Computer Reservations System (CRS) Regulations

DEPARTMENT OF TRANSPORTATION

14 CFR Part 255

[Docket No. 48808]

Computer Reservations System (CRS) Regulations

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Termination of proceeding on petition for rulemaking on rules

governing computer reservations systems.

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SUMMARY: The Department is granting a request by the American Society

of Travel Agents (ASTA) that ASTA be allowed to withdraw its petition

for a rulemaking to amend the Department's rules on computer

reservations systems (CRSs). ASTA had asked the Department to amend its

CRS rules (14 CFR Part 255) to include a prohibition against the

inclusion of lost booking fees in the damages recoverable by a CRS

vendor when a travel agency breaches its contract for CRS services

before the end of the contract's term. ASTA is now asking the

Department for leave to withdraw its petition on the ground that the

largest CRS vendor has agreed to change its CRS contract practices in a

way which will eliminate ASTA's need for a rulemaking.

FOR FURTHER INFORMATION CONTACT: Thomas Ray, Office of the General

Counsel, 400 Seventh St. S.W., Washington, D.C. 20590, (202) 366-4731.

SUPPLEMENTARY INFORMATION: In the United States travel agencies sell

the great majority of all airline tickets. In selling air

transportation (and other travel services) travel agencies primarily

rely on computer reservations systems to find out what airline services

and fares are available for their customers, to make bookings, and to

issue tickets. Each of the CRSs operating in the United States is owned

by one or more airlines or airline holding companies. The nature of the

CRS and the airline businesses gives each operator of a CRS (``the

vendor'') a significant ability to prejudice the competitive position

of other airlines and to limit the information on airline services

given travel agencies and their customers. The Civil Aeronautics Board,

the agency which had been responsible for airline economic regulation

through 1984, therefore adopted rules regulating CRS operations under

section 411 of the Federal Aviation Act (``the Act''), 49 U.S.C. 1381.

Two years ago we revised those rules to further protect airline

competition. 14 CFR Part 255, adopted by 57 FR 43780 (September 22,

1992).

One of the major issues in our rulemaking concerned the contract

terms sought by CRS vendors from travel agencies using a CRS

(``subscribers''), since several commonly-used contract terms

restricted the subscribers' ability to add or switch systems. We

revised our CRS rules to prohibit certain subscriber contract clauses

that appeared to unreasonably interfere with a travel agency's ability

to use more than one system, but we did not adopt other proposals for

regulating subscriber contracts.

A number of parties in the rulemaking had complained that vendors

made it difficult for subscribers to switch systems before the end of

the term of their CRS contract by making a subscriber liable for

substantial liquidated damages if it breached the contract. The

liquidated damages formulas used by the vendors typically included an

element for ``lost booking fees.'' Booking fees--the fees paid by

airlines and other travel suppliers whenever an agency uses a system to

book a travel service--provide most of each vendor's CRS revenues. Lost

booking fees are the amount of booking fees the vendor would have

received if the subscriber had continued to use its system during the

remaining term of the contract. In calculating lost booking fees the

vendor typically assumed that the subscriber would have used its system

for most of its bookings. The inclusion of lost booking fees in the

damages due a vendor on a subscriber's breach of contract greatly

increases the damages obtainable by the vendor from the subscriber and

thereby makes it much more costly for an agency to breach its CRS

contract.

While we decided not to adopt a prohibition against the inclusion

of lost booking fees in liquidated damages, we stated that our rules

were intended to give travel agencies the ability to use more than one

system and that therefore no vendor should expect a subscriber to use

its system for most of the agency's bookings during the term of the

contract. No vendor could therefore reasonably expect that a subscriber

contract would produce a substantial flow of booking fees. As a result,

we concluded that the contract law principles governing liquidated

damages would make unenforceable any contract that required a

subscriber to pay damages based on lost booking fees. 57 FR 43827-

43828.

ASTA, the nation's largest travel agency trade association, filed a

petition for rulemaking. ASTA urged us to adopt an express prohibition

against the inclusion of lost booking fees in liquidated damages

clauses. ASTA alleged that American Airlines' Sabre system was

continuing to use such contract clauses since American argued that its

contract terms were consistent with our rules. ASTA proposed that we

amend Sec. 255.8 of our rules by adding a subsection that would

prohibit a vendor from requiring a subscriber to pay liquidated damages

to the extent that the damages enable the vendor to recover from the

subscriber the booking fees that the vendor would have obtained from

participating airlines.

