Segment 2 Of 2     Previous Hearing Segment(1)

SPEAKERS       CONTENTS       INSERTS    
 Page 13       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
ISSUES OF CONCERN TO THE TRAVEL AGENT COMMUNITY

  

THURSDAY, SEPTEMBER 10, 1998

U.S. House of Representatives,

Subcommittee on Aviation,

Committee on Transportation and Infrastructure,

Washington, D.C.

    The subcommittee met, pursuant to notice, at 10:00 a.m., 2167 Rayburn House Office Building, Hon. John J. Duncan, Jr., (Chairman of the subcommittee) presiding.

    Mr. DUNCAN. We'll go ahead and call the subcommittee to order at this time. I've been notified that several members are running late this morning, but we're going to go ahead and get started. First, I would like to say good morning and welcome everyone to today's hearing regarding a number of very important issues that have been raised by travel agents.

    This is not the first hearing this subcommittee has held on travel agent issues. In fact, earlier this year on February 26, we held a hearing on the issue of stolen airline tickets. Several travel agents have been put out of business by these crimes and that obviously is a matter of great concern to us. At that hearing we heard conflicting testimony about the nature and extent of the problem, and some estimate the size in the billions of dollars and, as a result, we now have the GAO looking into that matter and preparing a report on that issue that is of so much concern to travel agents around the country.
 Page 14       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Today's hearing arose from discussions we've had with a number of travel agent representatives. Former Congressman Frank Horton and Toby Roth have both discussed a number of travel agent concerns with us. And I might just say of all the issues that we've dealt with over the almost 4 years that I've been chairman of this subcommittee, it's very rare that we have two former Members of Congress involved; and I think two of the finest men who ever served in this Congress, Frank Horton and Toby Roth, and both very good friends of mine.

    And John Bennison with the American Society of Travel Agents, or ASTA, has long been a strong advocate for the travel agent community. ASTA has been the driving force behind the effort to change the Federal preemption provision in aviation law which prohibits State regulation of the airline industry. ASTA argues that this also serves to block legitimate tort and breach of contract suits. And that's one of the issues which we will discuss in this hearing.

    I mentioned Congressman Horton and Congressman Roth. They have a combined time of more than 50 years of service in the House and bring, I think, a wealth of knowledge and experience to these issues. And they were the ones who first brought the problems with SATO to my attention.

    SATO is, as most people in this room know, an airline-owned travel agency whose costs are covered by its airline owners. It has not suffered from the commission cuts as have other travel agencies around the country. Indeed, I suspect that the recent cut in travel agent commissions is the reason for much of the anger and frustration that travel agents are now expressing.

 Page 15       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    Before deregulation I'm told that airlines agreed among themselves to limit travel agent commissions to only about 7 percent. However, after deregulation these airline agreements were no longer permitted. As a result, the airlines started to compete for the travel agents' favor and commissions quickly rose to about 10 percent plus bonuses. But in the last few years, as other ways to distribute tickets have developed, airlines have begun to limit the commissions they pay to travel agents. First, in 1995, commissions were capped at $25 for a one-way ticket and $50 for a round-trip ticket. Then in 1997, commissions were further limited to 8 percent. The result has been that average domestic commissions have now fallen under 7 percent.

    Despite this, the number of travel agencies have basically held steady and travel agents still sell the bulk of the airline tickets in this country. However, the number of mom and pop operations has fallen dramatically in the last 2 years. And small business, as all of us know, or should know, is the backbone of this country. And it is estimated that about half of the travel agencies are owned by women and minorities. So we are concerned, or should be concerned, when we see such a dramatic decline in small travel agencies. And that's a particular concern to me because I think in so many ways we've made it so difficult for small business to survive in this country today. And I certainly don't want to see a further decline in the number of small businesses in this country if we can do something about it.

    We have several travel agent witnesses who are leaders in their field, and we very much appreciate their taking the time to be with us here today. We also have Mr. David Collins from the Airlines Reporting Corporation. He represented the airline perspective very ably in our stolen ticket hearing last February. And I appreciate the fact that he has come back to be with us this morning.

 Page 16       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    We also had invited the airlines and SATO. Unfortunately, they chose not to appear at this hearing. But we did give them the opportunity to do so.

    Mr. Lipinski has been delayed and will be here shortly. At this time, I'd like to call on my colleague and good friend, Mr. Boehlert, Sherry Boehlert, to see if he has any statement he wishes to make.

    Mr. BOEHLERT. Thank you, Mr. Chairman. I appreciate your letting me sit in on this subcommittee hearing. It's a very important hearing. As you know, I serve as Chair of the Water Resources and Environment Committee. But the subject here today is of special importance.

    And I'd want to thank you for acknowledging our former colleagues, Toby Roth and Frank Horton. Frank Horton was dean of the New York congressional delegation when he was in the minority; that's before we Republicans obtained majority status. And he was elected dean of the large delegation despite the fact that the Democrats outnumbered the Republicans, which shows the great respect they have for this great American, who incidentally is trying to take credit for teaching Mark McGwire how to hit.

    [Laughter.]

    Mr. Chairman, I want to thank you for holding this hearing on a set of issues that is of great importance to consumers. I want to underscore that what's at stake here is the protection of the increasing number of Americans who travel by air. While this hearing has been called to discuss matters of immediate interest to travel agents, it's the flying public whose concerns are truly at stake.
 Page 17       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    That's especially clear in the case of an issue that has been brought to my attention by travel agents in my district. The question is the extent to which the Nation's airlines are subject to laws, State laws, on consumer protection, torts, and other matters. The airlines have argued that when Congress deregulated in 1978, that we exempted the airlines from virtually all State laws. And the courts have from time to time upheld that argument. I think we need to clarify that Congress did not intend any such blanket exemption from State law. Exemption in the 1978 act had a simple, narrow, sensible purpose: to prevent States from regulating the airlines in the way that the Civil Aeronautics Board did since the 1930's. Congress did not want States determining routes, and frequency of flights, fares, and so on. I don't think Congress wanted airlines to act in sort of a legal stratosphere beyond the reach of common State laws that apply to every other consumer business.

