U.S. rules to be lifted on how reservations are made for airlines

By Suzanne Marta
The Dallas Morning News

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Most limits on how the reservation systems operate are set to expire at the end of this month, and all the provisions will expire at the end of July.

Department of Transportation officials said the rules no longer were necessary because so much has changed in the industry since they were last updated. Unlike then, most reservations systems now are owned independently from airlines. And many customers now bypass travel agents, and buy tickets on the Internet or directly from airlines.

The agency's decision, released late Wednesday, is considered a victory for both airlines and the reservations systems, which act as middlemen between airlines and travel agents. Both had fought for deregulation.

Officials from Southlake, Texas-based Sabre Holdings applauded the ruling. Sabre's reservation system handles more than 30 percent of transactions made by travel agents worldwide and 44 percent of those made in the United States.

"We'd like the chance to compete like most businesses do — in a free market — and this allows us to do that," said Dave Schwarte, Sabre's executive vice president and general counsel.

The rules governing the central reservation systems originally were put into place in 1984 to protect consumers from anti-competitive tactics. At that time, all the systems were owned by the airlines. Now, only Amadeus has those kinds of airline ties. It's owned by Air France, Iberia and Lufthansa and is based in Madrid, Spain.

Industry analysts are still poring over the 254-page ruling, but they said cursory reviews indicate it will promote greater competition.

"It seems that lifting the rules should stimulate competition and ultimately lower costs, helping travelers and their corporations," said Allison Marble, a spokeswoman for the National Business Travel Coalition.

Deregulation also should promote more rapid technological innovation, PhoCusWright analyst Susan Steinbrink wrote in the company's 2003-2006 Online Corporate Travel report.

For example, reservation systems could partner with airlines to share the costs of developing new features in exchange for a period of exclusivity.

"No carrier wants to help pay for something for everyone else," Schwarte said. "Now, we can offer them something tangible in exchange."

Some analysts questioned how the deregulation would benefit consumers, saying not all systems may have access to the same fares and the systems could give preference to certain airlines in exchange for higher transaction fees.

"This will make it that much more important for consumers to have an idea of what fares are out there before they call a travel agent," said Jared Blank, editor of OnlineTravelReview.com.

Under current regulations, U.S. airlines must offer the same fares to the four major reservation systems — Amadeus, Galileo, Sabre and Worldspan. The centralized systems give travel agents information on flight schedules, fare prices and seat availability to book flights.

When the rules expire, airlines will have more power over which companies can offer tickets to travel agents and for how much. For example, an airline could offer special discounts to a reservation system in exchange for paying lower transaction fees for each booking. Airlines already can do this with online travel agencies, such as Expedia or Travelocity, because those Web sites are not regulated.

"This gives us pricing freedom so we can tailor deals to the needs of our individual airline customers," Schwarte said.

The end of regulation likely will mean lower profit margins for Sabre, because it will forced to compete with other travel distributors.

"Sabre's going to have to continue to reinvent itself and has no choice to continue to become more efficient that it is," said Henry Harteveldt, an analyst with Forrester Research.

Copyright © 2004 The Seattle Times Company