[Federal Register Volume 69, Number 4 (Wednesday, January 7, 2004)]
[Rules and Regulations]
[Pages 976-1033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32338]



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Part III





Department of Transportation





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14 CFR Part 255



Computer Reservations System (CRS) Regulations; Final Rule

  Federal Register / Vol. 69, No. 4 / Wednesday, January 7, 2004 / 
Rules and Regulations  

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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 255

[Dockets Nos. OST-97-2881, OST-97-3014, OST-98-4775, and OST-99-5888]
RIN 2105-AC65


Computer Reservations System (CRS) Regulations

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Final rule.

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SUMMARY: The Department is amending its rules governing airline 
computer reservations systems (``CRSs'' or ``systems'') to eliminate 
most of the rules now and to terminate additional rules as of July 31, 
2004. The Department is readopting the rules prohibiting display bias 
and adopting rules that prohibit systems from imposing certain types of 
contract clauses on participating airlines that would unreasonably 
restrict their ability to choose how to distribute their services. 
These rules will be effective during a six-month transition period.

DATES: This rule is effective on January 31, 2004.

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

SUPPLEMENTARY INFORMATION:

Electronic Access

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Table of Contents

A. Summary of Final Rule
B. Background
    1. The CRS Business
    2. The Travel Agency Distribution System and the Business 
Relationships between Travel Agencies and the Systems
    3. Regulatory Background
C. Development of the Record in this Rulemaking
D. Procedural Issues
E. The Need for Limited CRS Regulation
    1. Introduction
    2. Final Rule
    3. Market Definition
    4. The Systems' Market Power over Airlines
    5. The Potential for System Conduct Undermining Airline 
Competition
    6. System Practices that Preserve Market Power
    7. The Systems' Ability to Engage in Display Bias
F. The Department's Statutory Authority To Regulate CRS Practices
    1. Whether Non-Airline Systems Are Ticket Agents Subject to 
Section 411
    2. Antitrust Principles Relevant to System Practices
    3. First Amendment and International Law Issues
G. The Specific Rule Proposals
    1. The Scope of the Rules
    2. Exclusion of Internet-Based Systems
    3. Definitions
    4. Rules Barring Display Bias
    5. Contract Clauses Restricting Airline Choices on System Usage
    6. Equal Functionality
    7. The Mandatory Participation Rule
    8. Booking Fees
    9. Booking Fee Bills
    10. Other Participating Carrier Contract Rules
    11. Marketing and Booking Data
    12. Third-Party Hardware and Software
    13. Travel Agency Contracts
    14. The Tying of Commissions and Marketing Benefits with a 
Subscriber's Choice of a System
    15. Regulation of the Internet's Use in Airline Distribution
    16. Tying of Internet Participation
    17. International Issues
    18. Retaliation against Discrimination by Foreign Airlines and 
Systems
    19. Sunset Date for the Rules
    20. Effective Date of the Rules
    21. Divestiture

Regulatory Process Matters

Regulatory Assessment and Unfunded Mandates Reform Act Assessment
Regulatory Flexibility Analysis
Paperwork Reduction Act
Federalism Implications
Taking of Private Property
Civil Justice Reform
Protection of Children
Consultation and Coordination with Tribal Governments
Energy Effects
Environment

Glossary

    ASTA--American Society of Travel Agents.
    Board--The Civil Aeronautics Board.
    Booking fees--Fees paid by airlines and other travel suppliers 
when a travel agent makes or changes a booking in a system.
    CRS--Computer reservations system.
    Mandatory participation rule--The rule requiring each airline 
that has a significant ownership interest in a system to participate 
in competing systems at as high a level of functionality as it does 
in its own system, if the terms are commercially reasonable.
    Network airlines--The airlines that operate hub-and-spoke route 
systems, especially the five largest airlines (American, 
Continental, Delta, Northwest, and United).
    Non-airline system--A system that is neither owned nor 
controlled by any airline or airline affiliate.
    OMB--Office of Management and Budget.
    Participate--To make the services of an airline or other travel 
supplier available for sale through a system under a contract with 
that system.
    Parity clauses--Clauses in participating airline contracts that 
require a participating airline to buy at least as high a level of 
service from the system as it does from any other system.
    Productivity pricing--Pricing formula used in subscriber 
contracts that enables the travel agency to obtain lower CRS fees 
from a system if the travel agency meets minimum booking quotas 
established by the contract.
    Section 411--49 U.S.C. 41712, recodifying section 411 of the 
Federal Aviation Act.
    Subscriber--A travel agency that obtains CRS services under a 
contract with the system.
    System--Computer reservations system.
    Webfares--Discount fares offered by an airline through its own 
website and often through selected distribution channels.

A. Summary of Final Rule

    In this proceeding we have reexamined whether our existing rules on 
computer reservations systems (``CRSs'' or ``systems''), 14 CFR Part 
255, remain necessary and, if so, whether we should readopt them, with 
or without modifications. If we do not readopt the rules, they will 
expire on their sunset date, currently January 31, 2004. Our notice of 
proposed rulemaking asked for comment on these issues and proposed that 
most of the rules should be readopted. 67 FR 69366 (November 15, 2002). 
After reviewing the comments and the on-going changes in the airline 
distribution and CRS businesses reflected in those comments, we have 
concluded that most of the rules should be allowed to sunset on January 
31, 2004. We believe, however, that we should adopt the rules 
prohibiting display bias and certain rules barring unreasonably 
restrictive requirements in the contracts between systems and their 
airline customers for a six-month transition period to provide an 
opportunity for the affected parties to prepare for complete 
deregulation of computer reservation systems. We intend to monitor 
developments in the industry during this period and beyond. We, of 
course, retain our authority to pursue future regulatory or enforcement 
actions against airlines or systems that engage in anti-competitive 
practices.

[[Page 977]]

    The systems' operations have been subject to rules for twenty 
years. Although the systems now are commonly called global distribution 
systems, or GDSs, we will continue to refer to them here as CRSs. The 
Civil Aeronautics Board (``the Board''), the agency that had been 
responsible for the economic regulation of the airline industry, 
originally adopted those rules in 1984. 49 FR 32540 (August 15, 1984), 
aff'd, United Air Lines v. CAB, 766 F.2d 1107 (7th Cir. 1985). After 
reexamining whether those rules were necessary and effective, we 
readopted them with some changes in 1992. 14 CFR Part 255, adopted at 
57 FR 43780 (September 22, 1992).
    When these rulemakings were held, one or more airlines or airline 
affiliates owned or controlled each system, airlines depended heavily 
on travel agencies for distribution, travel agents used a system to 
research airline service options and to make bookings, and each travel 
agency predominantly relied on one system to perform these tasks. 
Systems therefore did not need to compete for airline participants (a 
``participant'' is an airline that agrees to make its services saleable 
through a system). The airlines that controlled the systems had the 
incentive and ability to use them to prejudice the competitive position 
of non-owner airlines and to provide information on airline services 
through the systems to travel agents that gave an undue preference to 
the services operated by the owner airlines. Competitive market forces 
did not discipline the prices and terms for services offered by systems 
to participating airlines.
    Our goal in CRS rulemakings has been to prevent practices that were 
likely to harm consumers by substantially reducing airline competition 
or by giving travel agents and their customers inaccurate or misleading 
information on airline services. The rules block system practices that 
would cause consumers and their travel agents to receive misleading 
information and would distort airline competition. We adopted most of 
the rules under our authority to prevent unfair methods of competition 
in the sale of airline transportation, an authority that empowers us to 
prohibit practices that violate the antitrust laws or antitrust 
principles, but, in adopting the rules prohibiting display bias, we 
additionally relied on our authority to prevent unfair and deceptive 
practices in the marketing of air transportation.
    We should adopt rules regulating industry practices only if they 
are reasonably necessary to prevent anti-competitive or deceptive 
practices that are likely to occur, and would cause significant 
consumer harm if they did occur, and that market forces are unlikely to 
remedy. Any rule must be effective and enforceable. Rules intended to 
address a serious competitive concern may have unintended consequences 
that may reduce efficiency and consumer choice. As we explained in our 
notice of proposed rulemaking, we will not adopt rules that address all 
potential problems, for such detailed regulations would necessarily 
impose significant burdens on the systems and interfere with legitimate 
business practices. 67 FR 69389. Our approach for determining whether 
rules are necessary is essentially the same as that recommended by the 
Justice Department. The Department of Justice states that regulation is 
appropriate ``only when (1) market participants have substantial and 
durable market power that will likely harm consumers directly, or will 
be exercised in ways that exclude or limit competition in contiguous 
markets, and (2) the regulation will likely be effective and 
enforceable without imposing significant costs of its own.'' Justice 
Department Reply Comments at 18.
    Our rules included a sunset date, currently January 31, 2004, to 
ensure that we would review whether the rules remained necessary in 
light of on-going developments in the CRS and airline distribution 
businesses. 57 FR 43829-43830; 68 FR 15350 (March 31, 2003). This 
proceeding carries out that reassessment. The major changes that have 
occurred since our last major rulemaking underscore the need for such a 
reassessment.
    All of the U.S. airlines that had controlled a system have divested 
their CRS ownership interests. As a result, none of the four systems 
now operating in the United States is owned or controlled by any U.S. 
airline or airline affiliate. Furthermore, airlines are selling an 
increasingly large share of their tickets through their Internet 
websites and a diminishing share through travel agencies using a 
system. The airlines' control over access to their webfares, the 
discounted fares originally offered only through individual airline 
websites, has enabled them to obtain lower fees from two of the 
systems. And travel agencies are increasingly demanding--and winning--
contracts from the systems that give them more freedom to use 
alternative booking channels and to switch systems periodically.
    Our examination of these developments has persuaded us that we 
should allow most of the existing rules to sunset upon their 
expiration. The major predicate for the rules has always been the 
systems' control by airlines. The U.S. airlines' divestiture of their 
ownership interests has eliminated that basis for the rules. While each 
system still has market power over most airlines, that power is 
diminishing. Moreover, the record does not show a likelihood that the 
systems would use that power to distort airline competition except 
potentially through the sale of bias.
    On the other hand, we have determined that we should readopt, for a 
six-month transition period, the rules prohibiting display bias and 
rules prohibiting certain types of contract clauses in the systems' 
contracts with airlines. We are readopting the rules against display 
bias because we believe that, were the rules terminated immediately, 
systems might well be expected to bias their displays in ways that 
could mislead travel agents and their customers and prejudice airline 
competition. For that reason, we believe it is important to provide a 
measure of notice to the industry prior to the rules' termination and a 
concomitant opportunity to prepare for the absence of regulation.
    Similarly, we are adopting for the same short transition period two 
rules governing the contracts between the systems and airlines: rules 
prohibiting parity clauses (a parity clause would require an airline to 
participate in that system at at least as high a level as it 
participates in any other system) and clauses requiring airlines to 
provide access to all webfares as a condition to any participation in a 
system. However, an airline is free to agree to such clauses. We 
believe that, were these prohibitions terminated immediately, the 
systems would have sufficient market power to impose contract terms on 
airlines that would unreasonably restrict the airlines' ability to 
bargain for better terms for participation. The transition period 
during which these prohibitions will be maintained will furnish the 
industry with reasonable notice of the forthcoming change with an 
opportunity to prepare for it. Our final decision is consistent with 
the recommendations made by the Justice Department.
    The two rules on contract clauses and the rule prohibiting display 
bias therefore will sunset on July 31, 2004. We will actively monitor 
developments during the transition period and beyond and take 
appropriate investigative, enforcement, or regulatory action if we see 
evidence that systems or airlines are engaging in anti-competitive 
conduct in connection with airline distribution through the systems and 
other channels.

[[Page 978]]

    We will not readopt the other rules now in force, and we reaffirm 
our tentative decision not to adopt rules governing the use of the 
Internet in airline distribution. The rules that we are not readopting 
will automatically expire on January 31, 2004, their sunset date.
    The elimination of most of the rules will ensure that government 
regulation does not interfere with market forces and innovation in the 
CRS and airline distribution businesses. The record indicates that 
market forces are beginning to discipline business practices in the CRS 
industry. Ending the broad regulation of CRS practices will enable each 
system and each airline to bargain over the terms on which CRS services 
should be provided, just as airlines obtain products and services from 
other suppliers under agreements negotiated by the parties. The systems 
will have the same ability to bargain with their other customers, the 
travel agencies. The resulting terms under which airlines and travel 
agencies obtain system services will likely reflect the interests of 
both sides better than if we maintained broad regulations restricting 
the parties' behavior. While we cannot predict exactly what will 
happen, we believe that ending most of the rules will produce the best 
results for consumers over time. We base this judgment on our 
experience with airline deregulation. Airline deregulation has provided 
lower fares and better service for consumers, in part by enabling new 
firms to enter the airline business. Several of the new airlines have 
followed new business plans that have provided great benefits for 
airline travelers. Airline deregulation has produced these benefits 
even though the deregulated airline industry has not operated in the 
manner expected by industry experts on the eve of deregulation. The 
deregulation of the CRS business should also benefit consumers, even 
though we cannot forecast how it will play out.
    Our final rule also conforms to the limits imposed by Congress on 
our authority to regulate the airline and airline distribution 
businesses. Congress has given us the authority to prevent practices 
that violate the antitrust laws or antitrust principles and practices 
that are deceptive, but no comprehensive oversight authority over 
airline distribution. We are adopting only those rules that are 
necessary to prevent practices in the CRS business that would 
constitute unfair or deceptive practices, or unfair methods of 
competition.
    We are aware that some participants in the airline distribution and 
CRS businesses may seek to engage in anti-competitive conduct that 
would reduce competition in the airline and airline distribution 
businesses and thereby harm consumers. A system, for example, might 
develop vertical ties with an airline that would cause the system to 
operate in a way that could prejudice airline competition. Some systems 
may seek to pursue practices that would reduce competition in the CRS 
business and preserve their market power over airlines. Even without 
specific regulations, any such practices could be unfair methods of 
competition and thus unlawful. We retain the authority to bring 
enforcement cases against firms that violate the statutory prohibition 
against unfair methods of competition, and we will take appropriate 
action if we have evidence of unlawful conduct. As Congress stated when 
it deregulated the airline industry, S. Rep. No. 95-631, 95th Cong., 2d 
Sess. (1978) at 52:

    Vigorous enforcement of antitrust policy is the discipline by 
which competition can remain free and markets can operate in a 
healthy fashion. Predatory behavior, market concentration, and other 
economic evils should be avoided and remedied by the Board when they 
exist.

    See also H. R. Rep. No. 98-793, 98th Cong., 2d Sess. (1984) at 5: 
``Although the airline industry has been deregulated, this does not 
mean that there are no limits to competitive practices. As is the case 
with all industry, carriers must not engage in practices which would 
destroy the framework under which fair competition operates.''
    We will also actively monitor the systems' reactions to the 
substantial deregulation of their business, and we, of course, retain 
the power to reexamine our decision that all rules should terminate by 
July 31, 2004, if the systems' conduct or other developments makes such 
a reexamination necessary.
    Our final rule departs from the proposals made by our notice of 
proposed rulemaking. Our notice proposed to eliminate two of the major 
rules, the rule barring discriminatory booking fees and the rule 
requiring airlines with a significant ownership interest in one system 
to participate in competing systems at an equivalent level if the terms 
for doing so were commercially reasonable, but to readopt most of the 
remaining rules. Our review of the rulemaking record up to that point 
suggested that rules were still necessary, notwithstanding the changes 
in the systems' ownership and the growing role of the Internet. 67 FR 
69375-69384. The notice, however, did request comment on whether we 
should sunset more of the rules now, and we predicted that the rules 
would become unnecessary in a few years. 67 FR 69368, 69376, 69388-
69389.
    The comments and the continuing developments in airline 
distribution and the CRS business have convinced us that most of the 
rules are no longer appropriate. In particular, one of the systems, 
Worldspan, was owned by three U.S. airlines when we issued our notice 
of proposed rulemaking but was sold several months ago to two private 
venture capital firms. The airline distribution business has continued 
to evolve since we issued the notice. Airlines are selling more tickets 
through the Internet. Moreover, as we predicted, the airlines' control 
over access to their webfares has led some of the systems to offer 
airlines discounted booking fees in return for the ability to sell 
those fares. 67 FR 69381; Galileo Supp. Comments at 5-8. And the 
comments have shown that the systems' contracts with travel agencies 
are significantly less restrictive than they were even a few years ago. 
See, e.g., ASTA Comments at 14-16.
    That our final rule does not duplicate our proposal is consistent 
with the purpose of rulemaking procedures. The notice of proposed 
rulemaking was designed to obtain comments from interested persons on 
our tentative findings and our economic and policy analysis and to 
enable them to submit current information. We held a public hearing to 
give interested persons an additional opportunity to present their 
views and respond to our questions. The comments submitted in this 
proceeding, together with the on-going developments in the airline 
distribution and CRS businesses, have persuaded us that our proposals 
should not be made final. Those proposals, while reasonable in light of 
industry conditions two or three years ago, to a large extent no longer 
reflect current conditions.
    We will begin our explanation of our final rule by updating our 
description of the CRS and travel agency businesses, and we address 
several procedural issues. We then discuss our conclusions on the need 
for adopting some CRS rules, including our findings that the systems 
continue to have market power over airlines, and discuss the question 
of our legal authority to readopt the rules and to apply them to 
systems that are not owned by airlines. We thereafter present the 
rationale for our decisions on each of the rule proposals.
    Our notice of proposed rulemaking included a request for comments 
on whether we should clarify our policy on fare disclosures as regards 
the disclosure of travel agency service fees. We have decided to 
address that question in a separate rule.

[[Page 979]]

    We will refer to commenters by their common names (for example, 
``Alaska,'' not ``Alaska Airlines''). References to comments and reply 
comments are to the pleadings filed in response to the notice of 
proposed rulemaking, not the pleadings filed in response to the advance 
notices of proposed rulemaking, which were discussed in the notice of 
proposed rulemaking. We will refer to the statutory provision that is 
the principal basis for our adoption of CRS rules, 49 U.S.C. 41712, by 
its traditional name, section 411, as we did in the notice of proposed 
rulemaking. The glossary at the beginning of this document gives the 
meaning of the abbreviations and technical terms used in this rule.

B. Background

    Our notice of proposed rulemaking described in some detail the 
nature of the airline distribution and CRS businesses, including the 
travel agency business. 67 FR 69369-69375. Here we will update our 
factual description on the basis of the information provided by the 
comments and set forth the factual findings underlying our final 
decision.
1. The CRS Business
    Airlines use several distribution methods: direct sales through 
their reservations agents, sales through ``brick-and-mortar'' travel 
agencies, sales through individual airline websites, and sales through 
on-line travel agencies. In the past, the ``brick-and-mortar'' travel 
agency channel produced the great majority of airline revenues for 
almost all airlines. In 1999 travel agencies sold almost three-quarters 
of airline tickets, almost all through off-line travel agencies. 67 FR 
69369, citing Bear, Stearns & Co., ``Point, Click, Trip: An 
Introduction to the On-Line Travel Agency'' (April 2000) at 17. Since 
then the Internet has become an increasingly important distribution 
channel. Galileo states that the different channels' shares of total 
airline tickets in 2002 were as follows, Galileo Comments, Guerin-
Calvert, Jernigan, & Hurdle Declaration at 24:

------------------------------------------------------------------------
                                                               Percent
------------------------------------------------------------------------
off-line sales by airlines.................................           17
on-line sales by airlines..................................           10
off-line sales by travel agencies..........................           58
on-line sales by travel agencies...........................           15
------------------------------------------------------------------------

    Until recently the great majority of all travel agency airline 
ticket sales, whether off-line or on-line, have been made through one 
of the systems.
    Four systems operate in the United States: Sabre, Galileo, 
Worldspan, and Amadeus. Each of them was originally developed by one or 
more U.S. airlines (Amadeus entered the U.S. market by acquiring a U.S. 
system). Two of the systems--Sabre and Galileo--were no longer owned or 
controlled by any U.S. airlines when we issued the notice of proposed 
rulemaking. At that time, three U.S. airlines--American, Delta, and 
Northwest--owned Worldspan. Amadeus was then owned by three European 
airlines--Air France, Iberia, and Lufthansa--as well as by public 
shareholders (and has the same ownership today). Worldspan's airline 
owners sold that system to two private venture capital firms on June 
30, 2003, after the issuance of our notice of proposed rulemaking. As 
part of that sale, the airline owners agreed to certain parity clauses 
and marketing commitments. Galileo Comments, Guerin-Calvert, Jernigan, 
& Hurdle Declaration at 20; Amadeus Comments at 32-33; August 1, 2003, 
Letter from Charles Simpson, Jr.; Sabre Supp. Reply at 4. Amadeus is 
now the only system with any airline ownership.
    The systems that have no airline owners have marketing ties with 
their former owners. United markets Galileo, American markets Sabre, 
and Delta and Northwest have agreed to market Worldspan for several 
years following the closing of the system's sale. Amadeus Comments at 
25, n. 24; Galileo Supp. Comments at 1-4. Southwest also markets Sabre, 
although Southwest never had an ownership interest in the system.
    Each system's share of CRS airline bookings in the United States in 
2002 was as follows, Galileo Comments, Guerin-Calvert, Jernigan, & 
Hurdle Declaration at 18:

------------------------------------------------------------------------
                                                               Percent
------------------------------------------------------------------------
Sabre......................................................         44.7
Worldspan..................................................         26.5
Galileo....................................................         19.7
Amadeus....................................................          9.2
------------------------------------------------------------------------

    Since 1999 the shares of Galileo and Amadeus have been declining, 
while Worldspan's share has risen sharply, from 19.3 percent to 26.5 
percent. The growth in Worldspan's share in large part reflects its 
status as the booking engine for two of the three largest on-line 
travel agencies, Expedia and Orbitz.
    Each system provides information and booking capabilities on the 
airlines that ``participate'' in it, that is, agree to make their 
services saleable through the system. The system obtains its 
availability information from the airlines' internal reservations 
systems, and it makes bookings in those systems, which are used by the 
airlines' own reservations agents and other staff members. The systems 
also provide information and booking capabilities for rental cars, 
hotels, and other travel services. Airline transportation is the most 
important travel service sold through the systems, and airlines obtain 
a larger share of their revenues from CRS bookings (sales made through 
the systems) than do other travel suppliers. 67 FR 69370.
    An airline (or other travel supplier) participating in a system 
must pay fees for each booking transaction (the fees paid by 
participating airlines are usually called ``booking fees''). Airlines 
can participate at different levels. At higher levels the information 
provided travel agencies will be more timely and so more reliable, and 
travel agents can carry out tasks like reserving specific seats for 
their customers. An airline that chooses a higher level of 
participation must pay a higher booking fee. 67 FR 69370. Booking fees 
paid by airlines provide well over half of the systems' total revenues. 
67 FR 69380.
    The average airline booking fee per segment is $4.25. Because the 
average ticket includes more than one segment, the average booking fee 
per ticket is $11. United Reply Comments at 28; ``Upheaval in Travel 
Distribution: Impact on Consumers and Travel Agents,'' National 
Commission to Ensure Consumer Information and Choice in the Airline 
Industry'' (November 13, 2002), at 16. United alleges that its average 
booking fee per segment equals 3.3 percent of its average revenue per 
segment. United Reply Comments at 29. Sabre has stated that the 
effective booking fee per segment for its highest level of 
participation was $4.38 in 2002, about 2.4 percent of the average 
airline ticket price for tickets sold through Sabre. Sabre charges 
$2.12 per segment for airlines participating at its low level, Basic 
Booking Service. Sabre Comments at 14; Sabre Comments, Wilson 
Declaration at 6.
    Sabre and Galileo have created programs that give participating 
airlines lower booking fees in return for a commitment to provide the 
system with all of their webfares. Under Sabre's Direct Connect 
Availability program (``DCA program''), an airline can obtain a 10 
percent reduction in its booking fees, guaranteed for three years, in 
exchange for a commitment to provide the system with all of the 
airline's published fares, including its webfares. American, 
Continental, Delta, Northwest, United, U.S. Airways, and a number of 
smaller airlines now participate in this program. Sabre Supplemental 
Reply at 1.

[[Page 980]]

    Galileo first established its Momentum program, which gave airlines 
a 20 percent reduction in booking fees for tickets sold through 
participating travel agencies, if the airlines agreed to give Galileo 
access to all of their publicly-available fares. Travel agencies could 
participate in the program if they agreed to a reduction in their 
incentive payments from Galileo. United and U.S. Airways were the first 
airlines that joined this program. One of the travel agencies that 
joined the program was Rosenbluth International, the fourth largest 
U.S. corporate travel agency. Due to complaints from America West and 
other airlines, Galileo dropped the initial requirement that any 
airline participating in the Momentum program must upgrade its 
participation level to the highest level. More recently Galileo 
introduced Preferred Fares Select, which will enable airlines to obtain 
lower booking fees on all of their bookings if they agree to make all 
of their publicly-available fares saleable through Galileo. Galileo 
Comments, Guerin-Calvert, Jernigan, & Hurdle Declaration at 52-56; 
Galileo Reply Comments at 33-34; Galileo Supplemental Comments at 5-8; 
Sabre Comments, Fahy Declaration at 10-11.
    The record does not indicate that Amadeus or Worldspan has 
introduced comparable programs.
    Travel agencies often obtain CRS services at no cost or receive 
bonus payments in exchange for agreeing to use a system. ASTA states 
that in 2002 fewer than half of all travel agencies paid monthly fees 
for system services and that 60 percent of them received a signing 
bonus of some kind from the system that they were using. ASTA Comments 
at 17. The systems pay on average $1 to $1.50 per booking to travel 
agencies for using a system. Sabre Comments at 7.
    As we stated in the notice of proposed rulemaking, travel agents 
have depended heavily on the systems to determine what airline services 
are available and to make bookings. There we cited statistics showing 
that travel agencies in 1999 sold almost three-quarters of all airline 
tickets and made 93 percent of their domestic airline bookings and 81 
percent of their international airline bookings through a system. 67 FR 
69369-69370. The record shows that since then the share of airline 
revenues produced by travel agents using a system has been declining. 
The Justice Department states that the share of revenues produced by 
``brick-and-mortar'' travel agencies for the five airlines that own 
Orbitz has fallen from 76 percent in May 2000 to 67 percent in March 
2002, primarily due to the growth in Internet sales. Justice Department 
Reply Comments at 14-15.
    In the past, almost all U.S. airlines participated in every system. 
Southwest, which has participated only in Sabre and at a low level, was 
the major exception. JetBlue, which began operations in 2000, also 
participates only in Sabre and at the same level as Southwest. Sabre 
Comments at 38. Airlines that can avoid participation in every system 
focus their marketing efforts instead on direct sales to consumers, 
made through either the airline's website or its reservations agents. 
Airlines that have been participating in all of the systems, such as 
Alaska, have been shifting many of their bookings away from the travel 
agency channel, which required them to pay the systems' booking fees. 
See, e.g., Alaska Comments at 5. The large network airlines nonetheless 
still obtain at least 60 percent of their revenues from bookings made 
by travel agents using a system, as discussed below. American, for 
example, states that over 70 percent of its bookings are made through 
the systems. American Reply Comments at 19. The share of total industry 
bookings made through the systems has been declining in part due to the 
growth of airlines like Southwest that do not depend on travel agencies 
for the major share of their revenues. American Reply Comments at 19.
    The systems have played a major role in airline distribution 
because travel agents--the airlines' primary distribution channel--have 
relied so much on the systems for investigating airline service options 
and booking tickets, because the systems are so efficient. They 
electronically provide comprehensive information and booking 
capabilities on airlines and other travel suppliers. Each system 
presents displays that integrate almost all services offered in a 
market. Each system shows the schedules and fares offered by airlines 
in each market that are available for sale through travel agents using 
that system and whether seats are available on specific flights at 
specific fares (some fares are often not available through the systems, 
notably corporate discount fares and webfares). The system thus allows 
the travel agent to compare the schedules and fares offered by 
different airlines and determine which would best meet a customer's 
needs. The agent using a system can reserve a seat and issue a paper 
ticket or print an E-ticket.
    On-line agencies also use systems--Travelocity uses Sabre, while 
Expedia and Orbitz use Worldspan, for example. 67 FR 69370. Orbitz and 
Expedia have been developing direct connection technologies which 
enable bookings to be made directly with an airline's internal 
reservations system, bypassing Worldspan. Sabre Comments, Fahy 
Declaration at 8-9.
    Since the Board first adopted CRS rules, no firm has entered the 
CRS business. Until recently, entry into the CRS business would have 
been prohibitively costly and time-consuming. 67 FR 69381. This may no 
longer be true. Sabre Comments, Fahy Declaration at 8. New direct-
connection technologies can enable firms to provide airline information 
and booking services that replicate at least some of the services 
provided by the systems. Galileo Comments at 42, n. 38. Orbitz, which 
now operates as an on-line travel agency, plans to make its services 
available to travel agencies through software being developed by Aqua. 
Orbitz continues to rely on Worldspan for some functions involved in 
the search and booking process. 67 FR 69373, 69374. Another commenter 
in this proceeding, AgentWare, is also offering travel agencies fare 
and schedule information and links to booking sites. Galileo Comments 
at 66-67.
    The development of sources of airline information and booking 
capabilities on the Internet has created additional resources that 
travel agents can use. Travel agents are increasingly checking the 
fares and services offered on websites because some airline discount 
fares have not been sold through the systems. Travel agents, however, 
continue to make most of their airline bookings through a system. Using 
alternative booking channels is less efficient for travel agents, as 
discussed below. Nevertheless, the development of alternative sources 
of information and booking capabilities on the Internet, and the 
airlines' control over access to their webfares, have begun to make the 
systems responsive to market force discipline.
    Corporate travel departments as well as travel agencies use the 
systems. A corporate travel department can book travel for its 
company's employees by accessing a system through the Internet or by 
Intranet (an internal corporate communications network based on 
Internet technology). 67 FR 69370.
    Systems operate throughout the world. U.S. systems like Sabre and 
Worldspan market their services to travel agencies in foreign 
countries, and Amadeus is a major system in the Eastern Hemisphere. The 
systems had the following shares of worldwide CRS airline bookings in 
2002, Galileo Comments, Guerin-Calvert, Jernigan, & Hurdle Declaration 
at 18:

[[Page 981]]



------------------------------------------------------------------------
                                                               Percent
------------------------------------------------------------------------
Sabre......................................................         30.8
Worldspan..................................................         15.1
Galileo....................................................         26.4
Amadeus....................................................         27.7
------------------------------------------------------------------------

    The European Union, Canada, and other governments have regulations 
governing CRS operations. The United States has entered into a number 
of international air services agreements that require each party to 
ensure that the systems operating in its country and their owners do 
not subject airlines and systems from the other country to 
discriminatory treatment. 67 FR 69371-69372.
2. The Travel Agency Distribution System and the Business Relationships 
Between Travel Agencies and the Systems
    The systems' practices have affected airline competition because of 
the importance of travel agents in airline distribution. The travel 
agency system has provided airlines with an efficient means of 
distribution. Travel agencies have acted as agents for virtually all 
airlines and generally hold themselves out to the public as sources of 
impartial advice on airline services and other travel services. 67 FR 
69371.
    In 2001, there were 18,425 travel agencies. The travel agency 
business is dominated by the largest travel agencies. In 2001, the 117 
travel agencies with revenues of more than $50 million (as measured by 
sales of air transportation) accounted for 57.2 percent of all travel 
agency sales. The 1,015 travel agencies with revenues of $5 million to 
$50 million accounted for another 20.1 percent of all travel agency 
sales. ``Upheaval in Travel Distribution: Impact on Consumers and 
Travel Agents,'' National Commission to Ensure Consumer Information and 
Choice in the Airline Industry'' (November 13, 2002), at 113. See also 
Sabre Comments, Salop & Woodbury Declaration at Table 3 (Sabre's top 
five subscribers produced 25.7 percent of its total bookings, excluding 
Travelocity, and the top 100 produced 49.6 percent of its total 
bookings, excluding Travelocity).
    As noted above, in 2002 the airlines obtained 58 percent of their 
bookings from ``brick-and-mortar'' travel agencies and 15 percent from 
on-line travel agencies. Galileo Comments, Guerin-Calvert, Jernigan, & 
Hurdle Declaration at 24. The three largest on-line travel agencies had 
the following shares of all on-line travel agency bookings in 2002: 
Travelocity, 28.5 percent; Expedia, 28.7 percent; and Orbitz, 21.3 
percent. Sabre Comments, Salop & Woodbury Declaration at Table 2. 
Travelocity is a Sabre subsidiary, while Orbitz is owned by the five 
largest U.S. airlines--American, Continental, Delta, Northwest, and 
United. Travelocity has been using Sabre as its source of airline 
information and booking capabilities, while Expedia and Orbitz have 
been using Worldspan for these functions. Orbitz and Expedia have been 
developing direct connections with airlines that bypass Worldspan. 
Airlines that agree to be ``charter associates'' in Orbitz, which 
includes a commitment to make all publicly available fares available 
for sale through Orbitz, receive a rebate on their booking fees. 67 FR 
69374.
    The larger airlines still obtain most of their revenues from 
bookings made by travel agents. However, despite the continuing 
importance of travel agencies in airline distribution, the travel 
agency business has faced severe business problems in recent years, due 
to developments such as the airlines' elimination of base commissions 
(but not incentive commissions), the growing use of the Internet by 
many travelers, particularly leisure travelers, and the overall decline 
in airline traffic. See ``Upheaval in Travel Distribution: Impact on 
Consumers and Travel Agents,'' National Commission To Ensure Consumer 
Information and Choice in the Airline Industry'' (November 13, 2002). 
From 1994 to 2002, the number of travel agencies fell by 31 percent and 
the number of travel agency locations by 21 percent. ``Upheaval in 
Travel Distribution'' at 21. The number of travel agencies declined by 
12 percent in the year ended September 2002 and by another 7 percent 
through April 2003. ASTA Reply Comments at 15-16.
    The nature of the travel agencies' operations is important to this 
proceeding, because we must consider the impact of our decisions on the 
travel agencies' business and because the rules have covered some 
features of the relationships between the systems and travel agencies. 
However, providing support for travel agencies that would offset other 
economic developments is not within our statutory authority and 
therefore not a proper goal of this proceeding. This proceeding must 
be, and is, limited to preventing system practices and related airline 
practices that would harm consumers by significantly reducing airline 
competition.
    A critical factor in our decision-making is that travel agencies, 
unlike most airlines, can choose which system to use. Most travel 
agencies need to use only one system, and for most travel agencies no 
system has features and information that are indispensable, as 
discussed below. Because most travel agencies are free to decide to use 
one system rather than its competitors, the systems compete vigorously 
for travel agency customers. As noted above, systems usually pay travel 
agencies for choosing one system rather than another. See, e.g., 67 FR 
69371; Sabre Comments at 7.
    In past rulemaking proceedings, and in our notice of proposed 
rulemaking in this proceeding, we cited evidence that the systems' 
contracts with travel agencies often contained provisions that 
unreasonably restricted the travel agencies' ability to use more than 
one system or to use alternative electronic sources of airline 
information and booking channels. 67 FR 69405; 57 FR 43822. For 
example, each system formerly kept travel agencies from buying their 
own equipment and made them use equipment provided by the system for 
accessing its services. 57 FR 43796. The record further suggested that 
the systems' contracts with travel agencies typically included 
``productivity pricing'' programs that imposed financial penalties on 
an agency that began using another system or other booking channel for 
making a substantial number of bookings, or that gave the agency 
incentive payments if it made most of its bookings through that system. 
67 FR 69408. These types of restrictive contract provisions concerned 
us because they tended to preserve the systems' market power and denied 
airlines an opportunity to encourage travel agencies to use alternative 
electronic means for obtaining information on airline services and 
making bookings, such as direct links between a travel agency and an 
airline's own internal reservations system. Our notice observed, 
however, that the systems were giving at least some travel agencies 
more flexible terms. 67 FR 69405.
    The proposals made by our notice fairly reflected industry 
conditions when the comments on our advance notices of proposed 
rulemaking were filed. Large Agency Coalition Comments at 7. However, 
the comments submitted in response to our notice of proposed rulemaking 
show that travel agencies since then have been successfully demanding 
more flexible contracts and winning the ability to use alternative 
booking channels. ASTA's October 2002 travel agency survey made the 
following finding (quoted in Sabre Comments at 151):


[[Page 982]]


    [CRS] vendors are introducing a new crop of more flexible 
contracts with less rigid productivity requirements and more pricing 
options. [C]ontract terms have gotten more favorable towards 
agencies with shorter overall length, lower required segments and a 
higher percentage of agencies receiving booking incentives.

    See also Large Agency Coalition Comments at 7-14.
    For example, subscriber contracts typically have a term that is 
substantially shorter than the maximum permitted by our rules. Our 
rules prohibit contracts with a term of more than five years and 
require a system to offer a three-year contract to any travel agency 
offered a five-year contract. 57 FR 43825. For some time after we 
adopted that rule, few travel agencies had contracts with a term of 
less than five years. 67 FR 69405. Now, however, many travel agencies 
have contracts that are no more than three years in length. The 
percentage of travel agencies with five-year contracts has declined 
from 85 percent in 1998 to 47 percent in 2002, while the percentage 
with three-year contracts has risen from 9 percent in 1998 to 39 
percent in 2002. Almost 60 percent of Worldspan subscribers had five-
year contracts in 2002, while only 35 percent of Sabre's subscribers 
had such contracts. Sabre Comments at 17-18; Sabre Comments, Fahy 
Declaration at 14-15.
    Travel agencies, moreover, have a substantial ability to switch 
systems when their existing contract expires. Half of the responding 
agencies in the ASTA survey stated they intended to obtain competitive 
bids at the end of their current contract, while another third stated 
that they might seek competitive bids and only one sixth stated they 
definitely intended to continue using the same system. Sabre Comments 
at 153. Nonetheless, switching systems can impose significant costs on 
travel agencies, at least for smaller travel agencies. Galileo 
Comments, Guerin-Calvert, Jernigan, & Hurdle Declaration at 81.
    When we last readopted the rules, we added a provision giving 
travel agencies the right to use their own equipment to access a system 
and to use third-party software. Before then, each system typically 
demanded that its subscribers use equipment provided by the system and 
barred subscribers from accessing other systems and databases from that 
equipment. 57 FR 43796-43797. Travel agencies are increasingly using 
their own equipment. Only 70 percent of travel agencies leased 
equipment from a system in 2002, while 85 percent did so in 2000. ASTA 
Comments at 14. Sabre alleges that it seeks to exit the equipment-
leasing business, that 73 percent of the equipment used by Sabre 
subscribers will be provided by third parties by the end of 2003, and 
that 62.5 percent of their equipment was being provided by third 
parties as of November 2002. Sabre Comments at 131. Amadeus states that 
only one fourth of its subscribers rely entirely on equipment provided 
by Amadeus. Amadeus Comments at 45. Subscribers to other systems are 
more likely to use equipment provided by the system. ASTA represents 
that systems do not resist subscriber efforts to use their own 
equipment instead of equipment provided by the system. ASTA Comments at 
15. Sabre represents that it does not enforce the provisions in its 
older subscriber contracts that barred the travel agencies from using 
Sabre equipment to access other systems. Its subscribers are free to 
use multiple systems. Sabre Comments at 17, n. 17, and 71. Amadeus has 
made a similar representation. Amadeus Comments at 45.
    Sabre further represents that the larger travel agencies often have 
complete flexibility in using the systems. Sixteen of Sabre's 20 
largest ``brick-and-mortar'' travel agency customers use multiple 
systems, and many use their own software to direct bookings to a 
specific system, often in order to maximize their incentive payments. 
Those 16 agencies produce 35 percent of Sabre's total volume from 
``brick-and-mortar'' travel agencies. Sabre Comments at 71. However, as 
discussed below in our market definition analysis, each location of a 
travel agency that subscribes to more than one system tends to 
predominantly rely on one system rather than make substantial use of 
every system whose services are being purchased by the parent firm.
    Using alternate booking channels and sources of information has 
become easier for travel agents in recent years. New software, for 
example, allows travel agents to conduct fare searches simultaneously 
through a system and airline websites. Galileo Comments, Guerin-
Calvert, Jernigan, & Hurdle Declaration at 29. The systems allegedly do 
not seek to block their subscribers from using alternative booking 
channels and sources of information, and they help develop tools 
enabling travel agents to use alternative sources of information. 
Galileo Comments at 64, 66-67. In 2002, 98 percent of all travel 
agencies had Internet access, according to an ASTA survey. Galileo 
Comments, Guerin-Calvert, Jernigan, & Hurdle Declaration at 81.
    However, despite the widespread use of the Internet by travel 
agents, they make relatively few bookings through the Internet. 
According to the ASTA survey, travel agents made only 10 percent of 
their bookings through websites, and most of those bookings were for 
tours booked through tour operator sites. ASTA Comments at 12. The 
inefficiency of using the Internet for airline bookings is probably the 
most important deterrent to a greater use of the Internet. See 
``Upheaval in Travel Distribution: Impact on Consumers and Travel 
Agents,'' National Commission To Ensure Consumer Information and Choice 
in the Airline Industry'' (November 13, 2002), at 47-50.
    Our notice further identified the systems' pricing practices as a 
factor that seemingly kept travel agencies from using alternative 
systems and booking channels. Each system's productivity pricing 
program generally gave travel agencies incentive payments if a 
subscriber used the system for a large majority of its bookings (or 
imposed financial penalties if it did not). We believed that such 
productivity pricing programs effectively deterred travel agencies from 
making significant use of alternative booking channels, such as airline 
websites. While we noted that the percentage of subscriber contracts 
with productivity pricing had been declining, most subscriber contracts 
still included productivity pricing. 67 FR 69408-69409.
    The comments show that the systems' productivity pricing provisions 
have become significantly less widespread and less restrictive in the 
last few years. In 1998 91 percent of subscriber contracts had 
productivity pricing, but only 56 percent did in 2002. The average 
number of bookings required before a travel agency can obtain incentive 
payments has fallen from 252 in 1998 to 194 in 2002. ASTA Comments at 
15; Sabre Comments at 69, 162. The Large Agency Coalition represents 
that the systems' incentive payment programs typically allow the travel 
agency to make up to thirty percent of its bookings outside the system 
before it suffers a financial penalty. Transcript at 231. Despite these 
changes, however, Sabre states that it has contracts with some small 
travel agencies that require the subscriber to use no system other than 
Sabre. Sabre argues that this requirement is reasonable under the 
circumstances because Sabre is providing support for the agency's 
operations that would otherwise not be economical. Sabre Comments, 
Salop & Woodbury Declaration at 20. Nonetheless, despite the greater 
flexibility allowed travel

[[Page 983]]

agencies by recent productivity pricing arrangements, the record 
suggests that the systems' current contractual arrangements may still 
deter travel agencies from making many bookings through the Internet. 
Orbitz Comments at 23, n. 10; ASTA Comments at 26, n. 44, and 34-35; 
Travel Management Alliance Comments.
    The increasing flexibility of the contracts obtained by travel 
agencies is the result of changes in the travel agency business. ASTA 
states that travel agencies must have a greater ability to respond to 
changing technology, especially the growth of the Internet. The 
increasing uncertainties of the travel agency business itself, 
moreover, are likely to encourage many travel agencies to avoid long-
term commitments if possible. ASTA Comments at 14. The large travel 
agencies created in recent years have more bargaining leverage with the 
systems.
    In the past, we have endeavored to prevent system practices that 
would deter travel agencies from using multiple systems. We reasoned 
that the systems' market power over airlines would be reduced if travel 
agencies had the ability to use alternative sources of airline 
information and booking capabilities. 57 FR 43797. Travel agency 
parties had encouraged those efforts. 67 FR 69391; 57 FR 43796.
    The travel agency commenters in this proceeding assert, however, 
that rules designed to encourage travel agencies to use multiple 
systems will be futile. They contend that almost all travel agencies 
predominantly or entirely use one system. ASTA thus alleges, ASTA 
Comments at 3-4:

    Use of a single CRS is a function of the market reality that 
multiple CRS's are highly inefficient for travel agencies, who 
therefore do not employ them. No amount of realistically foreseeable 
inducement from competing CRS's or regulatory pressure from DOT is 
going to overcome the inefficiencies for most agencies of operating 
multiple CRS's in today's environment.

