Competition in the Airline Computerized Reservation System Industry

GAO discussed the Department of Transportation's (DOT) recent report on the potential anticompetitive effects of airline-owned computerized reservation systems. GAO found that: (1) airline deregulation increased the importance of such systems by making it easier for travel agents to find the service best suited to passenger needs; (2) the market share of each system varied from city to city, depending on the location of vendor-airline hubs; (3) vendors received booking fees from airlines for each flight segment and subscription fees from travel agents, while travel agents charged the airlines a commission for each flight booked; (4) vendor airlines could sell more tickets and earn substantial incremental revenues; and (5) most vendors adopted minimum-use and liquidated-damage clauses in their system contracts due to federal regulatory provisions that limited contract terms and barred vendors from prohibiting use of another vendor's system. GAO also found that: (1) airlines continued to generate substantial incremental revenues even after implementation of the federal rules; (2) while the booking fees of the major systems were double their costs, travel agent subscriptions totaled 66 to 85 percent of system costs; (3) booking fees which exceed costs, and incremental revenues cause revenue transfers which give the vendor airlines an artificial competitive advantage, limit competition, and contribute to high profit rates; and (4) some contract provisions discourage travel agents from switching vendors, reduce competition, and perpetuate revenue transfers. GAO believes that DOT needs to: (1) ensure that the anticompetitive effects of airline system ownership do not nullify airline deregulation benefits; and (2) review airline divestiture of systems, establishment of an industry-wide consortium to operate a common system, restrictions on booking fees, and changes in vendor contracts as remedies for the anticompetitive features of the system industry.