Summary

This paper sets out an overview of market, regulatory and legal challenges airlines increasingly face in the distribution of tickets.

Foreword

Airlines fiercely compete with each other. This intense competition, enabled by the creation of the EU Single Market of Aviation, has led to unprecedented improvements in airline efficiency and innovation leading to reductions in prices paid by passengers, with a resulting increase in the mobility of Europeans. In this context, to be able to continue to innovate to meet and exceed consumer demand, airlines must be able to compete effectively by offering new and innovative services to consumers. This requires effective direct and indirect distribution that allows consumers to access such offers. Airlines have already created direct channels, such as B2C websites and mobile applications, that retail effectively according to customer needs. However, indirect channels are currently limited by legacy technology and need to be transformed so that customers can enjoy the same user experience and be offered the same products and services as they are already offered through airline direct channels.

Airlines strive to keep their costs of providing innovative and attractive services as low as possible, so that travelers can purchase seats and other products at the lowest price possible. Airline distribution is evolving from a passive, rigid, and technology-centric state able to support only the most basic of offerings to a flexible, dynamic, digital and customer-centric environment.

With the view that mobility is increasingly approached as a connected service, to a great extent, the future of airline distribution represents the future of the airline industry itself. Airlines strive to remain at the forefront of the consumer travel experience as providers of travel services that consumers value and appreciate.

While a growing proportion of tickets is booked directly by consumers through airline websites, a significant volume continues to be booked through agents (including OTAs or online travel agents) and other intermediaries. As a result, it is imperative that agents are able to solicit offers from airlines in the most efficient manner possible, if required facilitated by efficient intermediaries whose objective is to support an open and transparent eco system at the lowest possible cost for airlines.

Global Distribution Systems (GDSs)

Traditional GDS technology used to distribute airline fares is outdated (based on the pre-Internet EDIFACT standard) and is controlled by only three global players: Amadeus (65% of global bookings), Travelport (20%), Sabre (15%).On 23 November 2018, the European Commission opened an investigation into airline ticket distribution services. The Commission “is concerned that possible restrictions in competition by Amadeus and Sabre (two of the main GDS) could create barriers to innovation and raise ticket distribution costs, ultimately raising ticket prices for travelers.” See here: http://europa.eu/rapid/press-release_IP-18-6538_en.htm This “bottleneck control” exerted by the GDSs leads to higher fares (as a result of the significant segment charges that they impose on airlines), harming consumers.

Space for more intermediaries that enable agents to solicit offers for consumers is urgently needed. This would enable more competition in an almost closed market. It will lead to more products and services being made available at lower prices and provide greater transparency for consumers. Further, wider adoption of new technologies, including NDC-based (and other XML) solutions, will enable innovative content developed by airlines to be made available to consumers through travel agents, also leading to a more competitive and transparent experience for consumers. Significant increases in the speed-to-market of innovations and new services will enhance the consumer experience.

As is the case in any other industry, the right of carriers to choose how their tickets are distributed should be preserved. In addition, consumers should know the real costs of booking directly and indirectly, and they should be free to choose how they book based on this information. This is particularly important in a context where GDS contracts (both for distribution and for airlines’ internal IT systems) have imposed significant additional costs (without commensurate value), artificially increasing air fares, for the benefit of the GDSs but at the expense of both consumers and airlines. It is important to protect consumers’ interest.

Screen Scraping

Meta Search Engines (MSEs) and OTAs have multiplied in recent years and, despite their similarities, have developed different roles and functions. Some MSEs (e.g. Skyscanner) have licensed access to airline flight and price data and therefore provide price transparency for consumers. However, MSEs also direct customers to OTAs who use higher cost distribution channels which could lead to higher prices than from airline websites for consumers.

Furthermore, OTAs sometimes unlawfully extract flight data from airlines by manipulating the airlines’ website URLs to access the Availability APIs (to retrieve flight search queries) without authorisation — often called screen scraping. In addition to the fact that this conduct is illegal, the fact that they do not have full access to the necessary data means that they fail to offer (or overcharge for) ancillary products and services. In addition, they often do not provide crucial information about passengers to the airlines (email addresses, phone number, bank details). Conduct of this nature erodes the level of protection afforded to passengers and undermines their rights. Poor/inaccurate or, sometimes, no information is passed on to the passenger, such that passengers suffer in the event of short notice delays or changes to flight programmes.

