Opinion of the Economic and Social Committee on the 'Proposal for a Council Regulation (EC) amending Council Regulation (EEC) No 2299/89 on a Code of Conduct for Computerized Reservation Systems (CRSs)` () (98/C 95/07)

On 5 August 1997 the Council decided to consult the Economic and Social Committee, under Article 75 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Transport and Communications, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 19 January 1998. The rapporteur was Mr Moreland.

At its 351st plenary session of 28 and 29 January 1998 (meeting of 28 January 1998), the Economic and Social Committee adopted the following opinion by 112 votes for, 2 votes against and 3 abstentions.

1. Introduction

1.1. Airline computer reservation systems (CRSs) are extremely powerful marketing tools. They enable travel agents to access the schedules, fares, etc. of the vast majority of scheduled airlines throughout the world. Bookings, even for obscure routings, can be confirmed instantaneously and tickets priced and issued. CRSs have undoubtedly brought major benefits for airlines, travel agents and consumers.

1.2. However, they are also open to abuse. Modern CRSs were developed initially in the United States by individual airlines. They were invariably biased in favour of the owning carrier. Because of the impact of such bias on fair competition the US government introduced regulations governing the use of CRSs in 1984. The EU followed with its own, more detailed rules in 1989 (), which were revised in 1993 ().

1.3. Regulation of CRSs has been a success. The original bias, which caused so much concern, especially for smaller airlines, has been removed. Many major airlines no longer see any benefit in owning part of a CRS and have sold all or part of their shareholdings.There has been substantial concentration among the CRSs themselves. All are now global systems operating in many parts of the world.

1.4. It was always recognized that with so much at stake, and with technology developing so rapidly, the CRS Code of Conduct would require frequent updating. As already noted, the current proposal is the second revision to the original regulation.

1.5. The Commission's proposal to revise the CRS regulation is in two parts: a report on the operation of the current regulation; and a new regulation containing detailed amendments. Below we examine each of these parts in turn.

2. Report on the Application of the Code of Conduct

2.1. The report details the waivers granted, the complaints received and the requests made for guidance on the interpretation of the code, as well as covering various technical issues. The general impression given is that while there have been numerous problems associated with the code, they have been settled to everyone's satisfaction. It is evident, however, that not everyone involved shares the Commission's general satisfaction. In particular, there have been many complaints from airlines.

2.2. One particular cause for concern highlighted in the Commission's report involves the display by CRSs of code share flights. The current code requires CRSs to ensure that no flight option should be displayed more than once unless there is a joint venture or other contractual arrangement (such as a code share) requiring two or more carriers to assume separate responsibility for the offer and sale of air transport products, in which case each carrier, up to a maximum of two, can have a separate display.

2.3. The Commission notes that the selection of the two flights to be displayed is technically complex and cannot be carried out by the CRS in isolation. In particular airlines need to cooperate with CRS companies. As a first step, airline agreement on an industry-wide standard is desirable. It is evident that such an agreement has been difficult to achieve and that while some progress has now been made, the implementation of this aspect of the code still leaves much to be desired.

2.4. Restrictions on the display of code share flights have been key elements in the CRS code from the beginning. (The 1993 revision to the code actually relaxed the restrictions somewhat). It is a pity that the rules have still not been fully implemented. It is not obvious that the Commission has pursued this issue as thoroughly as it might, nor given it the priority that it deserves.

2.5. Recommendation

The Committee welcomes the fact that the Commission has produced a report on the operation of the CRS Code of Conduct, which of necessity involves complex and technical issues, but which nevertheless is of critical importance for consumers and competition in the air transport industry. It recommends that similar reports are produced periodically, for example every three years, even when amendments to the regulation are not being proposed.

3. Proposed amendments to the code

The Commission proposes numerous amendments to the current CRS code. These are outlined below.

3.1. Subscriber obligations (proposed Article 9a and Annex II)

3.1.1. The current rules require information provided by CRSs to be accurate and comprehensive. However, this is rendered ineffective if the same information is not passed on to the customer by the travel agent, who may be in receipt of additional commission payments to favour certain airlines. The current rules do place certain obligations on travel agents, but it has long been recognized that enforcement is very difficult.

3.1.2. The revised code provides that in the absence of a specific request from a customer, a travel agent is required to use a neutral display. Furthermore, the travel agent should not manipulate the information provided by a CRS in a manner that would lead to inaccurate, misleading or discriminatory presentation of information to the customer, who should also be provided with full information on a number of key features of the flight. Finally, the customer should be provided, on request, with a print-out of the CRS display so that he/she has access to the same information available to the travel agent. Most of these provisions are contained in the current code, but are given more prominence in the revised regulation.

3.1.3. Recommendation

The Committee welcomes these changes, which it believes represent a move in the right direction. However, it is concerned about the enforcement of these important provisions. The Commission should provide further information about how it intends to ensure that travel agents meet the requirements of the code in order to safeguard the interests of consumers.