    See also Transcript at 213.
    Using more than one system is generally inefficient for travel 
agencies, because, among other things, it requires training staff 
members to work with different systems and will cause the booking 
records of different customers to be in different places. Cardinal 
Travel Service Comments; Galileo Comments at 64-65; Galileo Comments, 
Guerin-Calvert, Jernigan, & Hurdle Declaration at 79; ASTA Comments at 
23-24; Large Agency Coalition Comments at 20. At travel agencies that 
have multiple offices, each office tends to use one system even though 
the firm subscribes to several systems. Carlson Wagonlit Comments at 
11.
    Travel agencies, moreover, assertedly have no need to use multiple 
systems. Large Agency Coalition Comments at 20; Transcript at 236-237. 
While some travel agencies use multiple systems, they appear to make 
relatively little use of the secondary system. Galileo Comments, 
Guerin-Calvert, Jernigan, & Hurdle Declaration at 79-80. The Large 
Agency Coalition is a group of 22 large, corporate-oriented travel 
agencies, all but one of which was included in a recent listing of 84 
top corporate travel agencies. Although many of the 22 use two or three 
systems, they typically do so because (i) the dominant airline in a 
city other than the agency's headquarters city insisted that the agency 
use the system affiliated with the airline, (ii) a newly-won corporate 
client wished to keep its existing system at an on-site location rather 
than switch to the agency's primary system, or (iii) the agency 
acquired another agency which had a contract obligating it to continue 
using another system. Large Agency Coalition Comments at 1-3. See also 
Transcript at 212.
3. Regulatory Background
    The Board's rules, adopted in 1984, included an expiration date to 
ensure that we would reexamine the rules after they had been in force 
for several years. We therefore reexamined those rules through our 
rulemaking completed in 1992. 57 FR 43780 (September 22, 1992). We 
readopted the rules, because we found that CRS rules remained necessary 
then to protect airline competition and to help ensure that consumers 
did not receive inaccurate or misleading information on airline 
services. We based our decision on the systems' control by airlines and 
airline affiliates, which could still use their control of the systems 
to prejudice airline competition if there were no rules. Airlines then 
relied on travel agencies for distribution and had no practical ability 
to induce travel agencies to use systems charging lower fees, and 
travel agencies did not choose systems on the basis of their treatment 
of airlines. See 67 FR 69367, 69372.
    The rules adopted by us regulate the operations of systems owned or 
marketed by an airline or airline affiliate insofar as the system was 
providing services to travel agencies.
    The current rules (i) bar each system from using carrier identity 
as a factor for editing and ranking services, (ii) prohibit systems 
from charging airlines discriminatory booking fees, (iii) require each 
system to make available to any participating airline the booking and 
marketing data generated by the system from bookings for domestic 
travel made through the system, and (iv) prohibit certain types of 
restrictive contract provisions that unreasonably limit the travel 
agencies' ability to switch systems or use more than one system. The 
rules also require each system to provide non-owner airlines with 
information and booking capabilities as accurate and reliable as those 
provided the owner airline, and they give each travel agency the right 
to use its own equipment in conjunction with a system and to access 
other systems and databases from the same terminals used to access its 
primary system, unless the agency uses equipment provided by that 
system. The rules additionally require each airline with a significant 
CRS ownership interest to participate in other systems at as high a 
level of functionality as it does in its own system, if the terms for 
participation are commercially reasonable (this is the mandatory 
participation rule).
    Five years after our last overall reexamination of the rules, we 
revised the rules in two respects. First, we prohibited systems from 
enforcing ``parity clauses'' against airlines that did not own or 
market a competing system. 62 FR 59784 (November 5, 1997). The parity 
clauses required each airline to buy at least as high a level of 
service from the system as it did from any other system. The parity 
clauses made it unnecessary for systems to compete for airline 
participation at higher levels of service. Secondly, we strengthened 
the prohibition against display bias by requiring each system (i) to 
offer at least one display that does not give on-line connections a 
preference over interline connections and (ii) to either list one-stop 
and other direct flights before connecting services or use elapsed time 
as a significant factor in selecting flight options from the database. 
62 FR 63837 (December 3, 1997). We strengthened the rule in large part 
because of evidence that United had caused Galileo to create displays 
that prejudiced United's competitors. 62 FR 63840-63841.

C. Development of the Record in This Rulemaking

    To ensure that the record in this proceeding would be as complete 
as possible and that all interested persons would have the opportunity 
to present their views and to respond to points made by other 
commenters, we have used procedures in addition to those required by 
the Administrative Procedure Act for informal rulemakings. We began 
this proceeding by issuing an advance notice of proposed rulemaking,

[[Page 984]]

62 FR 47606 (September 10, 1997). We issued a supplemental advance 
notice of proposed rulemaking that asked interested persons to update 
the record and to comment on the implications of two developments, the 
Internet's growing role in airline distribution and the systems' 
shrinking airline ownership. 65 FR 45551 (July 24, 2000).
    After reviewing the comments submitted in response to those 
notices, we issued our notice of proposed rulemaking on November 15, 
2002. That notice, as stated above, proposed to readopt most of the 
existing rules but also asked for comments on whether the rules had 
become unnecessary. We additionally proposed to eliminate the mandatory 
participation rule and the prohibition against discriminatory booking 
fees. We tentatively concluded that we should not extend the rules to 
cover the distribution of airline tickets through the Internet. We 
asked for comment on whether we should change our policy statement 
requiring travel agents to disclose the full amount of airline fares to 
consumers so that travel agents would be obligated to state separately 
the amount of any travel agency service fee, as long as the fee did not 
exceed certain levels. We took into account the changes in the systems' 
airline ownership, although only Galileo and Sabre then had no airline 
owners. We tentatively believed that the systems might engage in 
practices that would undermine airline competition due to the marketing 
relationships and other ties that continued to exist between the 
systems and their former airline owners.
    To make certain that interested persons had ample opportunity to 
present their evidence and positions on the issues, we established a 
lengthy comment period and asked for reply comments. 67 FR 69366. We 
later extended the comment period and reply comment period by two 
months and one month, respectively. 67 FR 72869 (December 9, 2002). To 
provide an additional opportunity for public participation, we also 
held a public hearing on May 22, where interested persons could present 
their views to a Department official, Michael W. Reynolds, the Deputy 
Assistant Secretary for Aviation and International Affairs, and answer 
his questions. 68 FR 25844 (May 14, 2003); 68 FR 27948 (May 22, 2003).
    We received about 95 comments and 35 reply comments. The commenters 
included members of Congress, other Federal agencies, the systems, many 
U.S. and foreign airlines, many travel agencies and travel agents, 
firms that process the marketing and booking data sold by the systems, 
and several public interest groups. Because of the complexity of the 
issues and the varying effects of the rule proposals, the commenters do 
not share common views.
    The Justice Department argues that we should readopt the rules 
prohibiting display bias and should not adopt any other rules except 
possibly transitional rules barring the systems from demanding most-
favored-nation clauses in their contracts with participating airlines. 
Sabre, Worldspan, United, Expedia, and Travelocity contend that we 
should terminate all of the CRS rules. Amadeus, Galileo, Alaska, 
America West, Midwest, and U.S. Airways generally assert that most of 
the rules should be readopted. Orbitz, American, Continental, Delta, 
and Northwest argue that we should maintain some rules only for a 
transition period to ensure that the CRS industry's deregulation will 
succeed. The travel agency commenters largely support the continuation 
of rules governing the systems' contracts with their travel agency 
customers but object to any significant restrictions on the systems' 
incentive pricing programs. The public interest groups generally oppose 
continued regulation, but some argue that we should take action to 
prevent Orbitz' operations from reducing competition.
    As stated above, we have determined not to make final our tentative 
proposals to readopt most of the rules. The comments on our notice of 
proposed rulemaking have shown that market forces in the CRS business 
are more effective than was shown by the comments submitted before we 
issued that notice: the airlines' control over access to their webfares 
has enabled them to obtain better terms for participation in some 
systems, the systems' subscriber contracts are giving travel agencies 
increasing flexibility to use alternative booking channels, and the 
airlines' share of revenues from travel agents has continued to 
decline. Furthermore, as a result of the Worldspan sale, no system is 
now controlled by U.S. airlines.
    Before turning to the detailed discussion of the substantive 
issues, we will address the procedural questions raised by commenters.

D. Procedural Issues

    For this proceeding we have followed the notice-and-comment 
procedures established by the Administrative Procedure Act for informal 
rulemakings, as we have done in all past CRS rulemakings. 67 FR 69369. 
We also held a public hearing and invited interested persons to submit 
reply comments as well as comments. These informal rulemaking 
procedures have given commenters a fair opportunity to present their 
evidence and policy and legal arguments and have enabled us to resolve 
the issues rationally and efficiently.
    Some parties filed comments or reply comments after the due date 
for those documents. We have accepted all such documents, and we have 
considered them to the extent practicable.
    Sabre's comments included several exhibits for which Sabre 
requested confidential treatment. Sabre thereafter concluded that some 
of these exhibits did not require confidential treatment, because their 
information was equivalent to that provided by other commenters without 
any request for confidential treatment. We were unable to work out an 
arrangement with Sabre on the remaining documents that would meet 
Sabre's interests in protecting the confidentiality of the information 
while satisfying our need to give all interested persons an adequate 
opportunity to review the information while preparing their comments. 
We are therefore returning those documents to Sabre, and we have not 
considered them at all in this rulemaking.
    Some commenters requested a more formal hearing where they could 
cross-examine members of our staff and representatives for other 
commenters. We found such additional procedures would be unnecessary 
for the development of an adequate record in this proceeding. 68 FR 
12883 (March 18, 2003).
    Several commenters assert that the record is stale or incomplete. 
See, e.g., Galileo Reply Comments at 9-13; ASTA Reply Comments at 4-8. 
We disagree. While our notice of proposed rulemaking cited some factual 
material that may not have reflected current conditions, the notice set 
forth our tentative factual findings, our reasoning on the economic and 
policy issues, and, most importantly, gave all interested persons ample 
opportunity to submit their own factual information. Any commenter who 
considered the factual record outdated or incomplete could have 
corrected any inadequacies by submitting current information. We 
believe that the record is more than adequate for our decision.
    We also disagree with those commenters who contend that we cannot 
reach a rational decision on the issues without learning the details of 
the marketing and other on-going relationships between Worldspan and 
its former airline owners. See, e.g., Galileo Reply at 10. In this 
proceeding we are considering what general rules,

[[Page 985]]

if any, should be adopted that will regulate each system's operations, 
not whether specific features of the arrangements between Worldspan and 
its former owners may be unlawful as unfair methods of competition. The 
record is entirely adequate for us to determine what general rules 
should be adopted. If it becomes apparent that specific features of the 
relationships between Worldspan and its former owners present questions 
about possible violations of section 411, we can address those issues 
through our investigatory and enforcement powers. In addition, the 
record does not include information on the details of the relationships 
between Galileo and United, or between Sabre and American or Southwest. 
Some commenters, however, have submitted evidence on their experience 
with those relationships, and other commenters could have done so as 
well. That evidence indicates neither that we must obtain additional 
information nor that the existing relationships create a likelihood of 
anti-competitive behavior that would injure airline competition and 
that requires regulations.
    Our notice of proposed rulemaking included an initial regulatory 
flexibility analysis as required by the Regulatory Flexibility Act of 
1980, 5 U.S.C. 601 et seq. That analysis discussed the potential impact 
of our rule proposals on small entities and invited comments on that 
analysis. 67 FR 69423-69424. Travel agencies, several members of 
Congress, the Small Business Administration's Office of Advocacy, and 
some other commenters contend that we failed to comply with the 
Regulatory Flexibility Act, because our initial regulatory flexibility 
analysis allegedly failed to provide adequate analysis and an 
opportunity for comment on several rule proposals affecting travel 
agencies, particularly our proposal to restrict the systems' incentive 
payment programs. See, e.g., June 9, 2003, Letter from Senators Snowe 
and Kerry; March 19, 2003, Letter from the Democratic Members of the 
House Committee on Small Business; Comments of the Small Business 
Administration Office of Advocacy; ASTA Comments at 51-54. We recognize 
the importance of the goal of ensuring that our rules do not 
unreasonably or unnecessarily affect small businesses and the 
importance of compliance with the Regulatory Flexibility Act. We 
believe that we have fulfilled our obligations under that statute. 
However, the issue is moot for the most part because we are not 
adopting the rule proposals that generated most of the complaints. In 
addition, certain other proposals sought by travel agency groups, such 
as a requirement that every airline make all publicly-available fares 
saleable through every distribution channel, are not alternatives that 
we have the statutory authority to adopt on the basis of the record in 
this proceeding. Our final regulatory flexibility analysis is set forth 
later in this rule.
    We also conducted a review under 5 U.S.C. 610 of the CRS rules, 
Part 255, in this proceeding. As discussed below, we concluded that 
changes were necessary to relieve regulatory burdens and respond to 
changed circumstances.

E. The Need for Limited CRS Regulation

1. Introduction
    We adopted the current rules because we found that regulations were 
necessary to prevent the systems from engaging in anti-competitive 
conduct that was likely to prejudice competition in the airline 
industry (for example, display bias and unjustly discriminatory booking 
fees). We additionally concluded that some practices followed by the 
systems represented efforts to preserve their market power over 
airlines (for example, subscriber contract provisions that kept travel 
agents from using alternative booking channels). We further determined 
that, if there were no rules, the systems would probably bias their 
displays, thereby denying travel agents and their customers impartial 
and information on airline services. 57 FR 43781-43787. In addition, as 
the Justice Department observes, the system owned by an airline that 
dominated a region had a substantially greater ability to obtain 
subscribers than did other systems. If that system operated in ways 
designed to prejudice the competitive position of rival airlines, it 
would reinforce its owner's dominant position in the airline market. 
Justice Department Reply Comments at 9.
    We based these conclusions on our findings that airlines relied 
heavily on travel agencies for distribution, that travel agents 
generally used a system to determine what airline services were 
available and to make bookings, that each travel agency predominantly 
or entirely used one system for these tasks, and that the resulting 
need of almost all airlines to participate in each system meant that 
market forces did not discipline the prices and terms offered by the 
systems for airline participation. We further relied on the fact that 
each system was then owned and controlled by one or more airlines or 
airline affiliates. 57 FR 43781, 43790, 43794.
    Recent developments, such as the systems' ownership changes and the 
growth of on-line bookings, have seriously eroded the basis for the 
findings on which the current rules were based. We must thus examine 
whether the regulation of system operations remains necessary. When we 
issued our notice, one system was still controlled by three U.S. 
airlines, and we tentatively found that the rules remained necessary 
because the systems still had market power over airlines and because 
the continuing ties between the systems and their former owners created 
a likelihood that systems would engage in conduct that would prejudice 
airline competition. 67 FR 69377-69384. We nonetheless invited comments 
on whether we should allow all of the rules to sunset, 67 FR 69368, and 
we stated that we anticipated that the on-going changes in the 
marketing of airline tickets could in time make the rules unnecessary. 
67 FR 69376.
    The commenters disagree on whether rules are still necessary. The 
Justice Department recommends that we maintain only the rules 
prohibiting display bias and possibly short-term rules barring certain 
types of most-favored-nation clauses in the systems' contracts with 
participating airlines. Some commenters, such as Expedia and United, 
contend that the rules should be terminated now. Sabre argues that no 
rules are necessary unless a system is still controlled by U.S. 
airlines. Other commenters, like Orbitz, American, Continental, and 
Northwest, contend that we should adopt regulations for a transition 
period to ensure that the ultimate deregulation of the CRS business 
will be effective. And still others, like Midwest, argue that the 
regulations are likely to remain essential for a number of years. Some 
commenters, like United, argue that we may not regulate non-airline 
systems at all and that we should not regulate systems owned or 
controlled by airlines.
2. Final Rule
    We have concluded that market forces are beginning to discipline 
the systems' prices and terms for airline participation, and the 
systems' competition for subscribers is in large part eliminating 
contract provisions that substantially restrict travel agents from 
using alternative electronic sources of airline information and booking 
capabilities. Furthermore, the record does not contain evidence showing 
a likelihood that a system will engage in conduct designed to distort 
competition in the airline industry, except for display bias. 
Readopting most of the existing regulations would not be

[[Page 986]]

justified without such evidence. For these reasons, we have determined 
to permit most of the rules to sunset upon their expiration on January 
31, 2004.
    The only exceptions are the rules that prohibit display bias and 
foreclose certain contract clauses with airlines that would maintain 
the systems' market power. We find that the systems continue to have 
market power over airlines, as argued by the Justice Department; that 
there is some potential for conduct by the systems that could prejudice 
airline competition (most notably the sale of display bias); and that 
systems could engage in practices that could unreasonably preserve 
their market power. For these reasons, we will adopt these rules for a 
six-month period in order to facilitate an orderly transition to a 
completely deregulated distribution marketplace. We retain the power to 
reexamine this decision if unexpected developments show that continuing 
regulation may be necessary. We are also prepared to take enforcement 
action if a system engages in conduct that appears to violate section 
411.
    We explain in this section why we have concluded that most of the 
current rules are no longer needed, and that the remaining rules will 
be maintained only for a short transition period. The several types of 
system conduct that create concern require separate discussion, because 
they involve different groups of system users--airlines, travel 
agencies, and travel agents and their customers--and the degree and 
effectiveness of market forces for each group is different. For 
airlines, the question is whether competition disciplines the prices 
and terms for CRS services offered airlines. For travel agencies, the 
question is whether the systems can engage in conduct that tends to 
preserve any market power they may have over airlines by unreasonably 
restricting a travel agency's use of alternative information sources 
and booking channels. For travel agents and their customers, the 
question is whether the systems could engage in display bias and 
similar practices that would lead to consumer deception and undermine 
airline competition. As a separate matter, we must determine whether, 
assuming that the systems do have market power over airlines, they are 
likely to pursue practices that would distort airline competition, even 
though no U.S. airlines now control any system.
    Most commenters supporting continuing regulation assume that any 
rules should apply equally to all systems, whether or not owned and 
controlled by airlines. None of the commenters argues that Amadeus' 
ownership by three European airlines provides a basis for regulating 
that system if the others are unregulated. We agree. We doubt that the 
alliance relationships between each Amadeus owner and one or more U.S. 
airlines will substantially increase the potential for anti-competitive 
behavior affecting the U.S. airline market, especially since the 
Amadeus owners belong to different alliances. In addition, Amadeus has 
substantial public ownership, and its obligations to its public 
shareholders should lessen any potential for action by Amadeus designed 
only to distort airline competition in the United States. Amadeus also 
has the smallest market share in the United States. Amadeus Comments at 
32-33; Sabre Comments at 4, n.6.
    The primary basis for our rule proposals was our belief that the 
proposals appeared necessary to prevent system practices that would 
constitute unfair methods of competition and that market forces would 
not prevent those practices. We will begin our explanation of the need 
for maintaining some short-term, residual regulation with our analysis 
of the systems' market power over most airlines, an analysis that 
begins with our conclusions on market definition. We then discuss 
whether systems are likely to engage in conduct that would prejudice 
airline competition, preserve their existing market power, or give 
consumers and their travel agents misleading information on airline 
services. Despite our conclusion that the systems have market power 
over airlines, we are allowing most of the existing rules to expire 
because we find that the systems are not likely to engage in practices 
that would prejudice airline competition or tend to maintain their 
existing market power, except for display bias and the potential 
imposition of some contract clauses on participating airlines that 
would reduce the airlines' bargaining power. Because we conclude that 
the systems would probably sell display bias if our prohibition against 
doing so were immediately terminated, thereby misleading travelers, we 
have decided to retain that prohibition for a six-month transitional 
period to furnish the industry notice of the change.
    Where we find short-term, transitional regulation necessary, our 
analysis is substantially the same for both airline and non-airline 
systems. Elsewhere, as discussed below, our conclusions that rules are 
not necessary stems in large part from the lack of any U.S. airline 
control of the systems now operating in the United States. If Orbitz 
enters the CRS business, there would again be a system controlled by 
U.S. airlines. However, we are unwilling at this time to adopt general 
regulations based upon Orbitz' potential entry.
3. Market Definition
    In judging whether any regulation is necessary, the fundamental 
question is whether market forces would discipline system practices. If 
competition would do so, no rules should be necessary. Cf. Justice 
Department Reply Comments at 18.
    When we adopted the current rules, we found that they were 
necessary because each system had market power over almost all airlines 
and market forces would not discipline the systems' anti-competitive 
practices. We also adopted rules governing subscriber contracts, even 
though we did not find that systems generally had market power over 
travel agencies, because the systems' contracts with travel agencies 
contained clauses that would maintain the systems' market power over 
airlines. 67 FR 69405. In the current rulemaking, we again made a 
tentative determination that the systems had market power over 
airlines.
    Determining whether the systems have market power over airlines 
requires us to define the relevant market. The relevant market must 
contain all products or services that consumers--here the airlines--are 
likely to consider using for the same purpose. The relevant market 
includes all reasonably interchangeable products and services, because 
``the ability of consumers to turn to other suppliers restrains a firm 
from raising prices above the competitive level.'' United States v. 
Microsoft Corp., 253 F.3d 34, 51-52 (DC Cir. 2001), quoting Rothery 
Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (DC Cir. 
1986).
    In our notice of proposed rulemaking, we tentatively found that, 
for airlines, each system is a relevant market. Most airlines still 
obtain the great majority of their revenues from travel agents, each 
travel agency office normally uses only one system, and travel agents 
rarely make airline bookings outside a system. If travel agents 
routinely used several electronic sources of airline information and 
booking capabilities when making reservations for their customers, an 
airline could then afford to withdraw from one or more systems, because 
the travel agents' use of alternative systems would still enable the 
airline to obtain bookings. Travel agencies, however, typically rely 
entirely or predominantly on one system for investigating airline 
service options and making bookings. 67 FR 69375-69376, 69377-69381.
    As a result, an airline that wants its services to be readily 
saleable by travel

[[Page 987]]

agencies must participate in each system, because otherwise it will 
lose a significant amount of revenue. As the Justice Department had 
stated in an earlier rulemaking, quoted at 67 FR 69376:

    Each CRS provides access to a large, discrete group of travel 
agents, and unless a carrier is willing to forego access to those 
travel agents, it must participate in every CRS. Thus, from an 
airline's perspective, each CRS constitutes a separate market and 
each system possesses market power over any carrier that wants 
travel agents subscribing to that CRS to sell its airline tickets.

    We further noted that, due to the economics of the airline 
industry, the addition or loss of a few passengers on an airline flight 
will determine whether the flight is profitable. The importance of 
marginal revenues in the airline business meant that airlines cannot 
afford to lose access to any significant distribution channel. In that 
regard, we quoted the statement of one industry economist, Daniel 
Kasper, 67 FR 69375:

    Airlines utilize many different distribution channels for the 
simple reason that they must do so in order to ensure that their 
products are easily accessible to the broadest possible array of 
prospective travelers. . . . Because attracting incremental 
passengers is critically important to an airline's profitability, 
each airline strives to match or surpass the visibility to 
purchasers enjoyed by its rivals. That is, airlines must compete for 
``shelf space'' in any channel where consumers prefer to shop.

    The comments support our tentative factual findings on market 
definition. First, most airlines still obtain the majority of their 
revenues from bookings made by travel agencies through a system. The 
Justice Department states that the five airlines that own Orbitz 
derived 65 percent of their total revenues in March 2002 from ``brick-
and-mortar'' travel agency bookings. Justice Department Reply Comments 
at 14. America West states that 67 percent of its revenues in 2002 came 
from bookings made through the systems. America West Comments at 7. 
Alaska similarly states that it obtains 56 percent of its revenues from 
travel agencies. Alaska Comments at 5. Delta states that 55 percent of 
its revenues are produced by ``brick-and-mortar'' travel agencies and 
that another 10 percent are produced by on-line travel agencies through 
a system. Delta Reply Comments at 39. Sabre by itself produces about 
one-third of a typical airline's revenues. Orbitz Comments at 10. While 
the Justice Department suggests that the systems' use by on-line travel 
agencies (as opposed to ``brick-and-mortar'' travel agencies) adds 
little to their market power over airlines, because most consumers 
check two or more websites before making a booking on-line, the Justice 
Department agrees that the systems have market power due to their usage 
by ``brick-and-mortar'' travel agencies. Justice Department Reply 
Comments at 15. About 80 percent of CRS bookings made by travel 
agencies are made by ``brick-and-mortar'' agencies. Galileo Comments, 
Guerin-Calvert, Jernigan, & Hurdle Declaration at 24.
    In arguing that the systems do not have market power, Sabre cites 
figures showing that less than half of all tickets will be sold this 
year by travel agencies using a system. See, e.g., Sabre Comments, 
McAfee and Hendricks Declaration at 2; Transcript at 8. We believe that 
market shares based on revenues, not individual tickets, should be 
determinative. A firm's profitability directly depends on its total 
revenues, not on the number of units sold. The travelers who make 
bookings on-line tend to buy tickets that are sold at greater 
discounts. The travelers using ``brick-and-mortar'' travel agencies are 
more important to the airlines because they tend to buy the more 
expensive tickets. Justice Department Reply Comments at 16.
    We agree with Sabre that the travel agencies' share of total 
bookings has been declining and will likely continue to decline. See, 
e.g., Justice Department Reply Comments at 14. However, as noted, the 
large network airlines still obtain the large majority of their 
revenues from travel agencies using a system, a situation likely to 
persist for some time to come.
    Business travelers--the travelers that produce a disproportionate 
share of the network airlines' revenues--have been reluctant to make 
bookings on-line or otherwise outside the travel agency channel. 
Justice Department Reply Comments at 16; NBTA Comments at 11-14. 
Consumers make about five times as many on-line bookings as do 
corporate travelers. Galileo Comments, Guerin-Calvert, Jernigan, & 
Hurdle Declaration at 26, n. 40. We recognize that a growing number of 
business travelers are booking on-line, but they appear to be doing so 
through websites offered by travel agencies using a system, or through 
one of the corporate booking firms acquired by systems like Sabre. 
Sabre Reply Comments at 34-35; American Reply Comments at 25.
    It may well be that within several years even a large proportion of 
business travelers will book their air travel outside of travel 
agencies using a system, but they do not do so now. Most airlines, 
including the major network airlines, derive the large majority of 
their revenues from bookings made through a system. See also Galileo 
Comments, Guerin-Calvert, Jernigan, & Hurdle Declaration at 29.
    Secondly, travel agents continue to rely on systems for booking 
airline tickets. ASTA states that, on average, 87 percent of travel 
agency airline bookings are made through a system. ASTA Comments at 23. 
Galileo estimates that an even higher percentage of travel agency 
bookings are made through a system. Galileo Comments, Guerin-Calvert, 
Jernigan, & Hurdle Declaration at 25, n. 37. Travel agents generally 
have access to the Internet and use it, primarily for research on 
travel options, but they have not made much use of the Internet for 
airline bookings, as noted above, because using the Internet is 
significantly less efficient than using a system. ASTA Comments at 12-
13.
    Thirdly, to operate more efficiently, most travel agencies use only 
one system, as discussed above. While the largest travel agencies tend 
to have two or more systems, they do not seem to make substantial use 
of all of them. Those agencies typically rely predominantly on one 
system. The Large Agency Coalition states that its members--all large 
corporate travel agencies--do not subscribe to multiple systems in 
order to improve their ability to book airline travel, but because of 
continuing business relationships between the agency and the dominant 
airline in local markets, between some of their corporate customers and 
airlines, or between an acquired agency and its system. Large Agency 
Coalition Comments at 1-3. Carlson Wagonlit alleges that each of its 
branch offices relies predominantly on one system even though the 
travel agency firm subscribes to all of the systems: ``Using multiple 
CRSs at one location creates numerous operational difficulties related 
to training agents on multiple CRSs and because client information is 
maintained within the CRS.'' Carlson Wagonlit Comments at 11.
    Fourthly, the airlines' dependence on marginal revenues requires 
them to participate in every significant distribution channel. No 
commenter denies that marginal revenues are critical in the airline 
industry. Sabre's experts agreed with our finding: ``Air transportation 
involves high fixed costs and low marginal costs. Thus a few 
incremental bookings can spell the difference between profit and 
loss.'' Sabre Comments, Salop & Woodbury Declaration at 29.
    We are unconvinced by the claims of several commenters that 
airlines can nonetheless find substitutes for the

[[Page 988]]

travel agency channel and that travel agents can use substitutes for 
the systems. We recognize that Southwest, JetBlue, and some other low-
fare airlines operate successfully without obtaining many bookings from 
travel agents. Southwest and JetBlue reportedly obtain only 20 percent 
and 10 percent of their revenues, respectively, from travel agencies. 
Justice Department Reply Comments at 15, n.14. Other airlines, 
particularly the large network airlines, cannot now practicably end 
their reliance on the travel agency channel. The low-fare airlines have 
traditionally focused on attracting leisure travelers. As shown, 
leisure travelers are much more likely to book flights through the 
Internet without using a ``brick-and-mortar'' travel agency (or an on-
line agency). Insofar as other airlines follow a business strategy that 
involves attracting business customers--the travelers most likely to 
use travel agencies--those airlines continue to be dependent on travel 
agencies for the largest share of their revenues and may have limited 
bargaining leverage against the systems, at least in the near future. 
The network airlines, moreover, tend to operate more complex hub-and-
spoke route systems than the low-fare airlines, and that complexity 
limits their ability to obtain direct sales, unlike airlines such as 
Southwest that primarily operate point-to-point services. It may be 
that the network airlines would be more successful if they adopted the 
same business strategy as the low-fare airlines. They have not done so, 
however, and presumably could not do so without significant expense. 
American Comments at 17-21; 67 FR 69379. As a result, these airlines 
rely on travel agencies for the majority of their revenues. Our 
determination of the relevant market must rely on the choices actually 
made by airlines and consumers, not on the choices that some think they 
should make. Cf. U.S.-U.K. Alliance Case, Order 2002-1-12 (January 25, 
2002) at 42-43.
    We recognize that airlines have been shifting some bookings away 
from the travel agency channel to their own websites. This shift has 
been much stronger for low-fare airlines than for the large network 
airlines. Despite these efforts, some believe that the Internet is 
unlikely to produce more than 40 percent of airline revenues by 2005. 
Galileo Comments, Guerin-Calvert, Jernigan, & Hurdle Declaration at 23-
24. Airlines have also taken steps to encourage travel agencies to 
bypass the systems. For example, American has an arrangement with 
American Express that enables that travel agency to make bookings 
directly with American. Amadeus Comments at 12-13. The record does not 
indicate that direct booking arrangements will substantially reduce the 
agencies' use of the systems for airline bookings any time in the near 
future. As shown, the larger airlines still obtain the large majority 
of their revenues from bookings made through the systems.
    Several commenters contend that travelers can use alternative 
distribution channels and are not locked into the travel agency 
channel, or, alternatively, can switch between travel agencies if one 
agency uses a system that provides inferior service. See, e.g., Sabre 
Comments at 59-65. We agree that consumers can choose where to book and 
need not book through a travel agency if they do not wish to, and that 
many consumers can easily switch between travel agencies. At least for 
corporate customers, however, changing agencies will impose some 
switching costs. Justice Department Reply Comments at 16, n.19. 
Airlines do not enjoy such choices. If a substantial number of 
travelers choose to use travel agencies, as they do, and if those 
travel agencies, with few exceptions, use only one system and do not 
readily make bookings outside the system, as is true, then each airline 
must participate in each system used by a significant number of travel 
agencies in order to avoid losing bookings from those agencies. As we 
stated in the notice, 67 FR 69378:

    The existence of one distribution channel that is attractive to 
a significant and growing number of travelers does not make that 
channel competitive with another channel that a larger if shrinking 
share of travelers finds preferable. With a very few exceptions, any 
airline that uses only one channel will not obtain the business of 
those travelers that prefer the other channel.

    See also American Comments at 16-17 and Dorman Declaration at 5. 
While the airlines' customers have alternatives, that does not make 
irrelevant the question of whether systems have market power over 
airlines. Cf. United States v. Visa U.S.A., Inc., 344 F.3d 229, 239 (2d 
Cir., 2003); In Re Visa Check/Mastermoney Antitrust Litigation, 
E.D.N.Y. No. 96-CV-5238, April 1, 2003, Memorandum and Order at 5.
    Some arguments made by the commenters opposing our preliminary 
analysis mischaracterize our reasoning. Sabre wrongly alleges that we 
concluded that systems have market power over travel agencies. Sabre 
Comments at 59, 71, 84. Nothing could be further from the truth. We 
expressly found that systems compete vigorously for travel agency 
subscribers, 67 FR 69371, 69405, and nowhere did we state that systems 
have market power over travel agencies. Sabre additionally misstates 
our analysis by asserting that we found that travel agencies control 
their customers. Sabre Comments at 59, 63.
    Sabre has failed to show that the relevant market is not each 
system, but the broader market of providing travel information to 
consumers, or airline ticket distribution, a market in which each 
system's share would be relatively small. Sabre Comments at 57-59, 79. 
As a practical matter, airlines wishing to electronically provide 
information and booking capabilities to travel agencies currently have 
no effective substitute for participation in each system. Similarly, 
because travel agencies do not use multiple systems, Sabre's 
observation that no system has even a 50 percent share of the CRS 
business, Sabre Comments at 81, is irrelevant. Each system is a 
separate market insofar as airlines are concerned. Furthermore, each 
system has a dominant share of the CRS business at cities where its 
former airline owners were the dominant airlines. Justice Department 
Reply Comments at 22.
4. The Systems' Market Power Over Airlines
    Because readopting CRS rules to block anti-competitive behavior 
will require a finding that the systems have market power over most 
airlines, we must determine whether they do have such power. If systems 
have market power over airlines, they will be able to charge them 
prices that exceed competitive levels, and the resulting costs will be 
passed on to consumers, even if many or most consumers can choose 
between different distribution channels when buying airline tickets.
    We are following the definition of market power applied by the 
Supreme Court in antitrust cases. In Eastman Kodak Co. v. Image 
Technical Services, 504 U.S. 451 (1992), the Court stated that market 
power is the power ``to force a purchaser to do something that he would 
not do in a competitive market,'' 504 U.S. at 464, quoting Jefferson 
Parish Hospital v. Hyde, 466 U.S. 2, 14 (1984), and ``the ability of a 
single seller to raise price and restrict output,'' 504 U.S. at 464, 
quoting Fortner Enterprises, Inc. v. United States Steel Corp., 394 
U.S. 495, 503 (1969). The courts have similarly stated that a firm is a 
monopolist ``if it can profitably raise prices substantially above the 
competitive level.'' United States v. Microsoft Corp., 253 F.3d at 51.
    Our notice of proposed rulemaking stated our belief that each 
system still

[[Page 989]]

has market power over most airlines. We noted in that regard that some 
airlines that had otherwise supported the elimination of most or all of 
the rules still conceded that the systems have market power. Northwest 
had thus stated, as quoted by us at 67 FR 69378:

    Sales to consumers made over the Internet, via both airline 
websites and online agents, have provided significant new 
competition to CRSs, but each CRS typically remains the only means 
by which to reach the travel agents who use that system. Each CRS 
therefore continues to have significant market power based on the 
travel agents to which it has exclusive access.

    First, until now an airline or other firm could not practicably 
create competitive alternatives for the systems. Among other things, 
building a new system would be costly and time-consuming, and the great 
majority of travel agencies already had contracts to use an existing 
system. 67 FR 69381. Entry into the business has become easier, as 
argued by Sabre. Sabre Comments at 52-85. However, because travel 
agencies generally rely entirely or predominantly on one system for 
information and bookings on airline services, new entry is unlikely in 
the near term to eliminate the systems' existing market power.
    Secondly, airlines have generally been unable to persuade travel 
agencies to use one system rather than another. If they could, they 
would have some bargaining leverage against the systems. Airlines could 
then shift business to systems offering better terms for airline 
participants and away from systems offering poorer terms. Because 
travel agencies do not pay booking fees, they have no direct incentive 
to use the system charging the lowest fees. The record suggests, in 
fact, that the incentive payment programs used by the systems encourage 
travel agencies to choose the system that is the most expensive for 
participating airlines. The systems then obtain subscribers typically 
by offering to give them bonus payments. The revenues used for those 
incentive payments come from the fees paid by participating airlines 
(and to a smaller extent by other travel suppliers). See, e.g., 
American Reply Comments, Dorman Declaration at 2-4.
    Airlines have had no effective incentives that they can offer 
travel agencies to encourage the use of one system rather than another, 
except in local markets where a dominant airline can influence travel 
agency choices by denying access to its corporate discount fares and 
marketing benefits to travel agencies that do not use its preferred 
system. As discussed in our notice of proposed rulemaking, airlines 
that dominate an area's airline markets, like Delta at Atlanta and 
American in southern Florida, can influence local travel agencies to 
use the airline's preferred system, because those travel agencies 
cannot easily succeed without the ability to sell the corporate 
discount fares offered by the area's major airline. 67 FR 69381.
    Airlines have developed programs to encourage travel agents to 
agree to terms that offset some CRS costs, or to bypass the systems, 
but those programs do not yet seem to have had great success. 
American's ``Everyfare'' program gave travel agencies access to 
American's webfares if they agreed to assume the airline's booking fee 
liability. Amadeus Comments at 10-13. Northwest and other airlines have 
created websites designed for travel agent bookings. Sabre Supp. Reply 
at 2.
    We recognize that airlines have been gaining bargaining leverage 
against the systems, a factor that caused us to propose the elimination 
of the mandatory participation rule and the rule barring discriminatory 
booking fees. Nonetheless, the systems currently have significantly 
greater leverage. An airline's greatest leverage for obtaining lower 
fees or better terms for participation will be a threat to withdraw 
from the system. If an airline withdraws, however, it will immediately 
begin losing bookings from that system, and those losses will not be 
entirely offset by increased bookings through the Internet. Any saving 
in CRS participation expenses will arrive later, and will not quickly 
offset the revenues lost from the reduction in bookings. Booking fees, 
after all, equal about two percent of the revenues obtained by an 
airline from sales made through a system. Orbitz Comments at 10, n.4. 
Cf. Amadeus Comments at 18-19.
    It is true that an airline's withdrawal from a system will make 
that system less attractive to travel agencies, and over time the 
system will lose subscribers. Because the average travel agency 
contract has a term of three years, however, only a relatively small 
portion of the system's subscribers will have the ability to switch to 
another system in the short term.
    Thus the airline's revenue losses from withdrawal will be 
substantial and begin occurring immediately, while the system's losses 
in subscribers will be gradual and occur only over a period of some 
months. In these circumstances, the system should have the upper hand 
in bargaining. See, e.g., Orbitz Comments at 10.
    An airline could also put pressure on the system by attempting to 
reduce the number of tickets sold through the system without 
withdrawing completely. One possibility would be to increase their 
efforts to encourage travelers to book directly with the airline. These 
lost sales would lower the systems' revenues, but may also increase the 
airline's distribution costs.
    An airline could put pressure on the system by lowering its 
participation level, because doing so would make the system less 
attractive to travel agencies that frequently book the airline without 
drastically reducing the airline's bookings from that system's 
subscribers. The lower level of participation would make it somewhat 
harder for travel agents to obtain information and reliably make 
bookings, and could block travel agents from conducting functions that 
are important to their customers. These functionality differences would 
not lead to a loss of as many bookings as would withdrawal but 
presumably would still result in lower revenues from the travel agents 
using that system. On the other hand, the lower level of participation 
would have less impact on the system's ability to market itself to 
travel agencies in the future. We expect that airline changes in 
participation levels will give airlines bargaining leverage.
    Our notice of proposed rulemaking predicted that the airlines' 
control over access to their webfares could enable them to obtain 
better terms for system participation. 67 FR 69381. As discussed above, 
Sabre and Galileo have begun programs that give airlines a discount 
from the standard booking fee levels in exchange for a commitment to 
provide all publicly-available fares, including webfares. The 
commenters disagree over the implications of these programs. Some 
commenters assert that airlines have gotten little in exchange for the 
commitments required of them. See, e.g., American Reply Comments at 21-
23. America West states that Orbitz has offered substantially larger 
fee reductions for airlines that agree to its most-favored-nation 
clause. America West Reply to Supp. Comments at 2-3. Other commenters 
contend that the programs demonstrate that airlines have bargaining 
power and that the systems do not have market power. See, e.g., Sabre 
Reply Comments, Salop & Woodbury Declaration at 15-16.
    We believe that the airlines' ability to change their participation 
levels and their control over access to webfares is reducing the 
systems' market power. Overall, however, we find that the systems 
currently still have market power over most airlines, although the 
continuing changes in airline distribution, particularly the growing 
importance of the Internet for airlines,

