Background:  Airline computer reservation systems (“CRS”s) are the systems used by travel agents and others to obtain airline scheduling information and purchase tickets for customers. First developed in the 1970s, they were originally owned and operated by the airlines. Fearing that airlines would use their control over CRSs to harm rivals, CRSs were first regulated by the Civil Aeronautics Board (CAB) in 1984. The Department of Transportation (DOT) expanded CRS regulation in 1992. Among other things, the current rules provide that CRS owners:

• cannot favor or disfavor any airline in setting the display order of flights or booking fees
• must provide data to all carriers on a non-discriminatory basis
• must participate in all other CRS systems (for airline CRS owners)
• must offer travel agents contracts of three years or less

Status:  The current regulations are set to expire in January. Last November, DOT proposed extending the regulations, with certain modifications. The proposed changes included some lessening of restrictions – such as elimination of the mandatory participation rule. However, it also proposed increasing regulation in other ways – such as banning financial rewards to agents who book more than a certain amount on the system. For the most part, however, the current rules would be left in place. 

After taking public comment and holding hearings, DOT has developed a revised proposal (which is not yet public). This revised proposal was sent to the Office of Management and Budget for clearance in late October of this year.

Discussion: The CRS market is very different than it was when these regulations were first imposed, eliminating the original basis for the rules:

• The industry leading CRSs -- Sabre and Galileo -- are no longer owned by airlines, eliminating their incentives to “bias” their systems. A third, Worldspan, plans to sell to a non-airline entity in mid-2004. Amadeus is 40 percent independently owned with the remaining 60 percent being owned by foreign air carriers.
• The Internet has radically changed the airline booking market – with consumers increasingly turning to online systems such as Orbitz and Expedia. Traditional travel agent booking constituted only 40 percent of all purchases last year, a figure which is rapidly dropping, reducing or eliminating any CRS market power.

Action item: Let CRS regulations expire as scheduled.

This brief was prepared by Heritage Research Assistant Erin M. Hymel and Heritage Research Fellow James L. Gattuso.

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