3.1.4. Travel agents have also been criticised for making unnecessary bookings, for example in order to achieve certain productivity targets, which result in airlines paying higher reservation fees. To remove this problem the new code requires a travel agent to make reservations and issue tickets in conformity with the information contained in the CRS used and, where possible, carry out reservation and ticketing operations in the same CRS. Duplicate bookings for the same journey are banned.

3.1.5. Recommendation

This is a highly technical subject. The proposed amendments to the code, contained especially in Annex II, again appear to be a move in the right direction, but only time will tell whether they are sufficient to solve the problems. The Commission should be required to monitor the effectiveness of the new rules with airline and travel agency representatives.

3.2. Inclusion of rail services (proposed Articles 2(r), 2(s), 2(t) and 21b)

3.2.1. Increasingly shorter air services are in direct competition with high speed rail services. The Commission recognizes the consumer benefits of displaying such air and rail options together on a CRS screen. It therefore proposes that for the purposes of the code rail services should be treated in the same way as air services if they are included in the CRS display.

3.2.2. Recommendation

This would seem to be unobjectionable. However, because of the practical complexities involved the Commission does not specify the conditions governing the inclusion of rail services in CRS displays. This is a surprising omission, especially since the Commission financed a consultants' report on the practicality of the display of rail products in airline CRSs. The Commission appears to expect airlines, railways and CRSs to get together to set standards. It would be better, in the Committee's view, if the code itself specified precisely the obligations of all the parties involved. The present proposal is a prescription for argument and delay. Clearly any additional costs should be kept to a minimum, should be borne by those responsible for them and should not lead to higher charges for passengers.

In particular, the Commission proposal discriminates against rail as it makes no distinction between airline stops and rail stops although rail stops are usually much shorter. The ESC proposes that the distinction of non-stop services and services with intermediate stops be removed in the case of stops totalling less than 10 minutes.

3.3. Charging policy (Articles 3a and 10.1)

3.3.1. The current code states that 'any fee charged by a system vendor shall be non-discriminatory, reasonably structured and reasonably related to the cost of the service provided and used and shall, in particular, be the same for the same level of service.` There has been a number of complaints from European airlines about CRS charging policies. Essentially the problem is that while many airlines regard themselves as captive customers of the CRSs, there is intense competition among CRSs to have their systems installed in travel agency offices. In some cases travel agents are effectively paid to use a particular CRS, which increases the booking fees charged to airlines.

3.3.2. The Commission, despite an earlier inconclusive consultants' report, has not supported the airlines' case. Instead, it accepts the CRSs' assertion that incentives paid to travel agents can legitimately be regarded as distribution costs and therefore be included in the booking fee calculation. This logic is unlikely to satisfy the airlines.

3.3.3. The Commission proposes that Article 10.1 of the existing code relating to fee levels, and quoted above, should in future apply only to fees charged to participating carriers. A new, identical article is added covering fees charged to travel agents for equipment, etc. Effectively, therefore, there would no longer be any control over the level of so-called distribution fees paid to travel agents. Finally, the Commission proposes a revision to the current code to clarify a possible ambiguity where an airline which is an owner of a CRS is required to accept a booking from another airline in accordance with Article 3.a.1.(a). The clarification is designed to ensure that excessive fees are not charged for such a booking.

3.3.4. Recommendation

The Committee regards the splitting of travel agency charges between equipment fees and distribution fees as being artificial. It comes nowhere near to satisfying the airlines' complaints, which appear to have some merit. In 1995, the Commission stated that in order to remove the incentive to create unnecessary passive bookings, productivity pricing schemes should be operated on a 'tickets issued` rather than a 'bookings made` basis. In other words, only those bookings resulting in the issue of a ticket should be included in the calculation of an incentive award. It is not clear why the Commission decided not to pursue this policy, which had previously received widespread support.

3.4. Display of Code Share Flights (Annex, paragraph 10)

3.4.1. As already explained, CRSs have encountered difficulties in applying the current rule, which allows up to two airlines with a code share arrangement to have separate displays using their own designator codes. Only one CRS has put in place a satisfactory procedure to enable carriers to comply with this provision, although three others have announced their intention to implement the rule but have identified several practical problems.

3.4.2. The Commission rejects either allowing all code share options to be displayed or limiting the display to a single code share option, as required under the original CRS code. It proposes to keep the current rule, but where a CRS is unable to apply it because of inadequate information provided by the airlines, to permit the CRS to select on a non-discriminatory basis which code share flights should be displayed.

3.4.3. Recommendation

The Committee recognizes the difficulties faced by CRSs and airlines in implementing the current rules dealing with the display of code share flights. However, it remains concerned that the proposed approach, in leaving some discretion in the hands of the CRSs, might be open to abuse. Early experience with CRSs, especially in the US, showed that what might appear superficially to be a non-discriminatory selection process, might in fact be highly discriminatory. It is recommended that the option for CRSs to be able to choose which code share flights to display should be removed. The code should state specifically and clearly the display criteria to be used by CRSs. In addition, the Commission should consider giving greater prominence in the code to ensuring that a would-be passenger has full information about which airline will actually operate a service, what aircraft will be used, etc.