[[Page 990]]

travel agents, and travelers, should continue to erode the systems' 
market power. Our finding that the systems have market power is 
consistent with the Justice Department's conclusions. Justice 
Department Reply Comments at 2, 16-17.
    We disagree with Sabre's contention, first made in its reply 
comments, that the airlines' contracts with corporate customers keep 
systems from having market power. Sabre asserts that system practices 
cannot significantly affect airlines, because ``much business travel'' 
involves fares directly negotiated with specific airlines, often booked 
through direct links. Sabre Reply Comments at 36; Sabre Reply Comments, 
Salop & Woodbury Declaration at 7-9. Airlines obtain substantial amount 
of business from corporate customers that do not have such contracts, 
and the contracts do not normally bar employees from traveling on 
alternative airlines.
    We have based our finding of market power on the industry's 
structural characteristics, not on an analysis of whether the systems' 
fees are at supracompetitive levels. The best evidence of a firm's 
monopoly power would be a showing that it has been able to profitably 
charge prices that significantly exceed competitive levels. Because 
direct evidence of this ability is usually not available in Sherman Act 
monopolization cases, the courts usually rely on market structure 
evidence to determine whether a firm has monopoly power. United States 
v. Microsoft Corp., 253 F.3d at 51. We have taken the same approach 
here.
    When we last compared the systems' prices with their costs, we 
concluded that the larger systems at least were charging 
supracompetitive prices. See 56 FR 12586, 12595 (March 26, 1991). We 
have not done such an analysis since then, as we noted in our notice, 
but stated our belief that the systems' booking fees were probably 
above competitive levels, because they were not disciplined by market 
forces. 67 FR 69382. t with our findings that the systems must compete 
for travel agency subscribers but do not compete for airline 
participants.
    The airline commenters generally support our finding that booking 
fees are not disciplined by competition and contend that the fees 
substantially exceed competitive levels. They point out, for example, 
that the network airlines' financial crisis since 2001 has enabled them 
to drive down costs from other suppliers while the systems have been 
raising their fees and reporting large profits. See, e.g., America West 
Comments at 7-9.
    In response, the systems have denied that their fees are not 
disciplined by competition, and they argue that the fees are 
reasonable. They contend that their costs have been rising due to 
increased functionality provided airlines and the growing number of 
messages carried by their communications links. See, e.g., Galileo 
Comments at 38-39. While the systems thus contend that several 
important cost factors have increased significantly in recent years, 
they have not submitted a detailed cost analysis that would show that 
their booking fees do not significantly exceed their costs, nor have 
they attempted to demonstrate that the booking fees charged before the 
beginning of the cited cost increases did not significantly exceed 
their costs.
    We continue to believe that the systems' fees exceed competitive 
levels for the reasons set forth in the notice of proposed rulemaking. 
We have not seen evidence that the systems' fees generally respond to 
market forces, although two of the four systems have made modest 
concessions in exchange for access to airline webfares. However, we 
have not done an analysis of the systems' costs and revenues that would 
demonstrate that their fees exceed competitive levels. As explained 
above, a finding that the fees are at supracompetitive levels is not 
necessary for our determination that the systems have market power over 
airlines.
    We also cannot accept Sabre's claim that bookings made through a 
system are relatively inexpensive for airlines while bookings made 
through airline websites are not (and that bookings made through 
airline websites are more expensive than those made by an airline's 
reservations agents). Sabre Comments, Wilson Declaration at 22. Sabre's 
analysis is belied by the efforts of virtually every airline to shift 
bookings to its own website. Several low-fare airlines have claimed 
that their ability to obtain most of their revenues from direct sales 
gives them a great cost advantage over other airlines. See American 
Reply Comments at 32. See also 67 FR 69373, 69374. Sabre in any event 
has failed to demonstrate that its calculation is valid. American Reply 
Comments, Dorman Declaration at 8-9; United Reply Comments at 35, n.96; 
America West Reply Comments at 27. See also Northwest Reply Comments at 
19-20.
5. The Potential for System Conduct Undermining Airline Competition
    Our finding that each system has market power over airlines is not 
sufficient by itself to justify the adoption of rules. To adopt rules 
regulating the systems in order to prevent potential unfair methods of 
competition, we should have evidence that, if there were no 
regulations, systems would likely engage either in anti-competitive 
conduct designed to preserve their market power, a subject discussed 
below, or in conduct intended to distort airline competition. Any such 
conduct would harm consumers, either by causing airlines to pay 
supracompetitive prices for CRS services or by denying consumers the 
benefits of lower fares and better service created by competition 
between airlines.
    When each system was owned and controlled by one or more airlines 
or airline affiliates, experience demonstrated that systems were likely 
to engage in conduct designed to prejudice the competitive position of 
rival airlines, for example, by biasing displays against the owner 
airlines' competitors and charging competing airlines discriminatorily 
high booking fees. See 56 FR 12589. None of the systems now operating 
in the United States, however, is owned by a U.S. airline. Obviously a 
system that is not owned or controlled by a U.S. airline will not have 
the same incentives to prejudice the competitive position of rival 
airlines. Justice Department Reply Comments at 13-14; Sabre Comments, 
Salop & Woodbury Declaration at 26-30 and McAfee & Hendricks 
Declaration at 53-59. We must therefore determine whether a non-airline 
system (a system not owned or controlled by an airline or airline 
affiliate) is likely to engage in unfair methods of competition.
    We have found, as shown, that the systems have market power over 
airlines. To the extent that they do, their booking fees may exceed the 
fee levels that would exist in a competitive market, and the service 
offered airlines by the systems may be below the level of service that 
would exist in a competitive environment. The systems' possession of 
market power, however, by itself would not justify rules regulating 
their practices. The antitrust laws permit firms with monopoly power to 
use that power as long as they do not engage in conduct that is 
designed to maintain or extend that power. ``[M]erely possessing 
monopoly power is not itself an antitrust violation.'' United States v. 
Microsoft Corp., 253 F.3d at 51. As explained below in our analysis of 
our authority under section 411, we may prohibit unfair methods of 
competition, which are practices that violate the antitrust laws or 
antitrust principles.
    Our notice of proposed rulemaking stated our belief that there was 
a risk that non-airline systems would engage

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in anti-competitive conduct in order to prejudice airline competition. 
Each of the non-airline systems still had ties with its former U.S. 
airline owners, and each of the non-airline systems was being marketed 
by one or more of its former owners. The record suggested, moreover, 
that marketing airlines took actions favoring a system even when doing 
so appeared to be contrary to their interests in selling their own 
tickets. We therefore proposed to apply the rules, to the extent they 
were readopted, to non-airline systems. 67 FR 69383.
    The systems continue to have marketing relationships and other 
relationships with their former owner airlines. See, e.g., Amadeus 
Comments at 25, n.24; Galileo Supp. Comments at 3. The lack of control 
by any U.S. airline will not eliminate the possibility that a system 
would agree with an airline to engage in conduct that would undermine 
the competitive position of the airline's rivals. Each system, after 
all, continues to have market power over most airlines, and each of the 
larger airlines dominates some local markets, primarily at its hubs. A 
system and such an airline might agree that the system would change its 
operations so as to benefit the airline while the airline would use its 
local dominance to strengthen the system's marketing efforts. Justice 
Department Reply Comments at 19.
    The record suggests that the systems are willing to sell 
preferential treatment to airlines at least insofar as display bias is 
concerned. Their willingness to do so is apparent from their own 
comments, which argue that we should allow systems to sell bias. 
Amadeus Comments at 53-54; Sabre Comments at 141-142. The Justice 
Department believes that the systems are likely to engage in display 
bias. Justice Department Reply Comments at 19-21. See also American 
Antitrust Institute Comments at 8. Our notice cited evidence that 
display bias is sold to suppliers in other travel industries. 67 FR 
69383. Although Amadeus has denied that it biases its displays for 
hotels and rental cars, Amadeus Reply Comments at 12, n.16, the other 
systems' comments do not address this issue.
    Apart from bias, however, the record does not indicate that systems 
are likely to seek to operate in ways designed to prejudice airline 
competition. Our notice of proposed rulemaking expressly invited 
commenters to submit evidence on whether systems had sought to distort 
competition in other travel industries. 67 FR 69383. One speaker at our 
public hearing stated that he did not know of any system practices that 
distorted competition in other industries, Transcript at 85, and one 
commenter asserted that there is no evidence of competitive harm 
resulting from the systems' treatment of firms in other travel 
industries. Worldspan Reply at 17. See also Transcript at 116-117, 151-
154. The record further suggests that the marketing relationships 
between systems and airlines currently give the marketing airline 
little incentive to help the system and that marketing airlines, in 
fact, do little to help the system being marketed. American Comments at 
30; Large Agency Coalition Comments at 14-15; Large Agency Coalition 
Reply Comments at 16-17. This suggests that the ties between airlines 
and systems may have weakened enough so that systems would have little 
interest in taking action that undermined airline competition in order 
to favor one airline. The Justice Department additionally believes that 
contractual arrangements between airlines and systems do not pose a 
sufficient threat to competition to justify the adoption of general 
rules at this time. Justice Department Reply Comments at 1-2. See also 
Expedia Reply Comments at 3, n.1. We note, nonetheless, Amadeus' 
complaint that American, Delta, and Northwest have recently tied a 
travel agency's ability to sell corporate discount fares with the use 
of the system affiliated with the airline. Amadeus Comments at 91-92. 
However, this tying affects competition between the systems and does 
not necessarily show that systems will engage in conduct designed to 
distort airline competition.
    Furthermore, we cannot predict at this point what kinds of 
relationships may arise as a result of the CRS industry's deregulation. 
We do not wish to adopt rules now when we do not know what types of 
potential anti-competitive practices, if any, may occur. We therefore 
do not agree with the arguments of some commenters that rules should be 
maintained on the ground that systems have continuing marketing and 
other special arrangements with selected airlines. See, e.g., Galileo 
Comments at 7-11.
    We fully agree with the Justice Department, however, that there is 
a potential for contractual relationships between systems and airlines 
that would be designed to reduce competition in either or both the CRS 
and airline industries. The Justice Department has stated its intent to 
take action against any such agreements that violate the antitrust 
laws, and we also have statutory authority to take appropriate action 
if such contractual relationships appear to be unfair methods of 
competition that violate section 411. Under 49 U.S.C. 41708, formerly 
section 407 of the Federal Aviation Act, we can obtain copies of any 
agreements between airlines and systems if we see a need to investigate 
contractual relationships between systems and participating airlines.
6. System Practices that Preserve Market Power
    While we have determined that most of the rules should not be 
readopted, even though each system continues to have substantial market 
power over airlines, we are readopting for a short transition period 
the rule prohibiting parity clauses and adopting an analogous rule 
prohibiting most-favored-nation clauses demanded as a condition for any 
participation in a system. These types of contract clauses would tend 
to maintain the systems' market power and reduce the bargaining 
leverage of participating airlines. Because we are essentially 
deregulating the CRS business notwithstanding the systems' market 
power, we decided to adopt the parity and most-favored-nation clause 
prohibitions for a period long enough allow affected parties to respond 
to the transition to complete deregulation.
    We originally adopted the rule prohibiting systems from enforcing 
parity clauses (except as to airlines that owned or marketed a 
competing system) because three of the systems had imposed parity 
clauses on airline participants. These clauses required each airline to 
participate in the system at at least as high a level as it 
participated in any other system. Thus, for example, Sabre's parity 
clause required Alaska to participate in Sabre at the full availability 
level as long as Alaska participated in any other system at that level, 
even if Alaska considered Sabre's service at that level too costly or 
not as attractive as the comparable service offered by other systems. 
62 FR 59786-59787, 59791-59792. Because these parity clauses eliminated 
some possibility of system competition for airline participants, and 
required each airline to buy a level of service that an airline might 
not wish to buy, we adopted a rule prohibiting the systems from 
enforcing airline parity clauses except as to airline participants that 
owned or marketed a competing system. 62 FR 59784.
    We have concluded that this rule should be readopted for another 
six months. We are also adopting for the same period an analogous rule 
that will prohibit each system from requiring airlines as a condition 
to any

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participation in the system to make all publicly-available fares 
saleable through the system. If we did not provide for an orderly 
transition, a contract clause requiring a participating airline to 
provide all webfares as a condition to participation, sometimes 
referred to as a most-favored-nation clause, would deny the airline the 
ability to use its control over access to its webfares as bargaining 
leverage to obtain better terms and prices for system participation. 
Such a clause would additionally tend to prevent the development of 
alternative sources of information and booking channels, for a travel 
agency would have less incentive to use alternatives if the system used 
by the agency already provided complete information on webfares. It is 
our expectation that the six-month period during which our prohibition 
on such clauses will remain in place will enable airlines to prepare 
more effectively for the termination of these rules.
    On the other hand, we have decided not to readopt rules designed to 
prohibit system contract practices that would unreasonably restrict 
travel agency subscribers from switching systems or using alternative 
systems or booking channels. In the past, the systems engaged in 
subscriber contract practices that appeared to be designed to preserve 
their market power. Travel agencies accepted such contract clauses even 
though most travel agencies could choose between systems. 67 FR 69405. 
We therefore adopted rules barring subscriber contracts from having a 
term that exceeded five years and giving travel agencies the right to 
use their own third-party equipment and software in conjunction with a 
system.
    As discussed above, the record shows that travel agencies in recent 
years have been obtaining more flexible contracts from the systems. The 
term of the average subscriber contract, for example, is well under 
five years. While most subscriber contracts still have productivity 
pricing clauses, the productivity pricing clauses in the contracts 
currently offered travel agencies do not seem to effectively block 
travel agents from using alternative booking channels. And travel 
agencies appear to have a substantial ability to switch systems at the 
end of their contract term. While systems may have some contracts that 
may be unreasonably restrictive, their contracts in general do not seem 
to block travel agents from obtaining information and making bookings 
outside the system. Moreover, the market is moving in a more 
competitive direction--travel agencies are obtaining more flexibility, 
not less, in their newest contracts.
    As a result, the current record shows that rules regulating travel 
agency contracts are no longer necessary. Several airline commenters 
and Orbitz have argued that we should continue to regulate the systems' 
subscriber contract practices, because the existing contracts are 
alleged to unreasonably lock travel agencies into using their existing 
system. See, e.g., Orbitz Comments at 46-49; America West Comments at 
26-29; American Comments at 33-35; Continental Comments at 17-20; Delta 
Comments at 41-42. For the reasons discussed below in connection with 
the specific subscriber contract issues, the systems' current contracts 
do not appear to unreasonably keep travel agencies from using 
alternative booking channels.
7. The Systems' Ability To Engage in Display Bias
    Display bias has been a concern since the systems were first 
developed. Experience has demonstrated that travel agents are likely to 
book one of the first services displayed by a system in response to a 
travel agent's request for information, even if services shown later in 
the display would better satisfy the customer's needs. If systems give 
preferential display positions to one airline's services, that display 
bias will harm airline competition and cause consumers to be misled. 57 
FR 43801-43802, 43807-43808.
    Our rules have prohibited systems from biasing their displays in 
order to prevent unfair methods of competition and deceptive practices. 
Display bias both prejudices airline competition, by reducing the 
airlines' ability to compete on the basis of the relative 
attractiveness of their schedules and fares, and causes travel agents 
to give misleading or incomplete advice to their customers.
    Display bias is possible because of the way in which the systems 
present information on airline service options. The systems display 
information on computer screens. Each screen can display only a limited 
number of flights, so a system must use criteria for ranking the 
available flights. Display position is important, because travel agents 
are more likely to book the flights that are displayed first. The 
number of airline services available in most markets also requires the 
systems to edit their displays, because many services will be 
unattractive to travelers (Los Angeles-San Francisco travelers, for 
example, will not choose connecting services over Denver or Salt Lake 
City). Systems display airline services in several different ways. The 
display traditionally used by travel agencies ranks flights in a market 
on the basis of the criteria developed by the system and shows whether 
seats are available on the listed flights. Some systems rank flights in 
this type of display by listing all nonstop flights first, then one-
stop flights and other direct flights, and finally connecting services. 
Others have ranked flights on the basis of relative quality, such as 
each flight's elapsed time or its displacement time (the time 
difference between the departure time requested by the traveler and the 
time of each flight). 67 FR 69370.
    Every system also has a display that ranks flights on the basis of 
price, with the lowest being listed first. Travel agents use that 
display for customers whose major concern is finding the lowest fare. 
67 FR 69370.
    We have concluded that we should continue to prohibit display bias, 
both to prevent anti-competitive conduct, as recommended by the Justice 
Department, and to prevent consumer deception, but only for an 
additional six months. Were the rule terminated immediately, systems 
would likely be in a position to bias displays, as discussed above. 
Display bias could cause consumer harm by reducing airline competition 
and by causing travel agents to book customers at times on flights that 
do not best meet the traveler's needs.
    Display bias can mislead travel agents (and thus their customers), 
because by definition it means ranking and editing airline services on 
some basis other than neutral criteria based on general consumer 
preferences. Before the Board adopted the rules on display bias, when 
each system was owned by one airline, systems constructed displays that 
put their competitors at a disadvantage by omitting services and fares 
offered by competing airlines that would be attractive to many 
consumers. Each system often listed flights operated by its owner 
airline above flights operated by competitors that better met the 
customer's travel requirements. 56 FR 12589. We later found it 
necessary to revise our rules on display bias because Apollo, Galileo's 
predecessor, created displays that essentially gave the connecting 
services operated by network airlines a preference over one-stop 
flights operated by point-to-point airlines. For example, Apollo could 
display an Alaska one-stop flight in the Seattle-Burbank market well 
after connecting services that left Seattle as much as an hour before 
the Alaska flight and that arrived in Burbank after the Alaska flight 
had landed. Apollo similarly displayed an Alaska one-stop Orange 
County-Seattle flight after connecting services that took substantially 
longer and that involved

[[Page 993]]

connections at Salt Lake City or Phoenix. 61 FR 42208, 42212-42213 
(August 14, 1996). Apollo at that time was owned by several airlines, 
not just by United, yet the owner airlines agreed to adopt a display 
that would benefit United while prejudicing the travel agents' ability 
to find the best service for their customers. 61 FR 42209.
    Display bias also can reduce competition. Bias can shift enough 
passengers from disfavored airlines to a favored airline to make the 
former's flights unprofitable in the targeted markets. That can cause a 
disfavored airline to reduce or eliminate its service in those markets. 
As we stated above in our discussion of the systems' market power over 
airlines, the profitability of an airline flight often depends on 
marginal revenues, so the shift of traffic that may result from display 
bias can have large competitive consequences. Justice Department Reply 
Comments at 20, n.26. The resulting reduction in capacity and 
potentially in the number of competitors will enable the favored 
airline to raise fares and reduce service. Justice Department Reply 
Comments at 7. For example, two of the airlines that complained about 
the Apollo display discussed above--Alaska and Midwest Express--were 
point-to-point airlines whose services fared worst in the Apollo 
display. Alaska estimated that the display would reduce its annual 
revenues by $15 million, and Midwest Express estimated that its annual 
revenue losses would equal several million dollars. 62 FR 63837, 63841 
(December 3, 1997).
    Experience thus shows that bias can be effective, notwithstanding 
the travel agents' interest in finding and booking the services that 
best meet their customers' needs. As noted, travel agents tend to book 
one of the first flights displayed by the system. Travel agency 
customers depend on their travel agent to extract information from the 
system display, which only the travel agent sees. Travel agents 
generally work under time pressure that often keeps them from searching 
through several display screens to overcome the bias. ASTA Comments at 
41; AAA Comments at 2; Carlson Wagonlit Comments at 16; British Airways 
Coments at 2-3. The systems can also hide the extent of their bias. 49 
FR 32540, 32547 (August 15, 1984). A system arguably could choose to 
omit some services altogether. For example, Priceline, an on-line 
seller of airline tickets, agreed with Delta that Priceline would not 
sell seats offered by Delta's competitors on flights to or from 
Atlanta, Delta's hub. Justice Department Reply Comments at 20, n.27, 
and 30, n.37. As a result, bias could keep consumers in many cases from 
obtaining accurate and complete information on schedules and fares from 
travel agents relying on a system for their information.
    Display bias, moreover, provides no apparent consumer benefits. It 
does not function like advertising, because it provides no information. 
In fact display bias ``would divert passengers without regard to 
airlines' prices or quality.'' Justice Department Reply Comments at 19. 
Display bias is also unnecessary to help travel agents who, due to a 
customer's demands, are interested in seeing only services offered by 
one airline. The rules do not bar systems from enabling travel agents 
to create displays listing the services of a single airline. See also 
Galileo Comments at 61 (Galileo subscribers can create displays 
tailored to the preferences of their customers, including customer 
airline preferences).
    When we readopted the rules against display bias at the conclusion 
of our last overall reexamination of the CRS rules, we addressed 
several theoretical arguments that assertedly showed that display bias 
was ``beneficent.'' Some commenters argued that a flight's display 
position would not affect travel agency bookings, that display bias 
reflected the preferences of a system's subscribers, and that other 
airlines could buy display bias. We found that these arguments were 
disproven by experience. 57 FR 43786-43787.
    Several commenters have presented somewhat similar arguments here 
that bias would not work and that there is no reason to prohibit it. 
While these commenters may be correct in predicting that bias today 
would not be as effective as it was in the past, we are not convinced 
that systems could engage in display bias without causing consumer 
harm.
    Systems clearly wish to be able to sell bias. That indicates that 
they believe airlines will be willing to buy bias, and obviously 
airlines will be willing to buy bias only if they expect it to be 
effective. Past experience with system efforts to bias displays 
suggests that their expectation is correct.
    We question whether airlines injured by display bias can 
practicably take steps to offset it. In response to our example of the 
Galileo display that harmed Alaska's display position, Mercatus argues 
that Alaska could have either outbid United for the bias or cut its 
fares to attract additional passengers. Mercatus Comments at 10. While 
Alaska may have had the ability to take some steps to offset the effect 
of the bias, Mercatus has failed to show that those steps would have 
been practicable. Our concern, moreover, is not limited to the Galileo 
display's impact on competition. The display also caused travel agents 
and their customers to receive incomplete or misleading information on 
the available service options. The display was designed to cause travel 
agents to book customers on airlines like United even when Alaska 
provided significantly better service.
    Travel agents use the Internet at times to search for alternatives 
to the services displayed by a system. In theory, as argued by some 
commenters, the Internet's availability as a check on the quality of 
displays offered by a system would deter a system from biasing its 
displays. See, e.g., Transcript at 123-124. We have doubts, however, 
whether travel agents regularly use the Internet as a test of a 
system's displays. As shown, travel agents are commonly pressed for 
time, which is why bias works--travel agents often do not wish to take 
the time required to search several screens to find the best service 
for a customer. The many complaints from travel agents about the 
unavailability of webfares on the systems, and their assertions that 
almost no travel agency is interested in using more than one system due 
to the inefficiencies involved, is a further indication that travel 
agents making a booking for a customer are unlikely to search several 
sources of information before selecting a flight to recommend. Sabre's 
evidence is consistent with this conclusion. A 2001 survey indicated 
that only 11 percent of the travel agents with Internet access had 
booked airline tickets on the Internet, that 13 percent often used the 
Internet to check for lower fares, and that 23 percent occasionally 
used the Internet for that purpose. Sabre Comments, Salop & Woodbury 
Declaration at 12. We assume that the number of travel agents using the 
Internet to check for other services will grow significantly, but not 
by such an extent as to make display bias ineffective.
    Travel agencies, moreover, cannot quickly shift to a different 
system if the system they are using biases its displays. While travel 
agencies have some ability to switch systems, many agencies would 
likely incur significant costs by switching from one system to another. 
Galileo Comments, Guerin-Calvert, Jernigan, & Hurdle Declaration at 81.
    Any display bias by the systems would not be comparable to the 
practice of grocery stores selling preferential shelf positions to 
their suppliers. Unlike the grocery store shelf, which the shopper sees 
and can easily scan, the traveller never sees the system display

[[Page 994]]

used by a travel agent, and systems can create display bias that 
obscures the service alternatives to a much greater extent than the 
shelf position used by grocery store suppliers. Airlines would be 
willing to buy bias because it would be effective, and its 
effectiveness means it is likely that a significant number of consumers 
will be booked on inferior services when other services would better 
meet their needs.
    Delta contends that bias should not prevail if travel agencies 
really desire unbiased displays. Delta Reply Comments at 25. As noted, 
however, the systems assume they can sell display bias, and experience 
indicates that systems have some ability to hide the extent of the 
bias. Furthermore, the travel agents' interests are not our only 
concern--we wish to ensure that travel agency customers can obtain 
accurate information, and to prevent the harm to airline competition 
that could result if CRS display bias reappeared.
    A travel agency customer's ability to go to another travel agency 
if one travel agency provides bad advice due to its use of a system 
that biases its displays would not prevent display bias from causing 
harm. The consumers' ability to switch travel agencies would deter bias 
if customers find out that better service was available and know that 
the travel agent booked the inferior service because the travel agent 
was using a system that provided inferior displays. That seems 
improbable. Customers instead are unlikely to know why the travel agent 
did not book the better service. Customers might assume that the better 
service was sold out, or that the better fare was not available when a 
customer's booking was made, as we concluded in our last major CRS 
rulemaking. 57 FR 43787. See also American Antitrust Institute Comments 
at 11. Furthermore, travelers with confidence in their ability to 
obtain accurate fare information on the Internet would be less likely 
to use a travel agent to book their tickets.
    While we conclude that systems are likely to bias displays in the 
absence of rules prohibiting such bias, we believe that on-going 
developments are likely to reduce the systems' market power over 
airlines over time. We further expect that these developments will 
enable travel agents and their customers to easily use alternative 
sources of information to an extent that should deter the kind of 
display bias that would significantly mislead travel agents and 
consumers. Accordingly, we have decided to retain the prohibition 
against display bias only for a transitional period of six months, with 
a termination date of July 31, 2004. Our expectation is that the notice 
provided by this transition period will help to accelerate developments 
in the market that reduce the harm display bias might otherwise 
engender.

F. The Department's Statutory Authority To Regulate CRS Practices

    Having concluded on economic policy grounds that some rules will 
remain necessary for the next six months, and that the remaining rules 
should cover all systems, not just those owned by airlines, we must 
address our statutory authority to adopt the rules and make them 
applicable to both airline and non-airline systems.
    The basis for our adoption of CRS rules has been our authority 
under section 411 of the Federal Aviation Act, recodified as 49 U.S.C. 
41712, to prohibit unfair and deceptive practices and unfair methods of 
competition by airlines and ticket agents in air transportation and the 
sale of air transportation. Section 411 states, ``[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.'' If the Secretary ``finds that an air carrier, 
foreign air carrier, or ticket agent is engaged in an unfair or 
deceptive practice or unfair method of competition, the Secretary shall 
order the air carrier, foreign air carrier, or ticket agent to stop the 
practice or method.'' Congress modelled our authority under 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 and 
deceptive practices and unfair methods of competition in other 
industries. United Air Lines, 766 F.2d 1107, 1111-1112 (7th Cir. 1985). 
In enforcing section 411, we must consider the public interest factors 
set forth in 49 U.S.C. 40101. 68 FR 3293, 3294 (January 23, 2003). 
Because section 411 limits our authority to practices affecting airline 
distribution, we may not regulate the systems' treatment of other 
travel suppliers, such as hotels, rental cars, and Amtrak. 67 FR 69389.
    As noted, section 411 covers airlines (both U.S. and foreign) and 
``ticket agents.'' The statute defines a ticket agent as ``a person 
(except an air carrier, a foreign air carrier, or an employee of an air 
carrier or foreign air carrier) that as principal or agent sells, 
offers for sale, negotiates for, or holds itself out as selling, 
providing, or arranging for, air transportation.'' 49 U.S.C. 
40102(a)(40).
    The courts have construed the meaning of deceptive practices and 
unfair methods of competition. A deceptive practice is one that will 
tend to deceive a significant number of consumers. United Air Lines, 
766 F.2d at 1113. An unfair method of competition is a practice that 
violates antitrust laws or antitrust principles. We may therefore 
prohibit some airline conduct permitted by the antitrust laws. See, 
e.g., Pan American World Airways v. United States, 371 U.S. 296, 306-
308 (1963); United Air Lines, 766 F.2d at 1114.
    When several airlines sought judicial review of the original CRS 
rules, the Seventh Circuit affirmed the Board's adoption of the rules 
on the ground that section 411 authorized the Board to prohibit anti-
competitive conduct even though the systems' conduct might not violate 
the antitrust laws. United Air Lines v. CAB, 766 F.2d 1107. The Board's 
underlying findings were very similar to those used in our past 
rulemakings. The Court stated that the Board's finding that some of the 
systems had substantial market power was sufficient to authorize the 
Board's regulation of CRS practices: that finding ``would bring their 
competitive practices within the broad reach of section 411,'' for the 
Board ``can forbid anticompetitive practices before they become serious 
enough to violate the Sherman Act.'' The Court reasoned that the types 
of conduct prohibited by the Board on antitrust grounds--price 
discrimination and denying a competitor access to an essential facility 
on equal terms--were ``traditional methods of illegal monopolization'' 
that the Board could prohibit, even though no system had a monopoly 
under Sherman Act standards. United Air Lines, 766 F.2d at 1114. In 
determining whether the Board properly held that display bias was a 
deceptive practice, the Court viewed the test as whether the practice 
would tend to deceive a significant number of consumers. 766 F.2d at 
1113.
    While Section 411 allows us to prohibit some conduct that is not 
prohibited by the antitrust laws, it does not give us broad authority 
to regulate practices in the airline and airline distribution 
businesses. Airlines are generally free to determine how to distribute 
and sell their services, including sales through travel agencies, as 
long as they do not violate antitrust principles. The antitrust laws 
allow individual firms to choose how to distribute their products and 
services as long as they do not violate one of the provisions of those 
laws. 67 FR 69384, citing Paschall v. Kansas City Star Co.,

[[Page 995]]

727 F.2d 692 (8th Cir. 1984) (en banc); and Auburn News Co. v. 
Providence Journal Co., 659 F.2d 273, 278 (1st Cir. 1981).
    Similarly, the courts have held that the FTC's comparable authority 
to prohibit unfair methods of competition in other industries does not 
empower that agency to regulate business conduct in order to make an 
industry more competitive. In E.I. DuPont de Nemours & Co. v. FTC, 729 
F.2d 128, 140 (2d Cir. 1984), the Second Circuit stated, ``[I]n the 
absence of proof of a violation of the antitrust laws or evidence of 
collusive, coercive, predatory, or exclusionary conduct, business 
practices are not `unfair' in violation of section 5 unless those 
practices either have an anticompetitive purpose or cannot be supported 
by an independent legitimate reason.'' In DuPont the court therefore 
vacated an FTC order prohibiting certain types of pricing conduct in an 
oligopolistic industry, which the FTC had prohibited in the belief that 
the industry's pricing would then become more competitive. The FTC had 
not found that the pricing conduct at issue violated the letter or the 
spirit of the antitrust laws or was otherwise ``collusive, coercive, 
predatory, or exclusionary.'' See also Official Airline Guides, Inc. v. 
FTC, 630 F.2d 920 (2d Cir. 1980); Boise Cascade Corp. v. FTC, 637 F.2d 
573 (9th Cir. 1980).
    Our decision that most of the existing rules should be allowed to 
sunset follows from our conclusions that those rules are no longer 
necessary. That decision also reflects the limits placed by Congress on 
our authority to regulate airline distribution practices. As a result 
of Congress' decision to deregulate the airline industry, we may not 
require firms in the airline distribution business to change their 
practices without finding that those practices will violate section 
411.
    We based our proposal to readopt rules proscribing display bias on 
both our authority to prohibit deceptive practices and our authority to 
prohibit unfair methods of competition. No one has contested our 
authority to regulate the systems' display practices under our 
authority to prohibit deceptive practices, if the systems are ticket 
agents and our regulations are consistent with the First Amendment 
(several commenters dispute these assumptions). The argument over our 
authority to readopt the proposed rules involves both of our tentative 
conclusions that the statutory definition of ticket agents includes the 
systems and that system practices at issue could be unfair methods of 
competition. We address these issues in detail below.
    In our notice of proposed rulemaking, we observed that section 411 
also authorizes us to prohibit unfair practices by airlines and ticket 
agents, not just deceptive practices and unfair methods of competition, 
but that we had not relied on that authority as a basis for readopting 
CRS rules. 67 FR 69384. The FTC has advised us that the FTC has adopted 
a strict definition of ``unfair practices'' under the FTC Act and that 
Congress has since codified the Commission's definition. FTC Comments 
at 1-3. In its reply comments, America West briefly suggests that we 
should bar systems from charging supracompetitive booking fees on the 
ground that such fees violate public policy. America West Reply 
Comments at 16, n.30. We are unwilling to adopt America West's 
suggestion. We have not previously based the CRS rules on our authority 
to prohibit unfair practices, and we do not now intend to rely on that 
authority, when our notice did not propose to do so and other 
commenters have not had the opportunity to comment on America West's 
suggestion.
1. Whether Non-Airline Systems Are Ticket Agents Subject to Section 411
    The U.S. airlines' divestiture of their CRS ownership interests 
requires us to resolve whether we may directly regulate the systems 
under section 411, because we based our authority to regulate system 
practices in the past on the systems' airline ownership. Neither we nor 
the Board ever decided that issue in the earlier rulemakings. 67 FR 
69385. We tentatively concluded in our notice of proposed rulemaking 
that the systems were ticket agents subject to section 411. After 
considering the comments on this issue, we conclude that we may 
directly regulate the systems under section 411, even though most of 
them no longer are controlled by airlines. However, we are also 
adopting a rule barring airlines from attempting to induce systems to 
create displays that would not comply with the standards established by 
our rule prohibiting systems from engaging in display bias.
    A few commenters have suggested that we need not decide whether 
section 411 authorizes us to directly regulate the systems, because 
each of the existing systems has ties with its former airline owners. 
We decline this invitation to avoid the issue. Achieving all of our 
goals without directly regulating the systems would be difficult. 
Neither relying on the existence of marketing relationships between the 
systems and airlines nor barring airlines and travel agencies from 
doing business with systems that engage in unacceptable practices would 
provide a sound basis for regulating all of the systems' operations.
    Section 411 authorizes us to regulate the systems directly if they 
are ``ticket agents'' within the meaning of our statute. As noted 
above, the statute defines a ticket agent as ``a person (except an air 
carrier, a foreign air carrier, or an employee of an air carrier or 
foreign air carrier) that as principal or agent sells, offers for sale, 
negotiates for, or holds itself out as selling, providing, or arranging 
for, air transportation.'' 49 U.S.C. 40102(a)(40). Our notice of 
proposed rulemaking tentatively concluded that systems are ``ticket 
agents.'' 67 FR 69384-69385.
    Sabre, Galileo, United, Expedia, Travelocity, and ASTA contend that 
systems are not ticket agents. Amadeus and America West, on the other 
hand, support our tentative conclusion that the systems are ticket 
agents subject to section 411.
    After considering the comments, we conclude that the systems are 
ticket agents and that we may therefore prohibit them from engaging in 
unfair and deceptive practices and unfair methods of competition in the 
sale of air transportation.
    As we explained in the notice, the systems are active participants 
in the sale of air transportation, not just communications links. 67 FR 
69384-69385. The systems enable travel agents to conduct booking 
transactions, require airlines to accept any bookings made by a travel 
agent through the system, make credit card authorizations, and issue 
tickets. They charge airlines fees based on booking transactions. A 
system operates a central computer that collects information on airline 
schedules and fares and the availability of seats, arranges that 
information under its own editing and ranking criteria in displays that 
are provided to travel agents, and provides a booking capability 
enabling travel agents to make airline reservations for their 
customers. The systems also require airlines to allow any system user 
to make bookings on the airline through the system. See, e.g., Amadeus 
Reply at 34-35; America West Reply Comments at 7-8. When the booking is 
made through the system, either through its own central computer or by 
a direct connection feature in a participating airline's internal 
reservations system, the travel agent's purchase is complete.
    The systems' contracts with participating airlines reflect their 
function as an integral part of the distribution of airline tickets, 
not just as a communications link. America West's contracts with Sabre 
and Worldspan

[[Page 996]]

thus state respectively that the parties ``desire to enter an agreement 
concerning the booking of reservations [and] the sale of the 
Participating Carrier's air services through SABRE'' and ``[t]he 
parties desire to enter into an agreement and provide for the 
distribution of the services of Participating Carrier through the 
WORLDSPAN system.'' America West Comments at 13, 14.
    In our view, the systems thus sell, offer for sale, and arrange for 
air transportation, activities which bring them within the statutory 
definition of ticket agent, because they are also carrying out these 
functions as a principal or agent.
    The statutory definition of ``ticket agent'' states that anyone 
carrying out the listed functions as ``principal or agent'' is a ticket 
agent. This definition should cover everyone involved in selling, 
offering for sale, or arranging for air transportation no matter what 
status they may have under agency law principles. A person involved in 
the sale or offering for sale of airline tickets must be either a 
principal or agent. We do not see any third category of actor that 
would be applicable here, and the commenters arguing that the systems 
are not ticket agents do not contend that they are acting in some 
capacity other than principal or agent. We think Congress included the 
phrase ``as principal or agent'' to ensure that all persons conducting 
the listed functions were covered, whether or not they were acting as 
an airline's agent, acting under their own authority, or acting under 
someone else's authority. By using the terms ``principal or agent,'' 
Congress did not mean to make a person's status as ticket agent depend 
on whether that person was a party to an agency relationship. Congress 
surely meant to make section 411 applicable to persons who committed 
unfair methods of competition or unfair or deceptive practices while 
engaged in the sale or offering for sale of transportation, even if 
that person acted entirely independently.
    We believe that the systems operate as principals in the offering 
for sale and arranging for air transportation. The systems act as 
independent firms that are involved in the distribution of airline 
services. The commenters arguing that systems cannot be ticket agents 
largely ignore the statute's inclusion of persons who act as principal 
and assume that a showing that a system is not an agent necessarily 
means it cannot be a ticket agent. See, e.g., United Reply at 10-12. 
This implicitly assumes that the principal in the transaction must be 
the carrier. The statute, however, states that a ticket agent is ``a 
person (except an air carrier, a foreign air carrier, or an employee of 
an air carrier or foreign air carrier) that as principal or agent'' 
performs one of the listed functions, such as the sale of air 
transportation. Congress thus determined that other persons 
participating in the distribution process, not just the airline, could 
be principals and would be ticket agents. The commenters' arguments 
that the systems cannot be agents suggests that they must be acting as 
principals.
    The commenters opposing the systems' inclusion within the 
definition of ``ticket agent'' argue that the systems are not the 
airlines' agents. They contend that the systems' contracts with 
participating airlines specifically disclaim any agency relationship. 
See, e.g., United Comments at 6-7. This argument misses the point--as 
shown, if the systems are not the airlines' agents, they must be acting 
as principals. To some extent, however, the systems may be operating as 
the airlines' agents, for example, in obtaining credit card 
authorizations for sales made through the systems. Amadeus Comments at 
27. While the commenters arguing that systems are not ticket agents 
cite the systems' participating airline contracts, which state that no 
agency relationship is being created, the contracts' statements on the 
parties' relationships are not binding on us. See, e.g., Board of Trade 
v. Hammond Elevator Co., 198 U.S. 424, 437-438 (1905); State Police 
Ass'n of Massachusetts v. C.I.R., 125 F.3d 1, 7 (1st Cir. 1997).
    Furthermore, we disagree with the argument made by some commenters 
that travel agents are the airlines' agents and that the systems, 
therefore, cannot be agents of the airlines. See, e.g., Sabre Comments, 
Fahy Declaration at 21-22. This argument assumes that only one party in 
any each transaction can act as the airline's agent. We see no logical 
reason why only one party can act as an airline's agent in the course 
of a traveller's purchase of airline tickets.
    The statute states that a person is a ticket agent if the person 
``sells'' or ``offers for sale'' air transportation. The systems sell 
and offer for sale air transportation because they present the travel 
agent with air service options that the agent can purchase through the 
system. A system tells the travel agent what flights are being 
operated, what the fares are, and whether seats are available at each 
fare, and enables the travel agent to book the seat and pay for it on 
the customer's behalf by entering specified keystrokes. If the travel 
agent follows the proper procedures for making the booking, the airline 
is obligated by its contract to accept the booking as valid, whether or 
not any record of the transaction appears in the airline's internal 
reservations system. The system thus offers air transportation for sale 
and sells it.
    We further find that each system ``holds itself out as selling, 
providing, or arranging for air transportation.'' As discussed, each 
system offers for sale and sells air transportation. A system also 
arranges for air transportation, because it enables the travel agent to 
choose the services best suited for the travel agent's customer and 
enables the agent to book whatever combination of services may be 
required by the customer. The system holds itself out as performing 
these functions, because it has informed its subscribers (and potential 
subscribers) that it offers these functions.
    We do not agree with the contention made by some commenters that 
the systems may not be deemed as holding out the sale, provision, or 
arranging for air transportation, because no system deals directly with 
the public or holds itself out to the public as offering airline 
tickets for sale. See, e.g., Sabre Reply Comments at 15. Travel agents, 
after all, act as the travelers' agent, not just as the airlines' 
agent, and any representations made to a travel agent are necessarily 
representations made to the travel agent's principal, the customer. The 
statute, moreover, does not state that the ticket agent must offer to 
sell air transportation directly to the public, and we see no reason 
why such a limitation should be read into the language of the statute.
    We therefore conclude that each system is a ticket agent. 
Interpreting ``ticket agent'' as including the systems would enable us 
to apply section 411 to firms whose critical role in airline 
distribution enables them to substantially affect airline competition 
and the accuracy of information provided consumers.
    At the same time, our reading of the term ``ticket agent'' will not 
make firms providing only information on airline services or 
communications links subject to section 411. As shown, the systems do 
much more than just provide information or a communications facility 
because they are active participants in the sale of air transportation. 
As we explained in the notice, when a consumer uses the telephone to 
buy goods and services, the telephone line links the consumer with the 
firm selling the product or service, and the consumer conducts the 
transaction directly with the retailer. In contrast, a travel agent 
using a system to make a booking communicates

[[Page 997]]

exclusively with the system, not the airline, unless the travel agent 
uses a direct access feature that enables travel agents to obtain 
information and make bookings directly with an airline's internal 
reservations system. Furthermore, telephone companies do not choose 
which data will be sent to the listener, but the systems edit their 
displays of airline services. More importantly, a telephone company has 
no apparent interest in whether transactions conducted by telephone are 
honored by the parties. Each system, in contrast, requires airlines to 
accept bookings made through the system and imposes fees based on the 
number of transactions made by subscribers, not on the number of 
messages transmitted by them. Similarly, as described above, the 
systems' productivity pricing arrangements with subscribers award 
incentive payments (or impose penalties) based on the number of 
transactions made by the subscriber, not the number of messages, as 
discussed above.
    The contentions made by the commenters arguing that systems are not 
ticket agents are not persuasive. On the ground that the large majority 
of CRS bookings are now made directly with an airline's internal 
reservations system, Sabre characterizes the systems as communications 
links. Sabre Comments, Fahy Declaration at 23. However, Sabre concedes 
that a significant fraction of its bookings are not made directly in an 
airline's internal system. Furthermore, the widespread use of direct 
access (referred to as seamless connectivity by Sabre) does not negate 
the systems' role as distributors of airline transportation, not mere 
communications links. The system, not just the airline's internal 
reservations system, creates a record of the booking transaction, the 
passenger name record. Sabre Comments, Fahy Declaration at 23. The 
system, moreover, created the display that enabled the travel agent to 
choose which flights to book.
    Our notice of proposed rulemaking cited the passive booking 
capability offered travel agencies by the systems as an example showing 
that the systems were more than communications links. 67 FR 69385. In 
response, Sabre argues that a passive booking--a booking record stored 
in the system's computer but not sent to any airline's internal 
reservations system--cannot support our conclusion that systems are 
active participants in the distribution channel because passive 
bookings are ``not active.'' Sabre Comments at 28 and Fahy Declaration 
at 23. The systems'' creation of the passive booking functionality, 
however, demonstrates that they operate as more than just 
communications links. As Sabre states, a passive booking does not cause 
any communication to go to an airline's internal reservations system. 
The passive booking functionality, however, benefits many travel 
agents. Sabre Comments at 28. Travel agents can use the passive booking 
function to issue tickets for customers who booked their seats directly 
with the airline and to facilitate group bookings. 67 FR 69400. The 
systems created the functionality in order to assist their customers, 
the travel agencies, in their sale of airline services. This effort by 
the systems additionally confirms their role as active participants in 
the sale and offering for sale of air transportation.
    Sabre further argues that the system contracts requiring 
participating airlines to accept all bookings made through a system do 
not show that the systems are active participants in the sale of air 
transportation. Sabre contends that the systems require airlines to 
accept all such bookings, even if they have no record of the 
transaction, as a result of travel agent demands and to avoid libel 
attacks. Sabre Comments at 27, n.29. Sabre has understated the 
importance of the systems' requirement. Firms operating as 
communications links, like a telephone or telegraph company, would not 
normally require the alleged recipient of a message to assume the 
obligation of complying with the message, whether or not the recipient 
actually received it. The requirement that airlines honor bookings made 
by subscribers demonstrates the systems' role as participants in the 
sales process.
    Sabre additionally notes that the systems operate automatically as 
machines, unlike human travel agents, which assertedly shows that a 
system operates only to provide information and process transactions. 
Sabre Comments, Fahy Declaration at 22. We disagree. On-line travel 
agencies also operate automatically, except when a customer needs 
advice or has a problem, but surely no one would argue that an on-line 
travel agency is not a ticket agent because the great majority of its 
bookings are made on-line without human intervention. More importantly, 
the systems were not created by machines--they were developed by 
people, who also decide what services will be offered, how the systems 
will be marketed, and what kinds of contractual relationships they will 
have with their airline and travel agency customers, and who carry out 
these business strategies. The machines have not chosen the algorithms 
used to edit and rank air services, and they do not determine the types 
of restrictions, if any, included in the systems' contracts with 
participating airlines and travel agencies.
    We are aware of the statement made in United Air Lines v. CAB that 
suggests that section 411 does not authorize us to regulate the 
practices of non-airline systems. In the course of affirming the 
Board's rules, which by their terms covered only systems owned by 
airlines, the Court stated, ``[T]he Board's rules are limited to 
systems owned by airlines; it has no regulatory authority over the 
independent provider.'' 766 F.2d at 1110. Whether the Board could 
regulate a non-airline system was not an issue in that case. The Board 
rules did not cover any non-airline system, the parties in the judicial 
review proceeding were not arguing that the Board should have covered 
such systems (or urging the Court to hold that the Board could not 
regulate them), and the definition of ``ticket agent'' and the Board's 
authority to regulate such systems were not issues in the proceeding. 
The Court's statement thus is dictum and not binding on us.
    In arguing that past judicial and administrative precedent 
otherwise shows that systems cannot be ticket agents, commenters cite 
other decisions which are not controlling. United, for example, cites 
Official Airline Guides, Inc. v. FTC, 630 F.2d 920, as allegedly 
setting limits to the scope of section 411. United Comments at 7, n.12. 
The decision actually addressed questions about the extent of the FTC's 
jurisdiction under section 5 of the FTC Act, not ours. Sabre cites 
Foremost Int'l Tours v. Qantas Airways Enforcement Proceeding, 79 CAB 
86, 102 (1978), for the administrative law judge's statement that the 
``Board has no jurisdiction over wholesale tour operators.'' Sabre 
Reply Comments at 22. The judge did not explain his conclusion but 
noted elsewhere that wholesale tour operators do not issue airline 
ticket stock (or deal with the public), and that a travel agent selling 
a tour sends the payment for the air transportation directly to the 
airline, not through the tour operator. 79 CAB at 100. The district 
court, moreover, had thought that wholesale tour operators were ticket 
agents. Foremost Int'l Tours v. Qantas Airways, 379 F. Supp. 88, 95 (D. 
Hawaii 1974), aff'd, 525 F.2d 281 (9th Cir. 1975). Because the systems, 
unlike wholesale tour operators, do issue tickets, the Foremost case is 
not dispositive.
    Expedia also argues that Congress amended section 411 to cover 
ticket agents in order to prevent the fraudulent conduct by individuals 
ostensibly selling tickets, especially on behalf on nonscheduled 
airlines. Expedia Comments at 17, citing S. Rep. No. 82-1508 and H.R. 
Rep. No. 82-2420 (1952).

