The evolving battle between airlines and GDSs has taken a new turn, with the Department of Transportation (DOT) getting closer to deciding on a proposal that would mandate airlines serving the U.S. to distribute ancillary content through GDSs.
Airline groups in opposition to the idea stepped up their lobbying efforts over the past two weeks, most recently making a direct appeal to Transportation Secretary Ray LaHood, urging him not to move forward.
At issue is a DOT project called “Enhancing Airline Passenger Protections III,” a follow-up to recently completed DOT rulemakings that imposed the tarmac-delay rule on airlines and adopted new standards for airline advertising and the disclosure of ancillary fees.
An unresolved question from those proceedings was whether the DOT should require airlines to make all their ancillary services available in GDSs, as well.
According to a DOT schedule of work-in-progress, the proposal is one of several possible new consumer rules that could be ready to be issued as a formal proposal with a request for industry comments in August.
According to both sides, the DOT has over the last month reached out to a number of entities looking at the cost and benefits.
Groups in favor of that section of the rulemaking include ASTA, the Interactive Travel Services Association (ITSA) and other GDS and travel agency trade associations.
But they are faced with a possible negative outcome of the rule’s passage: the Enhancing Airline Passenger Protections proposal also includes provisions that would require agents to adopt “minimum customer service standards” and disclose the source of any of their incentive commission payments as well as make other disclosures about any biases in their GDSs.
Paul Ruden, ASTA’s senior vice president of legal and industry affairs, said that ASTA believes those issues are being considered because the DOT imposed explicit customer service standards on airlines in its last two consumer protection rulemakings.
“The imposition of these requirements was responsive to a documented and long-standing series of issues involving non-performance or substandard performance of consumer protection obligations by the airline industry,” Ruden said. “No such record of problems exists with respect to travel agents.”
Ruden said that the DOT’s Air Travel Consumer Report shows that in 2011 there were 166 complaints lodged with the DOT regarding travel agents, and only six were related to traditional agents, representing 0.0000042% of agent air sales transactions in 2011.
“The remaining 160 complaints were spread among six of the largest online agencies, also a miniscule fraction of the total volume of air business sold by those agencies,” he added. “There is, therefore, no need for DOT to adopt rules with customer service standards applicable to travel agencies.”
Ruden said that if this element of the rulemaking is proposed, ASTA will fight it during the public comment period.
However, ASTA has remained committed to the idea of requiring airlines to include ancillary services in GDSs, an idea that airlines have consistently opposed.
Nine airline associations from around the world voiced their opposition to the ancillary issue in a letter to LaHood on April 19 that was posted on the website of Airlines for America (A4A), formerly the Air Transport Association.
The coalition of associations, including IATA and the Association of European Airlines, asserted that such a mandate would result in “significant consumer overcharges.”
“GDS suppliers can be up to 80% more expensive than other equally transparent distribution channels,” the letter said. “The proposed DOT mandate will invariably lead to a reduction in competition and technology innovation, while increasing the price of tickets for the end-user consumer.”
The letter further contended that the carriers’ “shared commitment to transparency cannot justify a government mandate that airlines contract with GDSs to distribute all airline content and services via that channel.”
ASTA, ITSA and the Business Travel Coalition blasted the airline coalition for alleging that the rulemaking would apply to all ancillary fees and to all GDSs.
Joe Rubin, president of ITSA, said the ancillary content it would like to see airlines offer through GDSs are “core ancillaries” such as seating and baggage fees.
Furthermore, Rubin said, the rule would apply only to GDSs that airlines already distribute tickets through, not all GDSs.
Sharon Pinkerton, senior vice president of legislative and regulatory policy for A4A, said there was nothing in the DOT’s description that limited what ancillaries would be included or which GDS they would be included in.
“What we are talking about is what is potentially on the table in DOT’s rulemaking,” she said. “We are not responding to ITSA, we are responding to the DOT. ... DOT said it is examining whether to require the display and/or sale of all ancillary fees through all sales channels. It doesn’t limit it in any way.”
The DOT said it could not comment on the individual proposals of the rulemaking while it is being considered. A department spokesman said it had received A4A’s letter and would reply to it shortly.
ITSA and ASTA contend it is necessary for airline ancillary content to appear in GDS displays so that consumers can comparison shop.
“Consumers should be able to see and compare the all-in cost of the tickets and purchase ancillary [services] at the time they purchase the ticket,” Rubin said.
As it now stands, he added, consumers have to go to each airline website to see what baggage fees and seat fees cost, items that ITSA considers core. Noncore ancillary items they do not think need to be in the GDS include onboard Internet access or meals, for example.
ASTA’s Ruden said that one of the consequences of consumers not being able to comparison shop for ancillaries is that those fees are “higher than they should be” and lead consumers to make “bad decisions about the total cost of travel.”
“At some point people give up trying to go from website to website,” Ruden said. “That’s the antithesis of the way air travel has been sold for decades. Consumers are accustomed to the ability to say to the computer or the travel agent, tell me how it all adds up. They won’t have that ability if they are forced to go from website to website hunting for this and manually trying to pull it all together.
“We believe withholding it is an unfair and deceptive practice under the Federal Aviation Act. It’s not reregulation.”
Pinkerton said there is a significant cost to making airlines give ancillary content to the GDSs, one that eventually gets passed on to consumers.
She would not say exactly what it would be but said that in technology and distribution fees, it would cost airlines “in the billions” to comply with such a ruling, on top of the $7 billion they already pay to the GDS community (based on 2011 figures).
“The way our relationship with GDSs works is we pay them when they sell,” Pinkerton said. “We’re happy to have them sell because they reach a lot of people, and that is good for business. ... But there is a transaction cost involved in that.”
Both sides think that after a year, the DOT is very close to proposing a rulemaking on the issue.
“This should have been done awhile ago,” Rubin said. “The DOT took some steps to make airline pricing more transparent, but we don’t think it’s gone far enough, and we don’t think DOT thinks it has gone far enough. Now is the time, and the consumers are clamoring for further transparency.”
Naturally, the airlines disagree.
Pinkerton noted that this was the third “Enhancing Airline Passenger Protections” proposal.
“One of the arguments that we made with DOT is that we think rules No. 1 and No. 2 have sufficiently covered the issue,” she said, adding that Rule No. 2 “did have disclosure requirements, so if there is anybody not disclosing fees the department has the ability to enforce it.”
Beyond that, airline industry advocates have suggested that this hints of reregulation.
Helane Becker, an airlines analyst with Dahlman Rose & Co., said that Congress and the DOT “have certainly been aggressive in meddling in the industry.”
An American spokesman said that “airlines and agencies should be allowed to find the best distribution technology to meet their needs.
“In some cases that may involve a GDS, but in many cases it will not,” he said. “We would be supportive of a [DOT] rulemaking that would preserve airline-agency technology choices by not mandating the use of GDSs.”
Pinkerton added that A4A’s message to the DOT is that airlines are “fine with requiring transparency and display of all fees, but don’t put your thumb on the scale in this negotiation between GDS and airlines.”
Follow Johanna Jainchill on Twitter @jjainchilltw.