3.5. Inclusion of Information Systems (Article 2.1 and proposed Articles 21 and 21c)

3.5.1. The Commission points out that at present it is difficult to assess with any accuracy the developments that will take place in the methods of electronic distribution of air transport products. Already bookings can be made through the Internet. Currently, however, the Internet acts only as a sophisticated communications link between information providers, such as an airline or a CRS, and their subscribers and does not appear to fall within the definitions of a system vendor or CRS.

3.5.2. The Commission proposes to extend Article 21 of the code so that airlines can offer information about their air transport products via the Internet without being subject to the provisions of Article 5 and 9(5), just as airline sales offices are not covered by the code. However, CRS services that are provided electronically directly to the user should be covered by the code. The Commission therefore proposes that the definition of a subscriber should be amended to ensure that such CRS services are caught.

3.5.3. Recommendation

The Commission is right to be cautious about Internet developments in the provision of airline booking services. It is very difficult to forecast accurately what will happen in the future. Nevertheless, this is an area that the Commission should be watching carefully with a view to making proposals to avoid abuse.

3.6. Ranking of flights (Annex, paragraph 1)

3.6.1. The major innovation introduced by the European CRS Code of Conduct compared with its US equivalent was to specify in detail the order in which flights should be displayed. Reflecting consumer preference, all non-stop flights appear first, followed by through-flights involving an intermediate stop and finally all flights requiring a change of aircraft en-route. The Commission asserts that 'with the increase in the use of hub and spoke arrangements by carriers, the service provided by indirect flights can now be of an equivalent level to that offered on other direct flights involving stops at intermediate points.` Consequently it is proposed that the display ranking criteria should be amended so that in future preference would be given only to non-stop flights. Flights involving a stop but no change of aircraft would no longer have a priority over change of aircraft flights.

3.6.2. No evidence is provided by the Commission to justify this change. There is no suggestion that the current rule has not worked satisfactorily, nor that there have been any complaints about it. It is particularly odd that the Commission should be seeking to change the display priority now when after many years of resistance the US is showing signs of moving towards the European approach.

3.6.3. Recommendation

There is no justification for changing the current rules in this respect, which have worked well to the benefit of consumers and airline competition. The Commission should instead be encouraging others, especially the United States, to follow Europe's lead.

3.7. Other changes

3.7.1. A number of other changes to the current code are proposed under the headings Scope of Audit, Ticketing Arrangements for Flights Carrying the Same Flight Number Operated by the Same Carrier, Security Package, Right of a Defendant to be Heard, Inclusion of Information Systems within the Scope of the Code, Obligations of Third Parties and Billing Information on Magnetic Media. Essentially these deal with technical issues and are unlikely to be controversial.

4. Conclusion

The Code of Conduct for airline CRSs has been a successful European initiative. It has removed a major problem in airline competition and helped to establish an effective internal aviation market. The subject can be technically complex and it is not surprising that problems have arisen. These problems have probably been exacerbated by the substantial commercial interests at stake among the parties involved.

On the whole, the Committee welcomes the Commission's proposed amendments to the code. However, on a number of detailed, but important points the Committee believes additional changes are required. In particular:

- the Commission should produce regular reports on the operation of the CRS code;

- the development of Internet in relation to booking services should be watched carefully, with a view to making proposals to avoid abuse;

- the Commission should provide further information about how it intends to ensure that travel agents meet the requirements of the code in order to safeguard the interests of consumers;

- the Commission should monitor the effectiveness of the new rules dealing with unnecessary bookings, in cooperation with airline and travel agency representatives;

- the code should specify precisely the obligations of all the parties involved in the display of rail services in order to avoid argument and delay;

- the Commission should revert to its earlier proposal that in order to remove the incentive to create unnecessary passive bookings productivity pricing schemes should be operated on a 'tickets issued` rather than a 'bookings made` basis;

- CRSs should have no discretion in how code share flights are displayed;

- the code should give greater prominence to ensuring that a would-be passenger has full information about which airline will actually operate a service, which aircraft will be used, etc.;

- the current rules specifying the order in which flights are displayed in CRSs should be maintained.

Brussels, 28 January 1998.

The President of the Economic and Social Committee

Tom JENKINS

() OJ C 267, 3.9.1997, p. 67.

() Council Regulation (EEC) No 2299/89 of 24 July 1989 on a code of conduct for computerized reservation systems (OJ L 220, 29.7.1989, p. 1); ESC opinion: OJ C 56, 6.3.1989, p. 32.

() Council Regulation (EEC) No 3089/93 of 29 October 1993 amending Regulation (EEC) No 2299/89 on a code of conduct for computerized reservation systems (OJ L 278, 11.11.1993, p. 1); ESC opinion: OJ C 108, 19.4.1993, p. 16.