March 28 - BTC Comments To U.S. DOT Regarding IATA Resolution 787



BEFORE THE

U.S. DEPARTMANT OF TRANSPORTATION

WASHINGTON, DC

 

COMMENTS ON APPLICATION FOR

APPROVAL OF AN AGREEMENT (RESOLUTION 787) BY THE INTERNATIONAL AIR TRANSPORT ASSOCIATION

 

 

DISCUSSION POINTS

v  Introduction

v  Customer Driven Technological Innovation

v  Analysis

v  How IATA Tells The Story

v  Threshold Questions That IATA Should Be Required To Answer

 

I. Introduction

Business Travel Coalition, Inc. (BTC) hereby responds to the International Air Transport Association’s (IATA) application to the U.S. Department of Transportation (DOT) for approval of Resolution 787, submitted on March 11, 2013.

Based upon BTC review and analysis (http://bit.ly/10PyBBx) of IATA documents and presentations as well as direct BTC meetings and bilateral correspondence with IATA, BTC urges DOT to reject Resolution 787, and the included New Distribution Capability (NDC), as it contravenes the public interest.

II. Customer Driven Technological Innovation

Since the beginning of commercial air transportation, technological innovation has been a central force behind industry growth. Customers have driven the success of innovations such as loyalty programs and corporate self-booking tools. When new technologies add true value, the customer – individual traveler or professional travel manager – will embrace them. Other less robust attempts at innovation have been rejected such as some forms of direct-connect distribution. In both cases the marketplace works because the customer gets to decide.

A single firm is usually free under national competition laws to endeavor to pioneer changes to the model of an industry and enjoy the rewards if successful and punishment if unsuccessful. It is a horse of a different color, however, when 240 horizontal airline competitors, through the offices of their trade association, secretly strategize behind closed doors for nearly a year and agree to a binding, new worldwide business model. Resolution 787 does not represent innovation, but rather, the free marketplace being commandeered by a blunt, collusive assault. The customer cannot decide anything when virtually an entire industry of powerful airline competitors and mega antitrust-immunized global alliances agree on a new industry model and structure.

IATA is disingenuous-in-the-extreme when it asserts that Resolution 787 is a mere “technical standard.” Nothing could be further from the truth. Resolution 787 represents a set of compulsory business processes such as a requirement that a travel agent must send to an airline a consumer’s personal information, for authenticated shopping purposes, before an airline would even elect to respond with an offer. The only technical aspect of this Resolution is XML messaging to enable the model.  

Resolution 787 is a new industry business model; on this there is nothing to debate. A review of IATA documentation leaves no doubt. Indeed, in this very docket (OST-2013-0048) the African Airlines Association states: "The new airline distribution model will change the way an airline distributes its products and services."

(Emphasis added.)

III. Analysis

A. IATA’s NDC Is An Agreement Among Horizontal Airline Competitors That Raises Significant Antitrust And Privacy Law Issues

Mega U.S. and international airlines and their antitrust-immunized global alliances have used IATA as the vehicle to reach an agreement establishing a new industry-wide business model for the pricing and selling of air transportation services. This new model would apply to travel to and from, and within the United States, and in fact, air transportation services across the globe. 

This proposed new business model, agreed by IATA member airlines at a conference held on October 19, 2012 as Resolution 787, would negatively and significantly impact airline competition and would drive up airline prices for consumers. It is designed to terminate by agreement among airline competitors the current market-driven and transparent model for the pricing and sale of tickets, where airfares are published and publicly available for comparison-shopping and purchase by all consumers on a non-discriminatory basis. The airlines themselves have confirmed publicly that the current transparent airfare model has constrained their ability to raise airfares. 

