commentary

Business Travel Executive

June 2007

Insight: CRS Deregulation

Crunch Time

By Kevin Mitchell

After a five year review, the European Commission is currently poised to make final recommendations in late 2007 to reform the EC Code of Conduct for computer reservation systems (CRSs). In February, at the Business Travel Show in London, an Association of Corporate Travel Executives (ACTE) educational session closely examined the major airline industry issue of CRS deregulation. Several industry panelists expressed profound concerns about deregulation so long as Europe’s largest CRS, Amadeus, remains substantially (more than 46 percent) owned by three of Europe’s largest airlines – Air France, Iberia and Lufthansa. Europe's CRS rules were originally adopted to deal with the competition problems this vertical integration between airlines and distribution caused. 

A highlight of the ACTE session was the participation of a senior official representing DG-TREN, the European Commission (EC) transportation agency charged with administering the CRS rules. The official clearly stated the EC’s priorities and objectives for CRS regulatory reform:

“Although we’re taking account of the positions of the different stakeholders active in this market, the most important element for us is the point of view of the consumer, the business traveler or the leisure traveler. These are the persons who ultimately have to pay for the distribution cost, and have to pay for the travel cost. And we want to make sure that these costs are minimized, but at the same time, the traveler still has the possibility to have a neutral choice, and the possibly of a transparent choice, between his travel options.  This is the objective.”

To elicit these critical consumer views, along with those of other industry participants, DG-TREN published a consultation paper, solicited written stakeholder comments and invited various parties to participate in a formal stakeholder meeting in Brussels on May 2. Forty-seven written submissions were received, including the highly anticipated comments from Europe’s foremost consumer and consumer travel groups. 

These groups included BEUC, Europe’s largest consumer organization, which represents 40 independent consumer organizations from 27 countries; ACTE, which represents the business travel interests of major manufacturers, the energy industry, the world’s financial community, academia, government, agriscience, and every aspect of commercial travel in 50 countries; and the Business Travel Coalition (BTC), which filed comments on behalf of 119  global corporations, organizations and purchasers of air travel services, including the United Nations and the International Airline Passengers Association representing some 400,000 business travelers in 200 countries.  

Here then are the voices of consumers -- large and small, corporate and leisure –- in response to the EC stakeholder consultation, a voice that the EC has pledged to consider first and foremost in determining the outcome of the current CRS regulatory proceeding:    

BEUC: “In our view, the risks which consumers will have to face as a result of scrapping the code still outweigh the (elusive) benefits which could in theory result.

“There are still potential competition problems, for instance in regions where a carrier has a dominant market position and partially owns the CRS or has a substantial degree of influence on its ‘behaviour’. Although Amadeus is no longer fully controlled by some of Europe’s main carriers, the ownership structure does not guarantee fully independent commercial and strategic decisions.”

ACTE: “It is unreasonable to expect that carriers with a substantial investment in one particular CRS wouldn’t use that investment to press a marketing advantage.

“The worst-case scenario for corporations and for business travelers would be a motion for deregulation that would allow carriers to exploit their double-dominance of home markets and reservations systems, resulting in an inventory jigsaw puzzle.

“All segments of this industry [should] help the Commission achieve progress in the form of better regulation by dramatically reducing the number of rules in the CRS Code of Conduct -- while retaining the 4-6 core rules that guarantee choice and fairness for corporate travel managers, travel agencies and consumers alike.”

BTC: “Failing to keep a strong regulatory framework in place would invite a return to one of the darkest chapters in distribution history when airlines used their ownership stakes in systems to distort competition and prevent market entry both in the airline and the distribution sectors. This result would be utterly devastating to corporate travel programs and to the TMCs that manage them.

“The key rules which should be retained are mandatory participation and a prohibition on commission-tying. Mandatory participation ensures that an airline must participate in all CRSs to the same extent it participates in the one that it owns. A commission-tying prohibition prevents airlines from forcing TMCs to choose an airline's CRS in order to receive compensation. Both rules ensure that content flows freely to all systems.

“These rules have a proven track record of constraining anticompetitive behavior without creating unreasonable restrictions on other legitimate competitive activities.”

The voices of business and leisure consumers speaking emphatically and in unison is what’s new in this 5-year debate and what has been rising in prominence to help guide the best course of policy action for Europe. As the Financial Times reported on May 2, “Before the opposition to CRS deregulation was led by Amadeus’ competitors, now for the first time it’s also massively supported by (wider) industry. ... Companies are now assembling to fight the deregulation because they fear that in the future a single player could dominate the European market.”

Indeed, there is broader, deeper and more passionate support for maintaining core consumer safeguards than there was in 1989, the year the CRS rules became law. The full availability throughout Europe of reasonably priced airfares offered by competitive airlines and through preferred and efficient distribution channels is at stake in this proceeding. Empowered leisure travelers and business travelers –- consumers -- are closely aligned, and have forcefully shared their point of view regarding regulatory reform with a Commission that has pledged to give top priority to their views. While the perspective of airlines, distributors and travel agents should certainly be considered, the competitive health of the travel industry in Europe for years to come depends on the EC regulators listening to and acting on consumer preferences.