[[Page 998]]

While it is true that Congress understood the need to prevent such 
conduct, the authority granted by the legislation enacted by Congress 
is broader than that. Our authority under section 411 is not limited by 
Congress' primary intent at the time of enactment, when the statutory 
language is not so narrow. Consumer Electronics Ass'n v. FCC, D.C. Cir. 
No. 02-1312 (decided October 28, 2003). Cf. Independent Insurance 
Agents v. Ludwig, 997 F.2d 958, 961 (DC Cir. 1993).
    Thus section 411 authorizes us to regulate the systems as ticket 
agents when necessary to prevent unfair and deceptive practices and 
unfair methods of competition, despite the divestiture of their 
ownership interests by the U.S airlines that formerly controlled the 
systems. Determining whether a system's conduct would be unfair or 
deceptive would not be affected by a system's ownership. The lack of 
U.S. airline ownership, however, could be very relevant to the question 
of whether the practices barred by our rules would constitute unfair 
methods of competition. We discuss that question next.
2. Antitrust Principles Relevant to System Practices
    A system or airline practice will be an unfair method of 
competition if it violates antitrust laws or antitrust principles. In 
our past rulemakings, we determined that the system practices barred or 
restricted by our rules would be unfair methods of competition, either 
because the practices unreasonably limited competition in the CRS 
business or because they represented an effort to reduce competition in 
the airline business. We relied on the systems' ownership and control 
by airlines and airline affiliates. Because the systems are no longer 
controlled by U.S. airlines, we must reexamine whether the practices 
barred by our rules would be unfair methods of competition.
    Our notice of proposed rulemaking tentatively concluded that 
section 411 authorized us to readopt most of the existing rules, 
because we found that the practices prohibited by them could be unfair 
methods of competition, even though two of the four systems then had no 
airline owners. 67 FR 69385-69387.
    Several of the commenters, especially Sabre and United, argue that 
the practices at issue could not be unfair methods of competition. They 
primarily argue that, even if the systems had market power in the CRS 
business over airlines, system practices that affected airline 
competition could not violate antitrust principles because the systems 
did not compete in the airline industry. United Reply Comments at 16-
20; Sabre Comments at 41-45.
    We are readopting only the rules prohibiting display bias and 
adopting certain rules prohibiting parity and most-favored-nations 
clauses in contracts between systems and participating airlines, if 
those clauses are a condition to participation in the system. The 
record does not provide a factual basis for finding that the other 
system practices at issue would be unfair methods of competition.
    We may prohibit display bias under section 411 on the grounds that 
it would constitute an unfair and deceptive practice and an unfair 
method of competition. We have found that display bias is likely to 
mislead a significant number of consumers by causing their travel 
agents to book relatively inferior flights when other flights would 
better meet the travelers' needs. The Seventh Circuit upheld the 
Board's rules barring display bias on the basis of findings that 
display bias would tend to deceive a significant number of consumers. 
We have made the same finding here. We may therefore readopt rules 
barring display bias under our authority to prohibit unfair and 
deceptive practices.
    Display bias could also constitute an unfair method of competition 
to the extent that the system biases displays in order to benefit one 
airline at the expense of competing airlines. Presumably a system would 
not bias its displays in favor of one airline at the expense of rival 
airlines unless the favored airline had given the system inducements to 
engage in display bias. In that event, the system and the favored 
airline would be engaged in a joint effort to distort competition in 
the airline industry, an effort that could succeed only because of the 
system's market power over the disfavored airlines.
    Display bias does not promote competition on the merits. Instead, 
it is designed to suppress competition by causing consumers and their 
travel agents to select inferior airline services over other available 
services that would better suit their needs. As the Justice Department 
points out, display bias ``would divert passengers without regard to 
airlines'' prices or quality.'' Justice Department Reply Comments at 
19. Display bias could deter entry or expansion by more efficient 
competitors and possibly cause competitors to exit some markets. Id. at 
19-20.
    Contracts that unreasonably restrict one party's ability to buy 
products or services from competitors of the other party (or 
unreasonably restrict competitors of one party from buying products or 
services offered by the other party to the contract) can be unlawful, 
if they significantly restrict competition without promoting 
efficiency. For example, the FTC held that a series of contracts 
between a major retailer and its suppliers that restricted each 
supplier's ability to sell their products to the retailer's competitors 
violated section 1 of the Sherman Act. In the Matter of Toys ``R'' Us 
(October 13, 1998), opinion at 86-87, aff'd on other grounds, Toys 
``R'' Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000).
    In some cases, the courts have suggested that contracts giving one 
party a competitive advantage by causing consumers to be misled may 
violate the Sherman Act. As one court stated, ``Competition would be 
harmed if consumers were routed to particular glass repair companies 
based on factors other than competitive pricing or quality in the 
marketplace.'' Stewart Glass & Mirror, Inc. v. U.S.A. Glas, Inc., 940 
F. Supp. 1026, 1035 (E.D. Tex. 1996). In United States v. Microsoft 
Corp., the Court held that Microsoft had violated section 2 of the 
Sherman Act by providing software development tools to software 
companies writing Java programs without telling them that Java 
applications written with the Microsoft tools would work on the Windows 
operating system sold by Microsoft. Microsoft's intentional deception 
was unlawful, because it supported the maintenance of Windows' existing 
monopoly. 253 F.3d at 76-77.
    While these cases involve different factual circumstances and were 
in part decided under section 2 of the Sherman Act, they support a 
conclusion that arrangements between a system and an airline to bias 
displays would constitute an unfair method of competition that violates 
section 411. Display bias would be designed to undermine the 
competitive position of the targeted airlines by misleading consumers 
and their travel agents about which airline services would best satisfy 
a consumer's preferences. Any such arrangements would be intended to 
handicap the ability of competing airlines to compete on the basis of 
price and service quality. As such, they would be comparable to the 
agreements condemned in Toys ``R'' Us. While the FTC based its decision 
on the existence of a series of agreements between the retailer and the 
supplier, we think that a bias agreement between one airline and one 
system would unreasonably restrict competition, because the system has 
market power over airlines in terms of access to the travel agencies 
subscribing to its services. In Toys ``R'' Us, on the other hand, the 
retailer, unlike the airline buying display bias, could not

[[Page 999]]

undermine the competitive position of competing stores without 
obtaining agreements from a number of toy manufacturers.
    Given the nature of airline markets, many of which are served by 
only a few airlines, display bias in some cases could facilitate an 
airline's acquisition of monopoly power in some such markets.
    The other practices being prohibited by our rules are airline 
parity clauses and clauses requiring airlines as a condition to 
participation in a system to provide the system with all fares, 
including fares such as webfares that an airline would otherwise choose 
not to sell through the system. We are not prohibiting parity and most-
favored-nation clauses that result from bargaining between a system and 
participating airlines, such as the clauses accepted by the airlines 
participating in the Sabre DCA and Galileo Momentum programs.
    When we initially prohibited the enforcement of airline parity 
clauses, we found that such clauses constituted unfair methods of 
competition, because they unreasonably restricted airline choices on 
participation levels in different systems and were analogous to 
unlawful tying. 62 FR 59793-59797. As we said then, and as is still 
true, parity clauses imposed by a system may violate antitrust 
principles, because such parity clauses will maintain a system's market 
power. By denying an airline any opportunity to choose different levels 
of participation in competing systems, a system's parity clause makes 
it more difficult for other firms to enter the CRS business and 
undermines the airline's ability to offer higher-level information and 
booking capabilities to travel agencies through direct connections. 62 
FR 59796. Parity clauses may also constitute an anti-competitive tying 
of services. A parity clause imposed on participating airlines 
represents a system's use of its market power to compel airlines to 
purchase services they may not want as a condition to obtaining any 
service. We therefore reaffirm our past finding that parity clauses may 
represent unlawful tying. 62 FR 59795-59796. Our conclusion is 
supported by the recent decision in the Visa/MasterMoney case, where 
the court's ruling largely denying various cross motions for summary 
judgment held that contract clauses imposed by the two credit card 
companies requiring stores to accept debit cards as a condition to 
obtaining authorization to make credit card sales could be an unlawful 
tie. In Re Visa Check/MasterMoney Antitrust Litigation, E.D.N.Y. No. 
96-CV-5238, April 1, 2003, Memorandum and Order.
    System clauses requiring participating airlines to provide all 
fares as a condition to participation may similarly constitute unfair 
methods of competition, because they unreasonably limit each airline's 
ability to choose how to market its services. That would buttress the 
systems' market power, by eliminating the potential development and use 
of alternative information sources and booking channels by travel 
agents who want to book webfares. The Justice Department thus states 
that such clauses ``may reinforce CRS market power over airlines, 
particularly if they discourage the development of alternative 
distribution channels.'' Justice Department Reply Comments at 26. Such 
clauses, moreover, would eliminate the airlines' ability to use their 
control over access to webfares as bargaining leverage to obtain better 
prices and terms for participation from the systems. The airlines' 
control over access to webfares has caused Sabre and Galileo to offer 
lower booking fees to airlines that agree to provide them with all such 
fares. A system's contract clause requiring an airline to provide 
access to all fares as a condition to any participation would also be 
analogous to an unlawful tying arrangement. The system would be denying 
access unless the airline agreed to make all fares available, even 
though airlines have typically chosen to make some types of fares, like 
webfares, available only through selected distribution channels.
    Our decision not to readopt the remaining rules largely reflects 
our policy and economic judgment that those rules are unnecessary or 
unnecessarily restrictive. That decision also reflects the limits on 
our authority under section 411. We may adopt rules regulating system 
practices only if necessary to prevent practices that would violate the 
antitrust laws or antitrust principles or cause consumers to be misled.
    While we are finding that each system has some market power over 
most airlines, that finding by itself does not authorize us to regulate 
system practices under section 411, even if a system's practices impose 
unduly high costs on participating airlines, as seems to be true with 
respect to booking fees. As the Justice Department points out, 
``Supracompetitive fees, even when not used to target specific 
airlines, are inefficient and harm consumers by artificially raising 
the cost of air travel.'' Justice Department Reply Comments at 3. 
Nonetheless, a firm's possession of monopoly power in itself is not an 
antitrust law violation, even though the firm necessarily has the power 
to charge prices substantially above competitive levels. United States 
v. Microsoft Corp., 253 F.3d at 51. See also United States v. Colgate & 
Co., 250 U.S. 300, 307 (1919). If Congress finds that firms in an 
industry have market power and should be restrained from exercising 
that power, for example, by barring supracompetitive prices, Congress 
typically will establish a public utility-type regulatory structure. 
Congress has not done so with respect to the airline distribution 
business, and it determined 25 years ago that the comparable regulatory 
regime for the airline industry should be abolished. A monopolist will 
violate the antitrust laws only if it acquires or maintains, or 
attempts to acquire or maintain, monopoly power by engaging in 
exclusionary conduct that does not represent legitimate competition, 
such as the development of superior products or services. United States 
v. Microsoft Corp., 253 F.3d at 58. Our authority to prohibit practices 
that violate antitrust principles, not just the antitrust laws, would 
not give us the power to generally regulate the conduct of a non-
airline firm that is a monopolist, even if the firm's actions can 
significantly injure airline business operations, although we may 
prohibit practices by firms with market power that are designed to 
maintain that power if they do not provide efficiency benefits or 
represent legitimate competition.
    America West nonetheless contends that section 411 authorizes us to 
regulate system practices even if we have no evidence that 
relationships between one or more airlines and a system will likely 
cause the system to take action to prejudice airline competition. 
According to America West, ``charging a supracompetitive booking fee is 
. . . an unfair method of competition in the sale of air 
transportation.'' America West Reply Comments at 16. America West 
provides no analysis showing how a system would be violating antitrust 
principles by charging supracompetitive prices. As shown above, the 
antitrust laws do not bar a firm from charging supracompetitive prices. 
America West's contention is inconsistent with the Federal Trade 
Commission's position that it would not consider practices by a 
monopolist to be unfair methods of competition if they affected a 
market in which the monopolist did not operate. FTC Reply Comments at 
4.
    On the ground that the primary purpose of section 411 is allegedly 
the prevention of consumer deception, Expedia argues that we cannot 
regulate the systems' practices in order to

[[Page 1000]]

prevent unfair methods of competition. Expedia Comments at 17-18. This 
claim runs counter to the language of section 411, which prohibits 
unfair methods of competition as well as unfair and deceptive 
practices. Furthermore, when Congress transferred the section 411 
authority to us upon the Board's sunset, Congress specifically stated 
that it did so in order to maintain the authority to prevent anti-
competitive conduct. Congress cited the Board's then pending CRS 
rulemaking as an example of regulatory action that should be 
maintained. H.R. Rep. No. 98-793, 98th Cong., 2d Sess. (1984) at 5.
    When airlines controlled the systems, the systems were likely to 
engage in conduct that would violate section 411, and seemingly had 
done so before the Board adopted the initial CRS rules. Without airline 
control of the systems or other evidence of anti-competitive 
arrangements between systems and airlines, system practices that affect 
airline competition are not likely to violate antitrust laws or 
principles, except for display bias. The record does not indicate that 
the existing relationships between systems and their former owners, 
whether based on marketing agreements or otherwise, are likely to cause 
the systems to take actions that would distort airline competition. The 
commenters who urged us to readopt most of the rules, including the 
rule barring the systems from charging discriminatory booking fees, 
have failed to show that such rules must be adopted to prevent conduct 
likely to violate section 411.
    Our notice of proposed rulemaking proposed an analysis that could 
enable us to make our rules applicable to the non-airline systems. 
Including the non-airline systems within the reach of the rules could 
be justified if the record indicated that systems would take actions 
intended to benefit the competitive position of some airlines at the 
expense of disfavored airlines. 67 FR 69387, citing, inter alia, 
Official Airline Guides v. FTC; 68 FR 12622 (March 17, 2003). The 
record, as noted, does not show that such conduct is likely to occur, 
except for bias. As a result, we need not decide now whether that 
tentative analysis is valid. We recognize that the FTC submitted 
comments stating that it no longer follows the cases cited by us. The 
FTC additionally recommended that we reexamine our analysis in light of 
the brief jointly filed by the FTC and the Justice Department in 
Verizon Communications v. Law Offices of Curtis v. Trinko, LLP, U.S. 
Sup. Ct. No. 02-682, which argued that neither the monopoly leveraging 
principle nor the essential facilities doctrine provided an independent 
basis for liability under section 2 of the Sherman Act. FTC Reply 
Comments at 4. In view of our decision that the record does not provide 
a basis for readopting most of the current rules, further discussion of 
these questions is unnecessary.
    We find that the practices regulated by the rules that we are 
adopting here may violate section 411, because they may unreasonably 
reduce competition in the airline and airline distribution industries 
and are analogous to antitrust law violations.
3. First Amendment and International Law Issues
    Our decision to readopt the rules against display bias and only a 
few of the other rules presents two other important legal issues, 
whether our regulations are consistent with the First Amendment, and 
whether our decision is consistent with the United States' obligations 
under its air services agreements with foreign countries that require 
the United States to prevent certain types of system conduct that would 
deny foreign airlines fair and nondiscriminatory treatment. We address 
the First Amendment issues in connection with our discussion of the 
display bias rules, and we discuss the United States' obligations under 
the air services agreements in our discussion of the international 
issues.

G. The Specific Rule Proposals

    Our reexamination of the need for CRS rules in light of the changes 
in the systems' ownership and the on-going developments in airline 
distribution has convinced us that most of the rules are no longer 
necessary. This section states our conclusions on the need for the 
individual rules on which the notice of proposed rulemaking requested 
comments. As discussed above, we are willing to adopt rules regulating 
system practices only if they are reasonably necessary to prevent anti-
competitive or deceptive practices that are likely to occur and that 
market forces are unlikely to remedy, if the rules will also be 
effective and enforceable.
    We will begin our discussion of the major rulemaking issues by 
discussing the scope of the rules and certain definitional issues, 
which will be followed by our discussion of the rules that we have 
decided to readopt, the rules prohibiting display bias and certain 
contract clauses in the systems' contracts with participating airlines 
that appear to be anti-competitive. After that we will discuss (i) 
mandatory participation, (ii) booking fees, (iii) booking and marketing 
information, (iv) the use of third-party hardware and software by 
travel agencies and their ability to use one terminal to access several 
systems and databases, (v) travel agency contracts, (vi) Internet 
regulation, and (vii) international issues.
1. The Scope of the Rules
    In our notice of proposed rulemaking, we proposed to modify the 
scope of the rules by making them applicable to all systems without 
regard to any airline ownership or marketing relationships. 67 FR 
69382-69383. The existing rules cover systems owned or marketed by 
airlines that are used by travel agencies to obtain information, make 
bookings, and issue tickets for passenger air transportation. They do 
not cover computer systems that do not provide all of these functions, 
systems that are not owned or marketed by an airline or airline 
affiliate, and system services that are not used by travel agencies 
(for example, they do not cover CRSs when used by corporate travel 
departments). The rules also do not govern the operations of 
traditional travel agencies or on-line travel agencies. The description 
of the current rules' applicability is set forth in Sec.  255.2, and 
the definition of ``system'' is in Sec.  255.3.
    We proposed to make the rules applicable to all systems, whether or 
not owned or marketed by airlines, but to maintain the systems' 
exclusion when providing services to users other than travel agencies. 
67 FR 69389. The non-airline systems generally argue that there is no 
reason to regulate their practices due to their lack of airline 
ownership (and, as discussed above, they argue that section 411 does 
not authorize us to regulate systems not owned by airlines). Other 
commenters, notably Amadeus, argue that the rules should cover all 
systems equally. While no commenters advocate extending the coverage of 
all rules to the systems when providing services to corporate travel 
departments and other non-agency users, a few commenters essentially 
contend that the rules should cover selected CRS practices when 
corporate travel departments are using a system, because they urge us 
to regulate access to marketing and booking data and access to 
corporate discount fares. See, e.g., NBTA Comments at 18-24; American 
Express Comments.
    We have determined, as discussed above, that the rules should cover 
non-airline systems. Systems are likely to engage in bias whether or 
not they are owned or controlled by airlines. We are prohibiting a few 
specific airline contract practices--mandatory parity clauses and 
demanding most-favored-nation clauses--because they would

[[Page 1001]]

tend to maintain each system's market power and reduce the ability of 
airlines to obtain better terms for participation. Such clauses would 
have harmful effects no matter whether the system is owned by airlines 
or by non-airline firms. We accordingly are revising the language of 
the definition of ``system'' by eliminating the current limitation that 
a system be owned or marketed by an airline.
    While including non-airline systems within the definition of 
``system'' represents an extension of the current rules, as a practical 
matter this change will have no immediate impact, because all four of 
the systems are either owned or marketed by airlines. Applying the 
rules to all systems will also be equitable, because all competing 
firms providing essentially the same kind of services will be subject 
to the same rules. Cf. Amadeus Comments at 31-36; Orbitz Comments at 
43-45.
    We recognize that this change in the definition of a system departs 
from our earlier reasoning on whether the practices of non-airline 
systems required regulation. In our last rulemaking, however, we were 
focusing on system practices that were designed to prejudice airline 
competition, such as the use of architectural bias, and on practices 
that unreasonably restricted the travel agencies' ability to switch 
systems or use multiple sources of information and booking channels 
when competition between the systems represented a form of competition 
between the airlines owning the systems. At that time, of course, every 
system was owned and controlled by one or more airlines. In this 
proceeding we are adopting only rules prohibiting display bias and 
certain contract clauses that would unreasonably deny airlines the 
ability to choose how to distribute their services and fares. This 
change in focus, and the possibility that both non-airline and airline 
systems will engage in display bias and seek to restrict airline 
choices on distribution channels, explain our decision to expand the 
scope of the rules.
    As noted, some commenters suggest that the rules should cover some 
system operations when being used by corporate travel departments. We 
have decided not to extend the rules to cover the use of the systems by 
persons other than travel agents. In the past, even when we found that 
the systems' practices required strict regulation insofar as the 
systems were providing services to travel agents, we concluded that we 
did not need to regulate CRS practices when the system was being used 
by a corporate travel department or someone else besides a travel 
agent. 57 FR 43794-43795. The record in this proceeding does not show a 
need to expand the regulation of the systems' practices. Doing so would 
be inconsistent with our decision that virtually all CRS regulation 
should be ended.
    Furthermore, the proposals for expanding CRS regulation involve 
areas such as directing certain airlines to make all of their services 
and fares, such as corporate discount fares, available through all 
systems and barring airlines from obtaining unrestricted access to the 
booking and marketing data generated by the systems from bookings made 
by travel agencies and corporate travel departments. See, e.g., NBTA 
Comments at 18-24; American Express Comments. As explained elsewhere in 
this document, we have decided not to adopt rules on these issues.
2. Exclusion of Internet-Based Systems
    We proposed to revise the scope of our rules in a second respect, 
by excluding firms that do not provide airline information and booking 
capabilities to travel agencies under formal contracts. We expected 
that Internet-based firms such as Orbitz could enter the CRS business 
by providing CRS services on a transaction-by-transaction basis. We 
tentatively found that such Internet-based firms would be likely to 
offer new competition in the CRS business but not likely to obtain the 
kind of market power that made CRS rules necessary. We doubted that 
such firms would present a potential for anti-competitive conduct and 
deceptive conduct. We expected that travel agencies would use such a 
service as an alternative to one of the existing systems, either on a 
transaction-by-transaction basis or under short-term contracts. 67 FR 
69389-69390.
    Several commenters oppose this proposal on the ground that all 
systems should be treated the same and that Orbitz in particular should 
be covered by the rules because, unlike the four existing systems, it 
is owned and controlled by major U.S. airlines. Some commenters argue 
that using the existence of a formal contract to distinguish between 
systems covered by the rules and those not covered by the rules would 
be irrational. See, e.g., Amadeus Comments at 42-43, 98-100; Southwest 
Comments at 7-10.
    Orbitz supports the proposal. If a travel agency used a system on a 
transaction-by-transaction basis, the system would assertedly have no 
assurance that the travel agency would continue using its services, and 
thus the system would have no market power. According to Orbitz, that 
would eliminate any basis for regulation. Orbitz Comments at 41-43.
    We have decided not to modify the definition of ``system'' to 
exclude firms that do not offer services under a formal contract, as 
was proposed, or to create a different exception for Internet-based 
firms that offer services that are comparable to those being offered by 
the existing systems. Normally all competitors in an industry subject 
to general regulations should be treated alike, unless there are 
substantial reasons for a different result.
    Moreover, we see a likelihood that any firm providing system 
services, even on a transaction-by-transaction basis, may engage in the 
kind of practices prohibited by our rules. Our proposal essentially 
assumed that travel agents would use an Internet-based system in 
addition to one of the existing systems, not as a substitute for such a 
system. The commenters generally agree, however, that the great 
majority of travel agencies will use a single system, not multiple 
systems. See, e.g., ASTA Comments at 3-4; Large Agency Coalition 
Comments at 20. As a result, travel agencies using an Internet-based 
system would probably use it as their only system. If such a system 
built a subscriber base consisting of travel agencies using its 
services for almost all CRS functions, that system in time would 
acquire the kind of market power that the existing systems have--
airlines would have to participate in that system if they wanted their 
services to be readily saleable by its travel agency subscribers. In 
addition, travel agencies will be reluctant to switch systems, whatever 
the form of contractual arrangement, so subscribers using a system 
without having a long-term contractual arrangement will likely continue 
using that system for a substantial period of time. Furthermore, the 
firm most likely to benefit from the proposed redefinition of 
``system'' would be Orbitz. Given Orbitz' affiliation with five major 
airlines, and its access to the webfares offered by most airlines, 
Orbitz may in time obtain a significant number of subscribers.
    The proposed distinction between systems providing services to 
subscribers under formal contracts and those that do so without formal 
contracts would likely be difficult to administer. Even a short-term 
commitment by a travel agency to use a system would arguably constitute 
a formal commitment. Amadeus Comments at 42. Galileo contends that such 
a distinction would encourage firms to game the system by developing 
business relationships that in form

[[Page 1002]]

would not appear to involve formal contracts. Galileo Comments at 44. 
See also Amadeus Comments at 42-43.
    We also do not believe that our decision will deter Orbitz or other 
firms from entering the CRS industry, assuming that doing so is 
otherwise an attractive business proposition. The remaining rules will 
prohibit display bias and certain types of restrictive clauses in 
airline contracts. Orbitz' business plan has included commitments to 
offer unbiased displays, which Orbitz has honored. Office of the 
Inspector General, U.S. Department of Transportation, ``OIG Comments on 
DOT Study of Air Travel Services'' (December 13, 2002), at 7-8. We 
assume that our individual rules against display bias would not force 
Orbitz to restructure its displays. We see no evidence that Orbitz has 
planned to impose parity clauses and similar restrictions on airlines 
using its services. Orbitz' most-favored-nation clause is consistent 
with the limited rule barring systems from demanding access to all 
publicly-available fares as a condition to any participation in a 
system, because Orbitz gives airlines a rebate on their booking fees if 
they agree to the most-favored-nation clause and will sell their 
services through Orbitz if they do not agree.
    One firm, AgentWare, urges us to revise the definition to make sure 
that it does not inadvertently cover Internet-based software 
applications such as AgentWare's Travel Console. AgentWare Reply 
Comments. AgentWare does not explain why our definitions would create a 
problem, describe in detail how AgentWare provides information and 
booking services to travel agencies, or propose a change to the rules' 
definition that would avoid the stated problem. Our review of the 
description of AgentWare's products set forth on its website suggests 
that the rules should not apply to AgentWare, which appears to provide 
a link to other sites where bookings can be made, does not provide a 
booking function itself, and presumably is not charging airlines any 
fees. See also Galileo Comments at 66-67. If AgentWare believes that 
the rules would interfere with its operations and can show that the 
application of the rules to its services would be unnecessary to 
protect the public interest, we could exempt it from the rules under 49 
U.S.C. 40109. We do not wish to discourage firms like AgentWare from 
offering new technology and new information services to travel agencies 
and travelers.
    American Express asks that we be sure to exclude direct connections 
between travel agencies and airlines and proprietary software used 
internally by a travel agency. American Express Comments. Our revised 
definition of ``system'' expressly does not cover direct connections 
and would not cover software used by a travel agency.
3. Definitions
    The rules currently govern the operation of each ``system,'' 
defined as a computerized reservations system that, among other things, 
is offered to subscribers, charges any airline other than its 
affiliated airlines fees for system services, and provides travel 
agents with the ability to make reservations and to issue tickets. The 
rules define ``subscriber'' as a ticket agent ``that holds itself out 
as a neutral source of information about, or tickets for, the air 
transportation industry and that uses a system.'' Section 255.3.
    We proposed to change the definition of ``system'' and 
``subscriber'' to reflect current industry conditions. Because the 
airlines are trying to phase out paper tickets, we stated that we 
planned to eliminate the requirement that a system be able to issue 
tickets. When we adopted the current rules, we assumed that travel 
agencies would not choose a system that did not offer a ticketing 
capability. Since then airlines have developed E-ticketing, and they 
often discourage passengers from demanding paper tickets (an E-ticket, 
unlike a paper ticket, is just a printed confirmation of the purchase 
of air transportation). The ability to issue tickets therefore may no 
longer be a crucial function needed by travel agencies. 67 FR 69390
    Similarly, because many travel agencies have incentive commission 
arrangements with some airlines that are designed to encourage the 
travel agency to shift bookings to those airlines, we proposed to 
eliminate the requirement that a subscriber be impartial. While travel 
agencies generally offer impartial advice, the existence of preferred 
supplier relationships between many travel agencies and individual 
airlines might lead some to question whether the agencies were entirely 
impartial. We therefore proposed to amend the definition in order to 
eliminate any possible uncertainty over the rules' applicability. 67 FR 
69390.
    No one commented on our proposal to change the definition of 
``system'' by deleting the ticket issuance function, and some support 
the proposed change in the definition of ``subscriber.'' ASTA Comments 
at 50; Amadeus Comments at 44.
    We will therefore adopt these changes for the reasons stated in our 
notice of proposed rulemaking. In addition, our decision that most of 
the rules should not be readopted has made other definitions 
unnecessary, such as ``system owner.'' We are not readopting these 
definitions.
4. Rules Barring Display Bias
    (a) Background. We have found, as explained above, that we should 
continue to prohibit display bias for a six-month period. Display bias 
may both harm airline competition and cause consumers to be misled, 
especially if it is not clearly disclosed, and accordingly we believe 
it necessary to allow additional time for an orderly transition to a 
deregulated marketplace.
    Our rules prohibit systems from biasing their displays in favor of 
individual airlines but do not prescribe how a system must display 
airline services. Each system may develop its own criteria for editing 
and ranking displays of airline services. Section 255.4. The rules 
define display bias as using carrier identity in selecting flights from 
the database and ordering the listing of flights in the display. 
Galileo, for example, may not give United's flights a preference just 
because they are operated by United. Other provisions additionally 
limit the potential for bias. One such provision requires each system 
to apply its editing and ranking criteria consistently to all markets. 
The system must select connecting points (and double connect points) 
for constructing connecting flights for each city pair on the basis of 
criteria that are applied consistently to all airlines and all markets. 
Participating airlines can designate five points to be used as 
connecting points in a market. Section 255.4(b)(1), (c).
    Each participating airline must ensure that it provides complete 
and accurate information to each system in a form that will enable the 
systems to display flights in accordance with our rules on display 
bias. Section 255.4(f).
    The rules do not prohibit systems from selling advertising on their 
displays.
    The current detailed rules on display bias stemmed from findings by 
us and the Board that rules prohibiting or restricting specific display 
algorithms were necessary, due to the systems' creation of editing and 
ranking criteria that, while often ostensibly neutral, in fact gave the 
services of favored airlines an unwarranted advantage in the system's 
displays over the services offered by competing airlines. See, e.g., 62 
FR 63837.
    The rules do not regulate the displays created by travel agencies 
and thus do not prohibit a travel agency from biasing the displays used 
by its travel agents. We determined in our last overall

[[Page 1003]]

rulemaking that such a rule was unnecessary because competition between 
travel agencies appeared likely to deter them from offering customers 
misleading or incomplete advice on airline service options. 57 FR 
43809.
    In our notice of proposed rulemaking, we proposed to maintain the 
existing rules against display bias. We also proposed to bar airlines 
from inducing, or attempting to induce, a system to create a display 
that would violate the rules on display bias. 67 FR 69385, 69397, 
69428.
    We further proposed to modify the rules to address two other 
display issues. First, we proposed to limit the number of times an 
airline service could be displayed under different airline codes. 69 FR 
69396-69397. Secondly, American had once offered travel agencies 
software that would enable an agency to create displays that gave 
American a strong preference. We tentatively determined that the rules 
should prohibit any airline from offering programs to travel agencies 
enabling agencies to bias their displays. 67 FR 69397. We did not 
propose to regulate the displays created by travel agencies. 67 FR 
69397-69398.
    The commenters disagree over our proposal to readopt the existing 
rules. Sabre, Delta, and Travelocity argue that no rules on display 
bias are necessary, and the Competitive Enterprise Institute (``CEI'') 
argues that any restrictions on system displays would violate the First 
Amendment. Other commenters assert that rules prohibiting display bias 
remain necessary. See, e.g., America West Comments at 39; American 
Comments at 35; Continental Comments at 24; Northwest Comments at 12; 
ASTA Comments at 41. Commenters similarly disagree over our proposals 
on limiting the display of code-share services and barring airlines 
from providing software that could be used by a travel agency to bias 
its displays.
    After considering the comments, we have determined to maintain the 
existing rules prohibiting the systems from biasing displays for an 
additional period of six months. We will not adopt our proposals to bar 
airlines from distributing software that can bias displays and to limit 
the number of times a single service is displayed under different 
airline codes.
    (b) Maintaining the Rules Prohibiting Display Bias. We explained 
above why we have decided to readopt rules prohibiting display bias, 
for the next six months, in our discussion of why we find that limited 
CRS regulation remains necessary. As discussed there, the record 
demonstrates that systems are likely to have the wherewithal to bias 
their displays of airline services if we allow our prohibition against 
such bias to terminate immediately. Undisclosed display bias could 
prejudice airline competition and cause consumers to receive misleading 
information on airline services. Display bias makes it more difficult 
for travel agents to find the airline services that best meet a 
customer's needs. ASTA accordingly states, ``Travel agencies should not 
be required to waste time in an effort to defeat biased displays so 
they can serve their clients. Airlines should win clients with better 
fares and service, not by burying their competitors' information in 
computer displays.'' ASTA Comments at 41.
    No commenter has argued that we must revise the existing rules, 
should we decide to keep regulations against display bias. The 
commenters who argue that rules on display bias are unnecessary have 
not suggested rule revisions that would minimize the regulation of the 
systems' editing and ranking of airline service options, nor have they 
shown that the rules impose any significant burden on the systems. We 
will therefore readopt the existing rules for a period of six months 
with a sunset date of July 31, 2004. We will actively continue to 
monitor market conditions. We, of course, retain the ability to propose 
readoption of rules against display bias if conditions indicate, 
contrary to our present expectation, that continuation of such rules is 
warranted.
    (c) Barring Airlines from Encouraging Display Bias. We proposed to 
adopt a rule, section 255.11(a), that would prohibit airlines from 
inducing or attempting to induce a system to bias its displays. If 
section 411 were not read as enabling us to directly regulate system 
practices, we could prohibit some potentially prejudicial practices, 
like display bias, by barring airlines from entering into contracts 
with systems that would encourage or facilitate such practices, as 
explained in our notice of proposed rulemaking. 67 FR 69385.
    No one has objected to this proposal, assuming that we have a basis 
for regulating display bias at all, so we will adopt it. While we 
believe that systems are ticket agents and thus subject to section 411, 
this rule provides an additional basis for enforcing the prohibitions 
against display bias during the six-month transitional period.
    (d) First Amendment Issues. While section 411 authorizes us to 
regulate the systems' displays, in exercising that authority we must 
comply with the First Amendment, which restricts the ability of 
government agencies to regulate commercial speech. Two commenters--CEI 
and Sabre--raise questions about whether our proposed rules would 
violate the First Amendment (several other commenters argued that our 
proposed policy on the disclosure of travel agency service fees would 
violate the First Amendment, an argument that we will address in a 
separate rulemaking on that issue). CEI contends that our proposed 
rules on display bias are contrary to the First Amendment's protection 
for commercial speech. CEI Reply Comments at 2-3. Sabre does not argue 
that the proposed rules are unlawful and instead only suggests that 
they may present First Amendment issues. Sabre Reply Comments at 73.
    We believe that our rules against display bias will not violate the 
First Amendment, as was true when we adopted the existing rules. 57 FR 
43792. The Supreme Court has held that government agencies may regulate 
commercial speech. As the Court has explained, ``Commercial speech * * 
* is `linked inextricably' with the commercial arrangement that it 
proposes, so the State's interest in regulating the underlying 
transaction may give it a concomitant interest in the expression 
itself.'' Edenfield v. Fane, 507 U.S. 761, 767 (1993) (citations 
omitted). As a result, courts and agencies may enforce competition laws 
against firms despite First Amendment claims. The Supreme Court has 
refused to block suits and administrative actions taken to enforce the 
antitrust laws despite assertions that the targeted conduct represents 
an exercise of First Amendment rights. See, e.g., FTC v. Superior Court 
Trial Lawyers Ass'n, 493 U.S. 411 (1990); Allied Tube & Conduit Corp. 
v. Indian Head, Inc., 486 U.S. 492 (1988). The same principle should 
apply to our implementation of our statutory authority to prohibit 
unfair methods of competition.
    Furthermore, the First Amendment protects commercial speech that is 
not misleading. As the Court stated in Central Hudson Gas & Electric 
Corp. v. Public Service Comm'n, 447 U.S. 557, 563 (1980), ``The 
government may ban forms of communication more likely to deceive the 
public than to inform it,'' for ``there can be no constitutional 
objection to the suppression of commercial messages that do not 
accurately inform the public about lawful activity.'' The Court has 
declared, ``But when the particular content or method of the 
advertising suggests that it is inherently misleading or when 
experience has proved that in fact such advertising is subject to 
abuse, the states may impose appropriate restrictions.'' In re R.M.J., 
455 U.S. 191, 203 (1982). We are adopting the rules on

[[Page 1004]]

display bias because we seek to protect the public against misleading 
communications, and experience has shown that systems are likely to 
bias their displays if not barred from doing so. The courts have 
sustained restrictions on speech where necessary to prevent possibly 
misleading messages. Nutritional Health Alliance v. Shalala, 144 F.3d 
220 (2d Cir. 1998); Bristol Myers Co. v. FTC, 738 F.2d 554, 562 (2d 
Cir. 1984).
    However, if displays of airline services of the kind proscribed by 
our rules were considered protected by the First Amendment, our rules 
would satisfy the test set forth in Central Hudson Gas & Electric Corp. 
v. Public Service Comm'n, 447 U.S. 557 (1980); Lorillard Tobacco Co. v. 
Reilly, 533 U.S. 525 (2001); and Board of Trustees v. Fox, 492 U.S. 469 
(1989). A government may restrict commercial speech that concerns 
lawful activity and is not misleading, if the government has a 
substantial interest and if the restrictions directly advance that 
interest and are no more extensive than necessary to serve that 
interest. Central Hudson, supra, 447 U.S. at 566; United States v. Edge 
Communications, 509 U.S. 418 (1993).
    In considering whether our rules on display bias are consistent 
with the First Amendment, the limited nature of the restrictions 
imposed by our rules is important. Unlike the typical commercial speech 
case, our rules do not prohibit the listing of any airline service or 
fare, nor do they prohibit airlines from advertising their services on 
CRS screens or elsewhere. Our notice of proposed rulemaking thus stated 
in the context of proposals to regulate on-line travel agencies that we 
do not consider banner advertisements to constitute bias. 67 FR 69412. 
Our rules, moreover, are in large part designed to keep systems from 
hiding or omitting information, for example, by constructing displays 
of connecting services that arbitrarily exclude the hubs of disfavored 
airlines as connecting points. The rules merely require systems to 
follow certain requirements in listing flights in their displays of 
airline services rather than prohibit the inclusion of information.
    Our rules satisfy the first element of the commercial speech test, 
because we have a substantial interest in preventing system practices 
that would mislead consumers and harm airline competition. Congress has 
given us the responsibility to prevent unfair and deceptive practices 
and unfair methods of competition in the airline industry. Our 
readoption of the rules against display is, as shown, consistent with 
the Justice Department's position that display bias will injure 
consumers by causing a reduction in airline competition.
    Our rules meet the second element of the test, because they 
directly advance our interest in preventing display bias that would 
harm competition and mislead consumers. Our rules impose display 
requirements that experience has shown are necessary to prevent systems 
from presenting displays that would mislead travel agents and their 
customers and that would harm airline competition.
    Finally, our rules meet the third part of the Central Hudson test. 
Under that part of the test, there must be a reasonable fit (but not 
necessarily a perfect fit) between the advertising limitation and the 
government's asserted interest, and the restriction need not be the 
least restrictive means for defending that interest. The rules are 
tailored to prevent display bias. They do not, for example, prohibit 
systems from advertising airline services on their displays, nor from 
providing a display of only one airline's services. The rules also do 
not generally prescribe how airline services must be edited and ranked. 
The Court upheld the advertising prohibition in Edge Broadcasting 
because it was ``reasonable'' without examining whether the prohibition 
was better than available alternatives, 509 U.S. at 429-431. CEI, the 
commenter arguing that the display bias rules violate the First 
Amendment, has not suggested any alternative regulations that would be 
less burdensome and still prevent consumers from being misled and 
prevent the harm to airline competition that would result from display 
bias. Cf. Trans Union v. FTC, 295 F.3d 42, 53 (D.C. Cir. 2002).
    (e) Display of Code-Share Services. The display of services 
operated under a code-share arrangement can lead to the multiple 
listing of single flights, because the service may be listed under the 
code of each airline that has a code-share agreement with the airline 
operating the flight. We asked for comments on whether we should adopt 
one of the following limits on the number of times a single flight was 
displayed under different codes: (i) an American proposal for a rule 
requiring that all airline codes displayed for a flight be displayed in 
one listing, as is the case for flights operated under one airline 
code, (ii) the European rule allowing a service to be displayed under 
no more than two codes, and (iii) a Continental proposal allowing one 
listing of an international nonstop flight or set of connections for 
each code-share partner. Because we have found that code-sharing 
usually benefits consumers by creating more integrated services, we did 
not propose to prohibit code-sharing altogether. 57 FR 43805. We 
further noted that airlines engaged in code-sharing understandably 
expect their services to be listed under each partner's code. Code-
sharing is a significant feature of the international alliances that we 
have found provide significant consumer benefits. International 
agreements also provide bilateral rights to offer code-share services. 
67 FR 69396-69397.
    Several commenters urge us to adopt the European rule, which bars a 
single service from being displayed under more than two codes. Amadeus 
Comments at 55-56; American Comments at 35; Midwest Comments at 24-25; 
Air Carrier Ass'n of America Comments at 13. Southwest contends that no 
service should be listed more than once. Southwest Comments at 10-12. 
U.S. Airways prefers limiting the display of a domestic service to two 
codes and an international service to three codes. U.S. Airways 
Comments at 9-12. Continental argues that each service should be 
displayed once under each airline code. Continental Comments at 24-25. 
See also ASTA Comments at 41. Northwest opposes any limits on the 
display of code-share services. Northwest Comments at 22.
    During the comment period, we reviewed under 49 U.S.C. 47120 the 
domestic alliance planned by Delta, Continental, and Northwest. We 
concluded that the alliance presented significant competitive concerns 
but that we would not begin a formal investigation of whether the 
alliance's operations would constitute unfair methods of competition in 
violation of section 411 if the three airlines agreed to conditions 
alleviating our concerns. One of the conditions required the three 
airlines to ask the systems to display their services under no more 
than two of their three codes while we completed this rulemaking. We 
developed that condition because we believed that the use of all of the 
partners' codes on their services could create an unreasonable 
competitive advantage for the three airlines. 68 FR 10770 (March 6, 
2003).
    We have decided not to limit the display of code-share flights. 
While we remain concerned about the potential competitive effects of 
the multiple display of code-share services, we do not see a compelling 
reason to regulate the display of code-share services at this time. 
However, nothing in our rules, or in this discussion, should be read as 
prohibiting or discouraging systems from limiting the display of code-
share

