Airline Competition:

Impact of Computerized Reservation Systems

RCED-86-74: Published: May 9, 1986. Publicly Released: May 9, 1986.

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Pursuant to a congressional request, GAO examined the effects of airline-owned computerized reservation systems (CRS) on competition in the airline industry, focusing on: (1) conflicting studies on system profitability conducted by two system-vendor airlines and a consultant; and (2) a Department of Justice report on the structure and performance of the market.

GAO found that: (1) a group of airlines has charged that the airlines that own the two largest systems have used them to create an unfair competitive advantage; (2) before the now-defunct Civil Aeronautics Board (CAB) promulgated system rules in 1984, systems used biased screens which displayed the owning airlines' flights first in the listings of available flights; and (3) other airlines have charged that vendor airlines also charge unreasonably high rates to competitors for system participation and use information gained from their systems to gain an unfair advantage. GAO also found that: (1) the consultant study reported that the two airlines underreported the profitability of their systems; (2) the consultant overestimated potential incremental revenues for the two vendor airlines, but the airlines erroneously determined that they would earn no incremental revenues for the period after CAB implemented its regulations; and (3) while the study was flawed, its conclusion that the two airlines underestimated potential profitability was accurate. In addition, GAO found that Justice reported that: (1) the market will probably remain highly concentrated, with the two largest airline-owned systems controlling about 70 percent of all domestically booked travel revenue; (2) the prospects for a new entry into the market are slim unless a competitive group buys out a smaller system and attempts to make it more competitive; and (3) vendor airlines could still use their market power to increase booking fees for airlines using their systems.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Department of Transportation (DOT) is completing its data collection effort and has begun sifting through the data collected. A report was issued in May 1988 as a result of congressional hearings. DOT is required to report monthly, beginning in November 1988.

    Recommendation: The Secretary of Transportation should undertake the two studies regarding the persistence of incremental revenues and the effect of booking fees on competition, and take additional action, if warranted by the results of the studies, to enforce compliance with or to strengthen the computerized reservation system rules.

    Agency Affected: Department of Transportation

  2. Status: Closed - Implemented

    Comments: Issues were further studied and included in the DOT report on curline competition issued in February 1990. A notice of proposed rulemaking is being developed to modify current CRS rules which expire at the end of the year.

    Recommendation: The Secretary of Transportation should report to the concerned committees of Congress on the results of the studies and any actions planned.

    Agency Affected: Department of Transportation

  3. Status: Closed - Implemented

    Comments: The collection effort was completed and a report was issued in May 1988.

    Recommendation: To assess the possible persistence and size of incremental revenues, DOT should study the behavior of individual travel agents who subscribe to different system vendors in the post-rule period.

    Agency Affected: Department of Transportation

  4. Status: Closed - Implemented

    Comments: The collection effort was completed and a report was issued in May 1988.

    Recommendation: To assess the anticompetitive effects of booking fees, DOT should examine the potential anticompetitive effects of these fees in specific types of air travel markets. The study should also examine the likely impacts of possible remedies to the anticompetitive effects of booking fees.

    Agency Affected: Department of Transportation

 

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