Eleventh-hour filings early last week by interested parties to tell the U.S. Department of Transportation what they think of its proposed global distribution system regulations illustrated the importance of the recent announcement that Worldspan's airline owners would sell the company. Not only is the fate of Worldspan bound to be shaped by DOT's final decision, but DOT will formulate rules in part based on the smallest GDS' immediate future.
DOT plans to hold a hearing for the presentation of arguments before its reply comment deadline on May 15. The agency does not expect to finish the rule-making process until well after midyear, when Worldspan predicted its acquisition by private investors from Citigroup and a Canadian pension plan to close
(BTN, March 10). The current rules remain in effect until January.
Page after page of industry dialogue on the regulations rehashed clashes on a number of issues and could debunk some assumptions under which DOT was operating in last year's rule-making proposal
(BTN, Dec. 9, 2002), but a Worldspan sale could make some discussion irrelevant as it would all but end the conditions that precipitated regulation in the first place—chiefly the airline ownership of GDSs.
Noting that the GDSs still would be subject to antitrust and consumer-protection oversight, most major vendor parties supported full deregulation. They differed, however, on when it should happen. Assuming a Worldspan deal, Expedia, Sabre, United Airlines and Worldspan saw fit to chuck the regulations as soon as possible. Continental, Delta, Northwest and Worldspan's proposed new owners favored a phased approach that would end the regulations in three to five years. Others, such as Amadeus, American, British Airways, Galileo and Orbitz did not, or at least not yet, support full deregulation for various reasons.
One compelling argument for deregulation is that there is little hope for regulators to keep up with marketplace developments. Figures quoted in Sabre's 400-plus page filing revealed immense changes since DOT initiated this process in 1997, possibly dismantling at least a couple of assumptions on which DOT based its November proposals.
The effects of full deregulation on corporate buying are difficult to predict, but interests most vested in corporate travel expect the burgeoning problem of booking fragmentation would worsen.
"Travel agents will face significant booking hurdles to provide their customers with the most cost-effective fares and efficient connections," argued Carlson Wagonlit Travel. "Searching multiple booking sources and comparing fares across these sources will require greater training and will take time and increase the cost of booking airfares, all of which will redound to the detriment of consumers through less efficient and more costly service."
The National Business Travel Association said that about half of its members surveyed indicated "fares and fare information would be less transparent because carriers may not participate in all systems. Corporations in highly competitive markets, like Los Angeles, would probably not see a lot of cost increase as there will be a desire by the GDS and airlines to remain competitive. For companies that do business in small markets or monopoly markets, like Atlanta and Dallas, there will likely be the need to use third-party products to find all fares."
The Association of Corporate Travel Executives pointed out three anticipated cost drivers due to deregulation: airfare bias, more complicated airfare searches and a need to access multiple GDSs.
A number of corporate travel parties converged on a familiar topic: data.
"One area we wholeheartedly applaud, and the only regulation we encourage you to keep and indeed expand," wrote American Express, is DOT's proposal to ban or restrict GDS sales to airlines of booking data. Amex took the point a step further, requesting that DOT stop airlines from hinging discounts on whether clients send "all of their travel data, including detailed data on other airlines" to the carriers or their consolidators, such as Prism Group.
Carlson Wagonlit Travel asked DOT to prohibit the sale of booking data to carriers "to prevent airlines from disadvantaging new airline entrants. Besides, the GDSs' sale of this data may infringe upon data privacy issues." NBTA asked DOT to suspend immediately the rule that GDSs must offer their booking data to carriers and expressed its dismay that the acquisition of data from other sources is not regulated.
Many vendors disagreed. Responding to earlier NBTA comments, Amadeus wrote, "NBTA would like the airlines not to have the best data available to them so that negotiations with airlines take place in a less-informed atmosphere in which the airline lacks data that might be useful in reaching mutually beneficial travel arrangements. NBTA's proposal speaks for itself. DOT plainly should not be party to an effort by some parties to free market negotiations to prevent other parties from having relevant information. Markets work best when parties have more, not less, information."
CWT made light of another issue contemplated in DOT's proposals that is particularly relevant to corporate buyers: the tying of corporate discounts to GDS usage. "Airlines should be prevented from tying their corporations' discount programs to the use of a specific GDS by the corporation's chosen travel agent," stated CWT.
