the rules should 
be readopted, we tentatively believe that our past findings on the need 
for CRS rules are still valid, at least for the purpose of a short-term 
extension of the rules' expiration date. 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 the systems' ability to engage in practices 
that could prejudice airline competition and lead to consumer 
deception. 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.
    Furthermore, 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.
    We recognize that the airline distribution system and the CRS 
business are changing. The Internet's role in airline distribution is 
growing rapidly. Two of the systems--Sabre and Galileo--are no longer 
controlled by airlines. 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 are carefully considering in our reexamination of the 
rules. 65 FR at 45554, 45556. As stated above, we recognize the 
importance of updating the rules to reflect all such developments.

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.
    Maintaining the current rules should not impose significant costs 
on the systems. They have already taken the steps necessary for 
compliance 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. Keeping the rules in force will 
benefit participating airlines, since otherwise they could be subjected 
to unreasonable terms for participation, and consumers, who might 
otherwise obtain incomplete or inaccurate information on airline 
services. The rules also prevent some types of abuses by systems in 
their competition 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 airlines affiliated with the systems 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

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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 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, 2003.

    Issued in Washington, DC on February 12, 2002, under authority 
delegated by 49 CFR 1.56a (h) 2.
Read C. Van de Water,
 Assistant Secretary for Aviation and International Affairs.
[FR Doc. 02-3924 Filed 2-13-02; 1:03 pm]
BILLING CODE 4910-62-P