Online travel agents (OTAs) such as Expedia or Opodo provide flight search and flight booking facilities. Their revenues are generated primarily through booking fees, supplemented through advertising sales. Meta-search engines (MSEs), such as Google flight, Kayak, Skyscanner, Swoodoo provide flight search but not flight bookings: to purchase a ticket, the user must click a link to an airline or OTA website. Metasearch engine revenues are generated via advertising sales and referral fees collected from the airline or online travel agency websites. Some of these OTAs engage in illegal practices by unlawfully extracting flight data from airlines’ websites and mis-sell flights applying hidden/exorbitant mark-ups in what is more commonly known as “screen-scraping”.

An increasing number of screen-scraping OTAs access carriers’ website directly by manipulating the respective Uniform Resource Locator (“URL”). By manipulating the URL, the scraper can access the Availability Application Programming Interface (“API”) which retrieves flight search queries.

In an attempt to reduce such passenger harm, among other technical defense methods, some airlines use ‘Shield’ systems to block screen scraper internet protocol (“IP”) addresses, by placing the offending IP addresses on a ‘blacklist’. Such addresses are blocked by reference to the frequency with which they query the carriers’ API. Offending MSEs and OTAs try to circumvent shields by changing IP addresses quicker than the shield can block them.

Regulatory intervention is required to protect consumers from artificially inflated fares, ticket mis-selling practices and inferior service that result from screen scraping of airline sites by MSEs/OTAs. The EU should prohibit intentional circumvention of technical security systems, unauthorised accessing of computer systems online, and the mis-selling of flights.

Computer Reservation System Code of Conduct (Regulation No 80/2009)

The Code’s disconnect with current market developments is creating uncertainty that is impeding product innovation by airlines and new technology providers. New distribution models are emerging, which don’t rely on CRSs and as a result, there is a need to review the CRS Code and to ensure its scope is adequate so that it encompasses OTAs/MSEs. It should not apply to proprietary systems of airlines or airline groups.

The CRS Code should prevent bottlenecks in airline distribution caused by CRSs. It is important to recognize that the CRSs market structure prevents the emergence of new intermediaries, despite the control they exert over agents, while there is fierce competition between airlines. The CRSs, through contractual restrictions imposed on both agents and airlines, prevent airlines to pass the benefits of lower distribution costs airlines have with new entrants to the consumers.

The airlines’ right to determine their own distribution model must be preserved, such that each airline must remain free to choose how to enable agents and other consumer-facing intermediaries to request offers. New low-cost distribution solutions, including those based on APIs and B2B portals covered by the NDC (New Distribution Capability) standard, are being developed and deployed by airlines.

Even though it was originally intended to constrain the dominant market powers of CRSs, the current Code is implemented in a manner that does not fulfil this objective. Further, the CRSs continue to compound this by limiting the ability of airlines to determine their distribution models. In this context, it would be wholly inappropriate to expand the scope of the non-discrimination and related obligations currently imposed on so-called “parent carriers”, to deprive airlines of the right to determine how data on the schedules, fares, availability and offers relating to the services that they offer are made available to consumers through indirect channels. Since CRSs are no longer controlled by airlines, the obsolete “parent carriers” concept should be abandoned, not repurposed to deprive airlines of the right to decide how their content is made available to agents and other consumer-facing intermediaries. It would also be wholly inappropriate for the CRS Code to endorse the imposition of anti-competitive contractual clauses, such as parity, non-discrimination and most favoured nation, by CRSs on airlines.

There are a number of key principles that must be maintained in the CRS Code to enable airlines to pass through the benefits of their expanded distribution options to consumers:

• Ensure that airlines are able to reflect the varying costs of distribution in their offers.
• Ensure that airlines continue to be free to choose the technology providers and other intermediaries with whom they work.
• Ensure that incentives for airlines to innovate are not undermined by the definition of CRSs being extended to include airlines’ (and airline groups’, including Joint Ventures) own websites and other aggregators operating as technology service providers. Similarly, new technology entrants should be facilitated.
• Maintain the protection for airlines against discrimination, biasing and delisting by CRSs and against unfair pricing practices (pricing increases, passing on of channel specific charges, establishing control mechanisms, remedies).
• Carefully consider the wider data ownership issue, and not only Marketing Information Database Tapes (MIDT).

A regular fitness check of the Code of Conduct is required to reflect the disruptive developments and dynamic changing market technologies. Whether competition among technology providers will suffice to regulate the role of the CRSs in the benefit of consumers and all stakeholders or whether further EU regulation is necessary, has to be closely monitored and regularly assessed.