U.S. Won’t Limit Web Sales

CRS changes would hurt agencies, industry officials say

By: Robert Carlsen

In a nice big kiss to Orbitz, last week the U.S. Department of Transportation decided that there is no need to regulate the sale of airline services over the Internet.

Under the 286-page Notice of Proposed Rulemaking issued Nov. 13, the first of its kind in 10 years, the U.S. government would continue to regulate all of the GDSs, including the ones no longer owned by the airlines, but would not regulate Internet ticket sales.

“The airlines’ growing use of the Internet for selling tickets has weakened their dependence on the [GDS] systems and possibly the need for at least some of the existing rules,” the DOT said.

Reaction in the industry was swift and furious, with many saying the overall proposal was heavily skewed in the airlines’ favor and would further destabilize the industry.

Orbitz, meanwhile, issued a statement commending the DOT for its actions. According to Travel Management Daily, the proposal calls for the elimination of two aspects of the rules that “may unduly limit the ability of airlines to bargain for better terms with the systems.”

One target is the mandatory participation rule, which requires an airline with ownership interest in a GDS to participate at the same level in competing GDSs, as long as terms are commercially reasonable.

The second proposed change would require the GDSs to charge the same fees to all airlines.

However, the DOT proposal would continue to require that the systems be organized in an “objective and unbiased manner.”

Travel agents could be affected in several ways.

The DOT, for example, is asking for comment on ways to regulate productivity pricing so the practice would no longer serve as a “de facto minimum use” provision.

Also, the proposed rule changes would restrict the agency-related marketing data that airlines may obtain from GDSs.

The Notice of Proposed Rulemaking also suggests a change in the DOT’s policy guidance on agent service fees, a separate but related issue.

Under certain conditions, agencies initially would be allowed to exclude the service fee from an airline ticket’s advertised price, as long as they notify consumers of the fee and the total price when informing them of any specific itinerary.

There will be a 90-day comment period, beginning with the proposals’ publication in the Federal Register. Sixty days are for initial comments; the additional 30 days for replies. Afterwards, the DOT will review the comments and prepare a final form.

The DOT observed that the growing use of the Internet and other changes in airline marketing do not yet seem to have ended the GDS systems’ power. DOT, however, is also requesting comment on whether the rules could be allowed to expire next year.

Orbitz’s statement lauded the DOT for “taking a bold and much-needed step” by proposing to end the mandatory participation rule.

However, Steve Cosgrove of Dynamic Travel and Cruises in Southlake, Texas (the home of Sabre), said that agents and GDSs would be hurt if different airlines are in different systems.

“Say United is in Apollo, Delta is in Worldspan and American is just in Sabre. US Air is in all of them, as are the rest of the carriers. Which system does an agent in Chicago go with?

“As for letting the airlines see the marketing data, that should have been shut off a long time ago,” Cosgrove continued. “I’m hardly surprised the Bush administration would side with big business,” said Stephen Shields of Shields World Travel in Pleasanton, Calif.

“But from what we read,” Shields continued, “the Internet is driving the airlines closer and closer to bankruptcy as they lose money on every transaction. At least we don’t.”

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