Opinion of the European Economic and Social Committee on the Proposal for a regulation of the European Parliament and of the Council on a Code of Conduct for computerised reservation systems COM(2007) 709 final — 2007/0243 (COD)
Date: 2008-05-29
Institutions: European Economic and Social Committee
Subjects: carriage of passengers, code of conduct, data protection, information system, information technology applications, organisation of transport, reservation, ticket

30.8.2008

EN

Official Journal of the European Union

C 224/57

Opinion of the European Economic and Social Committee on the Proposal for a regulation of the
European Parliament and of the Council on a Code of Conduct for computerised reservation
systems

COM(2007) 709 final — 2007/0243 (COD)

(2008/C 224/12)

On 5 December 2007, the Council decided to consult the European Economic and Social Committee, under
Articles 71 and 80, paragraph 2, of the Treaty establishing the European Community, on the

Proposal for a regulation of the European Parliament and of the Council on a Code of Conduct for computerised reserva-
tion systems.

The Section for Transport, Energy, Infrastructure and the Information Society, which was responsible for
preparing the Committee's work on the subject, adopted its opinion on 8 May 2008. The rapporteur was
Mr McDonogh.

At its 445th plenary session, held on 28 and 29 May 2008 (meeting of 29 May), the European Economic
and Social Committee adopted the following opinion by 75 votes with 1 abstention.

1. Recommendations

The EESC agree and support the Commission's recommenda-
tions, but recommend the following should be added:

Introduce legislation for the complete divestment of CRS
1.1
(Computerised Reservation Systems) ownership by parent
carriers in the EU and measures to prevent future investments
by carriers, directly or indirectly, in the CRS.

Retain the rules for parent carriers until these airlines

1.2
have divested their ownership in CRS.

1.3
Abolish neutral display provisions. Maintaining a prin-
ciple display is of limited use in practice due to each individual
or corporate traveller's preferences or policies, while in the
online travel environment, neutrality rules are rarely adhered to
or not covered by the Code of Conduct.

1.4
Enforce the display of fares that are inclusive of all taxes,
fees, surcharges and CRS costs at all times. Also ensure flight
information is transparent especially with deceptive practices
such as code sharing where the operating carriers must be
clearly displayed to the consumer.

Allow travel agencies and airlines to negotiate terms
1.5
freely with the CRS as to how MIDT data (Market Information
Data Tapes) can be used and purchased.

Enforcement of the data privacy section of the Code, in
1.7
particular the transfer of personal information contained within
airline to third countries (commercial and government organisa-
tions) needs to be guaranteed by the EU and recognised in the
form of bilateral treaties with the third country's government,
rather than as undertakings which are not legally binding.

1.8
Introduce new regulations whereby all PNRs created by
CRS subscribers must be protected by the Code's Data Privacy
articles without exception, including airlines who outsource the
hosting of their PNR databases to CRS providers, as well as
travel agencies, tour operators and corporations.

Remove the provision for

1.9
contracts with CRS providers with three months notice.

subscribers

to terminate

1.10
Formally recognise the CRS as data controllers, not
only for air and train data, but also hotels, cars, ferry, insurance
and other data contained within their systems.

1.11
Encourage new CRS entrants into the market thereby
increasing competition between the system vendors. Subscribers
and consumers will be better served by improved service, tech-
nology and competitive pricing.

1.6
Strengthen data privacy rules to specifically protect all
data subjects within a PNR (Passenger Name Record), not just
the traveller.

1.12
Encourage rail providers to distribute their content via
the CRS and promote such greener modes of travel within the
EU.

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2. Introduction

On the 15 November 2007 the Commission proposed a
2.1
revision of the Code of Conduct No 2299/89 for CRS. This
regulation was established in order to prevent anti-competitive
behaviour in a unique market for which general competition
rules would not be sufficient. At that time, the CRS was the
through which consumers could access
only viable channel
travel
information, and crucially, the CRSs were owned and
controlled by the airlines.

