commentary

Business Travel Executive

August 2007

Soaking Consumers

By Kevin Mitchell

Computer reservation systems (CRSs) are the unseen but vital plumbing system for travelers and the travel industry. These large interactive databases connect travel agents and tour operators with airlines and provide consumers with the best fare and route options for tens of thousands of flights daily. When functioning efficiently, information flows freely from airlines through the CRS pipes and consumers benefit from the best information and prices available. But when the plumbing fails, the flow of critical travel data stops, the pipes can burst, and consumers get drenched. They are left with fewer travel options, higher prices and biased information.

What is astonishing and deeply concerning is that the European Commission, the entity consumers depend upon to keep them safe and dry, is poised – while ironically much of Europe is on summer holiday - to deliberately turn the wrench the wrong way to give certain politically powerful airlines an undeserved advantage at consumers’ expense.

Throughout history, the number one cause of these plumbing malfunctions has been airline ownership or control of CRSs. Airlines with even small ownership stakes in a CRS have had the proven means and incentive to deal exclusively or more favorably with the system they own and to deprive or diminish other airlines access to it. For example, CRS-owning airlines have in the past buried competitors’ lower fare offerings so that they are listed on screen 12 of a travel agent’s display virtually ensuring that neither the agent nor the consumer sees them. The effects have been devastating. The Commission knows this – it commissioned a study that evaluated the market and spelled out the considerable dangers for consumers in full detail.

The "CRS Code of Conduct" was put in place by the European Commission nearly two decades ago specifically to address the competitive abuses by so-called "parent carriers" — those airlines owning or effectively controlling a particular CRS. Under the time-honored core provisions of this Code, parent carriers have been obligated to fairly distribute their data to all CRSs on an equal basis, rather than favoring the one they own, and to refrain from tying travel agency commissions to the agency’s choice of systems. Without these protections, parent carriers can strong-arm travel agencies and ruthlessly dominate both the airline market and the distribution market, particularly in their home countries. Major corporate buyers, passenger groups, independent airlines and CRSs know this "double dominance" story all too well and have been passionately committed to keeping the key provisions of the Code intact.

While we acknowledge there are opportunities to streamline the Code, there is so much at stake in striking the right regulatory balance. Get it wrong, and leisure travelers will not be provided all the choices and alternatives by travel agents. Internet travel websites, driven by CRSs in many cases, will become a nightmare for unsuspecting and surprised consumers. Corporate managed travel programs will be undermined without complete airfare content and functionality, leading to higher fares and increased administrative costs. Data privacy protections will be eroded with owner airlines free to extract data from their CRS. And the near-absolute control of airline and travel distribution markets will lead to predatory competitive practices. This isn’t just a theoretical guess; it’s the history of the travel distribution prior to the Code being implemented.

Nevertheless, our collective passion for avoiding these outcomes has fallen on the regulator’s deaf ears, despite the Commission’s assurances that gauging the consumer point of view would be paramount in any revision to the Code. The Commission has now quietly and selectively indicated to some in the industry, in contempt of its own regulatory review process currently underway, that it believes the three airlines – Air France, Iberia, and Lufthansa — who together own nearly 47% of CRS Amadeus, Europe’s largest CRS, are no longer "parent carriers." This is a position that not only defies logic and history, but also the plain language of the Code.

At Amadeus’s prompting, the Commission now claims that ownership is no longer sufficient for determining whether an airline is a parent carrier of a CRS. This simply isn’t true. The unambiguous standard written in the rules is "ownership or effective control." With an underhanded turn of the bureaucratic wrench, the Commission would try to resolve five years of serious regulatory debate by wishing away two critical words which mean so much to so many. If this position holds, stand back, for it’s a certainty that the pipes will break.

Regretfully, it appears that some in the Commission are poised to accept this fanciful new legal construction of the Code without going through normal legislative procedures. In response, we have asked for an immediate reopening of a stakeholder consultation with an opportunity to discuss and comment fully and specifically on this legislative change. We will of course fight it on behalf of consumers’ interest in low fares, comparison shopping and efficient corporate travel management. Time is of the essence, however, to stop the wrench from being turned the wrong way, needlessly and dangerously soaking European consumers.