[[Page 1005]]

services if they wish to do so, and two of them--Sabre and Amadeus--
have done so by listing a flight under the codes of no more than two 
airlines, the operating airline and one of its code-share partners. 
They are thereby following the European Union rules, which allow each 
airline service to be displayed under no more than two airline codes. 
We assume that the other systems will adopt similar limits if the 
display of code-share services under multiple airline codes is 
disadvantageous for travel agencies, who can choose between systems and 
should prefer a system that has the most useful displays. That no 
system is now owned or controlled by U.S. airlines should make it more 
likely that systems will respond to travel agent and consumer 
preferences in this area.
    Orbitz suggests that the adoption of the European Union rule by 
Sabre and Amadeus violates our rule barring systems from discriminating 
against airlines that sell services under another airline's code, 14 
CFR 256.4. Orbitz Reply Comments at 16, n.8. We disagree. The Board 
adopted that rule because United's system, Apollo, planned to stop 
displaying flights of airlines that operated entirely under another 
airline's code, such as the Allegheny Commuter airlines, which had no 
codes of their own and instead used US Airways' code. Under Apollo's 
plan, the system would list connecting services only under the code of 
the airline that operated the flight. 49 FR 9430 (March 13, 1984). In 
contrast, the practice followed by Sabre and Amadeus does not prevent 
an airline's code from being used on flights operated by a second 
airline. Instead, the two systems limit the number of times the code is 
displayed. We do not think that violates the rule, which prohibits a 
system from denying access to its system to airlines that share a 
single code or from discriminating against an airline on the basis of 
its use of another airline's code.
    (f) Biasing Software Provided by Airlines. While we did not propose 
to bar travel agencies from creating biased displays, we did propose to 
bar all airlines from providing software to travel agencies that could 
be used to create biased displays. This proposal grew out of an 
enforcement proceeding prosecuted by our Enforcement Office. That 
Office had filed a complaint against American and Sabre based on 
American's distribution to some travel agencies using Sabre, then 
controlled by American, of a program that enabled them to bias their 
displays in favor of American. American Airlines and Sabre Travel 
Information Network Enforcement Proceeding, Docket OST-95-430. The 
software enabled travel agencies to create several different displays, 
including one that would show only American flights.
    We thought that an airline's distribution of software to be used 
for biasing displays was essentially the same as a system's offering of 
a biased display. We recognized that travel agencies would decide 
whether to accept such software, but we anticipated that a travel 
agency would be under some pressure to accept such software from an 
airline that was the major airline in the agency's market. We saw no 
reason for allowing any airline to distribute such software. 67 FR 
69397.
    We have decided not to adopt a new rule that would prohibit 
airlines from distributing software that could be used to create biased 
displays, although we are prohibiting airlines from attempting to 
induce any system to create biased displays. Travel agencies have to 
compete against other travel agencies, and their need to satisfy their 
customers should check their willingness to create biased displays. The 
airlines' divestiture of their system ownership interests should 
alleviate any problem that might otherwise exist, because the airline 
affiliated with the system used by the travel agency would be the 
airline most able to cause the travel agency to accept biasing 
software. American, for example, distributed its software to travel 
agencies using Sabre. Furthermore, a travel agency that is intent on 
creating a biased display could probably obtain the necessary software 
from other sources. Delta Reply Comments at 60. Banning airlines from 
providing biasing software therefore seems unlikely to stop such 
conduct.
    ASTA, moreover, alleges that the proposed rule is unnecessary. ``A 
travel agency would only want to bias a display when it was working 
with a corporate client that had made an independent preferred fare 
arrangement with the favored airline. In such cases the agency's 
efficient servicing of that client will be enhanced if the agency has 
available to it a display that shows the favored carrier's flight 
first.'' ASTA Comments at 41.
    The lack of a rule may lead to some harm. Some travel agencies, 
despite their need to obtain repeat customers, may bias displays in 
ways that would cause customers to book flights that do not best meet 
their needs, and a rule prohibiting airlines from distributing biasing 
software would help prevent such conduct. The competitive pressures on 
travel agencies nonetheless should make the adoption of a general 
prohibition unnecessary. We do not wish to adopt rules that would 
prevent all potential problems, because doing so would impose a large 
body of regulation on industry participants and stifle innovation.
    As is true on other issues, however, we will monitor the conduct of 
airlines and travel agencies to see whether the lack of general rules 
is leading to deceptive or anti-competitive practices that are not 
being corrected by market forces.
    Amadeus argues that a system should also be able to sell software 
to travel agencies that would allow agencies to create biased displays 
if they wish. Amadeus Reply Comments at 12. Our proposed rule would 
have prohibited such conduct. We have decided not to bar systems from 
selling such software. A travel agency always has the option to decline 
to use such software and a system, unlike an airline that dominates a 
region, should have little ability to compel a travel agency into 
accepting software that the agency prefers not to use. In contrast, we 
are prohibiting systems from biasing their displays, because then an 
unbiased display is not available as an option.
5. Contract Clauses Restricting Airline Choices on System Usage
    (a) Background and Our Proposals. We have found that the systems 
continue to have some market power over most airlines, as explained 
above, although we expect that power to be diminished by the on-going 
developments in airline ticket distribution. Airlines should have some 
bargaining power against systems if each airline can choose which 
services and fares will be saleable through each system and the level 
at which it will participate in each system.
    There remains a significant risk that systems may use their market 
power to compel conduct that would limit the potential for competitive 
discipline in the CRS business. First, until we prohibited them from 
doing so, three of the four systems enforced parity clauses against 
participating airlines. A system's parity clause required each 
participating airline to buy at least as high a level of service from 
the system as it did from any other system. To ensure that each airline 
can choose its participation level in each system, we adopted a rule 
prohibiting systems from enforcing parity clauses against airlines that 
do not own or market a competing system, because we found that parity 
clauses denied airlines the ability to select their participation level 
(and therefore prevented competition that might otherwise exist). 
Section 255.6(e), adopted at 62 FR 59784 (November 5,

[[Page 1006]]

1997). Parity clauses made it unnecessary for systems to compete for 
airline participation at higher levels of service (while almost all 
airlines must participate in each system, as discussed, many airlines 
do not need to participate at the higher levels, which are more 
expensive). As we additionally explained, ``[P]arity clauses cause 
airlines either to buy more CRS services than they wish to buy from 
some systems or to stop buying services from other systems that they 
would like to buy, which creates economic inefficiencies and injures 
airline competition.'' 62 FR 59784. We proposed to readopt that rule in 
this proceeding. 67 FR 69392.
    Secondly, we saw a risk that systems could try to take away the 
airlines' control over access to their fares, especially webfares, 
which airlines could otherwise use as leverage to obtain better terms 
from the systems. Travel agencies wish to be able to find and book 
webfares through their systems, because doing so is more efficient than 
using an alternative booking channel. 67 FR 69373, 69381. As discussed 
above, after we completed our notice of proposed rulemaking, two of the 
systems--Sabre and Galileo--began offering lower fees to airlines that 
agreed to make all their webfares available through the system. Sabre's 
comments on our advance notices of proposed rulemaking, however, 
indicated that a system might by contract attempt to compel 
participating airlines to make all fares saleable through the system. 
Sabre stated that its contracts required participating airlines to make 
all publicly-available fares saleable through Sabre, although Sabre had 
not yet required any airline to comply with that provision. See 67 FR 
69392-69393. Since then, Sabre has been giving reduced fees to airlines 
that provide their webfares, although Sabre had earlier sued American 
to compel that airline to provide its webfares, albeit under a 
contractual provision applicable to airlines that owned or marketed 
another system. American Comments at 24-26; Orbitz Comments at 36.
    We also proposed to prohibit each system from enforcing clauses 
that bar airlines from discriminating against travel agencies because 
they used that system. Sabre had such a clause in its participating 
airline agreements. We thought that clauses barring discrimination 
could block airline efforts to persuade travel agencies to use systems 
that were less expensive for a participating airline. 67 FR 69393.
    We believed that these proposals would be consistent with our rule 
prohibiting parity clauses, Sec.  255.6(e). We did not propose to ban 
such clauses if they resulted from negotiations between the system and 
participating airlines. 67 FR 69392-69393.
    The Justice Department states that most-favored-nation clauses like 
those that we proposed to prohibit can be anti-competitive, that the 
Justice Department supported our proposal to prohibit parity clauses in 
1996, and that the Justice Department has filed antitrust enforcement 
actions against the use of similar clauses in other industries. Justice 
Department Reply Comments at 25. The clauses ``may reinforce CRS market 
power over airlines, particularly if they discourage the development of 
alternative distribution channels.'' Justice Department Reply Comments 
at 26. Such clauses can be beneficial, however, and any broad 
prohibition of most-favored-nation clauses by us would be harmful if it 
prevented airlines and systems ``from freely negotiating mutually 
acceptable contracts,'' especially when systems are willing to offer 
discounted fees to airlines willing to accept such a clause. Justice 
Department Reply Comments at 25-26. The Justice Department concludes 
that we could reasonably decide to prohibit parity clauses and clauses 
requiring an airline to make all publicly-available fares saleable 
through a system but that the opposite decision could also be 
reasonable (the Justice Department seemingly assumed, however, that our 
proposed rules would prohibit airlines from agreeing to accept parity 
clauses and clauses requiring them to make all fares available, which 
was not our intent). The Justice Department recommends against adopting 
the proposal to prohibit systems from barring airlines from 
discriminating against their subscribers. Justice Department Reply 
Comments at 27.
    Orbitz and several airlines argue that we should prohibit most-
favored-nation clauses like parity clauses and should not allow systems 
to enforce them against airlines that own or market a competing system. 
Orbitz Comments at 35-39; Alaska Comments at 8; American Comments at 
24-29; Continental Comments at 14-17; Delta Comments at 33-39. Galileo 
supports the readoption of the existing rule barring parity clauses 
with the exception allowing a system to enforce such a clause against 
an airline affiliated with a competing system.
    United contends that parity clauses clearly violate the antitrust 
laws but that enforcement action, not the adoption of a general rule, 
is the proper way to prevent such anti-competitive conduct. United 
Reply Comments at 46-54, 75-77.
    Several commenters argue that systems should be able to negotiate 
for parity clauses or most-favored-nation clauses from participating 
airlines. Amadeus Comments at 46-48; Galileo Comments at 24; Sabre 
Comments at 133-135; Amadeus Reply Comments at 16; Mercatus Comments at 
8.
    (b) Summary of Final Rule. We have determined to readopt for a 
transitional period of six months the rule prohibiting parity clauses 
as a condition to any participation in that system, but without the 
existing exception that allows a system to enforce such a clause 
against an airline that owns or markets another system. We are also 
adopting for six months a rule barring systems from requiring airlines 
to provide all publicly-available fares to a system as a condition to 
any participation in that system. We have decided not to adopt the rule 
barring a system from prohibiting participating airlines from 
discriminating against its subscribers.
    These rules will sunset on July 31, 2004. The six-month period, we 
believe, will furnish the parties with notice of the forthcoming 
changes and an opportunity to prepare for the absence of these rules. 
The six-month period will, we believe, allow affected parties to 
arrange for an orderly transition to complete deregulation of computer 
reservations systems. We, of course, retain the authority to reexamine 
these issues at any time if warranted.
    We agree with the commenters who contend that a system should be 
able to negotiate for most-favored-nation clauses from participating 
airlines. Amadeus thus states, ``CRSs and airlines should be free to 
bargain for [parity clauses] as part of their overall negotiation of 
fees and terms of participation,'' and ``CRSs should have the right to 
bargain with airlines concerning whether an airline must provide to the 
system fares provided to any other system, or to any online travel 
site, or to any other distribution channel.'' Amadeus Comments at 47. 
Our rules will not bar systems and airlines from doing so, and will not 
affect the ability of Sabre and Galileo to continue their existing 
programs to trade lower fees for access to webfares. Orbitz, of course, 
has a similar program, which enables airlines to obtain a partial 
rebate of their booking fees if they agree to make all of their 
publicly-available fares, including webfares, saleable through Orbitz.
    We disagree with United's contention that we should rely on 
enforcement action rather than rules to prevent

[[Page 1007]]

systems from demanding most-favored-nation clauses that are anti-
competitive. United Reply Comments at 23. United itself agrees that 
parity clauses are anti-competitive. United Reply Coments at 76. We 
would be using our authority more efficiently if we establish rules 
barring specified anti-competitive clauses rather than seek to block 
the imposition of such clauses through enforcement proceedings.
    Nonetheless, while we are not barring systems from creating and 
enforcing bargained-for parity clauses and clauses requiring an airline 
to provide all publicly-available fares to the system that are saleable 
through other distribution channels, most-favored-nation clauses can be 
anti-competitive in some situations, as pointed out by the Justice 
Department. America West complains that the Galileo and Sabre Momentum 
and DCA programs will insulate the two systems from competition from 
alternative distribution channels: ``These programs essentially require 
America West to relinquish control over how and to whom it will 
distribute its inventory for a minimal discount off of Galileo's and 
Sabre's booking fees'' and would require America West to ``forego any 
opportunity to encourage the development of alternative distribution 
channels by providing special fares exclusively through such alternate 
channels.'' America West Reply to Supp. Reply at 3. The systems' market 
power possibly may enable the CRSs to obtain access to webfares without 
significant reductions in booking fees. At this time, however, we 
believe, as does the Justice Department, that systems should be able to 
negotiate for most-favored-nation clauses, which do offer participating 
airlines some reductions in booking fees and enable travel agents to 
obtain more comprehensive information on airline services from their 
systems.
    (c) Airline Parity Clauses. We have determined to maintain the 
prohibition against the enforcement of parity clauses that are demanded 
as a condition of participation for an additional six months, and to 
eliminate the exception allowing systems to use such a clause against 
an airline that owns or markets another system. Each airline should be 
able to choose its level of participation in each system. Prohibiting 
parity clauses for this additional period should give airlines 
additional bargaining leverage against individual systems, and furnish 
time to make adjustments in anticipation of the termination of the 
prohibition.
    The existing rule, as noted, has an exception allowing a system to 
enforce a parity clause against an airline that owns or markets a 
competing system. We created that exception because an airline 
affiliated with one CRS as an owner or marketer might participate in 
competing systems at a level lower than its level of participation in 
its own system in order to induce travel agencies in regions where it 
is the dominant airline to choose its affiliated system rather than a 
competing system. We therefore allowed a system to enforce parity 
clauses against airlines that owned or marketed a competing system. A 
system could not enforce a parity clause, however, until it had given 
us and the airline 14 days advance notice of its intent to do so. 62 FR 
59797-59799.
    Keeping such an exception would be inconsistent with our decision 
that the mandatory participation should not be readopted. An airline 
that owns or markets a system should have the ability to determine at 
what level it will participate in any system. In theory, such an 
airline may choose a lower participation level in some systems in order 
to give an advantage to the system that it owns or markets, but 
substantial changes in participation levels do not seem likely. The 
major network airlines need to be in every significant distribution 
channel, and most of them have chosen to provide their webfares to 
Sabre and Galileo rather than reserve them for Orbitz, even though they 
own Orbitz.
    We note that Sabre argues that a rule barring parity clauses (or 
clauses requiring an airline to make all publicly-available fares 
saleable through a system), if such clauses are imposed as a condition 
to any participation in the system, would not violate antitrust 
principles. Sabre Reply Comments at 58-61. We disagree for the reasons 
set forth when we adopted the existing rule prohibiting the enforcement 
of parity clauses. Sabre, however, does not seem to oppose the actual 
rules we proposed. Sabre states that it seeks ``the right to bargain 
for nondiscrimination.'' Sabre Reply Comments at 57-58. We wish to give 
the systems that opportunity, for the record suggests that the result 
should be pro-competitive. The existing Sabre and Galileo programs 
whereby systems agree to charge lower fees in exchange for guaranteed 
access to all publicly-available fares should benefit all parties to 
the arrangements and consumers as well.
    (d) Clauses Mandating Access to All Fares. We also proposed a rule 
barring systems from requiring an airline, as a condition to 
participation, to provide the system with fares that the airline had 
chosen not to sell through any system. Any such condition could 
unreasonably restrict a participating airline's ability to bargain with 
the system for better pricing and terms. Airlines should be free to 
choose to offer their webfares, or other types of fares, only through 
their own websites, without being obligated by system contracts to make 
them available through other distribution channels. Airlines can use 
their control over webfares to win better terms for CRS participation. 
As Amadeus states, ``Airlines have attained, and are increasingly 
using, the leverage of access to webfares to wrest better deals from 
the CRSs.'' Amadeus Comments at 10.
    Contract clauses that required access to all publicly-available 
fares as a condition to any participation in a system could frustrate 
our efforts to allow airlines to create ways of bypassing the systems 
when doing so is more cost-effective and likely to establish 
competitive discipline for the systems' prices and terms for 
participation. As American contends, if we allow systems to demand that 
an airline provide all of its publicly-available fares as a condition 
to any participation, ``Airlines would lose their most effective tool 
for creating and encouraging the growth of lower cost distribution 
channels.'' American Comments at 27.
    We originally proposed to bar contractual requirements that an 
airline provide fares that it had chosen not to distribute through 
travel agencies or any system. 67 FR 69393. On further consideration, 
we have determined that the proposal was too narrow. As shown, several 
airlines have agreed with Galileo and Sabre that they will provide all 
webfares to those systems in exchange for reduced booking fees. The 
original proposal would allow the other two systems to require those 
airlines to provide the same fares to them, even if they have offered 
nothing in exchange for the ability to sell the fares. Our rules should 
not be used to aid Amadeus and Worldspan in insisting that they be 
given access to the same fares when they have not offered better terms 
to participating airlines in exchange for the fares. Cf. Orbitz 
Comments at 39. We are therefore barring systems from requiring an 
airline, as a condition to participation, to provide access to fares 
that the airline does not wish to sell through that system.
    We are adopting this rule for six months even though our proposal 
stemmed from a Sabre contract clause that that system is not now 
enforcing. We think there is some likelihood that another system would 
seek to take such

[[Page 1008]]

action. While this rulemaking was pending, Worldspan threatened to 
expel U.S. Airways unless that airline made all of its webfares 
saleable through Worldspan. U.S. Airways refused to agree, and 
Worldspan did not follow through on its threat. Sabre Comments at 75; 
Sabre Reply Comments, Salop & Woodbury Declaration at 17. While 
Worldspan did not carry out its threat, its decision may have been 
influenced by the pendency of this proceeding. Cf. 57 FR 43817. Because 
we believe that a system's demand that an airline provide all publicly-
available fares as a condition to any participation would be anti-
competitive, adopting our proposed rule is the best course of action.
    This rule, like the rule barring parity clauses, will not have an 
exception allowing systems to demand access to all publicly-available 
fares from airlines that own or market a competing system. All airlines 
should be able to withhold access to attractive fares from a system 
unless the system offers acceptable terms for the right to sell the 
fares.
    We recognize that travel agents could operate more efficiently and 
provide their customers more complete advice if every airline's 
publicly-available fares were saleable through each of the systems. 
Nevertheless, allowing systems to compel airlines to provide all such 
fares without providing any benefits in return would maintain the 
systems' market power and deny airlines an opportunity to use their 
control of webfares as a way to obtain lower fees. In addition, as 
explained below in our discussion of proposals that we require airlines 
to make all fares available for sale through all distribution channels, 
such a requirement would be contrary to long-established operating 
practices. Airlines have long chosen to offer some special fares only 
through selected distribution channels.
    Two airlines--Delta and Northwest--urge us to adopt a broader rule 
that would prohibit systems from also demanding access to information 
and benefits such as frequent flyer awards if an airline has chosen not 
to provide those to the system. Delta Reply Comments at 34-35; 
Northwest Reply Comments at 11-12. We have no evidence that systems 
have attempted to compel airlines to provide such information and 
benefits. A broader rule, therefore, seems unnecessary at this time.
    America West seeks a rule prohibiting each system from providing 
access to any airline's webfares for their subscribers, if the airline 
has not chosen to distribute the fares through that system. America 
West Comments at 31, 34-35. This proposal stems from the systems' use 
of firms like FareChase to search airline websites for better fares not 
available through the system and to tell the travel agent using the 
system when such fares are being offered. The travel agent who wishes 
to book such a fare, however, cannot do so through the system and must 
instead make the booking through the airline's website (or another site 
that has obtained access to the fares from the airline). Sabre Reply 
Comments at 48.
    We are unwilling at this point to adopt such a rule. When FareChase 
searches airline websites for fares, it does not cause airlines to pay 
additional booking fees to a system. Sabre Reply Comments at 48. It 
may, however, increase the airline's costs for operating its website 
and internal reservations system. The record does not provide a basis 
for a careful analysis of the possible competitive effects of the 
systems' use of such services. We would need more information and 
comments from more interested persons before adopting a rule like that 
requested by America West. Barring systems from obtaining fare 
information from other sources for their subscribers could also present 
difficult questions of intellectual property law.
    (e) Non-Discrimination Clauses. We are not adopting the proposal 
that would bar systems from enforcing any prohibition against an 
airline's discrimination against its subscribers. The proposal would 
effectively allow airlines to treat a system's subscribers differently 
from subscribers to other systems if the difference in treatment was 
based on the system's providing lower quality service, or charging 
higher fees, than other systems.
    Several commenters complain that the language was ambiguous and 
would lead to problems of interpretation. See, e.g., Amadeus Comments 
at 40-41; Amadeus Reply Comments at 53. Delta argues that the rule 
would be unnecessary if airlines could deny a disfavored system access 
to webfares. Delta Comments at 41-42. The Justice Department recommends 
against the adoption of the proposal, in part on the grounds that the 
contract clause that led to the proposal had not been used. Justice 
Department Reply Comments at 27. Continental, on the other hand, 
supports the proposal. Continental Comments at 14-16. ASTA objects to 
our proposal on the ground that travel agencies should not be used as 
weapons in disputes between an airline and a system. ASTA Comments at 
42-43.
    We continue to believe that an airline should be able to offer 
better service to the subscribers of one or a few systems without 
having to offer the same service to the subscribers of every system. An 
airline's ability to take such action could be used to encourage travel 
agencies to use the system that offers the airline better terms and 
lower prices for participation. However, commenters did not express 
strong support for the rule proposal, and the proposal's qualification 
that the difference in treatment should be based on lower fees and 
poorer service could create disputes about whether those conditions 
were met. Moreover, we think the rules barring systems from demanding 
access to all fares as a condition to participation will be a more 
effective and practicable means of providing airlines some additional 
bargaining power. In addition, no system thus far has enforced such a 
clause. If a system does so in circumstances suggesting that the system 
seeks to maintain its market power and deny an airline some bargaining 
leverage, we will consider taking enforcement action under section 411.
6. Equal Functionality
    In our last reexamination of the rules, a number of commenters had 
complained that the systems engaged in architectural bias in an effort 
to obtain more bookings for their owner airlines. Architectural bias 
means the creation of system design features and functions in a way 
that enables travel agents to obtain information and make bookings on 
the owner airline more reliably and quickly than on other airlines. 
These features caused travel agents to book the favored airline in 
cases where another airline provided service that satisfied the 
customer's needs better. 57 FR 43810-43811. As a result, we adopted 
several rules designed to equalize the functionality for owner and non-
owner airlines. We required systems to give all participating airlines 
equal access to enhancements and to provide equal treatment on the 
loading of information, and we prohibited systems from using default 
features that favored the owner airline. 57 FR 43814-43816. Because 
these rules had been effective, and because no one complained that they 
were unduly burdensome or unnecessary, we had proposed to readopt the 
equal functionality requirements without change. 67 FR 69398. On the 
other hand, we also proposed to eliminate the rule that essentially 
requires equal booking fees.
    The Justice Department contends that we should eliminate the equal 
functionality rules, except for a rule requiring equal treatment on the 
loading of information. The Justice Department reasons that airlines 
should be able to bargain for special functionality as well

[[Page 1009]]

as lower fees. Justice Department Reply Comments at 31-32. Amadeus 
alleges that allowing systems to sell special functionality to 
individual airlines will encourage innovation and efficiencies. Amadeus 
Reply Comments at 13-14.
    We agree with the position taken by the Justice Department. 
Maintaining the rules requiring equal functionality would be 
inconsistent with our decision to end the rule barring discriminatory 
booking fees. Airlines and systems should be able to bargain over 
functionality along with fees. Eliminating the rule, moreover, could 
encourage a system to share in the cost and risk of developing new 
functions, as the Justice Department points out, Justice Department 
Reply Comments at 32:

    Such freedom might also allow CRSs greater leeway to share with 
airlines the development cost and risk of new functions. For 
example, an airline might be made the ``launch partner'' for a new 
CRS function and be granted a certain period of exclusivity in 
exchange for sharing in the development and testing cost for that 
function.

    See also Amadeus Reply Comments at 13.
    At the same time, the systems' interest in increasing revenues 
should encourage them to make new functionality available to all 
airlines, because doing so would increase their fee revenue. As Delta 
contends, systems have an interest in selling as much functionality as 
airlines will buy. Delta Comments at 19.
    We will, however, maintain a requirement that each system provide 
participating airlines equal treatment in the care and timeliness with 
which information is loaded in the system, as suggested by the Justice 
Department. We agree with the Justice Department's position that ``it 
is difficult to imagine a legitimate business reason for differential 
treatment'' in the loading of information. Justice Department Reply 
Comments at 32. This requirement is essentially equivalent to the 
requirement that displays be unbiased. Any significant disparity in the 
loading of information would result in displays that did not equally 
list each airline's most up-to-date services and fares. See Justice 
Department Reply Comments at 8, n.9. We are not persuaded by Amadeus' 
argument that systems should be able to bargain with airlines over the 
timing of information loading. Amadeus Reply Comments at 14. A system's 
willingness to give some airlines preferential treatment on the loading 
of information would be akin to display bias. For example, if a 
disfavored airline instituted new discount fares, there could be a 
significant delay before the fares became available in a system, which 
would deny important information to travel agents and their customers 
and harm the airline's ability to compete with other airlines.
    Under the current rule, systems must load information from 
participating airlines with the same care and timeliness as they do for 
an airline with a system ownership interest. However, because only 
Amadeus currently has airline owners, the rule does not cover the three 
systems with the largest market shares in the United States. To make 
the rule effective, we will revise it to require that systems load 
information for all airlines with the same care and timeliness. This 
change should not impose any significant burden on the systems.
7. The Mandatory Participation Rule
    Under our mandatory participation rule, section 255.7, an airline 
that has an ownership interest of five percent or more in a system (a 
``system owner'') must participate in competing systems at the same 
level at which it participates in its own system, if the other systems' 
terms for participation at that level are commercially reasonable, and 
must provide all systems with the fares that are commonly available to 
subscribers in its own system. We imposed this requirement because some 
U.S. airlines with an ownership interest in one system limited their 
participation in competing systems in order to encourage travel 
agencies in their hub cities to use their own system. Some airlines 
also withheld complete information on their fares and services from 
competing systems. U.S. systems have encountered similar conduct 
internationally by foreign travel suppliers that own or market a 
competing system. 56 FR 12608.
    As a result of the U.S. airlines' divestitures of their system 
ownership interests, the only airlines currently subject to the rule 
are the three foreign airlines that own Amadeus: Lufthansa, Air France, 
and Iberia.
    The commenters on our advance notices of proposed rulemaking 
disagreed over whether the rule should be kept, strengthened, or 
eliminated. Several major airlines and Orbitz argued that the rule was 
counterproductive, because it allegedly enabled systems to dictate 
terms for airline participation. Some other airlines and systems 
asserted that the rule should be maintained and extended to airlines 
that market a system, not just airlines with a significant ownership 
interest. Several commenters, including some travel agencies, argued 
that the rule should prohibit each system owner from denying access to 
its corporate discount fares to travel agencies that do not use its 
system. They argued that a system's airline owner could effectively 
compel travel agencies to use its system by denying them access to its 
corporate discount fares if they used a different system, even though 
the airline fully complied with the mandatory participation rule. See, 
e.g., Amadeus Comments at 88-89.
    We proposed to end the mandatory participation requirement because 
some airlines might then be able to bargain for better terms for 
participation in return for participating at higher levels. However, we 
also invited comment on whether the rule should be kept and, if so, 
whether it should cover airlines that market a system and require owner 
airlines to make their corporate discount fares saleable through 
competing systems. 67 FR 69395.
    Orbitz, Alaska, American, Delta, and Northwest support the proposed 
termination of the mandatory participation rule, but Amadeus, Galileo, 
Southwest, U.S. Airways, and ASTA contend that we should readopt the 
rule.
    We have determined to end the mandatory participation rule as 
proposed. The rule was adopted, as noted above, when airlines owned 
each of the systems. The rule was intended to keep airlines that owned 
a system from using their dominance of regional airline markets to 
distort competition in the CRS business. Because no system is now owned 
by U.S. airlines, the rule currently has no practical effect on 
competition. The rule would have an impact if Orbitz goes ahead with 
its plans to enter the CRS business, since Orbitz'' five airline owners 
would then become subject to the rule, but Orbitz has said that it will 
not begin operating as a system if doing so would trigger an obligation 
to comply with the mandatory participation rule. Transcript at 78-79.
    More importantly, the rule limits the ability of owner airlines to 
bargain for better terms with the systems. If such an airline could 
credibly threaten to reduce its participation level in a system, it 
would have some leverage for obtaining lower fees or better service. 
The rule eliminates that option. As the Justice Department states, if 
the rule is eliminated, ``the airline would therefore be in a better 
position to negotiate lower booking fees or to drive bookings toward 
lower-cost outlets.'' Justice Department Reply Comments at 23.
    We do not expect the rule's termination to cause significant harm 
to airline competition or consumers. As noted, the rule currently 
covers only the

[[Page 1010]]

three European airlines that own Amadeus. If airlines with CRS 
ownership interests take advantage of the rule's termination to lower 
their participation level in one or more systems, the travel agents 
using those systems may be unable to perform the full range of booking 
functions for those airlines. In the unlikely event that such an 
airline withdrew entirely from a system, the system's subscribers would 
then be unable to use the system to obtain complete schedule, fare, and 
availability information for that airline and make a booking. The 
travel agency's operations would be less efficient. However, airlines 
generally have no obligation to participate in every distribution 
channel, and Southwest and JetBlue, for example, only participate in 
Sabre.
    We think it unlikely that airlines will make radical changes in 
their participation levels as a result of the termination of the 
mandatory participation rule, despite efforts by owner airlines in the 
past to put competing systems at a disadvantage by lowering their 
participation level. The revenue needs of the major network airlines, 
as discussed above, require them to participate in every distribution 
channel used by a substantial number of potential customers. Transcript 
at 140. Galileo thus states that the behavior of airlines that are not 
subject to the rule is generally the same as the behavior of those that 
are. Galileo Comments, Guerin-Calvert, Jernigan, & Hurdle Declaration 
at 64. The marketing needs of the larger network airlines, moreover, 
require them to participate at a high level in every system. Amadeus 
alleges that every major network airline currently participates in each 
system at the highest level. Amadeus Reply Comments at 24. Several of 
Orbitz' owner airlines have agreed to make their webfares saleable 
through Sabre and Galileo, even though doing so reduced one of Orbitz' 
principal competitive advantages, the superior access that it has had 
to those fares.
    Furthermore, our fundamental goal is the promotion of competition 
between airlines, which will help consumers, not the promotion of 
competition between CRSs for travel agency subscribers. 67 FR 69394-
69395. Due to the ownership changes and technological changes in the 
CRS business, competition between the systems is no longer a direct 
form of airline competition. 67 FR 69406. The mandatory participation 
rule, designed to promote competition in the CRS business, has thus 
lost its importance for strengthening airline competition.
    In that regard, the record does not show that ending the mandatory 
participation rule will reduce airline competition. Galileo and US 
Airways predict that an airline affiliated with one system that 
dominates a regional airline market (Delta in Atlanta, for example) 
will lower its participation level in other systems so that its 
affiliated system will dominate the CRS business in that area. Other 
airlines serving that area will then be subject to the additional 
market power thereby obtained by that system. Galileo Comments at 16-
18; US Airways Comments at 18-19. This theory assumes that Delta could 
actually lower its participation level substantially in other systems. 
Delta contends that it could not take such action. Delta Reply Comments 
at 39. Delta is probably correct. The competing systems will be the 
major systems in other areas served by Delta flights. Because lowering 
its participation level in those systems would cost the airline 
bookings in those areas, the airline is unlikely to drastically reduce 
its participation levels in competing systems.
    We recognize that maintaining the mandatory participation rule 
could make fare information more widely available, if some U.S. 
airlines again became system owners. See, e.g., Large Agency Coalition 
Comments at 38-39; ASTA Comments at 45; AAA Comments at 2. Imposing 
such a requirement on airlines, however, would unreasonably restrict 
their ability to bargain for better terms for participation.
    Finally, making the mandatory participation rule effective would 
require expanding it to require each owner airline to provide every 
system with access to its corporate discount fares. Galileo Comments at 
21-22. The current rules arguably do not require airlines to make those 
fares available to rival systems, yet experience has shown that an 
airline can effectively compel a travel agency operating in geographic 
areas dominated by that airline to choose the airline's affiliated 
system by allowing the agency to sell the airline's corporate discount 
fares only if it uses that system. See, e.g., Amadeus Comments at 88-
90. Similarly, if the rule were readopted, it should arguably cover 
airlines that market a system, because they may have incentives to 
limit participation in competing systems. 67 FR 69395; Amadeus Comments 
at 50-52; Galileo Comments at 19-20 and Guerin-Calvert, Jernigan, & 
Hurdle Declaration at 69-70.
    We are unwilling to engage in such additional regulation. The 
mandatory participation rule, if maintained, would unreasonably limit 
airline opportunities to bargain for better terms for system 
participation, and the rule, as shown, no longer appears to be 
necessary to promote airline competition.
8. Booking Fees
    (a) Background. The rules have always prohibited each system from 
charging unreasonably discriminatory booking fees, Sec.  255.6(a). The 
Board adopted that prohibition because some systems charged 
discriminatorily high fees to airlines competing with the system's 
owner. On the other hand, the Board did not regulate the level of 
booking fees. The Board anticipated that some major airlines would have 
bargaining leverage which could be used to keep systems from charging 
unreasonably high booking fees. 49 FR 32543, 32551-32554.
    When we last reexamined the rules, we maintained the prohibition 
against discriminatory booking fees and declined to adopt any rule that 
would directly limit fee levels, for example, by requiring fees to be 
reasonable or cost-based. 57 FR 43816-43818. At that time, of course, 
one or more airlines controlled each system and would have an incentive 
to charge competing airlines unreasonably high fees.
    In their comments on the advance notices of proposed rulemaking, a 
number of airlines complained that booking fees are too high and that 
the systems also charge fees for transactions that are allegedly 
illegitimate and of no value to airlines. See 67 FR 69398. We declined 
to make proposals that would further regulate booking fees. We again 
concluded that regulating fee levels would be impracticable. We decided 
against regulating the systems' arrangement of participation levels, 
even though some airlines had complained that the systems unreasonably 
declined to provide some service features (E-ticketing, for example) 
unless the airline agreed to buy other services which unduly raised its 
fees. 67 FR 69399-69400. We tentatively agreed with the complaining 
airlines that the systems' past practice of charging booking fees for 
one category of transactions, passive bookings, appeared to be 
unreasonable, but the record indicated that the systems had reformed 
their practices in a way that made the reasonableness of those charges 
moot. 67 FR 69400-69401.
    Rather than continue to regulate fees, we proposed to eliminate the 
rule prohibiting unjustly discriminatory fees (and the mandatory 
participation rule) on the basis that doing so could give some airlines 
bargaining leverage against the systems. As we noted, in most 
unregulated industries a firm is free to demand better terms from its 
suppliers, even if its competitors cannot

[[Page 1011]]

obtain the same terms. The rule barring discriminatory fees may limit 
the ability of individual airlines to negotiate for better terms and 
thus limit the operation of market forces in the CRS business. 67 FR 
69399.
    We also invited commenters to address a zero fee rule, which would 
bar systems from charging airlines fees for participation. As shown, 
the systems compete for travel agency subscribers but not airline 
participants. Because travel agencies can choose between systems, the 
systems compete on price. A zero fee rule thus would cause the entire 
price for CRS services to be set by competitive market forces, although 
a major beneficiary of the CRS services would not be charged. We 
pointed out that such a rule could be disruptive, because the systems 
were obtaining the great majority of their revenues from airlines, not 
from travel agencies, and that it would enable airlines to obtain CRS 
services without payment. 67 FR 69399.
    Amadeus, Galileo, America West, Midwest, and U.S. Airways oppose 
the proposal to eliminate the bar against discriminatory booking fees. 
Orbitz and its owner airlines support the proposal, as do several 
foreign airlines. Ass'n of Asia Pacific Airlines Comments at 6; British 
Airways Comments at 8; Lufthansa Comments at 3; Qantas Comments at 1. 
The Justice Department supports the proposed elimination of the rule. 
The Justice Department additionally suggests that the zero fee could be 
beneficial but is not recommending the adoption of any booking fee rule 
now. Justice Department Reply Comments at 3, 32-34. American, America 
West, and U.S. Airways urge us to adopt a zero fee rule.
    (b) Final Decision. We are eliminating the prohibition against 
discriminatory booking fees, as we proposed, and not adopting a zero 
fee rule.
    Because no system is now controlled by U.S. airlines, a system's 
decision to charge one airline lower fees than another airline cannot 
fairly be characterized as discrimination. The differences between the 
fees charged one airline and those charged other airlines should not be 
viewed as discriminatory. A more accurate term would be differential 
pricing, for firms in other industries commonly charge different 
customers different prices. Any difference in prices will reflect 
market forces, not a seller's decision to arbitrarily discriminate 
against some buyers in favor of others.
    Eliminating the rule barring differential booking fees should 
enable some airlines to bargain for lower fees. Though most airlines 
must participate in each system in order to make their services readily 
saleable by the travel agents using that system, each system has an 
incentive to obtain the participation of all important airlines, 
because travel agencies will be less inclined to use that system if 
those airlines participate only in the system's competitors. 
Furthermore, an airline's level of participation is important to travel 
agencies, because a travel agency can make bookings more reliably and 
quickly on airlines that participate at a higher level, and can use 
other service features that are important to agency customers. 62 FR 
59793. We recognize, in view of our findings that each system has 
market power, that even the largest airlines may have little leverage 
to obtain lower fees despite the elimination of the rule. Nonetheless, 
eliminating the rule may provide some benefits.
    On the other hand, the systems' ability to charge different 
airlines different fees should not significantly harm competition or 
consumers. We understand that airlines will not have an equal ability 
to bargain for lower fees. The Justice Department thus states, 
``[R]emoving the prohibition against discriminatory booking fees would 
inevitably result in carriers with less bargaining power having higher 
CRS costs than others.'' Justice Department Reply Comments at 33. As we 
stated in our notice, ``In most unregulated industries a firm is free 
to demand better terms from its suppliers, even if its competitors 
cannot successfully obtain the same terms.'' 67 FR 69399. Differential 
pricing is widespread in other industries, including industries 
supplying other products and services to the airline industry, such as 
aircraft manufacturers. United Reply Comments at 40-41.
    We disagree, moreover, with the commenters who argue that only the 
large airlines will benefit from the elimination of the prohibition 
against differential fees. See, e.g., America West Comments at 24. An 
airline's ability to obtain lower fees will depend in part on its own 
need to participate in a system. An airline like Southwest that does 
not rely heavily on the travel agency distribution channel--and thus on 
the systems used by the travel agencies--should have substantial 
bargaining leverage. Smaller airlines that are large players in a 
region (Alaska in the Far West, for example) should also have some 
leverage, because a system will be less able to win subscribers in that 
region if such an airline does not participate. American Comments at 
18-19 and Dorman Declaration at 9-10; Sabre Reply Comments at 76. 
Because the systems charge fees based on the volume of transactions, 
not on ticket prices, they should value participation by low-fare 
airlines, whose low fares generate more passengers and thus a higher 
volume of bookings. Sabre Comments, McAfee and Hendricks Declaration at 
58. Even if only the larger airlines benefit from this rule change, as 
assumed by many commenters, the result would be consistent with 
practices in other industries.
    We doubt that the resulting differences in fees paid by different 
airlines will be substantial. Galileo states that the fees charged 
other travel suppliers do not vary by much. Transcript at 60. Although 
airlines are more dependent on the systems than are other travel 
suppliers, and although travel agents rely on the systems more for 
airline bookings than they do for other travel bookings, any 
differences in fee levels between airlines seem unlikely to be very 
large. We do not expect the systems' fee practices to duplicate those 
followed before the Board adopted the original rules. At that time 
there were substantial differences between the fees charged favored 
airlines and those charged disfavored airlines. Galileo Comments, 
Guerin-Calvert, Jernigan, & Hurdle Declaration at 60. Each system then 
was owned by one U.S. airline and had incentives to charge its owner's 
competitors unusually high fees in order to prejudice their ability to 
compete. Systems without U.S. airline owners should not have similar 
incentives. Sabre Comments, Salop & Woodbury Declaration at 26-30 and 
McAfee & Hendricks Declaration at 53-59.
    We have determined not to readopt the rule barring differential 
booking fees on economic policy grounds. However, our authority to 
prohibit unfair methods of competition would not authorize us to 
readopt the rule, given the factual information and policy arguments in 
the record. Firms in other industries are not required to charge all 
customers the same price, and, as the Justice Department points out, a 
firm's offering of preferential terms to selected customers is not 
necessarily anti-competitive. Justice Department Reply Comments at 33, 
34, n.39. The systems neither are owned by U.S. airlines nor compete in 
the airline business. The record does not show a likelihood that 
systems would charge some airlines discriminatorily high fees in order 
to prejudice airline competition. These circumstances would not support 
a finding that a system's willingness to give some airlines, but not 
others, lower fees is an unfair method of competition in violation of 
section 411.