The CRS is a computerised system used to store, retrieve,

2.2
distribute and reserve travel inventory.

2.2.1
The four CRSs in existence today are SABRE, Galileo,
from
Worldspan and Amadeus. All are US owned apart
Amadeus which is European owned. Galileo and Worldspan
have merged in 2007 but still operate as separate entities.

2.3

The CRS conditions have thoroughly changed as:

dous because three of
the largest European airlines (Iberia,
Lufthansa, Air France) hold significant stakes in Amadeus. The
risks for anti-competitive behaviour are too great and domi-
nance in home markets remains a real threat to the other CRS
and non-owning carriers.

The EU should introduce a complete restriction on
3.1.2
CRS ownership or shareholding (existing and future) by all
airlines.

3.1.3
A complete separation of ownership between CRS and
airline or other transportation provider will ultimately eliminate
the possibility of collusion or unfair competition by parent
carriers. In that scenario, the Code of Conduct can be simplified
even further by removing the numerous safeguards the Commis-
sion proposal 709-2007 has in place for the parent carriers.
The travel distribution market as a whole would benefit from
this development as both CRS and airlines would compete on
an equal basis without suspicion or fear of abuse

2.3.1 Most of the airlines have sold their shares in the CRSs,
with the key exception of Air France, Lufthansa and Iberia (1).

3.1.4
Until those conditions are met, the specific provisions
for parent carriers in Article 10 must be retained in order to
prevent anti-competitive behaviour.

2.3.2 With the advent of the Internet, the CRS is no longer
the only channel available to make air bookings. As Internet
the EU states (2), and
access continues to grow throughout
online travel technology improves, the sole reliance on CRSs for
access to travel data will continue to erode..

2.4
The CRS market in the US has been deregulated since
2004 and was granted on the basis that parent carriers divested
in the CRS completely. Since then, booking fees have dropped
between 20-30 %. The EU carriers are struggling to compete
with the US carriers as they are unable to negotiate more
favourable contracts with the CRS providers.

2.5
As a result of the Code of Conduct, the CRS market in
the EU remains dominated by an oligopoly and the bargaining
power between the main players is unevenly balanced. The CRSs
have a guaranteed market and own the relationship with the
travel agencies, while the airlines have increased their bargaining
position by developing internet distribution capabilities.

Aside from the parent carrier rule,

it is assumed that
2.6
general competition laws in the EU would be sufficient
to
prevent abuses such as price-fixing in the absence of sector
specific regulations.

3. Observations

3.1 Parent Carriers

3.1.1
Airlines with ownership in a CRS are known as ‘parent
carriers’. The lifting of parent carrier rules would be too hazar-

3.2 Neutral Displays for online and offline travel agencies

The Code ensures that all CRS flight displays are
3.2.1
neutral and are ranked without bias or discrimination. Travel
agents are required to inform their customers of flight options
in order of shortest elapsed flying times (non-stop direct
followed by direct flights and indirect flights). However the
customers can request to have the display ranked according to
their own individual needs.

3.2.2 Maintaining display neutrality in today's market is inef-
fective especially as neutrality provisions do not exist for the
online distribution channels such as airline websites and corpo-
rate self-booking tools.

3.2.3 Market demand ensures that the customer will have
access to all the carriers, even with CRS-owned online agencies
such as Lastminute.com and ebookers, all bookable airlines are
generally available even if ranking is biased.

Online travel comparison sites (3) allow carriers or
3.2.4
travel agencies to pay for prime position in the search results,
regardless of price or schedule. The consumer can rank the
order of the flights from a range of criteria including i.e. total
price, departure time, carrier or elapsed flying time. The
consumer is therefore not denied access to neutral information,
as the information is still available to them. The consumer will
ultimately choose the option that is most suitable to them.

(1) Combined ownership of 46.4 % of Amadeus.
(2) Currently at 50 % penetration for all EU members.

(3) e.g. Kelkoo (http://www.kelkoo.fr).

