American Files Comments to DOT

FORT WORTH, Texas - American Airlines filed comments last week with the U.S. Department of Transportation (DOT) for the revised Computer Reservations System (CRS) rules proposed in November. In its filing, the airline applauded much of the regulatory reform in the DOT’s Notice of Proposed Rulemaking (NPRM) on CRS rule changes.

American agreed with the DOT’s proposal to eliminate both the existing mandatory participation rules and the prohibition of discriminatory booking fees. The airline also said it was pleased that DOT recognized that “parity clauses” in CRS contracts with airlines are anti-competitive and would set back the positive developments that have been made in the marketplace. American urged DOT to prohibit all such clauses in its final rule. Taking action on these points unleashes real price competition among CRSs, which should drive down distribution costs.

The airline also applauded DOT for proposing not to regulate ticket sales via the Internet. American said that the Internet and new technologies, rather than continued or enhanced regulation, offer the best hope for ending CRS market power. Regulation would unnecessarily stifle this dynamic and growing new marketplace for travel. DOT’s call for case-by-case reviews instead of full regulation is a sensible approach.
In its filing, American voiced concern about proposed regulation of Marketing Information Data Tapes (MIDT), which is data available for purchase by airlines from a CRS which reflects all flight segments booked or canceled within that CRS. MIDT information helps airlines make informed marketing decisions for route planning and administering contracts. CRS regulations are not an appropriate platform for seeking to regulate competition between airlines, yet regulating MIDT would do just that. In a time of dire economic conditions for the airline industry, degrading the quality of information available to all carriers will result in poorer decision making and greater losses.

American also urged DOT to maintain its ban on display bias and address “screen padding” through codesharing. DOT should adopt the European Union rule that limits a code share flight to no more than two listings.

The airline also urged a ban on CRS “tying” of distribution products, without exceptions. Such a ban will enhance competition, give airlines more options, and preclude CRSs from leveraging their market power into new and developing channels. American said the ban should include tying Internet distribution to the CRSs’ “bricks and mortar” travel agency services, and tying domestic and international distribution, particularly since CRSs often price these products differently.

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While it is premature to estimate distribution cost reductions from real CRS price competition - the latter being something inhibited by the obsolete CRS rules in effect today - the potential for savings by the airlines is substantial. American said that between 1995 and 2000, the compound annual growth rate of its CRS booking fees per net booking ranged from 5.3 to 6.3 percent per year, depending on the CRS. In comparison, the Consumer Price Index for the same period grew at just 2.4 percent annually. Last year alone, American’s overall CRS expenses were nearly $400 million.

Also, American proposed a three-year sunset date on CRS regulations, urging that public interest would not be served by extending regulations beyond three years.

In its filing, American said the reforms are being considered at a time when the airline industry is confronting unprecedented financial challenges, new and more efficient distribution channels are growing and CRSs have become increasingly aggressive in their efforts to prevent these developing channels from reducing excessive booking fees. Airlines and their distribution systems are at a critical juncture, making time for concluding this rulemaking of the essence. American urged DOT to implement these needed regulatory reforms quickly.
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