Economic Analysts Call to Retain and Strengthen Mandatory Participation and
Subject Orbitz to Current and Future Rules, Among Other Important Provisions
PARSIPPANY, N.J., March 17 /PRNewswire-FirstCall/ -- In response to the
U.S. Department of Transportation's (DOT) Notice of Proposed Rulemaking on
airline computer reservation system (CRS) rules, Galileo International, a
leading Global Distribution Services (GDS) system and subsidiary of Cendant
Corp. (NYSE: CD) today called for substantial changes to proposed rules to
ensure final rules foster fair competition and protect consumers.
"As long as airlines own, maintain financial investment, or enter into
preferential marketing agreements with CRSs, a free and fair marketplace is
not possible and the government must maintain its oversight of the CRS
industry. Rules are essential until such time that owning airlines completely
divest themselves of any interest or influence over distributors," said Sam E.
Galeotos, president and CEO of Galileo International and Cendant Travel
Distribution Services. "In our current environment, the consumer protection
rules that govern CRSs are vital to ensuring the public continues to have the
widest access to the best airfares, both online and offline. DOT's current
proposal is fatally flawed since it guts existing consumer protections and
gives big airlines free reign to stifle independent competition and restrain
consumer choice. Specifically, we are asking the DOT to retain its Mandatory
Participation provision and strengthen its definition -- as it originally
intended in its initial draft -- to also apply to airlines maintaining
marketing agreements with CRSs."
CRSs are sophisticated global technology systems that connect airlines and
other travel suppliers to offline and online travel agencies, which still book
the majority of airfare transactions. CRSs were originally created by
airlines more than two decades ago to increase ticket distribution. However,
many airlines began biasing CRS displays in favor of their airlines, charging
non-owners higher rates, and restricting fares and inventory from competing
CRSs, consequently limiting consumer access. Owner airlines also used their
market power to force travel agencies to use the airline's CRSs to obtain fare
discounts, which helped airlines secure CRS dominance in regional hub markets,
which are still evident today.
In response to these egregious airline abuses, the USDOT created the CRS
rules in 1984. In 1992, DOT added "mandatory participation," requiring
airlines owning a CRS to participate in all CRS systems equally to prevent the
anti-competitive and market dominating behavior exerted by owner airlines.
"Given the long and storied history of airlines owning and controlling
distribution systems, DOT has a responsibility to prevent history from
repeating itself and ensure appropriate rules are adopted to protect consumers
and competition in the future," noted Galeotos. "As currently drafted, the
proposed CRS rules are one-sided and inadequate as they heavily favor major
airlines at the expense of smaller and regional carriers, independent CRSs,
travel agents and consumers. To avoid selective regulation with unfair market
results, any new rules should strengthen mandatory participation and retain
current provisions relating to CRS travel agency contracts. DOT should also
acknowledge changing times by subjecting airline-owned Orbitz, which is
already operating as a CRS, to the existing and any new CRS rules," said
Galeotos.
Galileo's response to DOT included reports by economists, including three
currently or recently affiliated with Economists Incorporated, all of who have
prior experience analyzing the CRS industry.
According to this report by Margaret Guerin-Calvert, I. Curtis Jernigan,
and Gloria Hurdle, "Elimination of the mandatory participation and
nondiscriminatory pricing rules would pose substantial risks to competition.
Their elimination would provide opportunities for the resurgence of higher
charges for smaller airline competitors, which would increase their costs
relative to those of larger airlines and disadvantage them in competition with
larger airlines. Moreover, elimination of mandatory participation rules could
provide opportunities for airlines affiliated with CRSs to withhold
inventories from competing CRSs, thereby potentially reducing inter-CRS
competition to the detriment of consumers and airlines."
A full copy of this and other independent analysis, as well as Galileo's
overall docket comments, may be found online at
http://dms.dot.gov/search/searchFormSimple.cfm. Key highlights of Galileo's
comments include the following:
* Mandatory Participation: A cornerstone of the current CRS rules, this
requires airlines owning a CRS to participate in all CRS systems
equally to increase competition and consumer access. It was originally
required to address historic anti-competitive abuses by airlines that
owned CRSs. Mandatory participation rule should be preserved and
strengthened to apply to any CRSs that maintain airline ownership,
financial, or preferential marketing agreements.
* Orbitz's Most Favored Nations (MFN) Agreements: This guarantees that
Orbitz receive participating airlines' best public fares. It has had a
chilling effect upon the availability of the lowest priced Web fares in
the marketplace. Orbitz is functioning as a CRS and its airline owners
are using Orbitz strategically to control the market, hurt competition
and limit wider consumer access to the best fares. The public interest
is best served by requiring that Orbitz (which is owned by American,
Continental, Delta, Northwest, and United) be subject to the CRS rules
and its owners be subject to Mandatory Participation.
* Subscriber Contracts: Existing rules relating to subscriber contracts
and productivity pricing should not be modified. If they are modified
as proposed, innovative agreements like Galileo's Momentum program,
which is reducing participating airline's distribution costs while
expanding distribution channels and helping travel agencies operate
more efficiently with less financial assistance, will be prohibited.
* Booking Fees: CRS fees are reasonable and remain about 2-3% of the
average ticket price as was the case a decade ago. In addition CRS
fees comprise only 1.5 - 2% of total airline expenditures. Moreover,
despite increasing costs, the CRSs have introduced innovative new
programs such as Momentum that lowers booking fees to the airlines.
This sort of discounting confirms that CRSs lack market power.
* Non-discriminatory Pricing: Eliminating the ban on so called
discriminatory pricing will be particularly harmful to low cost
carriers, small/midsize carriers, and consumers by allowing big
airlines owning or allied with CRSs to abuse their pricing power in
their hub markets to disadvantage competitors.
* Potential Sunset of CRS Rules/Deregulation: Galileo would support
sunset of the existing CRS rules only if airlines completely divest
themselves from CRSs, including but not limited to ownership, any
vested financial interest in the economic success of a CRS, or
preferential marketing agreements.
About Galileo International
Galileo International (http://www.galileo.com) is a global technology leader.
Its core business is providing electronic global distribution services for the
travel industry through its computerized reservation systems, leading-edge
products and innovative, Internet-based solutions. Galileo is a value-added
distributor of travel inventory dedicated to supporting its travel supplier,
agency and corporate customers and, through them, expanding traveler choice.
A subsidiary of Cendant Corporation (NYSE: CD) and part of Cendant's Travel
Distribution Services Division, Galileo is headquartered in Parsippany, NJ,
and has offices worldwide.
SOURCE Galileo International
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Related links:
http://www.galileo.com
http://dms.dot.gov/search/searchFormSimple.cfm
CONTACT:
Dawn Lyon of Cendant Travel Distribution
Services, +1-973-496-5870, dawn.lyon@cendant.com; or John
Fitzpatrick of Strat@comm for Cendant/Galileo, +1-202-289-2001,
jfitzpatrick@stratacomm.net
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