Two vendors, Worldspan and System One Direct Access, filed answers

supporting ASTA's petition, while American opposed it. American

asserted that its contract provision was merely a means of enforcing

its productivity pricing formula, that the Department determined in the

rulemaking that productivity pricing (a form of pricing that reduces a

subscriber's CRS fees when it increases its use of the CRS) was

permissible, and that the American contract provision as a practical

matter could not keep an agency from using another system.

The Department invited other persons to file comments on ASTA's

petition. 58 FR 41068 (August 2, 1993). In response, System One,

Worldspan, Delta Air Lines (a Worldspan partner), Air France, and three

travel agencies (Hewins Travel Consultants, Travelbound, Inc., and WTT,

Inc., d/b/a Woodside Travel Trust) filed comments supporting ASTA's

proposal or similar restrictions on vendor subscriber contracts.

American again opposed such proposals. Apollo Travel Services, the

marketing arm of the second largest U.S. CRS, Galileo, stated it was

taking no position on ASTA's proposal but took issue with WTT's alleged

misdescription of Apollo's subscriber contracts. In its comments the

Orient Airlines Association asked us to begin a rulemaking on other CRS

issues.

However, ASTA has moved to withdraw its rulemaking petition on the

ground that American had agreed with ASTA that in future subscriber

contracts American would substitute an actual damages clause for a

liquidated damages clause and that American would give its subscribers

the option of replacing the liquidated damages clause in their existing

contracts with an actual damages clause. American would take these

steps within thirty days of our dismissal of ASTA's rulemaking

petition. Since American's agreement had eliminated the cause of ASTA's

request for a rulemaking, ASTA wishes to withdraw its petition.

Despite ASTA's request for withdrawal, System One and Worldspan

contend that ASTA's agreement with American should not keep us from

proposing new rules on subscriber contracts. They contend that American

could demand lost booking fees as part of its actual damages and that

American's productivity pricing formula requires subscribers to

guarantee that American will receive booking fees during the term of

their contracts. WTT, a consortium of very large travel agencies,

initially filed a pleading opposing ASTA's motion to withdraw its

petition. However, WTT later stated that it wished to withdraw that

opposition. WTT, which prefers market solutions to business problems,

has learned that American is willing to negotiate changes in its

subscriber contracts with some agencies. In WTT's opinion, this means

that regulatory action is no longer necessary.

We will grant ASTA's motion to withdraw its petition for

rulemaking, and we will terminate this proceeding. We do not believe

that we should begin a rulemaking of the kind sought by Worldspan,

System One, Delta, and the two smaller agencies at this time, even

though their comments have cited practices by American and Apollo that

may be troublesome. However, we do not now have detailed knowledge on

the effects of our revised CRS rules, which became effective less than

two years ago, nor on other changes that may have affected the

operation of the CRS and airline businesses. Rather than begin a

rulemaking, we prefer to begin an informal investigation into these

issues. In that investigation we are seeking information from vendors,

airlines, travel agency groups and individual agencies, and other

persons with knowledge of CRSs and related airline marketing issues.

That investigation should give us sufficient knowledge to determine

whether we should propose changes to the rules and, if so, what kind of

changes, just as our last rulemaking relied heavily on the examination

of the CRS business undertaken by the Secretary's Task Force on

Competition in the Domestic Airline Industry. Airline Marketing

Practices: Travel Agencies, Frequent Flyer Programs, and Computer

Reservation Systems (February 1990), cited at 57 FR 43782. As part of

that informal investigation, we are issuing an order requiring the

vendors to provide us with certain information and inviting vendors,

airlines, travel agencies, and other interested persons to meet with

our staff to discuss the issues. Our dismissal of ASTA's petition, of

course, will not prevent us from instituting a new rulemaking on CRS

issues if we find one warranted.

Issued in Washington, D.C. on September 26, 1994.

Patrick V. Murphy,

Acting Assistant Secretary of Transportation for Aviation and

International Affairs.

[FR Doc. 94-24167 Filed 9-29-94; 8:45 am]

BILLING CODE 4910-62-P