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3.2.5
by company travel policy,
neutrality.

Business travellers' flight displays are typically governed
than

fares and carriers,

rather

3.2.6
Abolishing display neutrality would allow carriers to
pay for ‘premium’ position in CRS displays. However, it is unli-
kely the smaller carriers would lose significant market share, for
the reasons stated previously: the consumer will choose based
on their travel needs, not display ranking. This can be likened to
Google search results, where information is freely available
while certain providers can pay for position. The travel industry
need be no different.

3.2.7
Due to these conditions it is recommended that Article
5 on Displays is repealed. The information need not be regu-
lated as market forces and consumer choice will ensure a fair
representation of the available travel information.

Ensuring maximum transparency of fares by including
3.2.8
all taxes, fees and charges, including CRS fees from the initial
results display is in the consumers interest. This will prevent
airlines from biasing displays by only including surcharges at a
later stage in the purchasing process.

3.3 MIDT rules

3.3.1 MIDT data contain detailed information about global
booking activity of travel agencies and airlines. This information
is collected by the CRSs and sold to the airlines. MIDT provide
airlines with valuable competitive information including travel
agency bookings, revenue and traffic patterns.

To obtain an equilibrium between the airlines and
3.3.2
travel agencies, and in the consumers'
interest, obscuring the
identification of travel agents, either directly or indirectly would
benefit the market overall. However, recognising that MIDT data
can also be obtained from other sources such as IATA means
that so as not to devalue this information too greatly, subscri-
bers should also be allowed to negotiate without regulation with
the CRS how the data will be used.

Add a clause in Article 7 to that will allow airlines and
3.3.3
subscribers to negotiate freely with the CRS the terms of
purchase for MIDT data.

3.4 CRS-subscriber regulations

Today's regulations attempt to protect the travel agen-
3.4.1
cies by enabling them to terminate a contract with a CRS within
a three-month notice period.

3.5 Hosting Agreements

3.5.1
Hosting should remain separate from CRS contracts in
order to eliminate preferential treatment for hosted airlines espe-
cially parent carriers. If parent carriers divest their CRS stakes,
this rule can sunset.

3.6 Data Privacy

3.6.1
A PNR is a document created by the CRS once a
passenger has booked travel for flights, rail, accommodation, car
rental, insurance and any other travel related content. The infor-
mation contained within this document is highly sensitive and it
should therefore be subject to stringent personal privacy laws.
The information contained in a PNR includes inter alia the
traveller's name, contact details, date of birth, personal prefer-
ences that can reveal the person's religion (e.g. requesting a
kosher meal), the details of the person paying for the tickets,
credit card details,, friends, family or business colleagues booked
on the same itinerary, the travel agent name and contact details,
and in the case of corporate travellers, codes are often added to
the PNR indicating to which department or client the cost of
the trip is expensed, or that they may belong to a trade union.
It is possible to compile a highly detailed profile of both travel-
lers and non-travellers connected with the booking and the EU
must guarantee the protection of this personal data as stipulated
in the Code.

3.6.2
tically by the CRS when:

The Code of Conduct privacy laws are broken systema-

a) data is transferred from the EU to a third country;

b) personal information is processed without the consent of the

data subject;

c) information under the control of the CRS is processed for

purposes other than making a reservation.

The EU Directive 95/46/EC (which is complementary
3.6.3
to the Code of Conduct's privacy provision) is also broken as it
states that as a ‘data controller’, the CRS must obtain consent
from the data subject about disclosing personal information and
it shall not be transferred outside the EU, unless that
that
country provides a similar level of protection for the data. In
the US, there is no such law protecting personal data, where it
can be used by the US government or US commercial entities to
create profiles on travel data originating from the EU, and this
data can be kept forever. An example is the US scheme called
APIS (Advanced Passenger Information) requiring EU passenger
data to be processed by the US government in order to permit
entry into the country.

