Explanatory Memorandum to COM(2007)709 - Code of conduct for computerised reservation systems - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2007)709 - Code of conduct for computerised reservation systems. |
|---|---|
| source | COM(2007)709  |
| date | 15-11-2007 |
- Grounds for and objectives of the proposal
The Code of Conduct for Computerised Reservation Systems was established in 1989 by Regulation 2299/89 when the vast majority of airline bookings were made through CRSs and most of the CRSs were owned and controlled by airlines. Significant market developments, such as the rise of alternative booking channels, have rendered the Code of Conduct increasingly ill-adapted to the market conditions: in fact, it is impeding competition and thereby contributing to higher distribution costs than necessary.
The proposal aims to significantly simplify the Code of Conduct and to reinforce competition between the CRS providers while maintaining basic safeguards against potential competitive abuses, especially in the case of close links between CRSs and airlines, and ensuring the provision of neutral information to consumers.
- General context
Computerised Reservation Systems (CRSs) provide customers 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.
The Code of Conduct for Computerised Reservation Systems ("the Code of Conduct") was first established in 1989 with the adoption of Regulation 2299/89. 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. In addition, most of the CRSs were owned and controlled by airlines. This combination of facts created particular risks of competitive abuse for which general competition rules were not sufficient and for which specific ad hoc rules in the form of a Code of Conduct were necessary. The Code of Conduct was established with the aim of improving transparency and preventing discriminatory behaviour both by the system vendors themselves and also by airlines, especially parent carriers of CRSs. On the one hand, system vendors were required to deal in an even-handed manner with all carriers and travel agents, while, on the other, parent carriers of a CRS were required not to favour that system over the others.
The Code of Conduct proved successful in preventing abuses of market power but it has unintended consequences as it is increasingly ill-adapted to the changing market conditions. First, many airlines have divested their CRS ownership. Three of the four CRSs no longer have any airline ownership, while three airlines hold minority shareholdings in the fourth one. Second, 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's non-discrimination requirements stifle price competition and innovation, because they severely restrict the airlines' and CRS providers' freedom to negotiate booking fees and fare content offered via the CRSs. The ensuing lack of competition keeps booking fees at a higher level than necessary. Consequently, airlines tend to distribute an increasing share of their tickets via the alternative channels such as their own Internet websites, which are less costly and technically more flexible.
Furthermore, as CRS markets in other parts of the world have been deregulated, it is necessary to ensure that airlines and CRS providers from within and outside the EU compete on a level-playing field.
The public consultation has shown that stakeholders are in favour of revising the Code of Conduct to adapt it to the present day conditions, but to keep key provisions ensuring the provision of neutral information to subscribers and safeguards against potential abuses in the presence of close links between air carriers and CRS providers.
- Existing provisions in the area of the proposal
Regulation 2299/89 as modified by regulations 3089/93 and 323/99 will be replaced by the present proposal.
- Consistency with the other policies and objectives of the Union
Not applicable.
- Consultation of interested parties
Consultation methods, main sectors targeted and general profile of respondents
The preparation of this proposal has been preceded by a public consultation in order to gather as many comments and suggestions as possible from the individuals and bodies concerned. This exercise respected the minimum standards for consultation of interested parties as defined in the Communication from the Commission of 11 December 2002 (COM(2002)704 final).
An open internet consultation was carried out between 23 February 2007 and 27 April 2007. The Commission received 48 contributions, breaking down into the following groups:
- Air carriers and representative bodies: 18
- CRS providers and IT services providers: 5
- Consumer/ travellers and representative bodies: 9
- Travel agents and representative bodies: 10
- Rail transport sector: 1
- Other: 5
On 2 May 2007, stakeholders and stakeholders' organisations were invited to a meeting in Brussels in order to give a short overview of their contributions
Summary of responses and how they have been taken into account
The consultation revealed that only few stakeholders – among the airlines and the CRS providers – favour a complete abolishment of the Code of Conduct. Most stakeholders prefer to keep a Code of Conduct, but they favour a revision of the present Code in order to adapt it to the market developments by giving airlines and CRS providers more freedom to negotiate booking fees and fare content.
Travel agents fear greater pricing freedom and are in favour of amending the Regulation to ensure access to airlines' full content at no additional cost.
The consumers' organisations caution that a revision should be done very carefully in order to guarantee the provision of neutral and comprehensive information to consumers.
Most of the stakeholders have expressed a clear preference to keep the present rules applicable to parent carriers of CRS providers, i.e. the mandatory participation of parent carriers in all CRSs (article 4a of the Code) and the prohibition on linking incentives or disincentives to the use of a particular CRS (article 8).
A more detailed overview of stakeholders' views and the way they have been taken account of is given in the impact assessment report that accompanies the present proposal.
The results of the public Internet consultation are available on ec.europa.eu/transport/air_portal/consultation
- Collection and use of expertise
There was no need for external expertise.
- Impact assessment
In this impact assessment, two options for revision - partial and full deregulation - were compared to the base case of the status quo. The first option – partial deregulation - has been further sub-divided in three sub-options that differ with regard to the safeguard measures in case of close links between airlines and CRSs. All the options aim to increase the scope for competition in the CRS market:
- Option 0: status quo
- Option 1: partial deregulation
- Option 1a: partial deregulation with control unbundling of the airlines and the CRSs;
- Option 1b: partial deregulation with specific provisions for parent carriers;
- Option 1c: partial deregulation without specific provisions for parent carriers;
- Option 2: full deregulation (abolition of the Code of Conduct).
