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Calls For GDS Deregulation Grow | Home

As the U.S. Department of Transportation this month prepares to send to the White House its final regulations governing global distribution systems in advance of the current rules' Jan. 31 expiration, Sabre and two industry organizations have embraced a common message: Deregulate.

Boiled down so simply, the position brushes aside earlier qualms held by the American Society of Travel Agents and the National Business Travel Association relating to sales and marketing deals between carriers and GDS providers, Marketing Information Data Transfer and the regulators' wherewithal to keep tabs on the market. While the Association of Corporate Travel Executives did not champion deregulation, it did stand with the others in opposing the rules as proposed.

ACTE and NBTA fear any regulations that impact content parity garnered through deals signed by Sabre and others to access some carriers' full content, even though most of the deals—saving airlines millions in GDS costs—are to expire in about half the time it has taken to reform GDS regulations. 

In the meantime, Sabre said lower airline revenues necessitate job cuts and reductions in incentive payments to agencies and corporations. It is DOT's proposal to restrict or prohibit those same payments—as well as the lack of regulations for such online systems as Orbitz, the would-be GDS—that has focused ASTA and agents on dropping regulations altogether. "Rather than have the rules proposed by DOT, we'd prefer no rules at all," said ASTA committee chair of legal and industry affairs and President of ROOMfinders Intl. Convention Housing Services Robert Madsen. "When presenting a political message, you tend to speak in broader terms. But we've also said a no-rules environment won't work unless certain conditions are met, including an effective enforcement mechanism." Madsen said ASTA is willing to eschew uncertainty about deregulation because the existing DOT package "hurts us so badly." Asked specifically about the GDS incentive payments, Madsen said, "Nobody will be happy to lose another revenue stream, but they prefer it if it happens in an atmosphere where bargaining is possible."

"I've thought about deregulation, and there are negative aspects to every scenario," said Stratton Travel Management president Terry McCabe. "For me, the threat of letting the rules go through as written is far more dangerous. DOT services the airlines, and I don't want my fate in their hands."

Clearly, travel distributors face a formidable foe in the Washington airline lobby. The major carriers employ hundreds of thousands of mostly unionized workers concentrated in small numbers of hub cities in big states. Meanwhile, money-in-politics watchdog Common Cause said the nine largest U.S. carriers gave the national Republican and Democratic party committees soft money donations of more than $1.59 million and $900,000, respectively, in the two-year period between 2001 and 2002. The Air Transport Association's contribution was $340,500 and $121,000, respectively. Industry figures for this election cycle are not yet available.

Most of the largest carriers are against complete deregulation, at least without a multi-year, phased approach. The less-contested DOT proposals commensurate with the cutting of airline ownership positions in the traditionally known computer res systems—eliminating mandatory participation and allowing fee discrimination—largely are already in effect and do help airlines put downward pressure on GDS costs. Key to the five major Orbitz owners is that it remains unregulated, potentially to connect agents to what many argue is a GDS.

Meanwhile, other proposals appear to insert DOT between the agencies and GDSs—the authority for which DOT itself has questioned—by limiting GDS companies' leverage in agency deals, restricting GDS incentive payments and dictating the breakout of service fees.

The November Notice of Proposed Rulemaking, an advanced version of which was issued by DOT in 1998, contained a number of dated or unclear assumptions that have been questioned, including the prevalence of travel agency offices using more than one GDS, the extent to which airlines market particular GDSs they do not own, Orbitz's role vis-à-vis traditional agencies, the expense and likelihood of direct connections being developed and the belief that airlines cannot pay agencies to use lower-cost reservation systems, among others.

It is unclear whether or how DOT may have modified its proposed package following feedback that included data contradicting some of DOT's assumptions. Robert Madsen of CEO of ROOMfinders called the outcome of DOT's decision making "a crapshoot." The U.S. Department of Justice favors deregulation, with the exception of rules that ban display and functionality bias.

"DOT favors a regulatory approach, as evidenced by what they came up with" in the proposed rules, Madsen said. "Some airlines clearly want to use the government to slant everything. On the other side, we hope the White House finds the least regulatory outcome."

ACTE in September reiterated to "the White House, Congress and business travel industry" that DOT "should abandon" its proposed changes, which would "have a number of detrimental effects on benefits used by corporate travel managers to cut costs, while increasing or maintaining current travel levels. Prominent among these is access to all published fares, including Web fares. This option was only recently attained through the efforts of GDS companies."

NBTA, which also cited the airline-GDS deals that "promise business travelers and travel managers more access," last month put deregulation ahead of earlier concerns regarding the sale of MIDT by GDS companies to airlines. NBTA in March said DOT should "require carriers to obtain the permission of corporations before carriers exchange or sell corporate travel data."

Generally, advocates of deregulation have argued that DOT and other regulatory bodies would restrict anticompetitive behavior, even if the rules are eliminated, through enforcement actions. ASTA has never been so confident. "We are aware, of course, of the 'option' of just proceeding to deregulate and relying on enforcement proceedings if marketing relationships turn out to be more than the airlines currently profess," Madsen said in June. "Many parties agree that rigorous and swift enforcement is essential to protect the market, but many share our skepticism that the Department's resources, no matter how dedicated the people are, can match the task."

During the rulemaking process, DOT has expressed considerable interest in potential marketplace abuses. In a June hearing, DOT deputy assistant secretary for aviation Michael Reynolds questioned a number of its own proposals and assumptions, including those related to Orbitz, MIDT and reservation system display bias or contractual preferencing based on marketing relationships with travel suppliers.

At the same hearing, Robert Madsen ROOMfinders Intl. CEO expressed skepticism about "the nature and effect of marketing relationships between airlines and GDSs. The question is, 'Are the airlines no longer influencing CRS behavior?' There is more to those marketing agreements than meets the eye." The severing of ties between airlines and GDS firms is a major impetus for DOT's review of the rules, but substantial marketing ties between the GDSs and airlines remain.

In June, Madsen also referred to a "lack of enforcement on tying," the practice by airlines of offering corporate discounts only through their preferred GDS. "If these issues are resolved, then a movement toward deregulation should begin," Madsen had said.

Going so far as to state that "the fate of corporate travel management" hinges on the outcome of this GDS regulatory process, NBTA last month nevertheless said DOT's "current enforcement mechanisms" should monitor the marketplace rather than regulations. NBTA officials did not answer requests for clarification.

"The fact is DOT has proven itself incapable of keeping up with the dynamic aspects of our industry," Stratton Travel's McCabe said. "But it's somewhat unclear whether tying is even illegal—the free market entitles people to make business arrangements. Display bias was an issue 18 years ago. It's really not an issue these days because the majority of consumers are more sophisticated. MIDT is a tough one, but we've lived all this time with the ramifications of the airlines having the information.

"The thing you need to do is enforce existing antitrust laws," she added, "and not allow the incentives to be banned. They are simply a thinly disguised, additional airline bailout. Agencies use that money to reinvest in their businesses. It enables me to pay a living wage. It's not as though we're going on holiday with it. Another name of the game for us is access to information, and Sabre is our GDS and they've been out there fighting for it to let us service our clients."

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