WASHINGTON -- The Transportation Department's GDS rules will not
be extended to cover Orbitz or other Internet sites, but the DOT
wants to keep them for a while and make them better.
To that end, the DOT last week issued a long-awaited proposal to
update the regulations, to curtail what it regards as the undue
"market power" of the big GDS vendors.
The DOT said its ultimate strategic goal is to "facilitate the
development of alternatives to the systems for both travel agencies
and airlines and thereby reduce the systems' market power and
potentially eliminate or reduce the need to regulate them."
Overall, the revised package of rules would retain the
long-standing prohibitions against display bias on GDS screens,
while enhancing provisions that protect agents from onerous vendor
contract terms. (For a summary
of the proposal, see sidebar
below.)
For agents, a key feature of the package is a plan to prohibit
airlines from acquiring GDS data tapes that reveal how much
business agents are booking on other airlines.
Most agency groups have objected to the sale of GDS data since
the old Civil Aeronautics Board first authorized it in 1984.
The DOT said it now believes that the availability of the data
hinders airline competition and enables airlines to use coercive
tactics against agents. As an alternative to prohibiting the sale
of the data, the DOT said it might consider requiring a delay in
the release of the data, or -- in the interests of privacy --
suppressing the identity of the passenger or corporate account.
Productivity pricing
A second key element for agents is a DOT proposal to "restrict
or prohibit" productivity pricing, the vendor practice of using
financial inducements or penalties to encourage agents to use the
system.
The DOT believes such pricing schemes are an exercise of market
power by the GDS vendors because they force agents to make most of
their bookings on the system and are primarily designed to deter
agents from using different systems or the Web.
The DOT drafted a clause to outlaw pricing incentives or
penalties based on "a minimum share of the subscriber's total
transactions," but it invited suggestions for different approaches,
such as permitting the practice if the agency leases the vendor's
equipment.
Another proposal directly affecting agents would give airlines
the right to discriminate against agents based on the GDS they
use.
The purpose of this provision is to enable airlines to offer
inducements to agents (or withhold benefits) to encourage them to
use other systems or Internet alternatives that the airline finds
to be cheaper or more effective.
Some GDSs prohibit participating airlines from discriminating
against agents based on which system they use. The DOT proposed to
outlaw such contracts and give airlines a free hand to "persuade"
agents to use particular systems.
Long-term contracts
The DOT also is reopening the debate over the length of GDS
subscriber contracts, now limited to five years, provided that
vendors make three-year options available.
The DOT specifically requested suggestions on other options to
reduce the length of agency contracts, including variations of the
European rule, which, the DOT said, allows agents to "cancel on a
few months' notice after the contract has been in force for at
least one year."
Also open for debate is the vendor practice of requiring a new,
multiyear contract when adding equipment, a practice that can
saddle an agency with several contracts with differing expiration
dates. The DOT indicated it would address the issue if industry
comments establish that it's a problem.
And, in something of a delayed reaction, the DOT proposed to
prohibit liquidated damages clauses based on a GDS vendor's
estimate of lost business -- after rebuffing many previous requests
by agents for such a ban.
At one time, liquidated damages clauses were the subject of a
contentious debate, but the controversy died down after Sabre, in a
deal with ASTA, voluntarily dropped those contract terms in
1994.
Uniform pricing
For airlines, the biggest rule change may prove to be the DOT's
decision to end the requirement for uniform pricing. Since the
rules were adopted in 1984, the systems have been required to
impose the same booking fees on all airlines.
By ending the requirement, the DOT hopes to "encourage more
effective negotiations between participating airlines and the
systems" over fees.
In a related move, the DOT proposed to end the so-called
mandatory participation requirement. Since 1984, airlines owning 5%
or more of any system have been required to participate in all
systems at the same level of functionality that they participate in
their own.
The rule now applies only to the foreign-airline owners of
Amadeus and to Worldspan owners American, Delta and Northwest; the
DOT said it thinks the rule may "limit the ability of individual
airlines to bargain for better terms with the systems."
Orbitz
As for Orbitz and the Internet, the DOT is opting for the status
quo, saying regulation of Internet sales "seems unnecessary." It
said it is still informally investigating allegations of deceptive
practices by Orbitz and its airline owners. The DOT said it will
rely on its enforcement authority to deter Orbitz or other online
entities from engaging in unfair or deceptive practices.