Amadeus said it has seen the practice within the past year, claiming, "Delta and Worldspan have approached several of Amadeus' Atlanta subscribers and threatened to cut off override commissions and special services if the accounts do not convert to Worldspan. In at least one such recent case, Delta made good on its promise to cut off such benefits. The agency installed Worldspan products with two of its largest corporate accounts in an effort to retain the benefits, and Amadeus lost about half of the agency's business." Amadeus also said it "recently lost two agencies in Minneapolis" because "Northwest has continued to strong-arm agencies by threatening to withdraw, or withdrawing, overrides and benefits" if they do not use Worldspan.
DOT is considering a ban on such tying agreements and is attempting to determine whether a lack of ownership by an airline of a GDS is enough to prevent anticompetitive tactics in hub cities.
Travel industry lawyer Mark Pestronk, speaking for 22 large corporate agencies, wrote that "after Worldspan's divestiture, it is unlikely that Delta or Northwest will require travel agencies to use Worldspan as a condition of obtaining special airfares or overrides, as they have done in the past. No airline has ever done so after divestiture, although American does try to hike corporate discount fares a bit if the travel agency does not use Sabre." Amadeus said it "is aware of several recent occasions when Sabre and American have advised agencies that they would lose their corporate contracts with American if they dropped Sabre."
"DOT should draw a clear distinction between tying and marketing," added Pestronk. "Tying is the airline practice of insisting that an agency use a system as a condition of obtaining airline benefits. It is clearly illegal under the antitrust laws when the airline has local monopoly power. On the other hand, marketing is benign: It is the practice of using airline benefits as additional incentives for an agency to accept a GDS offer."
Whether or not it is helped by its potentially former airline owners will impact Worldspan's success among traditional travel agencies going forward. "While Worldspan is now the largest GDS, by far, in Memphis, Detroit, Minneapolis, Cincinnati, Atlanta and Salt Lake, it only became so after gaining the 'support' of Northwest and Delta in the late 1980s and early 1990s," said Sabre.
Booking figures newly unveiled by Worldspan back one rumor about plans for the GDS by its proposed owners—that they will add dramatically to the 500 jobs Worldspan cut over the past two years in an effort to widen its profit margin as it handles further remarkable growth in Web bookings.
According to Worldspan, nearly half of its 2002 North America bookings came from online sources, up from 3 percent in 1998. Traditional travel agency bookings, meanwhile, plunged by 26 percent from their peak in 1999.
Despite the fact that deregulation is more likely if their acquisition happens, Worldspan's buyers are seeking a transitional period before the regulations are dropped. The company formed to buy Worldspan, called the Travel Transaction Processing Corp., "takes the broad view that the regulations should be kept largely in place with a firm sunset date in the near future." TTPC later referred to a period of "the next few years" to "allow the industry and regulators to better evaluate whether the regulatory framework should firmly sunset, be replaced or augmented with changes."
Worldspan said, "there is no existing basis in the record or in fact to support continued regulatory intervention," and that its sale is a major reason "it is neither necessary nor appropriate for DOT to continue to regulate the GDS industry."
Worldspan senior vice president of strategic planning Jesse Liebman downplayed the difference. "We both desire to see a deregulated environment. The difference is that we focus on deregulation occurring promptly and they take a somewhat different stance where they're looking for a bit more stability and evolution. Given that they are trying to conclude the acquisition, they're feeling viscerally that a stable environment is more hospitable to that." TTPC said it would offer in its reply commentary on "new economic data that predicts how this industry will evolve, with special emphasis on ensuring the public receives unbiased data."
Meanwhile, a possible American Airlines bankruptcy, war and Worldspan president and CEO Paul Blackney's announcement to exchange his position for a board seat if the sale is completed—but stay at the helm if it is not—may cast more uncertainty on the acquisition than already was evident. Sabre hinted as much when its filing indicated Sabre favors deregulation of the GDS industry if the Worldspan divestment is "for real" and "unless that deal is less than meets the eye."
Comments may be viewed at: dms.dot.gov/search/searchFormSimple.cfm, docket number 2881.