GDS Pressure Rises

As industry prepares for final revisions to regulations, lobbying campaign is launched

By: R. Scott MacIntosh

Final revisions to the regulations governing global distribution systems could be ready for federal approval as early as next month, spurring the American Society of Travel Agents and other industry groups to plan a lobbying and educational campaign in Washington this week.

After years of extensions and months of heated debate, the Department of Transportation said it now expects to seek federal clearance of the proposed changes around Oct. 19, with final approval to come in mid-January.

Bill Maloney, ASTA’s executive vice president and chief operating officer, said hopes are that the Thursday event which will include educational sessions and meetings with members of Congress will help raise awareness of the issues.

Agents have worried that the changes may eliminate incentives that airlines provide to some travel agencies.

“The DOT has the power right now to change existing CRS regulations without any oversight from Congress or the administration,” Maloney said.

“We think if the proposed rules go into effect they would severely harm agencies.”

It is estimated that 90 percent of the $57 billion in airline tickets sold each year by agents are made through GDS systems.

The Transportation Department has said it believes changes are needed to boost competition in the airline industry, and has proposed allowing some of the rules to lapse in January.

The regulations originally were designed to prevent anticompetitive abuses by airlines when they owned the ticket distribution systems.

The Department of Justice has recommended deregulation of the entire system, saying airlines have largely divested themselves of direct control so the rules are no longer needed.

Of the four major GDS companies in the U.S. market, Sabre, Worldspan and Galileo are no longer owned by domestic carriers.

Three foreign carriers continue to be major shareholders in Amadeus.

Use of the Internet also spurred the Justice Depart- ment’s recommendations; the department said online retailing has reduced the need for GDS regulation because it has broadened the way airline tickets are distributed.

Payments Questioned

Noting the incentive payments to agencies, the U.S. General Accounting Office said in a recent review: “Very large travel agencies whose total annual sales have almost doubled since 1995 appear to have benefited from a combination of increasing global distribution system incentive payments, some continued airline sales-commission payments and customer service fees.”

The report noted that, while airlines have cut their distribution costs by more than 25 percent from 1999 to 2002, each GDS during the same time period paid agencies “an increasing amount of incentive payments from $22.3 million to $233.4 million (more than 900 percent).”

Some say that, while incentive payments may have grown, they are a critical resource for agencies and simply reflect market economics.

“Since commissions have gone to zero, the two major revenue streams (for agents) are consumer fees that they charge and the incentive fees that they get from CRS,” said Bruce Charendoff, Sabre Holding’s senior vice president for government affairs, which supports deregulation.

“To outlaw those payments would be very problematic for many agencies who count on that revenue to keep their doors open,” he said.

“What you have today is a different marketplace, where the vertical integration between airlines and CRS systems has been broken.

“You have alternatives to CRS that have appeared in the marketplace and you have deals being done in the marketplace that are major benefits to the airlines, CRS, agents and consumers,” Charendoff said.

As part of its program, for example, Sabre Travel Network has given the six largest airlines as well as more than a dozen others discounts that amount to 12.5 percent and are fixed for three years, he said.

“The marketplace should devise who the winner and loser is in the marketplace not government agencies,” he said.

Maloney said the Washington event this week is open to everyone, not just ASTA members.

“What is required is a grass-roots response by travel agents. We can’t do this alone.”