The lone exception to the hands-off approach is a new policy on
the disclosure of travel agent service fees (see "DOT to require
fee disclosure" below).
Jurisdiction
The DOT is also addressing two basic issues relating to its
jurisdiction and the scope of the rules.
First, the rules would apply to all GDSs rather than systems
that are owned or marketed by carriers. This would clearly
establish DOT jurisdiction over Galileo, which is owned by Cendant,
and Sabre, a stand-alone company.
The DOT specifically invited comments on whether it can claim
jurisdiction over GDS owners that are not airlines.
Second, a subscriber is defined as a travel agent who "holds
itself out as a neutral source of information." The DOT asked
whether it should drop the word "neutral."
DOT to require fee disclosure
WASHINGTON -- The Transportation Department is extending its
jurisdiction over travel agents to regulate the way agents disclose
their service fees to clients.
In conjunction with its re-write of the GDS rules, the DOT is
updating its advertising guidelines to state that any advertised
price or fare quote must disclose the agent's service fee
separately. Also, any offer to sell a specific air transportation
service must state the entire price, including the service fee,
before purchase.
In addition, the DOT intends to prohibit agents from setting
air-related service charges as a percentage of the ticket price,
saying "percentages are difficult for consumers to calculate and
would seriously hinder price comparisons."
The requirements would apply to online agents, including Orbitz,
and to traditional brick-and-mortar agencies, and it would apply to
any fare advertisement or fare quote, whether delivered orally, in
print or on the Internet.
In advertisements, service fees in excess of $20 or 10% of the
price must be "prominently disclosed and placed near the advertised
fare or price."
The DOT offered no explanation as to how it arrived at the
$20/10% threshold for requiring a "prominent" notice.
For years, the DOT has required that airlines and agents quote
"the entire price to be paid" for airline tickets or air-inclusive
tours, except for certain government taxes and fees. Technically,
that prohibited agents from breaking out their service fee -- a
requirement that few agents understood or observed.
Last year, Orbitz obtained a waiver of that policy so that it
could state its service fees separately and still display "the
lowest fares." At the time, the DOT promised to develop a new
policy to facilitate consumer price comparisons, on line and off.
-- B.P.
The GDS proposals at a
glance
AGENTS and CONTRACTS
• Marketing data. The DOT would prohibit airlines from
buying GDS data that show individual agency sales on competing
airlines.
• Contract length. To be retained are rules prohibiting
contracts longer than five years and requiring vendors to offer at
least a three-year option. The DOT seeks input on ways to further
reduce the term of agency contracts.
• Productivity pricing. The DOT believes the practice
of paying incentives or booking credits discourages agents from
using other systems or the Web; it seeks comment on ways to
restrict or prohibit the practice.
• Third-party software and hardware. The DOT will
strengthen a clause that allows agents to use third-party software
and hardware by prohibiting vendors from restricting a subscriber's
ability to use the leased hardware to access other systems.
• Contract terms. Rollover, minimum use and parity
clauses would remain prohibited; the DOT asked for comment on a
proposal to prohibit vendors from requiring a separate, long-term
contract when new equipment is added to a lease.
• Tying. The DOT may broaden the rule that prevents an
airline affiliated with a GDS from tying the payment of commissions
to the use of the system, to cover marketing benefits, such as the
display of corporate discount fares.
• Liquidated damages. A GDS, in the event of an agency
breach of contract, could not claim liquidated damages based on an
estimate of lost bookings.
AIRLINE CONTRACTS
• Discrimination against agents. Some GDS contracts
prohibit participating carriers from discriminating against system
subscribers. The DOT proposed to allow airlines to discriminate
against agents based on the GDS they use if the carrier bases the
discrimination on the system's performance or cost.
• Participation. Airlines with ownership in a system
would no longer be required to participate in all systems. The DOT
will entertain proposals to keep the rule and extend it to airlines
that merely market a system, as American markets Sabre.
• Pricing. Vendors would no longer be required to
charge the same booking fee for all airlines.
SCREEN DISPLAYS
• Bias. The basic ban on biased displays would remain
in effect unchanged, including the provision that agents are
permitted to employ software to rearrange the system displays to
suit their marketing needs or client requirements. New is a
provision that would prohibit any airline or GDS vendor from
supplying such software.
• Code shares. To reduce "screen padding," connections
operated under the codes of two or more carriers could be listed
only once under each carrier's code.
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