This new business model would also violate the privacy rights of consumers. Under Resolution 787 the airlines have agreed among themselves that they have the right to demand that extraordinarily intrusive personal data about specific consumers be broadcast to all airlines that might offer service, even though consumers in most cases enter into a contract of carriage with just one of those airlines. Resolution 787 on its face (Section 3.1.1) explicitly says that before they quote prices for a consumer the airlines have the right to demand from consumers personal information that “includes but is not limited to” the customer’s: name, age, marital status, nationality, contact details [including email address], frequent flyer numbers [on all carriers], prior shopping, purchase and travel history, and whether the purpose of the customer’s trip is business or leisure. Unless all NDC airlines were to adopt a common privacy policy, which is exceedingly unlikely, then consumer information would be sent to airlines prior to consumers having had the opportunity to review individual airlines’ privacy policies. And in any event, it is improbable that any privacy policy could communicate effectively to millions of airfare shoppers daily the stunning length and breadth of personal data about that consumer that is being broadcast to a multitude of airlines just to get a fare quote and the uses to which that data will be put – such as making the traveler a target for high airfares.

B. The Details About NDC

Because proponent airlines of NDC and IATA chose to incorporate this new business model in an IATA Resolution as opposed to an IATA Recommended Practice, under IATA’s governing rules, this new business model is an agreement that is binding on all of the roughly 240 IATA-member airlines worldwide. As set forth in the preamble of this Resolution, all IATA airlines that choose to distribute “enhanced content” (an undefined term but overtly one that means when an “ancillary service” such as checked luggage or pre-reserved seating is sold along with the base fare) across “multiple channels” would be obliged to adhere to this new business model, and to do so both with respect to sales made by intermediaries (that is, travel agencies) and those made in their direct sales channels, such as via their websites. 

For carriers adopting NDC for particular markets, airfares and schedules would no longer be publicly filed and available on a non-discriminatory basis for any and all consumers to anonymously comparison shop and then purchase through intermediaries such as brick-and-mortar and online travel agencies, or via their websites. Instead, NDC airlines would create “unique” offers each time a particular consumer requested a fare for a specific route/date. The offers made by each airline would be “customized” based on personal details the airlines have agreed in Resolution 787 they will have the right to demand from consumers before quoting any prices. 

The personal information about each specific traveler the airlines have agreed among themselves that they will have the right to demand is quite detailed and intrusive, as explained above. Many of these items of sensitive personal information can be used very effectively to pinpoint, and extract higher prices from, those travelers who are likely to be less price elastic - such as business travelers and travelers whose shopping and travel history demonstrate they do not regard connecting services as viable substitutes for non-stop services on particular routes or do not consider alternate airports serving the same area as substitutes for one another.

Importantly, the airline industry, and IATA in particular, has decried publicly what it describes as the “commoditization” of airline services caused by the low-fare search capabilities on-line and brick-and-mortar travel agencies have made available to consumers, capabilities that only work because of the current system of publicly available and transparent fares. And airlines have done so even as they acknowledged at the same time the benefits for consumers of the current system of fare transparency. For example, in July 2012, Tony Tyler, the Director General of IATA, just after the NDC project had been officially launched, stated as follows in an interview with Flight Global:

“We’ve done a great job of improving efficiency and bringing down costs, but we’ve handed that benefit straight to our customers,” Tyler says. “As soon as someone’s got a cost advantage, instead of charging the same price and making a bit of profit, they use it to undercut their competitors and hand the value straight to passengers or cargo shippers – and you’ve got to ask why? I think one of the reasons is that the way we sell our product forces us to commoditize ourselves.” [i]

On other occasions as well, airlines have confirmed publicly that this fare transparency and efficient comparison shopping have sharpened price competition among airlines on competitive routes and have forced them to keep their prices low, lest they lose sales to airlines offering more attractive published fares to consumers.

The current distribution system has indeed been responsible for an unprecedented degree of comparison-shopping opportunities for air travelers, who can, with just a few clicks of a mouse, learn in seconds the best priced options on any carrier for their journey. 

It might be proper for individual airlines, at least those not holding a dominant position, to unilaterally adopt and pursue distribution business model changes that increased consumer search costs and otherwise undermined the current fare transparency they admit has been a source of significant competitive pricing pressure. However, BTC firmly believes that horizontal competitors (and indeed nearly the entire airline industry) banding together to jointly adopt such a new business model by express agreement crosses the line. In short, BTC believes that NDC is an agreement among competitors that has the purpose and will have the effect of stabilizing or raising prices and thus violates U.S. antitrust laws. 