[[Page 1012]]

    While a number of foreign airlines supported the proposed 
elimination of the rule barring differential booking fees, a few 
opposed it, in part on the ground that the rule is required by the 
United States' commitment in bilateral air services agreements to 
prevent systems from treating foreign airlines discriminatorily. Air 
France Comments at 6. This issue is discussed below in the section on 
international issues.
    Because we are ending the rule prohibiting differential pricing, we 
are not readopting the requirement that a system treat all non-paying 
airlines the same, Sec.  255.11(a). When the rules do not require equal 
treatment for airlines paying booking fees, there is no reason to 
require equal treatment for airlines that do not pay booking fees.
    We will not adopt a zero fee rule. As discussed in our notice of 
proposed rulemaking, adopting a zero fee rule would present serious 
practical difficulties. The only commenters now supporting a zero fee 
rule--American, America West, and U.S. Airways--have not convinced us 
that these difficulties are negligible. A zero fee rule would enable 
airlines to get system services for free, which would encourage all 
airlines to choose the highest level of participation. That would 
discourage systems from improving the services offered participating 
airlines. Sabre Reply Comments, Salop & Woodbury Declaration at 28; 
Worldspan Reply Comments at 22-23. A zero fee rule would also worsen 
the travel agency industry's financial position, because the systems 
would be forced to obtain all of their revenues from travel agencies. 
ASTA Reply Comments at 15-16. American and America West suggest that 
the impact on travel agencies can be adequately mitigated by phasing in 
the zero fee rule. America West Comments at 21; American Comments at 
23-24. We disagree. A zero fee rule, even if phased in, would still 
shift a substantial cost burden unto travel agencies.
    In addition, American, America West, and U.S. Airways essentially 
argue that a zero fee rule would create a more rational result in terms 
of economic efficiency: the systems' fees would be disciplined by 
market forces if the systems could impose fees only on the users who 
can choose between systems. America West Comments at 16-21; American 
Comments at 20-24; U.S. Airways Reply Comments at 7-8. Even if this 
economic efficiency argument is valid, we have no authority under 
section 411 to regulate business practices to create a more competitive 
or efficient industry, if the practices at issue do not violate the 
antitrust laws or antitrust principles. Cf. E.I. Du Pont de Nemours & 
Co. v. FTC, 729 F.2d 128 (2d Cir. 1984). That statute authorizes us 
only to prohibit practices that violate the antitrust laws or antitrust 
principles, and the systems' exercise of their ability to charge 
monopoly-level prices to one set of users--airlines--does not violate 
antitrust principles or the antitrust laws.
    A few commenters ask us to take action on one other issue, the 
systems' charging of booking fees for passive bookings. See, e.g., 
America West Comments at 9-10. Our notice tentatively concluded that 
the systems' past practice of charging participating airlines for 
passive bookings appeared to be unreasonable, because passive bookings 
did not normally benefit airlines and because the incentive payment 
programs included in the systems' subscriber contracts seemed to 
encourage travel agents to make unnecessary passive bookings in order 
to meet the programs' minimum booking quotas. We decided not to propose 
any rules on this issue, because the record indicated that the systems 
had stopped charging booking fees for passive transactions. 67 FR 
69400-69401. We additionally noted that a rule barring systems from 
charging fees for passive bookings would likely cause the systems to 
increase other fees to offset the revenue loss. 67 FR 69401.
    The comments suggest that the systems have either stopped charging 
fees for passive bookings or taken other steps that have substantially 
cut the number of passive bookings. Galileo Comments, Guerin-Calvert, 
Jernigan, & Hurdle Declaration at 77-78; Sabre Comments at 111, 149; 
ASTA Comments at 33. Sabre represents that only seven percent of its 
total bookings consist of passive bookings. Sabre Comments at 149. 
Although America West contends that the rules should bar the imposition 
of fees for passive bookings, America West also states that passive 
bookings constituted 1.4 percent of its booking fee liability in 2002. 
America West Comments at 10. The airlines supporting restrictions on 
fees for passive bookings have not shown that the fees charged for 
passive bookings are so serious a problem that a rule is necessary. 
ASTA alleges that airlines take disciplinary action against travel 
agents who make abusive bookings through the passive booking function 
or otherwise. ASTA Comments at 33. Furthermore, as we noted in the 
notice of proposed rulemaking, limiting the systems' fees for passive 
bookings is unlikely to reduce a participating airline's total CRS 
costs. America West has conceded as much. America West Comments at 10.
9. Booking Fee Bills
    Our rules require the systems to provide booking fee bills in 
sufficient detail so that participating airlines can audit the accuracy 
of the systems' charges. We adopted this rule largely to keep systems 
from evading the prohibition against discriminatory booking fees by 
imposing false charges on disfavored airlines. We stated, ``The rule 
requiring [systems] to provide enough information to allow the auditing 
of bills for fees is accordingly essential to maintain the rule banning 
discriminatory booking fees.'' 57 FR 43819.
    We initially proposed to readopt this rule. 67 FR 69401. However, 
our decision to eliminate the predicate for the rule--the prohibition 
against discriminatory booking fees--removes the rationale for 
continuing to prescribe requirements for booking fee bills.
    We assume that the systems may stop providing airlines with 
information that would enable them to audit the accuracy of their 
booking fee bills. However, as discussed above in connection with other 
rule proposals, section 411 does not allow us to regulate system 
practices in order to improve efficiency or prevent unattractive 
behavior. We cannot readopt this rule under section 411 unless we find 
that it is necessary to prevent unfair methods of competition. A firm's 
refusal to provide adequate billing data would not normally be an 
unfair method of competition. We adopted the billing data requirement 
when airlines controlled the systems and would engage in practices that 
would prejudice competing airlines. Because the systems no longer are 
owned by U.S. airlines, we see no basis at this time for a finding that 
a system's refusal to provide enough information backing up its bills 
would be an unfair method of competition.
10. Other Participating Carrier Contract Rules
    The current rules have two other provisions governing contracts 
between systems and participating airlines that we are not readopting. 
Section 255.6(b) prohibits systems from conditioning participation on 
the purchase or sale of other goods and services, a provision adopted 
by the Board due to efforts by some systems to impose additional costs 
on airlines competing with a system's owner airline. 49 FR 32554-32555. 
Section 255.6(c) states that a system may condition participation in 
its system in the United States on the airline's agreement to 
participate in that system or affiliated systems in other

[[Page 1013]]

countries, if those systems do not use any factor related to carrier 
identity in their displays and if the fees will be non-discriminatory.
    In keeping with our overall decision against readopting most of the 
existing rules, we will not readopt these rules. The rule barring the 
tying of system participation with the purchase of other goods and 
services should be unnecessary if no system is owned or controlled by a 
U.S. airline. In addition, readopting the rule would be inconsistent 
with our decision that we should end the prohibition against 
differential booking fees. When we are not requiring systems to charge 
equal fees, we should not tell them what other conditions may be 
required for participation unless, as is true of parity clauses and 
clauses requiring access to all publicly-available fares, the condition 
would entrench the systems' existing market power over airlines.
    For similar reasons, we are not maintaining the rule limiting the 
systems' ability to require worldwide participation. It is not clear to 
us on the basis of this record that this practice would be comparable 
to unlawful tying under the antitrust laws.
    However, if demands by a system that participating airlines 
purchase unrelated goods and services as a condition to participation 
or that they participate on a worldwide basis are likely to reduce 
competition in the airline or airline distribution businesses, we can 
take appropriate action under section 411 to block the system from 
enforcing such demands.
11. Marketing and Booking Data
    (a) Background. Systems generate valuable data from the bookings 
made by their subscribers. The data show how many bookings are being 
made by individual travel agencies on individual flights operated by 
each airline in each market. The information can enable anyone using it 
to analyze the traffic in individual airline markets and the booking 
patterns of individual travel agencies. 67 FR 69401-69402.
    Section 255.10 of our rules requires each system to make available 
to all participating airlines the marketing and booking data that it 
chooses to generate from bookings made by system users. The rule does 
not restrict the systems' prices for the data. 57 FR 43820-43821.
    While the rule does not require a system to generate any data, the 
systems have found it profitable to sell data to airlines (the usual 
term for the data is MIDT data) (for a description of the data sold by 
one system, see Amadeus Comments at 62-64). Initially almost all of the 
airlines purchasing the data were large airlines. In recent years, the 
systems have created smaller sets of data that would be attractive to 
smaller airlines. 67 FR 69402; Transcript at 176; United Reply Comments 
at 87. The information sold by the systems does not include fare 
amounts or information identifying individual passengers. Justice 
Department Reply Comments at 35, n.40; Transcript at 175-176; Amadeus 
Reply Comments at 47.
    The rule also does not bar systems from providing data to anyone 
outside the airline industry. The rule blocks systems from providing 
data to any foreign airline that owns or controls a system in a foreign 
country, if that system does not provide comparable data to U.S. 
airlines. The rule further prohibits airlines receiving data derived 
from international bookings from giving anyone access to the data, 
except to the extent that an airline uses an outside firm to process 
the data, unless the system provides access to other persons.
    (b) Proposals and Comments. The systems' sale of the data has been 
controversial. In their comments on our advance notices of proposed 
rulemaking, the systems selling the data and the airlines buying the 
data alleged that airlines use the data for legitimate pro-competitive 
purposes. These airlines stated that they rely on the data for 
marketing research and route development purposes, to make decisions on 
pricing and revenue management, and to implement their override 
commission and corporate discount fare programs, which typically 
require travel agencies and corporate customers to give an airline a 
certain share of their total business in order to receive the 
additional commissions or discount fares. Some smaller airlines and 
travel agencies, however, complained that the airlines purchasing the 
data (typically large airlines) use the information to determine which 
travel agencies have been selling tickets on a competitor and then 
pressure agencies into cutting back their bookings on rival airlines. 
Travel agencies contended that they should have control over access to 
the data created by their use of a system. 67 FR 69402.
    Although we recognized the data's legitimate pro-competitive uses, 
our concern that the data could be used in anti-competitive ways led us 
to propose restrictions on airline access to the data in our notice of 
proposed rulemaking. The possible restrictions included the denial of 
access to the data on any airline's bookings if that airline objected 
to the disclosure of that information to any other airline or the 
denial of access to data showing the bookings made by any individual 
travel agency. Because airlines had legitimate uses for the data, we 
stated that any restrictions on access should be as few as possible to 
avoid interference with the data's legitimate uses. We noted, moreover, 
that any restrictions on access arguably should be limited to data on 
domestic travel. The complaints about the alleged misuse of the data 
all involved domestic markets. In addition, while airlines could obtain 
comparable data on domestic markets from other sources, comparable data 
appeared to be unavailable for bookings for international travel. 67 FR 
69401-69404.
    Our proposed rule would govern only the data derived from bookings 
made by travel agencies. We did not propose to regulate the 
availability of data derived from bookings made by corporate travel 
departments (or anyone else using a system to book airline travel).
    America West, Southwest, the Air Carrier Association of America (a 
low-fare airline trade association), and some travel agencies support 
the proposed restrictions. The larger U.S. network airlines, the 
systems, firms processing the data for airlines that buy the data (DOB 
Systems and Shepherd Systems), and a number of foreign airlines 
(Lufthansa, Qantas, and Virgin Atlantic, for example) oppose the 
proposals. Several travel agency commenters favor restrictions on 
access to the data. ASTA Comments at 40-41 (each travel agency should 
be able to block access to data on its bookings); Carlson Wagonlit 
Comments at 12-15; Large Agency Coalition Comments at 36. NBTA alleges 
that the airlines' access to the data makes it harder for corporations 
to negotiate more favorable air transportation contracts. NBTA Comments 
at 21. The Justice Department opposes the proposals, because the record 
does not show that access to the data is causing significant 
competitive harm and because the proposed restrictions would interfere 
with the data's pro-competitive uses. Justice Department Reply Comments 
at 34-36.
    The commenters disagree over whether comparable data are now 
available from other sources, or soon would be. Some commenters claim 
that equivalent data will become available. Amadeus Comments at 66, 73; 
Shepherd Systems Comments at 10-11. Other commenters argue that the 
type of data provided by the systems is not available from other 
sources. Delta Comments at 24; United Comments at 35-36.
    (c) Final Rule. We have decided not to adopt a rule restricting 
access to the data. Given our decision that only rules that are 
necessary to prevent anti-

[[Page 1014]]

competitive practices should be readopted, we will also eliminate the 
existing rule requiring systems to make data available to all 
participating airlines.
    We remain concerned over the possible misuse of the data. However, 
the record does not adequately demonstrate that the data's availability 
causes competitive harm that would justify the adoption of the proposed 
restrictions. The airlines obtaining the data have legitimate uses for 
the information. See, e.g., Justice Department Reply Comments at 34-35. 
If necessary, and supported by concrete evidence, individual 
enforcement actions would be the better means for addressing any 
airline's anti-competitive usage of the data.
    Adopting a rule restricting access to information that is currently 
available would require substantial evidence in the record that 
airlines have used the data in ways that have significantly harmed 
airline competition. The record does not contain such evidence, 
although several commenters have stated that large airlines do use the 
data to compel travel agencies to stop buying tickets for their 
customers on competing airlines, or that the data could be used for 
that purpose. Transcript at 216-217; America West Comments at 29; 
Carlson Wagonlit Comments at 14. The use of the data to compel travel 
agencies to stop selling tickets on rival airlines may constitute an 
unfair method of competition. However, no airline has submitted 
evidence showing that it has lost a significant amount of bookings from 
travel agencies who had been subjected to pressure from large airlines, 
nor has any commenter estimated how widespread or frequent are the 
alleged anti-competitive practices. We could not adopt a rule that 
effectively reduced the data's benefits without detailed evidence 
showing significant harm to competition.
    We recognize that such evidence may be hard to obtain, because 
travel agencies will be reluctant to complain about alleged 
mistreatment by an airline due to the airline's ability to retaliate. 
Transcript at 216-217; ASTA Reply Comments at 20-21. However, none of 
the low-fare airlines provided an estimate on the basis of its own 
experience how many travel agencies were coerced into ending their 
bookings with that airline, and that the data purchased from the 
systems were the source of the airline's information on the travel 
agency bookings. We note as well that American has flatly denied that 
it used the data to deter travel agencies in the Dallas area from 
booking Legend, a new entrant airline operating from Dallas' Love 
Field. American Comments at 46. That denial contradicts the statements 
made by Legend to Department staff members that were summarized in the 
notice of proposed rulemaking. See 67 FR 69403. Delta denies that it 
has ever misused the data. Transcript at 130. Virgin Atlantic, the 
target of British Airways' efforts to keep travel agencies from booking 
British Airways competitors, efforts not based on access to CRS data, 
argues that access to the data should not be restricted. Virgin 
Atlantic Comments at 4-6. The Justice Department contends that the lack 
of fare information means that the data cannot be used to coordinate 
fares. Justice Department Reply Comments at 35, n.40. A number of 
foreign airlines, which should have less leverage with U.S. travel 
agencies than the large U.S. network airlines, oppose the proposed 
restrictions and allege that the data tapes are valuable to them. 
Asociaci[oacute]n Internacional de Transporte Ae[eacute]reo 
Latinoamericano Comments at 4; Ass'n of Asia Pacific Airlines Comments 
at 7; British Airways Comments at 12; LAN Chile Comments at 7; TACA 
Comments; Virgin Atlantic Comments.
    In addition, any harm resulting from the continued sale of the data 
should diminish. The airlines most interested in limiting access to the 
data, the low-fare airlines, are shifting their bookings away from the 
travel agency distribution channel. The low-fare airlines have operated 
much more profitably in recent years than the network airlines, who 
wish to continue buying the data. The low-fare airlines arguably would 
be more successful if the availability of the data has caused them 
substantial competitive harm, but their relative success despite the 
network airlines' access to the data is a further reason why the record 
does not convincingly show that the proposed rules are necessary.
    On the other hand, the commenters opposing restrictions on the data 
allege that the data provide invaluable information used for a variety 
of pro-competitive purposes. A number of smaller airlines buy the data, 
as do foreign airlines serving the United States. See, e.g., Amadeus 
Comments at 64; Shepherd Systems Reply Comments at 11-12. Airlines use 
the data to learn when competitive responses are necessary to increase 
their market share (responses such as fare reductions or service 
increases), to check the relative attractiveness of their schedules, 
and to see developing demand trends. Delta Comments at 22; United 
Comments at 32; US Airways Comments at 13; Shepherd Systems Comments at 
4. As Delta puts it, ``We also use [the data] to identify market trends 
to determine where we should be offering lower fares, sales, more 
aggressive competition.'' Transcript at 130. American, moreover, 
represents that it relied on the data in its recent broad-scale 
restructuring of its route schedules. American Comments at 40. The 
proposed rules would interfere with these uses of the data. If 
individual airlines were allowed to opt out of the data, the resulting 
data including only bookings on the airlines that agreed to the release 
of data on their bookings would give an incomplete picture of many 
markets. Amadeus Comments at 64; United Comments at 34; United Reply 
Comments at 95-98; DOB Systems Comments at 1-2. This restriction, 
moreover, would not directly address the problem identified in the 
notice of proposed rulemaking, the large airlines' alleged use of the 
data to pressure travel agencies to stop selling tickets on competing 
airlines. 67 FR 69402-69403.
    A restriction barring the release of data on bookings by individual 
travel agencies could undermine the value of the data for overall 
market planning and research. While airlines could still obtain 
aggregate data from each system for local and regional markets, the 
systems do not use the same geographic areas in their sorting of the 
data. The data from the four systems could not practicably be combined 
for any local market due to the lack of common market definitions. 
Shepherd Systems Comments at 11-12. Some airlines allege that they 
would no longer buy the data tapes if we adopted our proposed 
restrictions. Lufthansa Comments at 6, 8; Qantas Comments at 2.
    Denying access to data on bookings by individual travel agencies 
would make the data useless for monitoring the performance of 
individual travel agencies under the airlines' incentive commission 
agreements, which enable travel agencies to obtain larger commission 
payments from an airline as it obtains a larger share of the agency's 
business. The major airlines' use of override commissions has raised 
competitive concerns, but we have not previously found that such 
incentive commissions are unlawful. 67 FR 69404. Without such a 
finding, we could not easily block airlines from obtaining the data 
needed to measure the performance of those travel agencies that have 
incentive commission agreements. ASTA Comments at 40.
    Restricting access to the data would impose other costs as well. 
Obviously the firms that process the data for airlines would lose a 
substantial amount of business. Shepherd Systems Comments at 12; DOB 
Systems

[[Page 1015]]

Comments at 2. Much of the investments made by systems and airlines in 
developing the ability to process and use the data would be lost. 
American estimates that it has invested $15 million in the last five to 
six years building systems that use the data. American Comments at 38. 
And the systems would lose the revenues now obtained from selling the 
data.
    Some commenters argue that the data tapes are unnecessary, because 
any airline can assertedly see market trends and the effectiveness of 
its sales efforts from data on its own bookings. Air Carrier Ass'n 
Reply Comments at 9-10. Although we tentatively believed that airlines 
did not need to see data on the success of their competitors' marketing 
efforts, 67 FR 69403, the comments have persuaded us that an airline 
reasonably needs to see data on the entire market in order to assess 
the effectiveness of its own marketing efforts. Data on an airline's 
own sales will not show overall market trends or enable an airline to 
compare the effectiveness of its marketing efforts with those of other 
airlines.
    Some commenters charge that airlines use the data at times to 
``poach'' customers from other airlines. Transcript at 237-238; ASTA 
Reply Comments at 20-21. The data, however, contain no information 
identifying individual passengers. An airline can often identify a 
corporate customer from the data, because corporations frequently have 
an on-site travel agency location. Transcript at 238. In any event, 
while poaching may be unethical, it may benefit travelers, because the 
poacher presumably has to offer more attractive terms to the travelers 
or their travel agencies in order to get them to switch. Transcript at 
237.
    We have also decided to eliminate the existing rule, which requires 
systems to make any data generated from subscriber bookings available 
to all participating airlines. The systems appear to be eager sellers 
of data. Because no system is currently owned or controlled by U.S. 
airlines, the systems should have no incentive to refuse to sell the 
data to any airline willing to buy the data. The systems should have 
incentives to sell as much data as airlines will buy. Delta Comments at 
20. The rule thus is no longer necessary.
    Eliminating the existing rule will also eliminate the restrictions 
on providing any data to a foreign airline that owns or controls a 
system in a foreign country that does not make comparable data 
available to U.S. airlines, section 255.10(b). We are not readopting 
these restrictions. The U.S. airlines that provide the most 
international service have not specifically asked us to maintain this 
restriction, and one of them, United, has argued that we should 
eliminate all of the CRS rules. The statutes administered by us, 
however, give us the authority to take countermeasures when a foreign 
airline engages in discriminatory conduct that injures U.S. airlines. 
49 U.S.C. 41310. The termination of the rule will not affect our 
authority and willingness to take steps necessary to end discriminatory 
conduct by foreign firms.
12. Third-Party Hardware and Software
    In an effort to give travel agencies a greater ability to access 
multiple sources of airline information and booking channels, in our 
last overall reexamination of the CRS rules, we adopted rules allowing 
travel agencies to use their own hardware and software in conjunction 
with a system and to access any database with airline information or 
booking facility for airline services from that equipment. If the 
travel agency instead obtains its equipment from the system, the rule 
allows the system to determine whether the subscriber may access other 
databases or booking channels from that equipment. 57 FR 43796-43800.
    We adopted these rules because the systems then barred their 
subscribers in the United States from using their own equipment and 
from accessing any other database or system from the equipment provided 
by the system. While travel agencies could obtain additional equipment 
from another source if they wished to access alternative electronic 
sources of information and booking capabilities, doing that would be 
inefficient. In adopting the rules, we reasoned that the travel agents' 
ability to access different systems and databases efficiently could 
enable airlines to obtain bookings from travel agents that would bypass 
the systems, which would place some market pressure on the systems' 
terms and prices for airline participation. See 67 FR 69390-69391.
    Experience has shown that these rules in recent years have been 
effective in important respects. 67 FR 69391. Many travel agencies have 
been acquiring their own equipment, and subscribers are using their 
equipment, whether or not owned by a system, to access the Internet and 
other booking channels, as discussed above in our review of current 
industry conditions. However, travel agents are not making a 
significant share of their airline bookings through the Internet or 
other channels outside the travel agency's primary system. As discussed 
above, the commenters in this proceeding generally agree that travel 
agencies will rarely be willing to make airline bookings outside their 
primary system due to the inefficiency of doing so, even when travel 
agents can access the Internet from the same equipment used to access 
their primary system.
    In our notice of proposed rulemaking, we proposed to readopt the 
rule and to strengthen it by eliminating a system's ability to keep 
subscribers from using system-owned equipment to access other systems 
and databases. 67 FR 69391. We also invited comment on whether we 
should adopt a rule preventing systems from discriminating against 
subscribers who used a back-office system in conjunction with bookings 
made outside a system and from charging discriminatorily high fees to 
subscribers who bought their own equipment. 67 FR 69392.
    We have decided, in line with our overall approach in this 
proceeding, not to readopt the rule. We recognize that the rule has had 
pro-competitive effects and that any restrictions on a subscriber's 
acquisition of third-party hardware and software or on a subscriber's 
use of any equipment to access other systems or databases or booking 
channels would likely present competitive concerns. However, market 
developments have made the rule unnecessary.
    ASTA states that it knows of no evidence that systems now 
discourage travel agencies from getting their own equipment. ASTA 
Comments at 14-15. Sabre represents that it is withdrawing from the 
equipment-leasing business and that most Sabre subscribers have their 
own equipment. Sabre Comments at 19-20, 131. Amadeus similarly states 
that most of its subscribers own their own equipment, and it alleges 
that it does not restrict its subscribers from accessing other 
databases and booking channels when they use equipment provided by 
Amadeus. Amadeus Comments at 45. Notwithstanding these statements from 
Sabre and Amadeus, most travel agencies continue to use equipment 
provided by a system. Orbitz Comments at 56. However, the record does 
not indicate that systems in recent years have been placing roadblocks 
in the way of subscriber efforts to use alternative booking channels. 
Even if Galileo and Worldspan subscribers have had less success in 
using third-party equipment (or in accessing other databases and 
booking channels), a travel agency that wants more flexibility in these 
areas should be able to obtain it by switching to Sabre or Amadeus.
    Furthermore, as discussed above, the systems' subscriber contracts 
are giving travel agencies increasingly more flexibility. Recent 
experience indicates

[[Page 1016]]

that systems will be unable to impose contractual restrictions on their 
subscribers that would significantly restrict a travel agency's ability 
to use alternative sources of airline information and booking 
capabilities, due in large part to the travel agencies' increasing need 
to access the Internet. ASTA Comments at 14-15.
    We are basing our decision to sunset the rules on third-party 
hardware and software on our expectation that doing so will not lead to 
anti-competitive behavior. Any unreasonable efforts by a system to 
restrict a subscriber's use of other systems or databases would 
presumably constitute an unfair method of competition. In any such 
cases we will consider taking appropriate enforcement action. We have 
full authority to prohibit systems (and airlines and travel agencies) 
from engaging in conduct that would violate section 411 even if we have 
no rule prohibiting that conduct.
13. Travel Agency Contracts
    (a) Background. Since the first CRS rulemaking, the rules have 
regulated the systems' contracts with travel agency subscribers in an 
effort to give travel agencies a greater opportunity to switch systems 
or use multiple systems (or booking channels). The rules therefore 
prohibit certain types of travel agency contract clauses that would 
unreasonably restrict a travel agency's ability to use alternative 
systems, such as clauses requiring an agency to use an airline's 
affiliated system for all of its bookings on that airline or denying a 
travel agency commissions for bookings on an airline if not made 
through the airline's own system. The rules allow systems to offer 
travel agencies a contract with a five-year term as long as they also 
offer contracts with a term of no more than three years. The rules bar 
systems from imposing minimum use clauses (clauses stating that an 
agency's failure to make a certain number of bookings per month per 
terminal will constitute a breach of contract). On the other hand, the 
rules do not prohibit productivity pricing or the tying of access to an 
airline's marketing benefits to the travel agency's use of the system 
affiliated with that airline, nor do they bar systems from obtaining 
damages if a travel agency breaches its subscriber agreement by 
canceling it before the end of its term. 57 FR 43825-43828.
    We regulated the systems' subscriber contracts, because practices 
that limit competition between the systems were likely to impair 
airline competition. An airline would be handicapped in entering new 
markets if its affiliated system could not obtain travel agency 
customers in the region. Furthermore, system contracts that restrict 
competition between systems (or keep travel agents from using 
alternative systems and booking channels) would entrench the systems' 
existing market power and keep airlines from finding alternative ways 
of conducting the functions provided by the systems. 57 FR 43823-43824. 
In addition, an airline that used its dominance of a region to obtain 
more subscribers to its system thereby would increase its dominance of 
the regional airline market. Justice Department Reply Comments at 9.
    We have stated, however, that effective regulation would be 
difficult, and some restrictions on the relationships between a travel 
agency and a system or its airline owners might well be unenforceable 
or be evaded by the system. See, e.g., 57 FR 43827 (restrictions on 
liquidated damages for breach of contract); 57 FR 43828 (prohibition 
against tying of marketing benefits with use of a system).
    Our notice of proposed rulemaking proposed to readopt the existing 
rules on subscriber contracts and to make them stricter, although we 
recognized that the systems competed vigorously for travel agency 
subscribers. We requested comments on whether we should shorten the 
maximum permissible length of subscriber contracts, for example, by 
adopting the European Union rule which allows a subscriber to cancel 
its CRS contract on three months notice after the contract has been in 
force for one year. We asked whether we should restrict the types of 
damages obtainable by a system from a subscriber who cancels a contract 
before the end of the contract term and whether we should prohibit 
airlines from tying access to an airline's marketing benefits with the 
agency's use of the airline's affiliated system. We additionally 
invited comment on whether we should bar systems from demanding a new 
contract if they provided additional equipment to a subscriber during 
the term of an existing contract. And we proposed to restrict 
productivity pricing, a form of incentive pricing that appeared to 
encourage subscribers to use the system for all or almost all of their 
bookings. 67 FR 69406-69410.
    We made these proposals because the record in this proceeding then 
suggested that the systems were effectively using these kinds of 
contract provisions to keep subscribers from using alternative booking 
channels. 67 FR 69405. However, our notice specifically requested more 
detailed information on the current relationships between travel 
agencies and the systems and on the systems' business practices. 67 FR 
69406. We further noted that the U.S. airlines' divestiture of most of 
their system ownership interests was eliminating one of the bases for 
the regulation of subscriber contracts, the interest of an owner 
airline in obtaining subscribers for its system in cities that it 
planned to enter. 67 FR 69406. As we pointed out, ``[T]he systems 
compete vigorously for travel agency subscribers'' and ``the systems' 
competition for travel agency customers usually disciplines the price 
and quality of services offered travel agencies.'' 67 FR 69405.
    The Justice Department recommends that we eliminate the rules on 
subscriber contracts. It contends that the travel agencies' 
unwillingness to use multiple systems means that any rules designed to 
encourage them to do so will be ineffective. The systems compete for 
travel agency subscribers, and ``behavioral rules that regulate the 
terms of CRS-subscriber contracts may be unnecessary because 
competition among CRSs for subscribers is apparently eliminating 
contracts that limit subscriber options.'' The existing rules also 
present significant enforcement problems. Justice Department Reply 
Comments at 28-29.
    The travel agency commenters strongly oppose restrictions on the 
systems' incentive payments, which assertedly are essential for the 
survival of many agencies, although some support restrictions on the 
systems' ability to enforce the penalty provisions in their 
productivity pricing arrangements. See, e.g., ASTA Comments at 35. The 
travel agency commenters represent that an individual travel agency 
will rarely be willing to use more than one system and that any rules 
intended to achieve that result will be ineffective and should not be 
adopted. Travel agencies generally favor some stricter subscriber 
contract rules. ASTA Comments at 30-35; Large Agency Coalition Comments 
at 36. Some argue in contrast that the rules should not limit travel 
agencies from obtaining whatever contract they wish. See, e.g., AAA 
Comments at 2; Transcript at 241-242. ASTA, moreover, suggests that 
non-airline systems are not ticket agents subject to section 411, and 
the Large Agency Coalition asserts that it would prefer to have the 
rules terminate rather than have restrictions on the systems' incentive 
payments. ASTA Comments at 45-47; Large Agency Coalition Comments at 
38. The travel agency commenters do not argue that subscriber contract 
rules are necessary to protect travel agencies against system demands 
for

[[Page 1017]]

unreasonable contract lengths or undue restrictions on the ability of 
travel agents to access other databases and booking channels.
    Orbitz and several airlines argue that tougher rules are necessary, 
because the systems' existing contracts unreasonably keep travel 
agencies from switching systems. See, e.g., Orbitz Comments at 46-49; 
Continental Comments at 17-20; Delta Comments at 41-42; America West 
Comments at 26-29.
    Galileo supports the continuation of the existing rules, while 
Amadeus suggests that additional rules should be adopted.
    (b) Final Decision. The updated information on industry practices 
provided by the comments has persuaded us that we should not adopt our 
proposed changes to the rules and that we should not readopt the 
existing rules. Rules generally governing subscriber contract practices 
no longer appear to be necessary, because the market is working. 
Moreover, the systems' subscriber contracts do not appear to 
substantially restrict travel agents from using alternative booking 
channels.
    The comments show that the nature of subscriber contracts has 
changed substantially in the last few years, as discussed above in our 
description of the travel agency business. As stated there, the systems 
no longer obtain contracts that will keep travel agencies from using 
other electronic channels for obtaining information and making 
bookings. Large Agency Coalition Comments at 7. A declining portion of 
subscriber contracts contain productivity pricing provisions, current 
productivity pricing provisions allow travel agencies to obtain bonuses 
(or avoid penalties) despite booking airline tickets outside the 
system, and the length of the term of the typical subscriber contract 
has shrunk dramatically. The agencies' ability to obtain more flexible 
contracts is consistent with our finding that the systems compete 
aggressively for travel agency subscribers. A system that does not 
satisfy travel agency demands for greater flexibility will lose 
subscribers. Given industry trends, we assume that future subscriber 
contracts will provide travel agencies with even greater flexibility. 
Transcript at 232.
    While the systems have always competed for subscribers, in earlier 
years that competition did not keep them from obtaining contract 
clauses that effectively deterred travel agencies from using multiple 
systems or booking channels and from switching systems. For example, 12 
years ago Worldspan alleged that it abandoned its efforts to obtain 
more subscribers by offering less restrictive contracts, because doing 
so was not increasing its subscriber base. 57 FR 43824. Moreover, while 
our 1992 rules required systems to offer travel agencies a three-year 
contract in addition to a five-year contract, for some years the 
systems were able to obtain five-year contracts from most of their 
subscribers. 67 FR 69405. In contrast, the record shows that the 
average contract term now is three years. Sabre Comments at 17-18. 
Similarly, while the great majority of subscriber contracts once 
contained productivity pricing provisions that effectively discouraged 
travel agents from using alternative booking channels for any 
significant share of their sales, the record does not indicate that 
this is the case now. See, e.g., ASTA Comments at 15.
    The record does not show that we should adopt a rule requiring 
systems to provide new equipment to a subscriber during the term of a 
contract without requiring a new long-term contract for the added 
equipment. ASTA states that it considers it unlikely that a system 
``will refuse equipment additions late in a contract term or gouge the 
agency on price,'' because doing so ``could persuade the agency to buy 
its own equipment or even to switch vendors altogether.'' ASTA Comments 
at 32. While ASTA nonetheless suggests that we should bar systems from 
requiring a new contract for the added equipment, we think that the 
systems and subscribers should negotiate their own arrangements. As 
ASTA alleges, travel agencies have some leverage with systems on this 
issue. If we restricted the systems' contractual flexibility by 
regulation, moreover, that might discourage them from agreeing to 
provide any new equipment. 57 FR 43825-43826.
    We see no reason to adopt stronger rules, or keep the existing 
rules, when market forces are enabling travel agencies to obtain less 
restrictive contracts and when the systems' contracts do not appear to 
impose unreasonable restraints on the subscribers' ability to switch 
systems or use several electronic information sources and booking 
channels in addition to their primary system.
    The systems' current contract practices, moreover, are not 
necessarily unreasonable. Long-term contracts, for example, offer 
significant efficiency advantages, as we pointed out in our notice of 
proposed rulemaking. Long-term contracts reduce the parties' 
negotiating expenses. Sabre Comments at 153-154. Although Amadeus 
favors the European rule, which allows travel agencies to cancel 
contracts on short notice after the first year of a subscriber 
contract, Amadeus admits that the European rule could lead to somewhat 
higher transaction costs. Amadeus Reply Comments at 64. One travel 
agency argues that a five-year term is the best term for a subscriber 
contract. Travel Management Alliance Comments. Some travel agencies, 
moreover, would like the opportunity to obtain contracts with terms 
longer than allowed by our current rules. Transcript at 241-242; AAA 
Comments at 2.
    Similarly, contracts offering customers incentives to rely on a 
supplier for a greater share of its goods or services are also not 
unreasonable. Many airlines, after all, offer travel agencies override 
commission programs that enable travel agencies to obtain larger 
commissions from an airline if they book a larger share of their 
business with the airline. Amadeus Comments at 86. Also, virtually 
every airline has a frequent flyer program that rewards passengers for 
traveling more with that airline. Cf. Galileo Comments, Guerin-Calvert, 
Jernigan, & Hurdle Declaration at 81. Exclusive contracts are not 
inherently unlawful. United States v. Microsoft Corp., 253 F.3d at 70.
    In addition, we have recognized that systems should be able to 
obtain damages for breach when a subscriber cancels its contract before 
the end of the term without cause. 57 FR 43827.
    We do not view the systems' use of productivity pricing as a 
strategy created to maintain their market power over airlines, but as a 
response to their competitive struggle for subscribers and each travel 
agency's knowledge that its choice of one system rather than the others 
will enable the winning system to obtain a stream of booking fees from 
airlines.
    Subscriber contract terms that give a system some assurance that 
its subscribers will continue using its services also give the systems 
``incentives to make investments that enhance their value to travel 
agencies, including increased automation, customized features and other 
functionality enhancements, and the provision or upgrade of 
equipment.'' Justice Department Reply Comments at 28. Sabre concedes 
that it has contracts with small travel agency subscribers that deny 
those subscribers incentive payments if they make bookings through 
another system, but these provisions are allegedly reasonable because 
Sabre provides substantial support for such an agency, the cost of 
which is offset by the booking fees obtained by Sabre if they continue 
using Sabre for their bookings. These subscribers account for a small 
part of Sabre's total subscriber base.