The status quo (option 0) has been rejected because the present Regulation's restrictions on pricing and negotiating freedom are having increasing negative effects, in particular in terms of high distribution costs.
A full deregulation (option 2) has been rejected at the present state of the market. Many corporate travellers remain highly dependent upon the single distribution channel constituted of the travel agents and the CRSs. The same is true for travellers in Member States with low Internet penetration rates: less than half of the EU population has access to the Internet - which is the most important alternative distribution channel.
In these circumstances, the risks of competitive abuse are higher than in other economic sectors and the sole reliance on the general competition rules would not be sufficient, especially in case of close links between airlines and CRSs. In addition, certain market behaviours of the CRSs (e.g. display bias) would be harmful to consumers even if they were not the result of a competitive abuse.
The impact assessment shows that option 1b offers the most favourable outcome in terms of increased competition, safeguards against competitive abuse, neutral, transparent and comprehensive information for consumers and the promotion of rail transport in CRS displays.
The Commission carried out an impact assessment listed in the Work Programme, whose report is accessible onec.europa.eu/transport/air_portal/internal_market
Contents
- Summary of the proposed action
The present proposal would replace Regulation 2299/89 as modified by Regulations 3089/93 and 323/99.
- Legal basis
Articles 71 and 80 i of the Treaty establishing the European Community.
- Subsidiarity principle
The proposal falls under the exclusive competence of the Community. The subsidiarity principle therefore does not apply.
- Proportionality principle
The proposal complies with the proportionality principle for the following reason(s).
Regulation 2299/89 confers exclusive competence to the Commission. Given the international character of the CRS operations and the difficulty to monitor these activities on a national level, the proposed revision and simplification of the regulation maintains the competence at EU level.
The proposed revision and simplification of the Regulation does not affect national, regional and local authorities, and reduces the already limited administrative burden on economic operators.
- Choice of instruments
Proposed instruments: Regulation.
Other means would not be adequate for the following reason(s).
A Regulation is the most adequate for the following reasons(s):
- The proposal concerns the revision of an existing Regulation;
- The Regulation concerns an economic activity with an international character which would be difficult to regulate on a national level.
- Simplification
The proposal provides for simplification of legislation.
The revised Code of Conduct for CRS has been drafted and structured in an easy-to-understand manner. Superfluous provisions from the Regulation 2299/89 have been removed, especially when they stand in the way of greater market efficiency.
The proposal is included in the Commission's rolling programme for up-date and simplification of the acquis communautaire and its Work and Legislative Programme under the reference 2002/TREN/29.
- Repeal of existing legislation
The adoption of the proposal will lead to the repeal of existing legislation.
- Review/revision/sunset clause
The proposal includes a review clause
- European Economic area
The proposed act concerns an EEA matter and should therefore extend to the European Economic Area.
- Detailed explanation of the proposal
Partial de-regulation of the CRS market
The proposal amends the Code of Conduct for CRS in order to adapt it to today's market context - in particular the development of alternative distribution channels - and to reinforce the competition between the CRS providers. By giving more flexibility to CRSs and airlines, the proposal allows CRSs to compete more effectively with the alternative distribution channels, both in terms of prices and services offered.
The simplification of the Code mainly increases the negotiating freedom of the market participants: airlines and CRS system vendors will be free to negotiate over the booking fees charged by the CRS and the fare content delivered by the airlines. The restrictions of the present Code of Conduct with regard to fare content, access to the distribution facilities and booking fees will be lifted (with the exception of the safeguards mentioned below).
The proposal keeps in place a number of safeguards against potential competitive abuses, especially in the case of close links between CRSs and transport services providers. These safeguards reflect the view expressed by many stakeholders and confirmed by the impact assessment, that in the present market context, such close links still represent competitive risks that require specific rules besides the general competition rules.
The simplified Code of Conduct maintains the following provisions to protect against competitive abuse and to ensure the supply of neutral information to consumers:
- Safeguards to protect the neutral advice of travel agents (article 6), such as for example the prohibition for system vendors to attach exclusivity conditions to their contracts with the travel agents. The proposal adds the prohibition for system vendors to identify travel agents in the Marketing Information Data Tapes (MIDT); this provision avoids that an airline could use the data to pressure travel agents to reduce their bookings on rival airlines.
- The obligation for system vendors to clearly separate the CRS systems from any airline's internal reservation system (article 4.2), such as to avoid that a parent carrier would have a privileged access to the CRS system.
- The prohibition for system vendors to reserve any distribution facilities to their parent carriers (article 4.1), such as to avoid competitive advantages of parent carriers over other participating carriers.
- The obligation for system vendors to provide neutral and non-discriminatory displays (article 5) in order to ensure neutral information for consumers and avoid any screen bias in favour of specific airlines.
- The obligation for system vendors to provide Marketing Information Data Tapes (MIDT) on a non-discriminatory basis (article 7).
- The obligation for parent carriers 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 (article 10.1) such as to avoid that parent carriers hinder competition from other CRSs.
- The prohibition for parent carriers to link incentives or disincentives to the use of a specific CRS (article 10.3) such as to avoid systematic preference of the own CRS.
- Safeguards allowing the Commission to take measures to ensure equal treatment of EU airlines with regard to CRS systems in third countries (article 8).
- Provisions for the protection of personal data that particularise and complement those of Directive 95/46/EC of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (article 11 ).
The Code of Conduct also 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. 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 booking fees although the average value of the 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. The provisions with regard to parent carriers and display neutrality continue to apply to rail services, too.