BTC also submits that any ticket distribution system that, like NDC, requires consumers to surrender the types of personally identifiable information spelled out at Section 3.1.1 for the privilege of being quoted a price for travel between points A and B is a flagrant violation of consumers’ elementary rights to privacy. The processing of these personal details is not for a legitimate purpose but rather to allow airlines to engage in acutely targeted price discrimination that extracts higher fares from those judged to be less price-sensitive. Further, the data enumerated by the Resolution is excessive in relation to the purpose of quoting airfares for consumers. Airlines, of course, have been quoting prices to consumers for decades and have never before demanded these intrusive details as a condition for being told what the costs of travel would be. In addition, BTC strongly holds the view that none of a person’s age, marital status, frequent flyer membership, nationality, shopping, travel and purchase history and whether the purpose of a trip is business or leisure can be a proper basis for price discrimination by an airline. 

For example, BTC is convinced that no reasonable person would suggest that it fair or defensible to charge someone 25 years of age more or less than someone who is 50.  And BTC would strenuously object to any suggestion that those who are married can be favored or penalized in terms of prices relative to those consumers who are not, especially given that a large sector of the American public cannot legally get married.

IATA has stated publicly that testing and adoption of NDC will begin early this year.  Thus, NDC may pose an imminent threat of higher prices for consumers of air travel as the competitive discipline that flows from the current regime of published, visible and easily comparable air prices is supplanted with one based on the ultimate in fare shrouding. Under NDC, consumers would be unable to conveniently and easily test what the “market price” for their trips should be as every fare would be “unique” to particular travelers. And consumers could not be confident that they were being quoted offers that were the best deal for them, or even a good one. And NDC will soon violate consumers’ rights to privacy on an unprecedented scale.

C. The Consumer Privacy, Pricing and Cost Impacts of NDC

If implemented, NDC would infringe upon consumers’ data privacy rights and expectations in unprecedented ways and to extreme levels. Using consumers’ data to price discriminate and structurally divide markets, joined up with the elimination of publically available fares, rules, and schedules, would kill off market disciplining forces and enable prices to rise throughout the entire aviation system. Adding insult to injury, all manner of new costs will befall the travel distribution system including travel agencies having to pay for access to airfare, ancillary fee and bundled content. These costs would then be transferred onto the backs of consumers and corporate travel departments in the form of higher transaction or service fees.

IV. How IATA Tells The Story

IATA’s well-oiled public relations machine is a clever operation; possibly too clever. This is how the organization brought the NDC proposal to the marketplace and regulators.

IATA:

1. developed rationale and generated support among airline-members for NDC as an IATA strategic priority and solution to a problem of commoditized pricing that cannot easily be solved by individual airlines in a transparent and competitive marketplace, but that can be remedied through agreement by a group of horizontal competitors;

2. ensured that only airlines would participate in new business-model strategic planning for close to a year before some, but not all, industry stakeholders were convened in July 2012 in Geneva to be informed by the airlines that “this is where the industry is heading;”

3. powered forward with world’s most influential airlines and alliances to ensure momentum and initial success in major global markets;

4. secured a binding Resolution in October 2012 with 238 yeas and 2 abstentions;

5. labeled NDC as a technical standard at DOT when it is really a new industry-wide business model and was always described elsewhere by IATA as exactly that;

6. advertised that personal information would be requested only on an opt-in basis while being silent about non-consent resulting in significant negative consequences for consumers, such as getting no prices quoted for traveler or at best punitively high prices;

7. described personalization and customization as the ultimate in transparency when in fact the objective is price opacity as NDC would  eliminate the ability of consumers to test the market price for travel for the desired dates and places;

8. declared that consumers are demanding personalization when in fact they have been demanding that transparency and comparison shopping be restored; and

9. failed to mention massive new costs that will be ultimately transferred to consumers.

