It's apparent even to those who merely skimmed the U.S. Department of Transportation's proposed changes to global distribution system regulations that the fallout will be dramatic and better for the biggest airlines than GDSs. The DOT tome, issued Nov. 21, garnered disparate feedback from dozens of parties, some of whom successfully petitioned DOT for more time to comment.
"Booking fees equal about 2 percent of the revenue obtained by airlines through the systems," DOT said. "This is a significant level of expense in an industry that historically has had thin margins of profitability as a percentage of sales."
DOT's most blatant reference to corporate travel came in the form of a request for input on whether it should ban airlines from offering corporate discounts only through the carrier's preferred GDS, assuming such a ban would be enforceable. Over the years, that practice has impacted more than just carrier negotiations. For example, one travel manager recently said she could not pick an online booking tool that does not run on Worldspan because it would impact her Delta Air Lines contract.
Other proposals could be farther reaching. Ending the rules that GDS-owning carriers participate equally in all systems and that GDSs must charge all airlines equal prices could drive down fees or further fragment channels, as airlines would be free to negotiate pricing and participation.
Another proposal—restricting GDSs in selling booking data to carriers and other suppliers—would be designed, DOT said, to increase fare competition and reduce the dominance of hub carriers, particularly over new entrants. It also could give agencies and their clients more leverage in negotiations with airlines, although most major carriers now require buyers to send data to The Prism Group for processing
(see story). DOT made reference to such data-processing companies, which it said could gain "a much greater opportunity to market their services."
The National Business Travel Association said it did not welcome all of the proposed changes, but was "pleased" with the possibility of new restrictions on data that airlines obtain from GDSs.
DOT also is considering restricting or prohibiting productivity pricing agreements, in which agencies commit to certain booking thresholds in return for incentives from the GDSs, including equipment, payments or lower fees in rare cases where agencies pay for their GDS service. Such arrangements, DOT said, "seem to deter travel agencies from using the Internet."
DOT offered the same logic for proposing to ban contractual clauses that say GDS-owned equipment cannot be used to access other databases. "A subscriber should be free to use multiple systems and databases, and a system therefore should not be entitled to obtain—or expect to obtain—most of all of a subscriber's bookings," DOT wrote. "Ending productivity pricing would, however, reduce the revenues of many travel agencies, especially the larger travel agencies."
Other proposals attempt to protect agencies in GDS contracting—for example, by allowing agencies to cancel GDS agreements that are more than a year old without penalty on three months notice, a European rule—and also allow agencies to state service fees separate from fares, with conditions.
On Nov. 22, an unprecedented show of cooperation had much of the travel distribution industry asking DOT to give it more time to respond to the proposals. Amadeus, Cendant Corp., NBTA, Navigant International, Sabre, TQ3 Maritz, Rosenbluth International, WorldTravel BTI and a handful of others asked DOT to extend the initial comment period deadline from Jan. 14 to March 16 and the final period from Feb. 13 to May 15.
"At this stage, getting it right is more important than getting it done fast," the petitioners said. "The stakes are very high here."
After America West Airlines last week joined the group, DOT granted the extensions over the objections of American, Continental, Northwest, Orbitz, United and Worldspan. Some of those parties had accused the petitioners of attempting to preserve the status quo.
After they were first released, American Airlines applauded DOT's proposals, and Delta called them "a positive step in the right direction." Non-airline-owned GDSs were less enthusiastic. "We're puzzled by DOT's proposed rules and strongly oppose them," said a Sabre spokesperson.
The rules "appear to be one-sided, as if written by the airlines," said Sam Katz, chairman of Cendant's travel distribution division, during a speech at the PhoCusWright conference last month in Hollywood. "Meanwhile, Orbitz was untouched."
DOT made clear it had no intention of regulating the Internet, outside of ad-hoc enforcement actions. "The existence of one distribution channel that is attractive to a significant and growing number of travelers does not make that channel competitive with another channel that a larger, if shrinking, share of travelers finds preferable," argued DOT.
DOT "made what we saw as a bold conclusion," said Jeff Katz, Orbitz chairman, president and CEO. "We're happy to see that airlines may pick and choose how, where and at what price they distribute, and that Internet entities like Orbitz will not be subject to regulation. You'll see some interesting stuff happening in the GDS world. These new rules facilitate that to a degree, and it could be very exciting."
One of DOT's boldest statements addressed Orbitz's agreement with Aqua Software Products Inc.
(BTN, June 3), designed to bring Orbitz content to travel agencies. Orbitz "would become a system subject to all of the rules applicable to the existing four systems if it offered its services to travel agencies," DOT wrote. "As noted, under Orbitz's agreement with Aqua, the latter firm will develop a program that would enable travel agencies to access Orbitz displays and booking capabilities." Aqua is owned by Navigant International, which will be the first beneficiary of the link.
"We don't have, nor are we planning to have, any contracts with agencies, so by that definition it means we're not in the GDS business," Orbitz's Katz said.
"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," NBTA said, reflecting members' frustration with the spread of travel inventory beyond the 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.
The proposed rules can be reviewed at: www.dot.gov/affairs/CRSrule.htm.
Comments may be obtained at: dms.dot.gov/search/searchFormSimple.cfm, docket number 2881. Submit comments at: dmses.dot.gov/submit/dspSubmission.cfm.