3.4.2
Repeal of Article 6.2 is recommended thereby enabling
free negotiations between the parties without the need for regu-
lation.

3.6.4
data subjects within a PNR, not just the traveller.

Strengthen data privacy rules to specifically protect all

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Enforcement of the data privacy section of the Code, in
3.6.5
particular the transfer of personal
information by the CRS
contained within PNRs to third countries, needs to be guaran-
teed by the EU, and recognised in the form of bilateral treaties
with the third country's government. The agreements in place
between the US and the EU are ‘undertakings’ which are unen-
forceable and not legally binding.

New regulation should be introduced whereby all PNRs
3.6.6
created by CRS subscribers must be protected by the Code's
Data Privacy articles without exception, including airlines who
outsource the hosting of their PNR databases to CRS providers,
as well as travel agencies, tour operators, corporations and any
other source of booking connected to the CRS.

4. Conclusion — next steps

Simplification of the Code of Conduct aims to create a
4.1
more natural economic environment in which CRSs compete
based on prices and service quality, while ensuring the
consumer interests remain the top priority.

The degree of content consolidation (such as new rail
4.2
providers or low cost carriers) as a result of pricing freedom
should be closely monitored. Rail and low cost carrier integra-
tion will provide the customer with lower prices (and more
travel options) via a CRS for short/mid distance destinations.
This may result in network carriers competing on price and
generally reduce the cost of airfares in the medium/long term.
For those reliant on CRS providers for travel information, this
would be a key benefit.

Rail content integration into the CRS display should be
4.3
encouraged, as it is a key factor to reduce the environmental
impact of air travel and promotes ‘greener’ modes of travel.

4.4 Monitor
the impact of abolishing display neutrality.
Market forces should counteract the possibility for anti-competi-
tive behaviour even by parent carriers. It should not be a regula-
tory goal of the Code to enforce a single, consolidated and
neutral source of information via the CRS — due to the chan-
ging market conditions, especially the Internet, this becomes
increasingly irrelevant.

4.5
The socio-economic impact of the proposed changes to
the Code of Conduct should also focus on the small to medium
including carriers and travel agents, who may be
enterprises,

Brussels, 29 May 2008.

vulnerable to the new flexibility allowed in the CRS market-
place.

The EU must create public awareness about the use of
4.6
personal data contained within their booking records. The
public is largely unaware of the existence of CRS systems and
what happens with the personal
information they process.
Without this awareness, the right of data subjects to have access
to data relating to them, as proposed by the Code, will be mean-
ingless. It is unlikely that a passenger has ever requested a CRS
for their personal records, simply because they do not know
what happens to it, and if they did, would not consent to its
usage

4.7
Increasing the representation of groups not directly part
of the travel distribution system, such as consumer groups and
data privacy experts in the consultation process. This will result
in a more balanced view of the state of the CRS market in the
EU.

Review the progress of online

4.8
technology.
Improvements in availability, booking and post-booking func-
tionality developed by the CRS and other travel technology
companies are very significant. These improvements in online
technology will empower the consumer and possibly force
further regulatory changes.

travel

4.9
In further technological developments, airlines in the US
have connected directly to travel agencies (and bypass the CRS)
in a move that further changes the CRS landscape. The reliance
on CRS providers diminishes while the consumer, travel agent
and airline gain leverage.

Encourage new market entrants. Increasing the competi-
4.10
tion among the oligopoly in the EU will stimulate the CRS
market. A new generation of CRS providers have appeared in
the US (4) since deregulation and due to their use of new tech-
nology are able to offer highly attractive services at lower cost
to the airlines.

4.11
Assess the impact of lowering distribution costs both
on the internal market and in international markets in terms of
airfares and competitive positioning with the US carriers.

4.12
Review code of Conduct in 2-3 years to assess position
of parent carriers, personal data protection enforcement and
market conditions and consultations with additional
lobby
groups before considering further revision.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

(4) e.g. G2 Switchworks, Farelogix — these are known as GNEs — GDS

New Entrants.