MEMO/07/463

Brussels, 15^th November 2007

Q&A on the revised rules for computerised airline ticket reservation systems

1. What is a computerised reservation system?

Computerised Reservation Systems (CRSs)^[1] act as technical intermediaries between the airlines and the travel agents. The CRSs provide their subscribers with instantaneous information about the availability of air transport services and the fares for such services. They permit travel agents, whether brick-and-mortar or on-line, to make immediate confirmed reservations on behalf of the consumer.

Not consumers, but travel agents use a CRS as they require a subscription and a specific training. They are not to be confused with on-line travel websites that offer travel choices of several airlines to the consumer. These online agents usually use a CRS in the same way as their brick-and-mortar counterparts.

No CRS intervenes when a consumer makes a booking on an airline's Internet website or via an airline's call centre. In these cases, the airlines and the consumers are in direct contact, without any intermediary.

There are currently three major CRS providers active on the European market: the European company Amadeus and the American companies Sabre and Travelport^[2]. They handle about 60% of all airline bookings in the EU.

2. What are the present rules with regard to CRSs?

Regulation 2299/89 establishes a Code of Conduct for CRSs that offer their services in the European Union. It imposes a set of rules on the CRSs, the airlines and the travel agents, such as:

• Obligations for the CRSs to treat the airlines in a non-discriminatory way. This includes an obligation to charge the same booking fee for the same service provided to any airline (provided the cost is the same).
• Obligations for airlines to provide the same fare content to all the CRSs in which they participate.
• Obligations for the CRSs to provide a neutral and non-discriminatory display to their subscribers, i.e. not biased in the favour of one or several specific airlines.
• Specific obligations for 'parent carriers', i.e. air carriers that own or control a CRS, in order to ensure that they treat other CRSs in the same way as their own.

3. Why do we need to revise these rules?

The Code of Conduct for CRS was designed in 1989 in a different market context from today: at that time, the vast majority of airline bookings were made through CRSs. For air travel, consumers could practically only rely on one single information and distribution channel, the one constituted by CRSs and travel agents. This single channel was very vulnerable to competitive abuse, especially in the case of vertical integration between CRSs and airlines.

Since then, CRS technology and economics have changed a lot: thanks to the development of alternative distribution channels, such as the airlines' Internet websites or their call centres, consumers have nowadays access to a multiplicity of information and booking channels for air transport services. About 40% of all airline tickets in the EU are booked via alternative channels and about 60% via travel agents and CRSs.

The Code of Conduct is increasingly ill-adapted to the changed market conditions:

• High distribution costs: the Code limits competition as it restricts the airlines' and the CRSs ability to negotiate on the booking fees charged by the CRSs and on the fare content provided by the airlines. The lack of competition leads to higher CRS booking fees, at the expense of the airlines and their passengers.
• Less travel options via travel agents: as a consequence of the higher than necessary distribution costs, the airlines redirect an increasing part of their sales via the alternative channels. Thereby, travel agents using the CRSs and their customers will not necessarily be informed of the most interesting travel options.

The rapid development of the alternative booking channels may reduce the need for these rules in the future. The proposal foresees a report by the Commission within five years of the application of the revised Code in order to assess the need for the maintenance, the revision or the abolition of the Code of Conduct.

4. What are the objectives of the revision?

The objective is two-fold:

1. Reduce booking costs and increase travel choices for consumers and travel agents: by allowing airlines and CRS providers to freely negotiate booking fees and fare content, CRSs will increasingly compete on the basis of price and service quality. This will reduce booking fees and attract more airline content.
2. Maintain basic safeguards: these safeguards ensure the provision of neutral information to travel agents and consumers (neutral displays) and ensure that vertical integration between airlines and CRSs does not lead to competitive abuses (e.g. the prohibition for parent carriers of a CRS to refuse the participation at the same level in other CRSs).