[[Page 1018]]

Sabre Comments, Salop & Woodbury Declaration at 18-20.
    In any event, insofar as the rules are intended to allow travel 
agencies to use multiple systems, the rules will not work. Travel 
agencies will rarely use more than one system because doing so is 
inefficient, as discussed above. If the systems' productivity pricing 
programs provide a disincentive to use alternative booking channels, 
airlines can offer incentive payments of their own that could encourage 
travel agents to make bookings directly with an airline. Galileo 
Comments, Guerin-Calvert, Jernigan & Hurdle Declaration at 81.
    Efforts to regulate travel agency contracts also present a 
practical problem, the difficulty of obtaining effective compliance (in 
contrast, the rules on display bias, equal functionality, and non-
discriminatory booking fees have been effective and complied with). 
Experience with our past attempts to prevent certain contract practices 
has shown that systems can evade restrictions by devising alternative 
contract terms that achieve the same result as the prohibited terms but 
comply with the letter of our rules. 57 FR 43827. If we adopted rules 
prohibiting productivity pricing arrangements, travel agencies and 
systems would have incentives to maintain them, and enforcing those 
rules would be impracticable. Justice Department Reply Comments at 29; 
Delta Reply Comments at 52-53.
    The record shows that the profitability of many travel agencies 
depends on the incentive payments provided by productivity pricing 
contracts. See, e.g., Large Agency Coalition Comments at 33. We would 
be reluctant to disallow such pricing contracts when doing so seems 
likely to impose severe financial strains on many travel agencies, as 
is claimed by many of the travel agency commenters. The surviving 
travel agencies, moreover, would need to obtain additional revenues to 
offset the loss of the systems' incentive payments, which would either 
increase the costs for consumers to use travel agencies or the 
airlines' costs for distributing their tickets through travel agencies. 
Sabre Reply Comments, Salop & Woodbury Declaration at 22-24.
    In any event, on balance, the systems' current productivity pricing 
clauses seem to allow travel agencies to make a significant number of 
bookings through different booking channels. Large Agency Coalition 
Reply Comments at 13-16. The systems do not discourage subscribers from 
accessing the Internet, and the growing use of programs like 
AgentWare's service, which provides travel agents links to other 
booking sites, suggests that travel agents are able to make bookings 
outside their primary system. We recognize that several commenters 
contend that the systems' productivity pricing clauses contain 
provisions that deter travel agents from using alternative booking 
channels. For example, while ASTA opposes restrictions on incentive 
payments, it suggests that we should eliminate penalty clauses in the 
systems' productivity pricing agreements because penalty clauses do 
deter travel agents from using the Internet for bookings. ASTA Comments 
at 26, n. 44, and 34-35. See also Southwest Comments at 16-20; Travel 
Management Alliance Comments. The Large Agency Coalition's comments 
address in detail the effects of the penalty provisions but not the 
incentive payment provisions. The ASTA survey suggests that the 
systems' productivity pricing programs are one of the three reasons why 
travel agents do not make more bookings on the Internet. Orbitz 
Comments at 23, n. 10. Orbitz asserts that the systems compel travel 
agencies to accept exclusive deals. Orbitz Comments at 46-47. These 
complaints that productivity pricing does block travel agencies from 
using alternative booking channels are not substantiated enough to 
override the other factors in favor of eliminating the restrictions on 
subscriber contracts--the travel agencies' inherent unwillingness to 
use multiple systems, the difficulty of enforcing rules on issues like 
incentive payments, and the dependence of many travel agencies on 
incentive payments for survival. Equally important, the market seems to 
be moving in a more competitive direction. The minimum booking quotas 
in subscriber contracts are declining, and the systems' incentive 
payments to travel agencies are now declining and will continue to do 
so. Transcript at 232, 234, 235.
    Other considerations make us reluctant to regulate many of the 
subscriber contract issues. The U.S. airlines' divestiture of their 
system ownership interests has ended the direct link between system 
competition and airline competition that was a principal basis for the 
adoption of subscriber contract rules. Travel agency decisions to use 
one system rather than another, and to accept longterm contracts for 
CRS services, should not affect airline competition. In exercising our 
authority to prohibit unfair methods of competition under section 411, 
our primary goal has been the protection of airline competition. 
Regulating subscriber contracts for the most part would not further 
that goal.
    Given the record evidence on current market conditions, it is 
doubtful whether section 411 would enable us to maintain rules 
governing travel agency contracts. Practices like longterm contracts 
and incentive payment programs are not inherently anti-competitive, as 
discussed above. If the systems' current subscriber contracts 
effectively deterred travel agents from using alternative booking 
channels (direct links with an airline's internal reservations system, 
for example), the contracts could constitute an unfair method of 
competition, because they would help preserve the systems' existing 
power over airlines, unless the contracts were justified by legitimate 
business reasons that outweighed any adverse impact on competition. 
Because the systems are ticket agents subject to our jurisdiction under 
section 411, we may regulate their contract practices if they are 
engaged in unfair methods of competition that affects airline 
distribution. The record in past proceedings indicated that the 
systems' contract practices could violate section 411, because the 
systems imposed contract terms on travel agencies that appeared 
designed to preserve the systems' market power by deterring travel 
agents from using alternative booking channels. 57 FR 43823-43825. Cf. 
United States v. Microsoft Corp., 253 F.3d at 71-74. The record here, 
in contrast, does not show that the systems' contracts effectively keep 
travel agents from making bookings that bypass the systems.
    We recognize that prospective entry into the CRS business, by 
Orbitz, for example, would be more successful if the systems' existing 
subscriber contracts were nullified, thereby enabling all travel 
agencies to make a new choice of which system to use. Orbitz otherwise 
may be able to obtain subscribers only from those travel agencies whose 
contracts are expiring. Orbitz in fact seeks to give subscribers an 
option to void all existing contracts that do not comply with new 
subscriber contract rules. Orbitz Comments at 50, 53. Northwest, one of 
Orbitz' owners, similarly argues that we should enable any travel 
agency to terminate its existing contract with a system, if any of the 
airlines serving the agency's city withdraws from participation in that 
system. Northwest Comments at 3-4.
    Ending any substantial number of existing subscriber contracts 
would be disruptive and impose substantial negotiating costs on the 
systems and travel agencies. See, e.g., Galileo Reply Comments at 59. 
Imposing such burdens on the industry would be at odds with our overall 
decision to end CRS

[[Page 1019]]

regulation. Furthermore, we doubt that section 411 would authorize us 
to grant Orbitz' request. As stated elsewhere, section 411 does not 
empower us to impose our views of the best possible competitive 
structure and practices on an industry. It authorizes us instead to 
prohibit unfair methods of competition. Because the record does not 
show that the systems' current subscriber practices violate the 
antitrust laws or antitrust principles, we do not have the power to 
undo the existing contracts, even if they may hinder Orbitz' entry into 
the business.
    Orbitz and other commenters are legitimately concerned about the 
impact of potential system contract practices that would unreasonably 
restrict travel agency usage of alternative booking channels. We will 
monitor the systems' practices to ensure that the end of our rules on 
contract practices does not lead to new efforts to obtain contracts 
from subscribers that will unreasonably limit airline competition.
14. The Tying of Commissions and Marketing Benefits With a Subscriber's 
Choice of a System
    Our concern that an owner airline would use its dominance of 
airline markets in some cities to obtain dominance in the CRS markets 
in those cities led the Board to adopt a rule prohibiting an airline 
that owned a system from tying a travel agency's commissions to the 
agency's use of the airline's system. Dominance in the local CRS market 
would reinforce the airline's power in the local airline markets. 
Justice Department Reply Comments at 9. For the same reasons, we have 
considered proposals to prohibit the tying of a travel agency's access 
to an airline's marketing benefits, such as the ability to waive 
advance-purchase restrictions on discount fares, with the agency's 
choice of the system affiliated with the airline. We did not adopt such 
a rule because we expected that any such requirement would be 
unenforceable. 57 FR 43828.
    A few commenters complain that airlines affiliated with a system 
have distorted competition in the CRS business by refusing to provide 
marketing benefits (or the ability to sell the airline's corporate 
discount fares) to travel agencies that do not use the system owned or 
marketed by the airline. Some commenters believe that such airlines 
have also tied access to override commissions with the travel agency's 
use of the airline's affiliated CRS, even though doing so would violate 
our rule. See, e.g., Amadeus Comments at 90-92.
    Our notice of proposed rulemaking stated that we were willing to 
revisit the issue of the tying of marketing benefits to the use of the 
airline's affiliated system, although we again expressed our concern 
about the potential unenforceability of any such rule. 67 FR 69409-
69410.
    ASTA and Amadeus support the proposed prohibition against the tying 
of a travel agency's access to marketing benefits with the agency's 
choice of a system. ASTA Comments at 39-40; Amadeus Comments at 86-92. 
Other commenters oppose the proposal. Delta Reply Comments at 53-58; 
Northwest Reply Comments at 24-25; United Reply Comments at 54-65.
    After considering the comments, we have decided to terminate the 
current rule rather than broaden it. First, no U.S. airline currently 
owns a system, so the existing bar against tying now covers only the 
three European airlines that own Amadeus. Secondly, the existing and 
proposed restrictions on tying, even if effective, seem unlikely to 
significantly affect airline competition, because no system has U.S. 
airline ownership. Thirdly, an airline that is affiliated with a system 
may have legitimate reasons for wanting to encourage travel agencies to 
use that system. Bookings made through that system, for example, may be 
less costly for that airline. United Reply Comments at 64-65. Also, 
some commenters (but not Amadeus) allege that the airlines marketing a 
system do not aggressively sell the system and that tying is a 
vanishing practice. Large Agency Coalition Reply Comments at 16-17. 
Fourthly, a prohibition against the tying of marketing benefits would 
not keep airlines that wished to use their dominance of local airline 
markets from using their position in the airline market to compel 
travel agencies to use their affiliated system. Airlines can achieve 
that result by tying a travel agency's choice of their favored system 
to the agency's access to corporate discount fares. Finally, we 
continue to believe that prohibitions against tying are likely to be 
unenforceable, a view that the Justice Department shares. Justice 
Department Reply Comments at 24. Although the current rules thus 
prohibit the tying of a travel agency's ability to obtain commissions 
with the agency's choice of a system, Amadeus alleges that it has lost 
subscribers (or failed to win new subscribers) because an airline that 
owned or marketed a competing system threatened to terminate the 
agency's commissions if it chose Amadeus. Amadeus Comments at 90-92; 
see also Large Agency Coalition Reply Comments at 17.
    Nonetheless, we will watch for any anti-competitive behavior in 
this area and take enforcement action if appropriate.
15. Regulation of the Internet's Use in Airline Distribution
    When we last reexamined the need for the CRS rules and their 
effectiveness, the Internet did not play a role in airline ticket 
distribution. The systems were used by travel agencies, corporate 
travel departments, and by some consumers through on-line services. At 
that time, ``brick-and-mortar'' travel agencies sold about 80 percent 
of all airline tickets, and consumers bought most of the remainder 
directly from the airlines. Few travelers bought tickets on-line. 57 FR 
43794-43795. Our rules regulate the systems insofar as they are used by 
travel agencies but do not otherwise regulate the systems, and they do 
not cover the operations of travel agencies.
    In recent years, the Internet has become a major avenue for the 
sale of airline tickets. Both airlines and travel agencies have 
established websites where consumers can research airline service 
options and make bookings. The number of tickets sold through the 
Internet has been growing steadily, from 18 percent of all tickets in 
2001 to an estimated 25 percent of all tickets in 2003. Airline 
websites account for about half of all tickets sold through the 
Internet. Galileo Comments, Guerin-Calvert, Jernigan, & Hurdle 
Declaration at 24. Some firms have established themselves as on-line 
travel agencies, like Travelocity, Expedia, and Orbitz, but many 
``brick-and-mortar'' travel agencies have also established websites. 67 
FR 69374.
    Our supplemental advance notice of proposed rulemaking asked for 
comments on whether we should regulate the on-line distribution of 
airline tickets. 65 FR 45557. While a number of commenters argued that 
no Internet activities should be regulated, others contended that some 
rules were necessary. See 67 FR 69410.
    After considering the comments, we tentatively concluded that we 
should not now adopt rules that would generally govern the Internet's 
use in airline distribution. Rather than propose rules on the basis of 
a relatively short experience, we wished to see how the Internet's use 
in airline distribution develops and whether its evolving use threatens 
airline competition and consumer access to accurate and complete 
information on airline services. We found that our experience with the 
Internet thus far does not confirm that broad regulations are 
necessary. We invited commenters who

[[Page 1020]]

disagreed with our tentative position on these issues to present their 
proposals with information and analysis showing that they would provide 
public benefits without harming competition or the development of new 
on-line marketing approaches. 67 FR 69410.
    We did propose a change to our policy statement on fare advertising 
concerning one Internet-related issue, the requirements for disclosure 
of travel agency service fees. We plan to address that question in a 
separate final rule.
    We still believe that we should not adopt rules governing airline 
distribution over the Internet, whether through airline websites or on-
line travel agencies. As we stated in the notice, we intend to continue 
watching the Internet distribution practices of airlines and on-line 
travel agencies and will take action if that becomes necessary. The 
absence of rules specifically governing Internet distribution practices 
will not excuse airlines and travel agencies from complying with 
section 411, which prohibits unfair and deceptive practices and unfair 
methods of competition in the distribution of airline tickets. In 
addition, existing rules requiring travel agencies to provide accurate 
information on airline services, 14 CFR 399.80, are applicable to on-
line ticket sales by travel agencies. We are ready to take enforcement 
action against any travel agency (or airline) that provides deceptive 
information on airline services through the Internet, and we have done 
so in several cases. See, e.g., Orders 2001-5-32 (May 30, 2001) and 
2001-6-3 (June 7, 2001).
    The issues presented by the comments concern (i) regulation of on-
line travel agencies, (ii) regulation of airline choices on which 
distribution channels should be given access to all publicly-available 
fares, and (iii) Orbitz.
    We affirm our tentative decision that rules are not needed to 
regulate airline websites. The commenters have not challenged that 
tentative decision. Consumers assume that an airline website will favor 
the airline's own services and not present an impartial display of all 
airline services. Any airline offering a website will seek to promote 
its own services and those of any allied airlines. 67 FR 69411.
    (a) Regulation of On-Line Travel Agencies. On-line travel agencies 
such as Expedia, Travelocity, and Orbitz have become major sellers of 
airline travel. We tentatively concluded that we should not adopt rules 
regulating their conduct, despite the concern expressed by some 
commenters that on-line travel agencies may bias their displays in 
favor of preferred airlines if not prohibited from doing so. We noted 
that we were not proposing to regulate the CRS displays created by 
travel agencies for their travel agents. The existing CRS rules do not 
regulate the practices of ``brick-and-mortar'' travel agencies. 
However, every on-line travel agency, like every ``brick-and-mortar'' 
travel agency, is subject to section 411 and may not engage in unfair 
and deceptive practices.
    We thought that on-line travel agencies, like ``brick-and-mortar'' 
travel agencies, want to keep their customers satisfied. That should 
deter them from providing inaccurate or misleading advice to customers 
and so would keep them from biasing their displays. Newspapers and 
magazines occasionally compare the quality of service offered by 
different on-line travel agencies, which should discourage the agencies 
from offering biased displays. And because consumers usually search 
several sites before making a booking, they should not be harmed if one 
on-line travel agency biases its displays. The record, moreover, did 
not show that bias is a serious problem at on-line travel agency 
websites. Finally, a rule requiring on-line travel agencies to follow 
prescribed display rules could discourage new methods of offering 
airline tickets on-line, such as those developed by Priceline and 
Hotwire. 67 FR 69411-69412.
    A few commenters contend that we should adopt rules governing on-
line travel agency displays. America West Comments at 37; US Airways 
Comments at 5-9. Amadeus contends that the systems should not be 
regulated if on-line travel agencies are not regulated. Amadeus 
Comments at 93; Amadeus Reply Comments at 54-59. Midwest alleges that 
some on-line travel agencies offer displays that are biased and 
inaccurate and do not show that its service is superior to the coach 
service typically provided by other airlines. Midwest Comments at 10-
16.
    These commenters have not convinced us that on-line display bias is 
a widespread problem that harms consumers and requires the adoption of 
rules. The examples cited by Midwest, if accurate, are troubling, but 
we believe that individual enforcement action would be the better 
approach if an agency is offering displays that mislead consumers.
    In finding that the record does not show a need for rules barring 
display bias by on-line travel agencies, we are not determining that 
consumers have a greater ability than travel agents to work around 
bias. We are instead finding that the on-line travel agencies do not 
appear to be biasing their displays and that they are unlikely to do 
so, because most consumers check more than one website and because 
newspapers and other publications rate the relative accuracy and value 
of the different on-line travel agencies. These factors should 
effectively discourage on-line travel agencies from engaging in display 
bias, even though many consumers investigate airline services on only 
one website and not all consumers read published reports comparing the 
different on-line travel agencies. 67 FR 69411. If an on-line travel 
agency does create displays that mislead consumers, we can and will 
take appropriate enforcement action.
    We also see no reason to exempt the systems from regulation if we 
do not adopt rules regulating the on-line travel agencies. The systems 
are not direct competitors of the on-line travel agencies, and the 
systems' possession of market power over airlines mandates the adoption 
for a transitional period of some rules designed to prevent practices 
intended to maintain that market power or to use it in ways that could 
cause consumer deception. The on-line travel agencies do not have that 
kind of market power. Justice Department Reply Comments at 15.
    (b) The Airlines' Differing Treatment of Different Travel Agencies. 
A number of the comments on our advance notices of proposed rulemaking 
had argued that we should require airlines to make all of their 
publicly-available fares, especially their webfares, saleable through 
every system. These commenters complained that the airlines' decision 
to make webfares available only through individual airline websites, or 
through such websites and Orbitz, was unfair to other travel agencies 
and the traveling public. The airlines, on the other hand, asserted 
that their decision to sell their webfares only through the least 
costly distribution channels was a rational decision. See 67 FR 69412-
69413.
    We declined to propose any rule requiring airlines to make all 
fares available through all distribution channels, as was sought by a 
number of commenters. Telling airlines how they must distribute their 
services and fares would likely deter them from offering some fares 
that they wish to sell only through selected distribution channels. 
Moreover, individual airlines have always given some travel agencies 
access to fares and other benefits not given other travel agencies. A 
rule requiring airlines to treat all distribution channels the same, in 
terms of access to fares, would be contrary to the industry's 
established practices (and contrary to practices followed by the

[[Page 1021]]

systems and individual travel agencies as well). In addition, as we 
explained, the basis for this rulemaking was our authority under 
section 411 to prohibit unfair methods of competition, unfair methods 
of competition are practices that violate the antitrust laws or 
antitrust principles, and the antitrust laws generally allow individual 
firms to choose how to distribute their products and services. An 
airline's decision to provide certain types of fares or better 
treatment to one type of distribution channel (or to some but not all 
firms within the same channel) would not ordinarily violate antitrust 
principles. 67 FR 69413.
    After we prepared our notice of proposed rulemaking, the National 
Commission to Ensure Consumer Information and Choice in the Airline 
Industry, which had been charged by Congress to study this and related 
issues, issued its report. That report concluded that airlines should 
not be required to make all fares available through all distribution 
channels. The Commission reasoned that such a requirement would 
substantially harm consumers, because airlines would stop offering some 
low webfares, would be contrary to the industry's use of different 
distribution channels to dispose of specific types of inventory, and 
would not solve the travel agency industry's basic problems, 
particularly the growing use of the Internet. ``Upheaval in Travel 
Distribution: Impact on Consumers and Travel Agents,'' ``National 
Commission to Ensure Consumer Information and Choice in the Airline 
Industry'' (November 13, 2002), at 56-58.
    Several commenters continue to assert that airlines should be 
required to make all publicly-available fares saleable through all 
distribution channels. Large Agency Coalition Comments at 38-39; AAA 
Comments at 3; Carlson Wagonlit Comments at 3.
    Airlines object to any such requirement. See, e.g., America West 
Comments at 32-34; Continental Comments at 10.
    We remain unwilling to require airlines to make their webfares (or 
other publicly-available fares) available to each system so that travel 
agencies can easily book them. For the reasons stated in our notice of 
proposed rulemaking, any such requirement would be outside our 
authority under section 411 and lack an economic or policy 
justification. Such a requirement would deny airlines the ability to 
choose which distribution channel best meets their needs. As shown, 
Southwest and JetBlue, two successful and growing airlines, have chosen 
to distribute their services through only one system, Sabre, and to 
encourage travelers to make bookings directly with the airline, either 
through the airline's website or a reservations agent. The requirement 
would be contrary to the airlines' established practice of selling some 
fares only through a few selected channels. America West points out 
that it makes special fares available only through some channels, like 
one or two of the on-line travel agencies, rather than through all 
channels. America West Comments at 33. As noted, our decision is 
consistent with the National Commission's conclusions, and we agree 
with the Commission's analysis. As the Commission stated, requiring 
airlines to make all fares available through all distribution channels 
will encourage airlines to eliminate those fares that they wish to make 
available only through selected distribution outlets.
    Requiring airlines to make all publicly-available fares saleable 
through all channels would be more efficient for travel agents and 
their customers, because they would no longer need to search multiple 
places to check all the fares, and would be able to make bookings 
through their primary system, which has been the most efficient booking 
process for travel agencies. Our authority to prevent unfair methods of 
competition would not allow us to override individual airline decisions 
on how to distribute tickets unless we can show that doing so is 
necessary to prevent conduct that would violate the antitrust laws or 
antitrust principles. The record in this proceeding would not support 
such a finding. In addition, a requirement that airlines must make all 
fares available through all channels would deter airlines from offering 
many discounts, including presumably their webfares. Airlines would 
have less incentive to offer discounted fares if they were required to 
sell those fares through all channels, including the most expensive. 
America West Comments at 32; United Reply Comments at 51-52.
    Furthermore, the market is addressing this issue. Sabre and 
Galileo, as shown, have created programs whereby airlines that make 
their webfares saleable through the system will obtain lower booking 
fees in exchange. A number of major airlines have agreed to provide 
their webfares to the two systems on these conditions. As a result, 
Galileo and Sabre subscribers now have access through their systems to 
the webfares offered by most major airlines. Amadeus and Worldspan can 
similarly offer airlines terms attractive enough to obtain the right to 
sell webfares. In any event, systems should obtain access to webfares 
by making their sale through a CRS attractive for airlines, not by 
Government edict.
    (c) Regulation of Joint Airline Web sites. Orbitz, the on-line 
travel agency, and Hotwire, an on-line firm that allows consumers to 
obtain low fares but without providing a choice between airlines or 
schedules, are owned and controlled by several major airlines. Orbitz 
has obtained the ability to sell many discount fares that are not 
available for sale through other travel agencies. Orbitz gives airlines 
a rebate on their booking fees if they agree to make all of their 
publicly-available fares saleable through Orbitz. Office of the 
Inspector General, U.S. Department of Transportation, ``OIG Comments on 
DOT Study of Air Travel Services'' (December 13, 2002), at 2-3.
    A number of parties had complained that any website owned by two or 
more airlines, such as Orbitz and Hotwire, may well be operated in a 
manner which will reduce competition and lead to consumers receiving 
biased or inaccurate information. 67 FR 69413. Galileo contends, for 
example, that the most-favored-nation clause used by Orbitz has led to 
fewer and smaller fare discounts. Galileo Comments, Hausman 
Declaration. Travel agencies contend that Orbitz' most-favored-nation 
clause is intended to eliminate them from the distribution business. 
See, e.g., Hewins Travel Consultants Reply Comments. Expedia urges us 
to take enforcement action against Orbitz, but does not ask that we 
adopt regulations governing joint airline websites. Expedia Comments at 
10-13.
    We decided not to propose rules regulating the operation of joint 
airline websites in this proceeding. The only two significant jointly-
managed airline websites were Orbitz and Hotwire. Adopting general 
rules governing the operation of joint airline websites would be 
premature. The enforcement process would be the best means for 
addressing any problems with deceptive practices and unfair methods of 
competition created by such a site. An enforcement proceeding could 
effectively take into account the characteristics of an individual 
website while a rule might be unable to do so. 67 FR 69413.
    We further noted that we had been informally examining Orbitz' 
business plan and strategy to see whether it might have been engaged in 
deceptive practices or unfair methods of competition. Our progress 
report to Congress on that investigation, ``Report to Congress: Efforts 
to Monitor Orbitz,'' did not reach any definitive conclusions on 
whether Orbitz' operations may violate antitrust principles, in part

[[Page 1022]]

because of the continuing changes in the on-line distribution business, 
and in part because the Justice Department had not concluded its own 
antitrust investigation into Orbitz. The Justice Department recently 
announced that it had completed its extensive investigation and 
concluded that Orbitz had not reduced competition or harmed consumers. 
Statement by Assistant Attorney General R. Hewitt Pate Regarding the 
Closing of the Orbitz Investigation (July 31, 2003). The Justice 
Department's announcement confirmed our preliminary findings, set forth 
in our June 27, 2002, report to Congress, that the formation of Orbitz 
and the Orbitz most-favored-nation clause have neither reduced airfare 
discounting nor reduced competition in the on-line distribution of 
airline services. This Department's Inspector General reviewed our 
report to Congress to evaluate the reasonableness and accuracy of the 
report's findings. The Inspector General concurred with those findings. 
He concluded, ``The Department has an ongoing responsibility to monitor 
the behavior of all of the airlines to ensure that they are not 
engaging in unfair methods of competition and as part of this general 
responsibility, should continue to observe how the airlines use all 
distribution outlets, including Orbitz, to distribute their services.'' 
Office of the Inspector General, U.S. Department of Transportation, 
``OIG Comments on DOT Study of Air Travel Services'' (December 13, 
2002), at 28-29.
    If Orbitz or its owner airlines engage in unlawful conduct, we can 
and will use our authority to end any unlawful practices. See, e.g., 
April 13, 2001, Letter from Susan McDermott and Samuel Podberesky to 
Jeffrey Katz, at 6.
    For the reasons stated in our notice of proposed rulemaking, we are 
not adopting rules specifically governing joint airline websites like 
Orbitz at this time. We also see no basis now for instituting any 
formal investigation into Orbitz' operations. Our own informal review 
has not shown that such a proceeding would be justified, and the 
Justice Department has concluded after an extensive investigation that 
it has no evidence indicating that Orbitz has violated the antitrust 
laws. Moreover, as we stated in the notice of proposed rulemaking, 
Orbitz and any other website operated jointly by two or more airlines 
are subject to the antitrust laws and section 411. The antitrust laws 
prohibit competing firms from operating a joint venture in ways that 
unreasonably restrict competition. See 67 FR 69414.
    Insofar as Expedia's concerns reflect the greater availability of 
webfares on Orbitz than on competing on-line travel agencies, the 
market appears to be addressing that issue. As discussed above, two of 
the systems have obtained access to the webfares of several airlines by 
providing booking fee reductions in return, and we see no reason why 
the other two systems could not create similar arrangements. Expedia 
itself could seek to obtain access to webfares by bargaining with the 
airlines that offer them.
16. Tying of Internet Participation
    Each system generally follows a practice of requiring every 
participating airline to agree that its services can be booked by every 
user of the system, including all ``brick-and-mortar'' and on-line 
travel agencies. A non-accredited travel agency, a corporate travel 
department, an on-line computer service, or a consumer accessing the 
system through a travel agency website thus can book the services of 
each participating airline through the system. Several airlines had 
asserted that airlines should be able to determine which website could 
sell their services and that the systems should be barred from tying 
access to a system's on-line users with access to its ``brick-and-
mortar'' travel agency subscribers. 67 FR 69414-69415.
    We asked for comments on whether such a rule should be adopted. 
Such a rule could be beneficial by giving airlines a greater ability to 
determine which distribution channels could sell their services. A rule 
barring tying could enable market forces to discipline the systems' 
terms for participation in the services they offer to on-line travel 
agencies and other Internet users, because airlines might be able to 
decline participation if the terms were unreasonable. 67 FR 69414-
69415.
    We noted, however, that such a rule might be unnecessary. Southwest 
had been able to keep on-line travel agencies from selling its tickets, 
and Northwest successfully threatened to stop one on-line travel agency 
from selling its tickets if the agency did not change its business 
practices. We asked the parties to comment on whether a prohibition 
against tying would be technologically feasible, and whether an 
individual airline could effectively block any Internet site (or a 
``brick-and-mortar'' travel agency) from selling its tickets. 67 FR 
69415.
    Continental and Northwest support the proposal, while Amadeus and 
Sabre oppose it.
    We have decided not to adopt a rule barring the tying of access to 
``brick-and-mortar'' travel agencies with access to on-line travel 
agencies using a system. The comments have not persuaded us that such a 
rule is necessary, because airlines seemingly already have some ability 
to stop individual travel agencies from selling their tickets. None of 
the commenters supporting the proposal has explained why such a rule is 
necessary when an airline already has the authority to stop an 
individual travel agency from selling its tickets. Sabre and Amadeus 
assert that each airline can bar an agency from selling its services by 
denying it an appointment as its sales agent. Sabre Reply Comments at 
68; Amadeus Comments at 101-102. Northwest, moreover, was able to 
obtain better terms from Travelocity and Expedia by denying them 
commissions on their bookings. Orbitz Comments at 17-18. Our notice 
pointed out that Southwest had been able to keep on-line travel 
agencies from selling its tickets. Sabre also asserts that implementing 
such a rule would be costly, for its programming expenses would exceed 
$1.5 million. Sabre Reply Comments at 69.
    America West contends without explanation that the systems' market 
power would currently preclude an airline from ending an on-line 
agency's authority to sell its tickets. America West Comments at 36. 
Because other commenters disagree with America West's position, we 
could not adopt the rule proposal without additional evidence and 
analysis from America West and other commenters.
    In addition, the systems' worldwide participation agreements do not 
appear to violate the antitrust laws or antitrust principles. Sabre has 
argued that the antitrust laws' prohibition against tying rule does not 
apply to the systems' practice of requiring worldwide participation, 
since the offering of system services to ``brick-and-mortar'' travel 
agencies and the offering of the same services to on-line travel 
agencies do not constitute separate products. Sabre Reply Comments at 
67. See also Amadeus Reply Comments at 48.
    United, which argues that all of the rules should be terminated, 
asserts that we should adopt the proposal on tying if we maintain CRS 
rules. United further argues that the systems' worldwide participation 
agreements violate the antitrust laws. United Reply Comments at 78-80. 
United essentially contends that access to each subscriber is a 
separate product under tying principles. We disagree that a system is 
necessarily engaged in the tying of two separate services when it 
demands that a participating airline agree to allow all of the system's 
subscribers to sell its

[[Page 1023]]

services (subject to the airline's right to deny any individual 
subscriber the authority to sell any of its services). Each system has 
tens of thousands of subscribers worldwide, and Sabre and Amadeus each 
has over 60,000 travel agency users. Sabre Comments, McAfee & Hendricks 
Declaration at 11. United's tying theory assumes that a system and 
airline should be able to decide whether each individual subscriber 
should be able to sell the airline's tickets through the system. That 
would not be efficient. The record in this proceeding does not contain 
evidence demonstrating that airlines would normally demand that a 
system treat access to each individual subscriber as a separate 
service. As a result, a system does not appear to be offering separate 
products when it requires a participating airline to agree that any 
system user can sell the airline's services, subject to the airline's 
right to terminate entirely a travel agency's authority to sell the 
airline's services. Cf. United States v. Microsoft Corp., 253 F.3d at 
85-89.
17. International Issues
    Our rules govern the systems' operations within the United States. 
Section 255.2. This rulemaking nonetheless presents international 
issues, because the systems operating in the United States operate 
throughout the world, because foreign airlines serving U.S. points 
obtain ticket sales from bookings made through the systems in the 
United States, and because the United States' bilateral air services 
agreements (and one multilateral agreement) with a number of foreign 
countries obligate each party to ensure that airlines domiciled in the 
other country are not subject to discriminatory treatment from any 
system. 67 FR 69372. In addition, the European Union, Canada, 
Australia, and other foreign countries have adopted their own CRS 
rules. The basic principles for all of the rules are similar, but the 
actual rules are different, as in some respects are the underlying 
regulatory philosophies. 67 FR 69372, 69415.
    The major international consideration is the United States' 
obligation under the air services agreements to keep systems operating 
in the United States from engaging in conduct that discriminates 
against foreign airlines, such as charging discriminatory booking fees 
to foreign airlines and biasing displays against foreign airlines. 
Congress has directed us to exercise our authority consistently with 
the United States' obligations under international agreements. 49 
U.S.C. 40105(b)(1)(A).
    Several of the commenters, notably Amadeus, contend that we must 
readopt the existing rules and impose them on all systems in order to 
comply with the obligations imposed by these agreements. Amadeus 
Comments at 36-41; Amadeus Reply Comments at 20-22. See also Air France 
Comments at 6. Amadeus states that it would not object to the rules' 
termination if the only issue were whether rules were required on 
economic policy grounds. Amadeus Comments at 4. Other commenters, like 
United and Sabre, argue that satisfying those obligations does not 
necessarily require us to maintain CRS rules and that we have no 
authority to adopt rules in order to comply with the United States' 
international agreements if section 411 does not otherwise authorize us 
to regulate the systems. United Reply Comments at 19-20; Sabre Reply 
Comments at 22-24. United and Continental urge us to eliminate the 
rules even though they recognize that foreign CRS rules typically 
contain reciprocity requirements. Transcript at 118, 140. A number of 
foreign airlines have supported proposals to eliminate some of the 
rules, such as the rule prohibiting discriminatory booking fees. Ass'n 
of Asia Pacific Airlines Comments at 6; British Airways Comments at 8; 
Lufthansa Comments at 3; Qantas Comments at 1.
    The final rules adopted in this proceeding no longer include the 
prohibitions against discriminatory treatment contained in the existing 
rules. We recognize that different airlines may obtain different 
treatment from the systems as a result, especially on booking fees. 
However, because no U.S. airline now controls any system operating in 
the United States, the systems should have no incentive to discriminate 
against foreign airlines. Sabre Comments at 147. As noted, our proposal 
to eliminate the rule barring discriminatory booking fees was supported 
by several, though not all, foreign airline commenters. We have also 
found that the elimination of those rules will benefit consumers and 
not harm airline competition.
    In addition, the statutory authority for our rules has always been 
section 411, which authorizes us to prohibit unfair and deceptive 
practices and unfair methods of competition. We may adopt rules that 
will prevent practices that violate the antitrust laws or antitrust 
principles, but we do not have general authority to regulate the 
business practices of the systems (or airlines). To adopt any rule 
regulating CRS practices, we must find that the rule is necessary to 
prohibit conduct that would violate section 411. Our decisions that 
several of the rules should not be readopted at all, such as the rule 
prohibiting discriminatory booking fees, flow from our decisions that 
the practices regulated by those rules no longer appear to be 
violations of section 411 or that the rules have become unnecessary for 
other reasons. As a result, section 411 does not authorize us to 
maintain those rules indefinitely.
    We recognize the United States has signed bilateral air services 
agreements obligating each party to ensure that airlines domiciled in 
the country of the other party are not subjected to discriminatory 
treatment from systems operating in its own territory. While we will no 
longer have rules carrying out all of the obligations imposed by the 
bilateral air services agreements, we and the other agencies of the 
United States government intend to take such action as is necessary and 
appropriate to ensure that foreign airlines have a fair opportunity to 
compete for travelers in the United States.
    Amadeus has suggested that we attempt to harmonize our rules with 
those of the European Union. As we stated in our notice of proposed 
rulemaking, we understand that a greater similarity between our rules 
and the European rules (and the rules of other countries) would provide 
benefits, especially by avoiding the need for the systems to follow 
potentially different business practices in different jurisdictions. 
However, our ability to regulate CRS practices is subject to the limits 
of our authority under section 411 to prohibit unfair and deceptive 
practices and unfair methods of competition by airlines and ticket 
agents and our obligation to adopt only those rules whose benefits will 
outweigh their costs. We cannot make our rules conform to those of the 
European Union unless doing so will meet the requirements established 
by Congress.
18. Retaliation Against Discrimination by Foreign Airlines and Systems
    In some cases in the past, as discussed in our notice of proposed 
rulemaking, a foreign airline limited its participation in a U.S. 
system (or imposed restrictions on travel agencies using a U.S. system 
in its homeland) to deter travel agencies in its homeland from choosing 
a U.S. system instead of the system owned or marketed by the foreign 
airline. In a few such cases, we proposed countermeasures to encourage 
the foreign airline to end its discriminatory conduct. We acted under 
the International Air Transportation Fair Competitive Practices Act, 
recodified as 49 U.S.C. 41310, which has authorized us to impose 
countermeasures when a

[[Page 1024]]

foreign airline or other firm engages in discriminatory conduct against 
a U.S. airline. 67 FR 69372. Congress has since amended 49 U.S.C. 41310 
to give us broader authority to take countermeasures against a foreign 
system or a foreign airline that controls such a system, if the system 
engages in an unjustifiably discriminatory or anticompetitive practice 
against a U.S. CRS or imposes unjustifiable restrictions on access by a 
U.S. system to a foreign market. This broadens the statute by 
authorizing us to take action when a U.S. system is subject to 
discriminatory conduct by a foreign firm. Section 741 of the Wendell H. 
Ford Aviation Investment and Reform Act for the 21st Century, Public 
Law 106-181 (April 5, 2000).
    To further deter discriminatory treatment, our current rules 
authorize a system to engage in discriminatory conduct against a 
foreign airline that operates a foreign system, if that system subjects 
a U.S. airline to discriminatory treatment and the system has given us 
and the foreign airline 14 days advance notice of its plan to take 
countermeasures. Section 255.11(b).
    We did not propose to strengthen this rule, although Sabre asked us 
to do so. We explained that we would in any event continue to take 
appropriate action when a U.S. airline or system is subject to 
discriminatory treatment by a foreign firm designed to prejudice the 
U.S. firm's ability to compete. 67 FR 69415-69416.
    Although Sabre has argued that we have no authority to regulate its 
operations under section 411 and that there is no longer any economic 
justification for the rules, Sabre has urged us to strengthen our 
existing rule, but only if we maintain CRS regulations. Sabre Comments 
at 168-169. Delta, on the other hand, argues that the existing rule 
should be eliminated. Delta Reply Comments at 58.
    We intend to carry out Congress' mandate that action be taken when 
foreign airlines and systems engage in discriminatory conduct against 
U.S. firms. We can take such action without maintaining the existing 
rule. We have determined, however, not to readopt the rule authorizing 
a system to take countermeasures against a foreign system that 
discriminates against U.S. airlines. If we were to readopt the rule, we 
would presumably have to modify it, because we are eliminating the 
major rules barring each system from engaging in discriminatory 
treatment of participating airlines. The rule should authorize self-
help only when a foreign system biases its displays against U.S. 
airlines.
    Furthermore, the rule as written is outdated. The Board originally 
adopted the rule at a time when each significant system operating in 
the United States was owned by a major U.S. airline with international 
operations. As written, the rule made sense because it allowed the 
system to take countermeasures if its airline owner (but not the system 
itself) was subject to discriminatory treatment from a foreign system 
that was owned or controlled by a foreign airline. 49 FR 11668-11669. 
Sabre no longer has any airline owners and so should have little 
incentive to take countermeasures if a U.S. airline is subjected to 
discriminatory treatment overseas from a foreign system. The rule, 
moreover, would allow Sabre to subject the offending foreign airline to 
discriminatory treatment, not to take direct action against the foreign 
system. We think that we can more rationally protect Sabre's interests 
by reaffirming our willingness to take appropriate action authorized by 
statute.
19. Sunset Date for the Rules
    Our rules have had a sunset date to ensure that we would reexamine 
the need for the rules and their effectiveness. Section 255.12. In our 
notice, we tentatively decided not to propose a new sunset date for the 
rules in our notice of proposed rulemaking. Instead, we stated that we 
would review the rules when necessary and would consider comments on 
when that should be done. 67 FR 69416.
    Some commenters asked us to establish a new sunset date that would 
establish a time when the rules would be reexamined, while other 
commenters argued that a new sunset date should establish the time when 
the rules would end without further reexamination.
    See, e.g., Alaska Comments at 1-3 and Delta Comments at 2-3 
(transitional rules should terminate in three years); American Comments 
at 49 (three-year sunset period with presumption that rules would then 
terminate); Midwest Comments at 29 (at least five years).
    Whether the rules should have a sunset date, and when that date 
should be, are essentially moot issues as a result of our final 
decision in this proceeding. We are readopting very few of the existing 
rules. The other rules will therefore automatically expire on January 
31, 2004. The rules adopted here will be terminated as of July 31, 
2004. We will, however, actively monitor conditions in the market in 
order to verify our assumption that rules against display bias will not 
be necessary beyond that time. We retain the authority to propose a 
continuation of rules against display bias if, contrary to our 
expectation, continued regulation is warranted.
20. Effective Date of the Rules
    The Administrative Procedure Act states that new rules normally 
should take effect no less than thirty days after their publication. 
Our notice of proposed rulemaking invited comments on whether we should 
give firms additional time to comply with any new requirements mandated 
by our final rule in this proceeding. 67 FR 69416-69417. In response to 
our notice of proposed rulemaking, which proposed to readopt most of 
the rules and adding additional requirements for some of them, like the 
rules on subscriber contracts, a number of commenters asserted that one 
or more provisions of our proposed CRS rules should take effect on a 
delayed schedule due to the expense or difficulty of compliance within 
thirty days of the rules' publication date. See, e.g., Amadeus Comments 
at 104-106; Galileo Reply Comments at 59. Galileo further contends that 
we should provide for a two-year transition if we determine not to 
readopt the mandatory participation rule and the rule barring 
differential booking fees. Galileo Reply Comments at 59.
    We have decided to make January 31, 2004, the effective date of 
this rule. That date is the sunset date for the existing rules. We have 
determined for good cause to make the rule effective on that date, 
rather than thirty days after publication as required by the 
Administrative Procedure Act except for good cause shown. 5 U.S.C. 
553(d). We are maintaining for a six-month transition period the 
current rules prohibiting display bias and, with some changes, the 
current rule prohibiting parity clauses in the systems' contracts with 
participating airlines. Our transitional rule barring airlines from 
inducing systems to bias displays is new in form but merely bars 
airlines from encouraging systems to violate their existing obligation 
to provide neutral displays. We are adopting a transitional rule 
prohibiting each system from demanding that an airline provide all 
public fares as a condition to any participation in the system, but 
this rule is analogous to the existing rule prohibiting parity clauses. 
These rules will not require any changes, as far as we know, in the 
systems' existing operations. Making them effective on less than thirty 
days notice accordingly will not impose an undue burden on anyone. If 
the rules did not become effective on January 31, 2004, there would be 
a short gap between the expiration of the current rules and the 
effectiveness of the new rules, which

[[Page 1025]]

could cause systems for a brief period to engage in practices that 
could harm competition and consumers. The January 31, 2004, effective 
date will not prevent firms from taking immediate advantage of the 
substantial deregulation resulting from our decision that most of the 
current rules should not be readopted.
    The elimination of other rules on participating airline contracts 
(the prohibition against discriminatory booking fees, for example), and 
the rules on subscriber contracts will not require any immediate change 
in the operations of airlines, systems, and travel agencies. The 
parties are free to maintain their existing contracts while they 
develop new agreements that take advantage of the flexibility on these 
matters offered by our final decision. We cannot create a transitional 
period by readopting the existing rules for a short period, because the 
record in this proceeding would not justify doing so.
    Amadeus has filed a petition asking us to eliminate the rules' 
existing sunset date, January 31, 2004. Docket OST-2003-16469. Amadeus 
notes that we have submitted a final rule to OMB review but that the 
review process may not be completed before the sunset date. In 
addition, Amadeus claims that industry participants will need several 
months to adjust to any substantial change in the current regulatory 
structure, such as partial deregulation. Galileo supports Amadeus' 
petition, but Delta, Northwest, Sabre, United, and Worldspan oppose it.
    We see no need to eliminate the sunset date. As noted, we have 
decided that most of the existing rules should be terminated. 
Maintaining the existing rules beyond January 31 would prevent 
airlines, systems, and travel agencies from taking immediate advantage 
of the industry's deregulation. Moreover, we are not directing any 
firms to change their current methods of operation. They may continue 
to follow their existing business practices until they determine how 
best to modify them in response to deregulation, if not compelled to 
change them sooner due to market forces.
21. Divestiture
    The American Antitrust Institute and US Airways have suggested that 
we should require the divestiture of all airline ownership of any 
system. They argue that airline ownership of a system creates the 
incentive (and ability) to operate the system in ways that will reduce 
airline competition. US Airways Comments at 23; American Antitrust 
Institute Comments at 6-7. See also Sabre Comments, Woodbury & Salop 
Declaration at 3-5; Travelers First Reply Comments.
    Amadeus opposes any such requirement. It contends that such a 
requirement would be unfair and unlawful, because it would require the 
European airlines that own the majority of Amadeus' stock to divest it, 
even though the company is located in Europe. Amadeus Reply Comments at 
41-42.
    We will not require divestiture. We did not propose such a rule, 
and we did not require divestiture when the systems operating in the 
United States were controlled by U.S. airlines. 57 FR 43830.
    However, our decision that most of the current rules should not be 
readopted in large part reflects the complete divestiture by U.S. 
airlines of their CRS ownership interests. A system's ownership by U.S. 
airlines would raise competitive concerns. The Justice Department thus 
states, ``Finally, DOJ's recommendation assumes that the recent 
divestitures represent a permanent change in the ownership structure of 
the industry.
    DOT should therefore make clear that any attempt at reintegration 
into CRS by airlines will be closely scrutinized by the appropriate 
enforcement agencies.'' Justice Department Reply Comments at 4. As we 
stated above, we already intend to monitor airline distribution 
developments during the next six months and beyond. We will pay 
particularly close attention to any airline efforts to establish 
control over a system. We retain the authority to bring enforcement 
cases against firms that violate the statutory prohibition against 
unfair methods of competition, and we will take appropriate action if 
we have evidence of unlawful conduct.
    We recognize that Orbitz, owned by five major airlines, may enter 
the CRS business, a prospect not specifically addressed by the Justice 
Department. The Justice Department has been investigating Orbitz' 
operation as an on-line travel agency and concluded that it had no 
evidence that Orbitz' current operations are harming consumers or 
reducing competition. Statement by Assistant Attorney General R. Hewitt 
Pate Regarding the Closing of the Orbitz Investigation (July 31, 2003). 
As we noted in our notice of proposed rulemaking, the antitrust laws 
significantly restrict the operations of a joint venture among 
competitors. 67 FR 69414. The Justice Department will enforce those 
laws if necessary. Furthermore, our examination of the CRS industry's 
developments after the effective date of our new rules will include a 
review of Orbitz' operations as a system, if it chooses to enter the 
business.

