The U.S. Department of Justice has recommended deregulating the
global distribution system technology used by travel agents to make
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
“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are outdated since airlines have largely divested direct control of
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
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
“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
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
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
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