V. Threshold Questions That IATA Should Be Required To Answer

Is it well accepted, and used by airlines to justify recent mega mergers, that price transparency is the lifeblood of competition in the airline industry and helps ensure that consumers trust the shopping and purchasing process. Such trust encourages consumers to buy more services more often. Over the long term, providing such transparency increases competition, creates market efficiencies, encourages innovation, expands markets, increases sales of airline services and satisfies consumers. These are positive outcomes that NDC appears designed to contravene.

Given the potential global impact on consumers of Resolution 787, it is time for IATA to set the public record straight on a number of threshold questions including the following:

  • Can IATA point to studies, surveys or testimonials to demonstrate that individual airline consumers or travel managers are demanding personalized offers and “authenticated” shopping?


  • Is it true that under NDC the current transparent model for the pricing of tickets where fares are published and publicly available for anonymous comparison-shopping and purchase by all consumers on a non-discriminatory basis would continue in parallel in markets where there were both NDC and non-NDC participating airlines? And what guarantees can consumers bank on that this will really be the case?


  • Millions of consumers compare fares and schedules on sites like Opodo, Kayak and Travelocity before taking a decision to purchase a ticket on an airline website. Can IATA guarantee that these comparison-shopping sites would continue to have access to virtually all fares and schedules? And again, how can consumers bank on any such assurances by IATA?


  • Authenticated shopping could be a major problem for consumers because NDC-participating airlines could use the required information to discriminate both by sales channel and against price insensitive travelers. Is IATA able to guarantee that the same consumer who provides her personal information and who is booking through the travel agency channel would not see higher offers than through airline direct channels? Is IATA willing to mandate that NDC participating carriers must be channel neutral and not discriminate against consumers when using a travel agency?


  • What safeguards has IATA considered and implemented to protect business travelers requiring en route changes from facing higher prices from airlines that know such travelers have little choice but to accept their “personalized” offers as lower-priced alternatives could be blocked from view?


  • Under NDC would regulators, academics, legislators, travel managers and travel management companies continue to have access to comprehensive paid-market-pricing data to have visibility to fare trends, to inform policy deliberations and to benchmark the value of airline contracts?


  • NDC requires that a consumer’s personal information be electronically transmitted by a travel agency to all carriers in a market as a condition of an offer being returned and without the consumer being aware of which domestic or foreign carriers would be receiving the sensitive information or what their data privacy policies were. Is IATA planning for harmonized data privacy policies for all participating NDC carriers to solve this data-privacy problem? And how does IATA propose to assure effective communication to consumers in ways that flag the important issues for them in a workable way?


  • For what legitimate business purposes would airlines participating in NDC need each of the following personal data points from consumers before providing an offer: frequent flyer status on competitor airlines, age, marital status, national origin and place of residence? Can IATA identify other consumer-products industries that require potential customers to profile themselves to a merchant, in fact multiple merchants, as a condition of receiving a bona fide offer?


  • Can IATA guarantee that consumers, as a consequence of non-consent regarding providing personal information, would not face negative consequences such as punitive “rack-rate” fares? Can IATA likewise guarantee that under its new model that consumers shopping anonymously would always receive bona fide offers in NDC markets from airlines participating in NDC in said markets? And again, how can consumers be confident they can take these guarantees to the bank?


  • Did IATA consider and emplace safeguards to prevent participating NDC carriers from colluding expressly or tacitly in dividing markets which would be orders-of-magnitude more easily facilitated by authenticated shopping and other aspects of this new market structure such as making the business processes compulsory should an airline choose to implement NDC?


Whether it is fighting DOT rule makings, or boldly proposing NDC, there is presently a full-throated airline assault on price transparency. Given the anti-competitive effects of Resolution 787 and NDC, and the unprecedented invasion of privacy for all consumers, DOT should deny its approval.

Respectfully submitted,

Kevin Mitchell

Chairman

Business Travel Coalition, Inc.

214 Grouse Lane, Suite 210

Radnor, PA 19087 | USA

+1 610.999.9247

mitchell@businesstravelcoalition.com

 

[i]Flight Global-Tony Tyler, IATA available (Feb. 2013) available http://www.flightglobal.com/interviews/tony-tyler/the-interview/

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