Regulatory Process Matters

Regulatory Assessment and Unfunded Mandates Reform Act Assessment

1. Unfunded Mandates Reform Act Assessment
    The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538, 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of proposed or final rules that include a 
Federal mandate likely to result in the expenditures by State, local, 
or tribal governments, in the aggregate, or by the private sector, of 
more than $100 million annually.
    The legal authority for the rule is provided by 49 U.S.C. 41712, 
which authorizes the Department to prohibit unfair or deceptive 
practices and unfair methods of competition in air transportation or 
the sale of air transportation. The Department is authorized by 49 
U.S.C. 40113(a) to implement that authority by adopting rules defining 
and prohibiting unfair or deceptive practices and unfair methods of 
competition.
    The rule would not result in expenditures by State, local, or 
tribal governments because no such government operates a system or 
airline subject to the proposed regulation. The Regulatory Assessment 
below provides detailed discussion of the costs and benefits for the 
rule. The Regulatory Assessment also presents alternatives to the rule.
2. The Department's Regulatory Assessment
    Executive Order 12866, Regulatory Planning and Review (58 FR 51735, 
October 4, 1993), defines a significant regulatory action as one that 
is likely to result in a rule that may have an annual effect on the 
economy of $100 million or more or adversely affect, in a material way, 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or State, local, or tribal 
governments or communities. Regulatory actions are also considered 
significant if they are likely to create a serious inconsistency or 
interfere with the actions taken or planned by another agency or if 
they materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of the 
recipients of such programs.
    The Department's Regulatory Policies and Procedures (44 FR 11034, 
February 26, 1979) outline similar definitions and requirements with 
the goal of

[[Page 1026]]

simplifying and improving the quality of the Department's regulatory 
process. They state that a rule will be significant if it is likely to 
generate much public interest.
    The Department has determined that these regulations are not an 
economically significant regulatory action under the Executive Order, 
because the record does not show that the rules would likely have an 
annual impact on the economy of $100 million or more. The rules will 
not impose significant costs on the systems or other firms. The cost of 
complying with the prohibitions against display bias should be small, 
because the systems have been complying with those requirements and 
must continue to comply with similar requirements imposed by other 
countries. The rules will reduce the systems' revenues by barring them 
from selling display bias, but nothing in the record indicates that the 
revenue loss would exceed $100 million, and the systems have not 
claimed that the continuation of the rules barring display bias will 
reduce their revenues by $100 million or more.
    The rules are significant under the Department's Regulatory 
Policies and Procedures because of the amount of public interest they 
are likely to generate. The Department has prepared a regulatory 
assessment for this final rule, which has been placed in the docket for 
this proceeding. These rules have been reviewed by the Office of 
Management and Budget under the Executive Order.
    The notice of proposed rulemaking contained a preliminary 
regulatory impact analysis of the proposed rules. That analysis 
tentatively concluded that the benefits of the proposed rules would 
exceed the costs of those rules. The analysis relied on a qualitative 
assessment of the costs and benefits of the proposed rules, because we 
did not have information of the kind and detail necessary for a 
quantification of those benefits and costs. We requested interested 
persons to provide detailed information on the potential consequences 
of the proposed rules. 67 FR 69419.
    Our final regulatory assessment concludes that the benefits of the 
final rule will outweigh its costs. The final rule will benefit airline 
competition by preventing systems from agreeing with some airlines to 
bias displays in their favor and against other airlines. If the final 
rule did not prohibit display bias, the systems would be likely to bias 
their displays. That could harm consumers by causing system users to 
obtain misleading information and by reducing airline competition. A 
system has some ability to bias its displays, because participating 
airlines have little ability to cause systems to stop biasing displays, 
travel agencies can live with some bias, a system that sells display 
bias can offer better terms to travel agency customers, and a travel 
agency would incur switching costs if it changed systems in order to 
avoid one system's bias. Display bias has the potential to undermine 
airline competition and distorts consumer choices. We believe that a 
rule prohibiting display bias will impose relatively small costs on the 
systems.
    The rules prohibiting systems from demanding that airlines agree to 
parity clauses or clauses requiring an airline to make all of its 
publicly-available fares saleable through a system as a condition to 
any participation will give airlines some leverage in negotiating for 
better terms for participation. During the transition period, this will 
offset to some extent the systems' existing market power and furnish 
airlines an opportunity to prepare more effectively for the termination 
of the prohibition. The transition will give airlines some ability to 
promote alternative distribution and booking channels and thereby 
promote innovation.
    Terminating the rest of the existing rules over time will promote 
efficiency and reduce costs for firms involved in airline distribution 
and the airlines themselves.
    The final regulatory assessment concludes that the costs of 
readopting the other rules would exceed their benefits.

Regulatory Flexibility Statement

    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 publish a final regulatory flexibility analysis 
for regulations that may have a significant economic impact on a 
substantial number of small entities. Our notice of proposed 
rulemaking, which assumed that the relevant small entities included 
smaller U.S. airlines and travel agencies, included an initial 
regulatory flexibility analysis. That notice also set forth the reasons 
for our rule proposals and their objectives and legal basis. This is 
the regulatory flexibility analysis for our final rule.
    Our existing CRS rules primarily regulate the systems' operations, 
although they do impose some obligations on airlines participating in 
the systems and indirectly regulate travel agencies by prohibiting 
certain types of conduct in the travel agencies' relationships with 
systems and their airline owners. Our notice of proposed rulemaking 
proposed to maintain most of the existing rules and to strengthen 
certain parts of those rules, primarily the rules governing the 
systems' contractual relationships with travel agency subscribers. We 
also proposed, however, to eliminate the rule barring discriminatory 
booking fees and the mandatory participation rule. We additionally 
asked for comment on whether we should terminate more of the rules.
    If adopted, the proposals would not have subjected small entities 
to direct regulation, except for certain obligations imposed on 
participating airlines, but would have affected the systems' 
relationships with airlines and travel agencies. The notice included an 
initial regulatory flexibility analysis, which relied in part on the 
factual, policy, and legal analysis set forth in the remainder of the 
notice, as allowed by 5 U.S.C. 605(a). We tentatively concluded that 
our proposed rules would have a significant economic impact on a 
substantial number of small business entities, especially travel 
agencies and air carriers, including regional air carriers. The 
proposals would have given travel agencies a greater ability to use 
multiple systems and booking channels. To the extent that airlines 
could operate more efficiently and reduce their costs, the rules 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. We expected that our proposals to 
prohibit or restrict productivity pricing could increase CRS costs for 
some travel agencies, but that the affected travel agencies would be 
the larger agencies. 67 FR 69423-69424.
    We invited comments on our initial regulatory flexibility analysis. 
67 FR 69424. We additionally gave interested persons ample opportunity 
to file comments and reply comments on our rule proposals and to 
participate in a public hearing. Members of the Congressional 
committees on small business, travel agency commenters, and the NFIB 
Legal Foundation assert that our initial regulatory flexibility 
analysis was inadequate and that we must give interested small entities 
a better opportunity to comment on the proposals and their potential 
impact on small businesses.
    At the final rule stage, we have decided not to adopt most of the 
existing rules and not to adopt our proposals to strengthen the rules 
on subscriber contracts. We are not

[[Page 1027]]

readopting the existing rules regulating the travel agencies' 
relationships with the systems and airlines owning or marketing a 
system, and we are not adopting the proposals to strengthen the 
existing rules on matters such as the terms of the systems' contracts 
with subscribers. Our rules will no longer regulate the travel 
agencies' relationships with the systems and any airlines owning a 
system.
    Our final rule will still affect the airlines' relationships with 
the systems, because it will prohibit display bias and bar systems from 
imposing certain types of contract requirements on participating 
airlines.
    The Regulatory Flexibility Act requires us to publish a final 
regulatory flexibility analysis that considers such matters as the 
impact of a final rule on small entities if the rule will have ``a 
significant economic impact on a substantial number of small 
entities.'' 5 U.S.C. 605(b). The rule may have a significant economic 
impact on a substantial number of airlines that are small entities, 
because almost 400 U.S. passenger airlines come within the definition 
of a small entity, according to the Small Business Administration. That 
impact will be beneficial, as the final rule will prohibit certain 
system practices that would likely harm the business position of small 
airlines. In view of the concerns expressed by commenters about the 
impact of any rule on travel agencies that are small entities, we are 
also discussing the final rule's impact on travel agencies, even though 
the impact is indirect. That impact should also be beneficial. As shown 
by the following discussion, we have carefully considered how the final 
rule may affect travel agencies and other small entities.
1. The Need for, and the Objectives of, the Final Rule
    For a six-month period, our final rule will maintain the existing 
rules against display bias and will prohibit each system from requiring 
airlines to accept parity clauses and clauses requiring the airline to 
provide all of its publicly-available fares to the system as a 
condition to any participation in the system. These rules are necessary 
for preventing display bias, which could mislead travel agents using a 
system and their customers, and preventing contract practices that 
could reduce competition for the systems and deny airlines discretion 
on how to market their services through the systems and alternative 
booking channels. The rules' objectives are to prevent consumer 
deception, promote airline competition, and encourage market forces to 
discipline the systems' prices and terms for airline participation. 
These objectives will promote airline competition and lower costs for 
airline distribution, which would lead to lower airfares and more 
efficient airline operations.
2. Issues Raised by the Comments, and Our Assessment of Those Issues
    Several commenters contend that our rule proposals would cause 
significant harm to small entities, primarily small travel agencies, 
and that our initial regulatory flexibility analysis was inadequate. 
See June 9, 2003, Letter from Senators Snowe and Kerry; March 19, 2003, 
Letter from the Democratic Members of the House Committee on Small 
Business; Comments of the Small Business Administration Office of 
Advocacy; NFIB Legal Foundation Comments; ASTA Comments at 51-54. These 
commenters allege that the rule proposals, if adopted, would deny 
travel agencies the tools they need for serving their customers, 
eliminate incentive payments to travel agencies from the systems (and 
thus make many travel agencies unprofitable), and limit flexibility for 
travel agency contracts for CRS services. These allegations involve our 
proposals to eliminate the mandatory participation rule, to bar 
productivity pricing, and to strengthen the existing rules regulating 
subscriber contracts, and our decision that we would not propose rules 
requiring airlines to make all publicly-available fares, such as 
webfares, saleable through each of the systems.
    As a result of these comments as well as comments submitted by 
other persons and the on-going changes in the airline distribution and 
CRS businesses, we have decided not to adopt the proposed changes to 
the rules on subscriber contracts, including the proposed restrictions 
on productivity pricing, and to eliminate the existing rules regulating 
the contracts between the systems and subscribers. We have further 
decided to make final our decision to eliminate the mandatory 
participation rule and our decision not to adopt rules requiring each 
airline to make its webfares or other fares available through all 
distribution channels rather than just those channels selected by the 
airline.
    We have discussed above in detail the basis for each of our 
decisions on the significant rulemaking issues. We will summarize that 
discussion in this regulatory flexibility statement.
    In general, we have decided to terminate most of the existing 
rules, because the record does not show a need for continued CRS 
regulation in most areas. Our primary goal in adopting CRS regulations 
has always been the prevention of system practices that would prejudice 
airline competition. The systems are no longer subject to control by 
U.S. airlines, and the record does not show that any non-airline system 
is likely to operate in a manner that would distort airline 
competition, except insofar as the systems appear willing to sell 
display bias. We are maintaining the rules prohibiting display bias, 
but not the other rules that were originally designed to keep systems 
affiliated with airlines from prejudicing the competitive position of 
rival airlines. The record shows that, in other respects, the current 
rules unnecessarily limit the business discretion of systems and 
airlines, are no longer necessary in light of market developments, or 
are unlikely to be effective and enforceable.
    Secondly, our statutory authority does not give us the authority to 
generally regulate the relationships between the systems, on the one 
hand, and airlines and travel agencies, on the other hand. As a result 
of Congress' decision 25 years ago to deregulate the airline industry, 
we have no overall authority to regulate the airlines' distribution 
practices or to adopt rules requiring changes in airline practices in 
order to promote fairer competition. Our authority for CRS rules, 
section 411, authorizes us to prevent unfair and deceptive practices 
and unfair methods of competition. We adopted the existing CRS rules 
under our authority to prohibit unfair methods of competition, except 
insofar as we have adopted rules prohibiting display bias, which we 
also based on our authority to prohibit deceptive practices. We may 
adopt the rule proposals discussed in the comments on our initial 
regulatory flexibility analysis only if we find those rules are 
necessary to prevent unfair methods of competition. As explained in our 
discussion above of the individual rule proposals, the record would not 
support a finding that several of the rule proposals advanced by travel 
agency commenters are necessary to prevent unfair methods of 
competition.
    Against this background, we will discuss the final rules and 
alternative rule proposals of concern to the travel agencies and small 
airlines, beginning with the proposals on subscriber contracts, 
followed by the proposals to readopt the mandatory participation rule 
and to adopt a rule requiring airlines to make all publicly-available 
fares saleable through all systems, the rules governing the 
relationships between airlines and the systems, and the rule 
prohibiting display bias.

[[Page 1028]]

    (a) Regulation of Subscriber Contracts. Our existing rules impose 
several requirements on subscriber contracts in order to give travel 
agencies a greater ability to switch systems and to use multiple 
systems and booking channels. The rules bar systems from requiring 
contracts with a term of more than five years (and require a system 
offering a five-year contract to a travel agency to also offer a three-
year contract), from imposing minimum use requirements and parity 
clauses, from denying a subscriber the ability to use third-party 
hardware and software, and from blocking a subscriber from accessing 
any system or database from the subscriber's equipment if the equipment 
is not owned by the system. We proposed to maintain these rules, and we 
requested comment on whether we should shorten the maximum term for 
subscriber contracts (for example, by adopting the European Union's 
rule) and should restrict the types of damages recoverable by a system 
if a subscriber breached its contract. We also proposed to limit the 
systems' productivity pricing arrangements. 67 FR 69404-69409. We made 
these proposals, because we tentatively found, on the basis of the 
comments submitted in response to our advance notices of proposed 
rulemaking, that the systems' subscriber contracts substantially 
restricted the travel agencies' ability to switch systems or use 
multiple systems and booking channels. For example, while the rules 
require systems to offer travel agencies a three-year contract whenever 
a five-year contract is offered, the three-year contracts offered by 
systems then were sufficiently less attractive that most travel 
agencies until recent years were accepting five-year contracts. 67 FR 
69405. We recognized, however, that the systems competed vigorously for 
subscribers. 67 FR 69371, 69405.
    The comments submitted in response to our notice of proposed 
rulemaking allege that the systems' recent contracts now give travel 
agencies more flexibility. See, e.g., Large Agency Coalition Comments 
at 7-14; ASTA Comments at 14-15; Sabre Comments at 151-153 and Fahy 
Declaration at 14-15. For example, the average subscriber contract has 
a term of no more than three years. The systems' current productivity 
pricing arrangements similarly allow subscribers to make a significant 
number of bookings outside the system without incurring a penalty. ASTA 
suggests that the major reasons for the travel agencies' insistence on 
more flexible contracts are their need to use the Internet and their 
need to respond to changing technology. ASTA Comments at 14-15. The 
systems' competition for subscribers requires them to meet travel 
agency demands for more flexibility. As a result, travel agencies, 
large and small, are obtaining contracts with terms that are more 
liberal than required by our existing rules.
    The commenters additionally allege that any rules designed to 
encourage travel agencies to use multiple systems rather than one 
system will inevitably be ineffective. Travel agencies are unwilling to 
make substantial use of more than one system because using multiple 
systems is inefficient for travel agencies. See, e.g., ASTA Comments at 
3-4.
    The record thus suggests that the systems' current contracts do not 
prevent travel agencies from using alternative booking channels, like 
the Internet, when travel agents wish to use them, that any efforts by 
us to encourage travel agents to use multiple systems will be 
unavailing, and that the systems' competition for travel agency 
subscribers will continue to enable travel agencies to obtain flexible 
contracts if we did not readopt the existing rules. We have therefore 
decided that we should neither readopt our existing subscriber contract 
rules nor adopt any of the rule proposals on which we invited comment. 
Our decision not to adopt restrictions on the systems' productivity 
pricing arrangements is, of course, consistent with the position taken 
by almost all travel agency commenters.
    Our decision not to readopt the existing rules on subscriber 
contracts is consistent with the position taken by some commenters that 
the rules should not limit the terms of contracts between systems and 
travel agencies, although some travel agency commenters support the 
readoption of some restrictions on subscriber contracts. Our decision 
to allow those rules to expire will not harm travel agencies, because 
the systems are already offering travel agencies better terms than 
those required by our rules.
    (b) Access to Complete Information on Fares and Services. The other 
major issue raised by the commenters on our initial regulatory 
flexibility statement was the complaint that our decision on which 
rules should be proposed would allegedly deny travel agencies the tools 
that they need to serve their customers. This complaint stems from our 
proposed elimination of the mandatory participation rule and our 
tentative decision that we should not adopt a rule requiring airlines 
to make all publicly-available fares, or at least all webfares, 
saleable through each of the systems. The comments have not persuaded 
us that either tentative decision was erroneous. Ending the mandatory 
participation rule, and not requiring airlines to make all fares 
available through all distribution channels, will promote competition 
in the airline distribution business without causing significant harm 
to travel agents.
    The travel agencies' interest in these rule issues arises because 
of their desire to be able to book webfares through their systems. If 
travel agents can only book webfares through an airline's own website, 
or through on-line agencies that have access to webfares, travel agents 
will be unable to operate as efficiently. Travel agents want access to 
webfares, even though webfares make up a small share of all ticket 
sales, because webfares can be significantly lower than other fares.
    While maintaining the mandatory participation rule and the adoption 
of a rule requiring each airline to provide each system with access to 
all of its publicly-available fares could benefit travel agencies, the 
record in this proceeding would not justify the imposition of such 
requirements on airlines, as explained next, starting with the 
mandatory participation rule.
    (i) The Mandatory Participation Rule. The mandatory participation 
rule covers airlines with a significant ownership interest in a system. 
As a result of Worldspan's sale by its three U.S. airline owners, no 
system now has any significant U.S. airline ownership, although 
Amadeus, the system with the smallest U.S. market share, is primarily 
owned by three foreign airlines, Air France, Iberia, and Lufthansa. 
Those three airlines are currently the only airlines subject to the 
mandatory participation requirement. Orbitz' five U.S. airline owners 
would become subject to the requirement if Orbitz began operating as a 
system, but Orbitz represents that it will not enter the CRS business 
if its owners would then become subject to the mandatory participation 
rule. Transcript at 78-79.
    We have concluded that maintaining the mandatory participation rule 
would unreasonably restrict the ability of airlines to negotiate with 
the systems for better terms for participation. An airline with a 
system ownership interest should be able to choose whether and at what 
level it will participate in competing systems, and its ability to 
choose will give it some bargaining leverage that may enable it to 
obtain better terms for participation. See also Justice Department 
Reply Comments at 23.
    Furthermore, the U.S. airlines' divestiture of their CRS ownership

[[Page 1029]]

interests has eliminated the original basis for the rule. We originally 
adopted the rule as a result of evidence suggesting that some airlines 
with a CRS ownership interest lowered their participation level in 
competing systems, or denied those systems access to fares and 
functionality desired by travel agents, in order to give their 
affiliated system a competitive advantage. 56 FR 12608. When we adopted 
the rule, competition between the systems, each then controlled by one 
or more airlines, represented another avenue for airline competition. 
That is no longer the case, because no system now has a U.S. airline 
owner. While the systems continue to have marketing relationships with 
their former owners, those ties have become relatively unimportant in 
determining an airline's decisions on the extent of its participation 
in rival systems. American Comments at 30; Large Agency Coalition 
Comments at 14; Large Agency Coalition Reply Comments at 16-17.
    More importantly, eliminating the mandatory participation rule 
should not harm travel agencies, even if the rule covered several U.S. 
airlines rather than only three European airlines. Recent experience 
suggests that the elimination of the mandatory participation rule will 
not lead to radical changes in CRS participation levels by the airlines 
that have had a system ownership interest. Each system has some market 
power over most airlines, because the airlines' distribution needs 
require most airlines to participate in each system. All of the major 
network airlines participate in each system at the highest level, and 
they do so in order to promote the sale of their services by the travel 
agents using each system. Transcript at 140; Amadeus Reply Comments at 
24. United has chosen to participate at the highest level even though 
it has not been subject to the mandatory participation rule for some 
time. In addition, each of Orbitz' owner airlines has agreed with Sabre 
and Galileo to make its webfares saleable through the system in return 
for reduced booking fees and other commitments, even though Orbitz'' 
ability to sell webfares had been a major selling point for that on-
line travel agency and some airlines complain that the booking fee 
reductions were not as large as they should have been. The willingness 
of these airlines to sell their webfares through Sabre and Galileo 
supports our expectation that the elimination of the mandatory 
participation rule will not lead airlines to deny the systems 
reasonable access to their fares and services.
    Even if the record suggested, however, that the elimination of the 
mandatory participation rule would harm travel agencies by leading to 
major changes in participation levels, we would likely be unable to 
readopt the rule. Section 411 authorizes us to prohibit practices that 
violate the antitrust laws or antitrust principles, as discussed above, 
but does not empower us to impose requirements on airlines in order to 
increase the efficiency of travel agency operations or give travel 
agencies a better opportunity to compete against other distribution 
channels. For purposes of our regulatory flexibility analysis, we are 
not obligated to treat rule proposals that could not be adopted under 
our statutory authority as alternatives that must be considered in the 
final regulatory flexibility analysis. Greater Dallas Home Care 
Alliance v. United States, 36 F. Supp. 3d 765, 769-770 (N.D. Tex. 
1999). Cf. American Airlines v. Dept. of Transportation, 202 F.3d 788, 
803-804 (5th Cir. 2000).
    (ii) Requiring Airlines To Make Fares Available Through All 
Distribution Channels. To facilitate their ability to win and serve 
customers, several travel agency commenters also ask us to require 
airlines to make all fares available through all distribution channels. 
This proposal originated in the airlines' initial practice of making 
webfares available only through an airline's own Web site and then, as 
a result of Orbitz' offer to give airlines a rebate on their booking 
fees in exchange for access to the webfares, of making the fares 
saleable through Orbitz as well. Until recently webfares typically were 
not available through any system. Travel agents thus could not book 
webfares through a system, and they could learn whether the fares were 
available only by accessing the airline's own website or an on-line 
travel agency that offered webfares. Going outside the system to look 
for webfares and booking webfares through Orbitz or an airline website 
are not as efficient for travel agents.
    A rule requiring airlines to offer all fares through all channels 
no longer appears necessary. Two of the systems--Sabre and Galileo--
have gained access to the webfares of several major airlines by 
offering to reduce their booking fees in exchange for a commitment to 
make all publicly-available fares saleable through the system. 
Subscribers to Sabre and Galileo, which together have a 65 percent 
market share, now have access to the webfares offered by major 
airlines. The other two systems--Amadeus and Worldspan--should be able 
to obtain access to many webfares by making similar offers to 
participating airlines.
    Requiring airlines to make all publicly-available fares saleable 
through each system would provide efficiency benefits for travel agents 
and make it easier for consumers to obtain comprehensive information on 
the fares and services available in each airline market. Consumers, 
however, would be unlikely to obtain all of the low fares now being 
offered by airlines. If airlines had to make all fares, including 
webfares, available through all distribution channels, no matter how 
costly, airlines would presumably cut back their offering of discount 
fares like webfares. Airlines are more willing to offer lower fares 
when they can use distribution channels that are less costly. Because 
the travel agency/CRS distribution channel is a relatively costly 
channel for airlines, requiring airlines to make low fares available 
through that channel would probably eliminate the low fares that can be 
economically offered only when doing so will save distribution costs. 
America West Comments at 32; United Reply Comments at 51-52.
    Such a requirement would also unreasonably limit each airline's 
discretion on how it should best distribute its services. Airlines 
should be free to offer special fares and services through distribution 
channels that are less costly or more effective. Airlines in fact have 
long given selected distribution channels the ability to sell fares 
that other channels cannot sell. See, e.g., 67 FR 69413; America West 
Comments at 33. Travel agencies have engaged in similar behavior. 67 FR 
69413. Two successful low-fare U.S. airlines--Southwest and JetBlue--
have chosen not to participate in all of the systems and instead to 
focus their marketing efforts on encouraging travelers to buy tickets 
directly from their reservations agents and websites. New entrant 
airlines like JetBlue will necessarily be small entities. Compelling 
those airlines to change their distribution strategies would be a 
radical departure from our past use of our section 411 authority.
    Airlines, moreover, should be able to use their control over access 
to their webfares as a bargaining tool for getting better terms for CRS 
participation. Amadeus Comments at 10; American Comments at 27. The 
airlines' ability to deny access to their webfares has caused two of 
the systems, Sabre and Galileo, to give airlines booking fee reductions 
in exchange for the ability to sell their webfares.
    The National Commission to Ensure Consumer Information and Choice 
in the Airline Industry, which had been charged by Congress to study 
travel agency access to webfares and related issues, issued a report 
that concluded that airlines should not be required to

[[Page 1030]]

make all fares available through all distribution channels. The 
Commission reasoned that such a requirement would substantially harm 
consumers, because airlines would stop offering some low webfares, 
would be contrary to the industry's use of different distribution 
channels to dispose of specific types of inventory, and would not solve 
the travel agency industry's basic problems, particularly the growing 
use of the Internet. ``Upheaval in Travel Distribution: Impact on 
Consumers and Travel Agents,'' National Commission to Ensure Consumer 
Information and Choice in the Airline Industry'' (November 13, 2002), 
at 56-58.
    Furthermore, our authority under section 411 would not allow us to 
adopt a rule requiring airlines to make all fares--or even all 
webfares--available through all distribution channels. Such a rule 
accordingly is not an available alternative to the rules we are 
adopting. As shown, section 411 authorizes us to prohibit practices 
that violate the antitrust laws or antitrust principles. The antitrust 
laws generally do not prohibit firms from choosing to distribute their 
products and services through some outlets and not others. The 
antitrust laws do not restrict a firm's distribution choices, even if 
those choices undermine the ability of some distributors to stay in 
business, unless the firm's conduct unreasonably restricts competition. 
While section 411 gives us somewhat broader authority over business 
practices in the airline and airline distribution businesses, the 
record in this proceeding would not justify a finding that an airline's 
decision to limit the offering of some fares or services to selected 
distribution channels is an unfair method of competition.
    (iii) Relationships between Airlines and Systems. The final rule 
will affect the systems' treatment of airlines by prohibiting display 
bias and certain types of contractual provisions that will tend to 
maintain the systems' market power and unreasonably deny airlines the 
ability to determine how to distribute their services. The final rule 
will not include such provisions of the existing rules as the rule 
prohibiting discriminatory booking fees.
    The commenters on our initial regulatory flexibility analysis did 
not address the potential impact of our rule proposals on airlines that 
are small entities. The final rule, as indicated, will prohibit certain 
types of system conduct that could unduly prejudice the competitive 
position of some airlines and deny them a reasonable opportunity to 
determine how best to distribute their services. These provisions will 
give smaller airlines more choice. The final rule will also maintain 
the rules prohibiting display bias. These provisions should benefit 
participating airlines, particularly smaller airlines. At the same 
time, we are not readopting other provisions, such as the prohibition 
against differential booking fees, which could protect smaller airlines 
against potential system practices that might undermine the competitive 
position of individual airlines. As discussed earlier in this rule, we 
have concluded that the record in this proceeding and the limits of our 
authority under section 411 would not allow us to readopt those rules. 
In particular, the record would not justify a finding that a system 
would be engaged in an unfair method of competition if it charged some 
airlines higher fees than those paid by other airlines.
    The earlier discussion in this document explains the overall basis 
for our decision to bar the two types of unreasonably restrictive 
clauses in contracts between airlines and systems. These rule 
provisions will impose no burden or restriction on airlines. These 
provisions will benefit airlines that are small entities, because the 
provisions will prevent system practices that would deny an airline the 
ability to choose the level of service that it will buy from each 
system and to choose which distribution channels (and which systems, if 
any) will have access to its most attractive fares, including its 
webfares. Airlines could potentially reduce their distribution costs if 
they could choose to buy a lower level of service in one system without 
being compelled by a parity clause to pay for a higher level of service 
in that system. Similarly, an airline could encourage travellers to use 
lower-cost distribution channels, which would lower its distribution 
costs, if it could reserve attractive fares for the lower-cost channels 
rather then be required by contract to make the same fares available 
for sale through travel agents using a system, which tends to be a 
higher-cost method of distribution. Of course, airlines may bargain for 
lower CRS fees by agreeing to make all of their fares available for 
sale through a system and by accepting parity clauses. To the extent 
that systems may have market power and could therefore impose 
unreasonably restrictive terms for system participation if not barred 
from doing so, such system practices would be more likely to harm 
smaller airlines than larger airlines.
    (iv) Prohibition of Display Bias. The final rule will maintain the 
existing prohibitions against display bias for six months. Maintaining 
the prohibition against display bias will enable travel agents to 
operate more efficiently and give airlines a better opportunity to 
compete on the basis of the relative price and quality of their 
services. The six-month period will facilitate an orderly transition to 
complete deregulation.
    Immediately ending the prohibition against display bias would 
enable systems to sell bias--preferential display positions--to 
individual airlines. While an airline's purchase of bias would enable 
that airline to obtain more bookings, even if rival airlines offered 
more attractive service or better fares, the airline would incur the 
cost of buying the bias, which would increase its total expenses. 
Moreover, allowing systems to sell preferential display positions could 
increase the airlines' aggregate expenses while not generating 
increased traffic. Display bias could benefit larger airlines at the 
expense of smaller airlines, because larger airlines could have 
additional resources for purchasing bias, and operate route systems of 
greater scope.
    Some airlines and travel agency commenters urge us to broaden the 
rule against display bias by prohibiting systems from displaying a 
single service under multiple airline codes. We have determined not to 
adopt that proposal. The multiple display of code-share services for a 
single flight can put competing airline services at a disadvantage by 
lowering their position in a system's display. Code-sharing 
arrangements generally involve at least one large airline. However, the 
arrangements typically involve smaller airlines as well, such as 
commuter airlines serving smaller communities from a major airline's 
hubs or airlines like Alaska that have entered into code-share 
agreements with larger airlines. Two of the systems--Sabre and 
Amadeus--already limit the display of code-share services, and the 
other two systems could do so if they wish. Because the systems no 
longer are owned or controlled by U.S. airlines, they should have an 
incentive to limit the display of code-share flights if travel agents 
consider the multiple listings of a single service under different 
codes to reduce the value of the display.
    (c) Description of Small Entities To Which the Rule Will Apply. Our 
final rule will directly regulate the systems' practices in several 
respects, but none of the systems is a small entity.
    Most U.S. airlines are small entities, and our final rule will bar 
systems from imposing certain types of contract requirements on 
participating airlines. The statistics given us by the Small Business 
Administration (``SBA'')

[[Page 1031]]

indicate that there are 383 small entities that are U.S. passenger 
airlines out of a total of 397 U.S. passenger airlines. These rule 
provisions will benefit small airlines, as will the prohibition against 
display bias.
    The rule will not apply to any other small entities. The rule will 
indirectly affect travel agencies, most of which are small entities, 
primarily because the rule will continue to prohibit display bias, a 
practice that decreases the efficiency of travel agency operations and 
the ability of travel agents to select the airline services that best 
meet their customers' needs. The final rule maintains none of the 
existing rules regulating contracts between systems and subscribers. 
The SBA has concluded that less than 500 travel agencies are not small 
entities. In 2001, there were 18,425 travel agencies, of which 117 had 
annual airline ticket sales that exceeded $50 million while 1,015 had 
annual airline ticket sales between $5 million and $50 million and the 
remaining 17,293 had annual airline ticket sales of less than $5 
million. ``Upheaval in Travel Distribution: Impact on Consumers and 
Travel Agents,'' National Commission to Ensure Consumer Information and 
Choice in the Airline Industry'' (November 13, 2002), at 113.
    The NFIB Legal Foundation suggests that we should consider the 
interests of small businesses as consumers of air transportation, 
particularly because many of them rely on travel agents for researching 
and booking air transportation. NFIB Legal Foundation Comments at 2. We 
expect that our final rule will encourage more competition in the 
airline and airline distribution businesses, which will benefit 
consumers. The Regulatory Flexibility Act, however, requires a final 
regulatory flexibility statement only insofar as the agency rule 
directly regulates small entities. American Trucking Ass'ns v. U.S. 
EPA, 175 F.3d 1027, 1043-1045 (D.C. Cir. 1999), rev'd on other grounds, 
531 U.S. 457 (2001); Motor & Equipment Mfrs. Ass'n v. Nichols, 142 F.3d 
449, 467 (D.C. Cir. 1998); United Distribution Companies v. FERC, 88 
F.3d 1105, 1170 (D.C. Cir. 1996); Mid-Tex Electric Cooperative v. FERC, 
773 F.2d 327, 342 (D.C. Cir. 1985). No additional analysis is therefore 
required by the Regulatory Flexibility Act on the possible impact on 
consumers, but, as noted, we expect that the final rule will benefit 
consumers.
    (d) Reporting, Recordkeeping, and Other Compliance Requirements. 
Our final 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.
    (e) Steps Taken to Minimize the Significant Economic Impact. Our 
discussion above of the significant issues raised by the public 
comments and our response to those comments explains why we are 
adopting the final rule rather than the other rule proposals suggested 
in our notice of proposed rulemaking and the comments. As stated, our 
final rule will have no direct economic impact on any small entities, 
except small airlines, because the final rule regulates only the 
systems' displays and certain features of their contracts with 
participating airlines. The final rule will impose no direct regulatory 
requirements on airlines that are small entities (or on travel agencies 
or other firms that are small entities). We have found, as discussed 
above, that the rule's direct economic impact on airlines should be 
beneficial. We have considered as a matter of overall economic policy 
whether we should adopt fewer rules, or rules that would impose fewer 
restrictions on the systems' operations. Because the impact on small 
entities should be beneficial, we have not needed to whether 
alternatives are available that would minimize the rule's impact on the 
small entities affected by the rule, the smaller airlines. The final 
rule contains no provision regulating the systems' relationships with 
travel agencies. The final rule will indirectly affect small entities, 
because we are not readopting most of the existing rules governing the 
systems' relationships with participating airlines or any of the 
current rules governing subscriber contracts.
Assistance for Small Entities
    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996, Public Law. 104-121, we want to assist small 
entities in understanding the rule so that they can better evaluate its 
effects on them and take it into account in operating their businesses. 
If the rule affects your small business, organization, or governmental 
jurisdiction and you have questions concerning its provisions or 
requirements, please consult Thomas Ray at (202) 366-4731.

Paperwork Reduction Act

    These rules contain no collection-of-information requirements 
subject to the Paperwork Reduction Act, Public Law 96-511, 44 U.S.C. 
Chapter 35. See 57 FR at 43834.

Federalism Implications

    These rules 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 the rules do not 
present sufficient federalism implications to warrant consultations 
with State and local governments.

Taking of Private Property

    These rules will not effect a taking or private property or 
otherwise have taking implications under Executive Order 12630, 
Government Actions and Interference with Constitutionally Protected 
Property Rights.

Civil Justice Reform

    These rules meet applicable standards in sections 3(a) and 3(b)(2) 
of Executive Order 12988, Civil Justice Reform, to minimize litigation, 
eliminate ambiguity, and reduce burden.

Protection of Children

    We have analyzed these rules under Executive Order 13045, 
Protection of Children from Environmental Heath Risks and Safety Risks. 
These rules do not concern an environmental risk to health or risk to 
safety that may disproportionately affect children.

Consultation and Coordination With Tribal Governments.

    These rules will not have tribal implications, will not impose 
substantial direct compliance costs on Indian tribal governments, and 
will not preempt tribal law. Therefore, they are exempt from the 
consultation requirements of Executive Order 13175. No tribal 
implications were identified during the comment period.

Energy Effects

    We have analyzed these rules under Executive Order 13211, Actions 
Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use. We have determined that they are not classified 
as a ``significant energy action'' under that order because they are a 
``significant regulatory action'' under Executive Order 12866 and would 
not have a significant adverse effect on the supply, distribution, or 
use of energy.

Environment

    These rules will have no significant impact on the environment. 
Therefore, an Environmental Impact Statement is

[[Page 1032]]

not required under the National Environmental Policy Act of 1969.

List of Subjects in 14 CFR Part 255

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

0
1. Accordingly the Department revises 14 CFR Part 255 to read as 
follows:

PART 255--AIRLINE COMPUTER RESERVATIONS SYSTEMS

Sec.
255.1 Purpose.
255.2 Applicability.
255.3 Definitions.
255.4 Display of information.
255.5 Contracts with participating carriers.
255.6 Exceptions.
255.7 Prohibition against carrier bias.
255.8 Sunset Date.

    Authority: 49 U.S.C. 40101, 40102, 40105, 40113, 41712.


Sec.  255.1.  Purpose.

    (a) The purpose of this part is to set forth requirements for the 
operation of computer reservations systems used by travel agents and 
certain related air carrier distribution practices so as to prevent 
unfair, deceptive, predatory, and anticompetitive practices in air 
transportation and the sale of air transportation.
    (b) Nothing in this part operates to exempt any person from the 
operation of the antitrust laws set forth in subsection (a) of the 
first section of the Clayton Act (15 U.S.C. 12).


Sec.  255.2.  Applicability.

    This part applies to firms that operate computerized reservations 
systems for travel agents in the United States, and to the sale in the 
United States of interstate, overseas, and foreign air transportation 
through such systems.


Sec.  255.3.  Definitions.

    ``Availability'' means information provided in displays with 
respect to the seats a carrier holds out as available for sale on a 
particular flight.
    ``Carrier'' means any air carrier, any foreign air carrier, and any 
commuter air carrier, as defined in 49 U.S.C. 40102(3), 49 U.S.C. 
40102(22), and 14 CFR 298.2(f), respectively, that is engaged directly 
in the operation of aircraft in passenger air transportation.
    ``Display'' means the system's presentation of carrier schedules, 
fares, rules or availability to a subscriber by means of a computer 
terminal.
    ``Integrated display'' means any display that includes the 
schedules, fares, rules, or availability of all or a significant 
proportion of the system's participating carriers.
    ``On-time performance code'' means a single-character code supplied 
by a carrier to the system in accordance with the provisions of 14 CFR 
Part 234 that reflects the monthly on-time performance history of a 
nonstop flight or one-stop or multi-stop single plane operation held 
out by the carrier in a CRS.
    ``Participating carrier'' means a carrier that has an agreement 
with a system for display of its schedules, fares, or seat 
availability, or for the making of reservations or issuance of tickets 
through a system.
    ``Subscriber'' means a ticket agent, as defined in 49 U.S.C. 
40102(40), that holds itself out as a source of information about, or 
reservations for, the air transportation industry and that uses a 
system.
    ``System'' means a computerized reservations system offered to 
subscribers for use in the United States that contains information 
about schedules, fares, rules or availability of carriers and provides 
subscribers with the ability to make reservations, if it charges any 
carrier a fee for system services. It does not mean direct connections 
between a ticket agent and the internal reservations systems of 
individual carriers.


Sec.  255.4  Display of information.

    (a) All systems shall provide at least one integrated display that 
includes the schedules, fares, rules, and availability of all 
participating carriers in accordance with the provisions of this 
section. This display shall be at least as useful for subscribers, in 
terms of functions or enhancements offered and the ease with which such 
functions or enhancements can be performed or implemented, as any other 
displays maintained by the system vendor. No system shall make 
available to subscribers any integrated display unless that display 
complies with the requirements of this section.
    (1) Each system must offer an integrated display that uses the same 
editing and ranking criteria for both on-line and interline connections 
and does not give on-line connections a system-imposed preference over 
interline connections. This display shall be at least as useful for 
subscribers, in terms of functions or enhancements offered and the ease 
with which such functions or enhancements can be performed or 
implemented, as any other display maintained by the system vendor.
    (2) Each integrated display offered by a system must either use 
elapsed time as a significant factor in selecting service options from 
the database or give single-plane flights a preference over connecting 
services in ranking services in displays.
    (b) In ordering the information contained in an integrated display, 
systems shall not use any factors directly or indirectly relating to 
carrier identity.
    (1) Systems may order the display of information on the basis of 
any service criteria that do not reflect carrier identity and that are 
consistently applied to all carriers and to all markets.
    (2) When a flight involves a change of aircraft at a point before 
the final destination, the display shall indicate that passengers on 
the flight will change from one aircraft to another.
    (3) Each system shall provide to any person upon request the 
current criteria used in editing and ordering flights for the 
integrated displays and the weight given to each criterion and the 
specifications used by the system's programmers in constructing the 
algorithm.
    (c) Systems shall not use any factors directly or indirectly 
relating to carrier identity in constructing the display of connecting 
flights in an integrated display.
    (1) Systems shall select the connecting points (and double connect 
points) to be used in the construction of connecting flights for each 
city pair on the basis of service criteria that do not reflect carrier 
identity and that are applied consistently to all carriers and to all 
markets.
    (2) Systems shall select connecting flights for inclusion 
(``edit'') on the basis of service criteria that do not reflect carrier 
identity and that are applied consistently to all carriers.
    (3) Systems shall provide to any person upon request current 
information on:
    (i) All connecting points and double connect points used for each 
market;
    (ii) All criteria used to select connecting points and double 
connect points;
    (iii) All criteria used to ``edit'' connecting flights; and
    (iv) The weight given to each criterion in paragraphs (c)(3)(ii) 
and (iii) of this section.
    (4) Participating carriers shall be entitled to request that a 
system use up to five connect points (and double connect points) in 
constructing connecting flights for the display of service in a market. 
The system may require participating carriers to use specified 
procedures for such requests, but no such procedures may be 
unreasonably burdensome, and any procedures required of participating 
carriers must be applied without

[[Page 1033]]

unreasonable discrimination between participating airlines.
    (5) When a system selects connecting points and double connect 
points for use in constructing connecting flights it shall use at least 
fifteen points and six double connect points for each city-pair, except 
that a system may select fewer such connect or double connect points 
for a city-pair where:
    (i) Fewer than fifteen connecting points and six double connect 
points meet the service criteria described in paragraph (c)(1) of this 
section; and
    (ii) The system has used all the points that meet those criteria, 
along with all additional connecting points and double connect points 
requested by participating carriers.
    (6) If a system selects connecting points and double connect points 
for use in constructing connecting flights it shall use every point 
requested by a participating carrier up to the maximum number of points 
that the system can use. The system may use fewer than all the connect 
points requested by participating carriers to the extent that:
    (i) Points requested by participating carriers do not meet the 
service criteria described in paragraph (c)(1) of this section; and
    (ii) The system has used all the points that meet those criteria.
    (d) Each system shall apply the same standards of care and 
timeliness to loading information concerning every participating 
carrier. Each system shall display accurately information submitted by 
participating carriers. Each system shall provide to any person upon 
request all current data base update procedures and data formats.
    (e) Systems shall use or display information concerning on-time 
performance of flights as follows:
    (1) Within 10 days after receiving the information from 
participating carriers or third parties, each system shall include in 
all integrated schedule and availability displays the on-time 
performance code for each nonstop flight segment and one-stop or multi-
stop single plane flight, for which a participating carrier provides a 
code.
    (2) A system shall not use on-time flight performance as a ranking 
factor in ordering information contained in an integrated display.
    (f) Each participating carrier shall ensure that complete and 
accurate information is provided each system in a form such that the 
system is able to display its flights in accordance with this section.
    (g) A system may make available to subscribers the internal 
reservations system display of a participating carrier, provided that a 
subscriber and its employees may see any such display only by 
requesting it for a specific transaction.


Sec.  255.5  Contracts with participating carriers.

    (a) No system may require a carrier to maintain any particular 
level of participation or buy any enhancements in its system on the 
basis of participation levels or enhancements selected by that carrier 
in any other foreign or domestic computerized reservations system, as a 
condition to participation in the system.
    (b) No system may require any carrier as a condition to 
participation to provide it with fares that the carrier has chosen not 
to sell through that system.


Sec.  255.6  Exceptions.

    The obligations of a system under Sec.  255.4 shall not apply with 
respect to a carrier that refuses to enter into and comply with a 
participating airline contract with that system.


Sec.  255.7  Prohibition against Carrier Bias.

    No carrier may induce or attempt to induce a system to create a 
display that would not comply with the requirements of Sec.  255.4.


Sec.  255.8  Sunset Date.

    Unless extended by a document published in the Federal Register, 
these rules shall terminate on July 31, 2004.

    Issued in Washington, DC, on December 31, 2003.
Norman Y. Mineta,
Secretary of Transportation.
[FR Doc. 03-32338 Filed 12-31-03; 3:16 pm]
BILLING CODE 4910-62-P