More precisely, the revision will allow to:

• Reduce distribution costs in the airline sector: under today's Code, individual negotiations between CRSs and airlines cannot lead to price reductions as the same booking fee must be applied to all air carriers. Without this provision, airlines and CRSs will be free to negotiate and CRSs will strive to offer quality services at interesting prices. This will benefit both airlines and consumers.
• Ensure the provision of neutral and comprehensive information to consumers: with more competition, the CRSs will be more competitive in terms of prices and service quality with regard to the alternative booking channels like the Internet. Lower distribution costs will induce the airlines to provide more fare content via the CRSs and hence to the travel agents using the CRSs. The CRS may even attract low-cost airlines, which at present do not use the services of the CRSs at all. In addition, provisions with regard to display neutrality ensure that travel agents and consumers receive neutral and unbiased information about the available travel options.
• Promote the use of rail services on short and medium trips: under today's Code of Conduct, rail companies have to pay the same booking fees as airlines when their tickets are booked via the CRSs although the average value of their tickets is lower than for the airlines. As a consequence, only few rail companies offer their products via the principal displays of the CRSs. By instating price freedom, the rail companies will be able to negotiate booking fees that are better adapted to the value of their tickets and will be able to offer more travel options on the CRS displays – alongside flights.

5. How does the Code of Conduct protect consumers' interests?

As seen above, the revision of the Code of Conduct reinforces competition in the airline distribution sector and thereby reduces overall distribution costs – which are part of the final price paid by the consumer. Furthermore:

• The revised Code continues to ensure the neutral and unbiased display of the various travel options. Flights and rail solutions must be ranked with regard to neutral criteria, such as the price or the travel time.
• The revised Code imposes the new rule that information on fares should be displayed inclusive of all applicable taxes, charges and fees. This allows unbiased comparison of the prices of air and rail tickets.
• The revised Code reinforces the provisions with regard to the protection of personal data processed by the CRSs.

6. Will travel agents be able to provide neutral information to consumers?

The proposal recognizes that under the current Code of Conduct, there was an increasing risk of content fragmentation: this is one of the reasons for the revision. The higher than necessary booking fees induced airlines to develop their sales via their less costly Internet websites. Therefore, travel agents were not assured to have access to all the fares of an airline. Some low-cost airlines do not offer their services at all on the CRS displays.

By reinforcing competition between the CRS providers, the revised Code of Conduct will create the market conditions in which CRSs will provide high-quality services at better prices. This will induce airlines to provide more content via the CRSs. The US experience with price freedom has shown that more airlines provide 'full' content to the CRSs and even some low-cost airlines – like Southwest Airlines or JetBlue – started to use the services of the CRSs.

7. What are there special provisions in case of vertical integration between CRSs and airlines?

What are parent carriers?

A parent carrier is any carrier that owns or effectively controls a CRS.

The provision on effective control means that the ownership condition may not be circumvented by other means, such as for example contractual relations between the airline and the CRS which would provide effective control of the airline over the CRS. This control may be individual or jointly conferred to the carrier with others.

The proposed revision does not change the definition of a parent carrier. But it does clarify that the specific rules for parent carriers also apply to rail undertakings that would control a CRS (see below).

What specific rules are imposed on parent carriers?

• Parent carriers may not refuse to provide another CRS than its own with the same information on its transport services or to accept bookings from another CRS than its own, such as to avoid that parent carrier hinders competition from other CRSs.
• Parent carriers may not link incentives or disincentives to the use of a specific CRS.

Are the specific rules imposed on parent carriers still necessary in the present market context?

Yes. Travel agents are still very dependent on CRSs and certain categories of air travellers are still dependent upon the services provided by travel agents, e.g. corporate travellers (mainly because of the need of a centralised travel management). The competition from the alternative distribution channels has not yet developed sufficiently to ensure that, in the absence of regulation, there is no risk of competitive abuse of the CRSs.

8. How does the revision promote rail services and intermodal transport?

The Code of Conduct already applies to rail services that are integrated into an air transport CRS (it does not apply to 'rail only' systems). It ensures that rail services are given a non-discriminatory treatment in the CRS. The provisions with regard to parent carriers and display neutrality apply to rail services, too.

However, today's provisions with regard to non-discriminatory pricing lead to a de facto discrimination of rail services as they are charged the same fees as the airlines for each booking although the average value of the rail tickets is smaller. By establishing pricing freedom with regard to booking fees, the proposal allows rail companies to negotiate booking fees which are better adapted to the value of their tickets and hence creates an incentive for rail companies to offer their services on the CRS systems, too. This way, travel agents and their customers can more easily compare and combine rail and air services for travel over shorter distances, especially in the presence of high-speed rail services.

^[1] Also known as Global Distribution Systems (GDS).

^[2] Galileo and Worldspan are being merged into Travelport GDS.