DOJ Support GDS Changes

R. Scott Macintosh The U.S. Department of Justice has recommended deregulating the global distribution system technology used by travel agents to make airline reservations. The recommendations give considerable weight to federal proposals that would let current regulations expire in January. The rec

By: R. Scott Macintosh

The U.S. Department of Justice has recommended deregulating the global distribution system technology used by travel agents to make airline reservations.

The recommendations give considerable weight to federal proposals that would let current regulations expire in January.

The recommendations were filed last week on the closing day of public testimony taken by the Department of Transportation on the issue.

“It will be heavily influential in the outcome,” said Henry Harteveldt, an analyst at Forrester Research. “The Department of Justice is set up theoretically to see that business practices are fair and reasonable.”

The DOT has proposed allowing some of the rules, originally designed to prevent anti-competitive abuses by airlines when they owned GDS systems, to end in January. It believes that changes are needed to promote competition in the airline industry.

In comments to the DOT, the Justice Department said the rules are outdated since airlines have largely divested direct control of GDSs.

Of the four major GDS companies in the U.S. market, Sabre and Galileo are no longer owned by domestic airlines, and carriers are divesting from Worldspan. But three foreign carriers continue to be the major shareholders of Amadeus. Use of the Internet also spurred the Justice Department’s recommendations, with the agency saying online retailing has reduced the need for GDS regulation because it has broadened the way airline tickets are distributed.

Among its recommendations, the Department of Justice has suggested abandoning price regulations requiring GDS companies to charge all airlines the same fees for listing inventory.

The Department noted that although the rules were useful when airlines owned GDSs, the rules have since prevented the fees from being competitive and have limited the ability of airlines to negotiate lower fees. Airlines pay millions of dollars to list their flight information on GDSs.

The Justice Department also recommended ending rules that restrict the terms and conditions of travel agent contracts with the GDSs.

However, the Justice Department urged the DOT to keep rules that prevent biased displays of airline scheduling and that require equal treatment in updating information.

Of the proposals, a change to GDS contracts would be the most beneficial to travel agents because it would allow them to negotiate their contracts and offer them more flexibility if they want to switch to a different GDS partner, according to Harteveldt.

“It’s not fair for a GDS to hold an airline hostage or for the GDSs to hold a travel agency hostage,” he said. “Travel agents should be able to change their direct booking relationships without feeling they will be penalized by the GDSs.”

Still, many in the travel agent community are wary of deregulation as long as certain rules are kept in place to benefit the airlines. A concern for the American Society of Travel Agents is that the balance of power in the industry would be shifted to favor the airline industry if the DOT’s proposals are carried through.

The organization fears that the airlines may be inclined to withhold flight information on some systems if the mandatory requirement is ended that currently makes airlines owning GDSs list fares and flight information on competitors’ systems.

ASTA is also worried that inducements for using GDSs would disappear under the DOT’s proposals.

“Any artificial rule that says that GDS companies can’t pay for performance is just ridiculous,” said ASTA president Richard Copland.

The Senate Committee on Small Business and Entrepreneurship recently sent a letter to Transportation Secretary Norman Mineta urging the DOT to review the impact the proposed rulemaking would have on small businesses, particularly travel agents.

The committee noted that appropriate attention had not been given to the impact deregulation could have on small travel agencies. The letter reflects ASTA’s concerns.

“Travel agents are also concerned that the proposal may eliminate bonuses and other incentives that airlines provide to travel agencies,” the letter states. It is estimated that roughly 90 percent of the $57 billion in airline tickets sold each year by travel agents are made through GDS systems.

Though most agencies today are small businesses all agencies could be impacted by rule changes, according to Jerry Pantalone, an analyst and president of Strategies Unlimited.

“If you look at the travel agency marketplace today you will note that there are many fewer travel agencies in the 5 to 15 million dollar volume range,” he said. “The very large agencies and the megas are still receiving substantial financial incentives to sign CRS contracts. I don’t see any change in the CRS rules that would benefit any group of travel agencies.”

Both Sabre and Worldspan favor deregulation. But Galileo, a subsidiary of Cendant Corp., is opposed to deregulation, noting in comments to the DOT that “any new rules should strengthen mandatory participation and retain current provisions relating to CRS travel agency contracts.”

Most observers believe it is inevitable that any eventual rule changes will favor the airlines.

Copland believes that if GDSs are deregulated some sort of oversight is still needed to ensure there are no abuses.

“If there are no rules then there should be some kind of protection to ensure that the playing field is leveled,” he said.

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