Industry Shows Mixed Reaction To Proposed GDS Rules - Business Travel News

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Industry Shows Mixed Reaction To Proposed GDS Rules

November 14, 2002 - 12:00 AM ET

The National Business Travel Association today said it welcomed some of the changes to the global distribution regulations proposed earlier this week by the U.S. Department of Transportation, but not all. On the positive side, NBTA said it was "pleased" DOT is proposing new restrictions on data that airlines obtain from the GDSs. "However, DOT did not extend the rules to cover the distribution of airfares over the Internet, which would have provided consumers with full access to all fares," stated the association. NBTA also is concerned about the elimination of DOT's requirement that any airline with at least a 5 percent share of a GDS participate in all GDSs.

"While we understand DOT's intention to help the carriers reduce their distribution costs by forcing the CRSs to compete, NBTA is concerned that the elimination of mandatory participation will impact consumer choice," said president Kevin Iwamoto.

DOT earlier this week released a Notice of Proposed Rulemaking that indicated it was considering a handful of significant changes to the rules governing GDSs--including the removal of a rule that bans GDSs from charging different fees to different suppliers. GDSs have raised rates for several consecutive years, prompting airlines to invest in direct connections and to concoct such programs as American Airlines' EveryFare (BTN, Oct. 7). AA today announced that the EveryFare program has kicked in at TQ3 Maritz Travel Solutions, its launch partner.

In a separate statement issued earlier this week, AA said it "commended" DOT for its proposed revised rules. "American applauds DOT's courage in proposing to eliminate the existing mandatory participation rules and prohibition of discriminatory booking fees," AA said. Airline officials also said the carrier was "pleased that DOT recognized that 'parity clauses' in CRS contracts with airlines are inconsistent with the elimination of these rules, and urged DOT to prohibit all such clauses in its final rule. Together, these actions will help unleash real price competition among CRSs, which should drive down distribution costs."

AA's wayward child, Sabre, was far less enthusiastic. "We're puzzled by DOT's proposed rules and strongly oppose them," said a spokesperson. As of this afternoon, Sabre's shares had dropped to just over $17 from opening at about $21 on Tuesday, when DOT released its NPR.

Shares at Cendant were less impacted as Sam Katz, chairman of Cendant's Travel Distribution Division--which houses the Galileo International GDS--pointed out to investors that "U.S. GDS earnings are less than 5 percent of Cendant earnings." Nevertheless, Katz in a meeting with investors yesterday went into detail on his initial view of the potential impact of the regulations. Cendant is modeling in its forecast for next year a 3 percent impact to total segments due to disintermediation. "On the surface, the rules appear to be very one-sided, with airlines receiving many loosenings of restrictions," he said. "Meanwhile, Orbitz was untouched. We know the GDS is the most efficient and lowest-cost means of distribution, and we think the airlines will become more honest about admitting that." Added Galileo CEO Sam Galeotos, "I've been through two or three of these rulemaking processes, and I think we have a long way to go."

Interested parties have about two months to provide comment to DOT via using docket number OST-97-2881. A final comment period will precede the final rulemaking sometime early next year.
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