    It's easy to see how this exemption hardly affects travel agents alone. Passengers on airlines are just as likely as travel agents to have contract, personal injury, or other legal issues with the airlines. I hardly want to encourage litigation, nor do I want to oversimplify complex legal terrain, but it seems to me that the broad exemption from State laws that some courts have created in error defies both common sense and common notions of fairness.

    Congress should make clear that airline operations are grounded in laws that apply to all, that the skies must be friendly toward passengers, as well as the corporations that transport them.

    Consumer concerns have also led me to cosponsor the Consumer Access to Travel Information Act, which has been introduced by my good friend and colleague, a leader of the New York delegation, Mr. Forbes. The bill would require the Department of Transportation to study whether the airlines are making it difficult for travel agents to provide the fair, complete, and reliable information consumers need to get the best flights and fares available. If the study determines that the airlines are interfering with the flow of information, the Department would be directed to take appropriate action.
 Page 18       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Again, the impact on consumers here is clear. It is they, not just travel agents, who are cheated when the airlines tamper with the availability of information. The whole idea behind deregulation was to promote competition. But as any basic economics textbook will tell you, competition assumes perfect information. The airlines cannot expect to reap the benefits of competition if they deny passengers those benefits by impeding the availability of information.

    Mr. Chairman, I don't want to pre-judge anything here, but I do want to urge the subcommittee to move ahead with legislation needed to ensure that consumers are helped, not harmed, by deregulation. And I know that's your intent and it's the intent of Mr. Lipinski.

    I look forward to dealing with you and working cooperatively with this subcommittee. Thank you for the courtesy.

    Mr. DUNCAN. Well, thank you very much, Chairman Boehlert. It's an honor to have you with us and also my good friend, Jon Fox from Pennsylvania. Mr. Fox, do you have a statement at this time?

    Mr. FOX. Yes, thank you, Mr. Chairman. I appreciate the opportunity for the committee to address this important issue. I know that our constituents find that the travel agency members do provide valuable service, and I'm looking forward to hearing from our colleague, Mr. Forbes, regarding his legislation. We want to make sure we have a healthy airline industry and aviation moves forward in a positive way to lead the world, and that we also give proper respect to travel agencies that also try to work with our consumers.

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    So I'm looking forward to the testimony, and appreciate the fact that other members have joined in here this morning to weigh in, and the committee will certainly give careful credence to all the witnesses. And I thank the chairman for the time.

    Mr. DUNCAN. Thank you very much.

    [The prepared statements of Mr. Traficant, Mr. Costello, and Mr. Fox follow:]

    [Insert here.]

    Mr. DUNCAN. Before we get to our first panel, we are pleased to have with us the Honorable Michael P. Forbes. And Mr. Forbes, of course, is a good, good friend of all of us. And I had the privilege of visiting his district a couple of weeks ago. And certainly I'll tell you he is very highly thought of in his district, and it's an honor to be with you, Mike. And we appreciate your being here this morning, and you may begin your statement and testimony at this time.

TESTIMONY OF HON. MICHAEL P. FORBES, A REPRESENTATIVE IN CONGRESS FROM NEW YORK

    Mr. FORBES. Mr. Chairman, thank you very much. I have an extensive statement which I would like to be made part of the official record.

    Mr. DUNCAN. That will be made part of the record.
 Page 20       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. FORBES. Thank you, Mr. Chairman and members of the subcommittee. I thank you for today's hearing on legislation that I believe has the ability to correct an atmosphere out there that is no less than prescription for closing down a whole industry and negatively impacting the flying public. And so I am most indebted to the committee and to the chairman for its sensitivity to this issue.

    And let me also say, Mr. Chairman, I thank you for coming to New York and listening to the unique problems of the Federal Aviation Administration staff, training, and equipment issues at the New York Air Traffic Control facilities. Your presence there, again, just further demonstrates that the chairman, as well as the full committee, are taking an exemplary and leadership role in these issues. And I thank you for coming to New York.

    Mr. DUNCAN. Thank you very much.

    Mr. FORBES. Over the past few months, great attention, of course, in Congress and at the Department of Transportation has been paid toward airline competition issues. And I've introduced the Consumer Access to Travel Information Act, H.R. 3704, because of my and many of my colleagues overriding concern for the decline in competition in the air transportation industry, and most notably, and specifically in the area of ticket distribution practices. My bill simply requires that the Secretary of Transportation investigate and report to Congress the extent of anti-consumer or anti-competitive behavior of many of the major airlines, including the discriminatory and predatory practices that target travel agents, not just the large national travel companies that I'm concerned about, but threaten the existence of travel agencies on almost every main street in any major community in this country.
 Page 21       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    The Secretary currently possesses the authority under the Airline Deregulation Act of 1978 but unfortunately has not acted on it. And an issue that has not received enough attention, or public notice until today, is the pattern of substantial and harmful anti-competitive behavior throughout the airline ticket distribution process.

    I'm particularly concerned about the predatory efforts by some airlines to reduce and eliminate the involvement of travel agents, Internet agents, and other independent distributors, the only sources of complete comparative information on a comprehensive all airline services and fares for consumers. The major airlines have been moving steadily, I'm sorry to say, over the past several years particularly to gain more control over the airline travel, ticket distribution process. In fact, every industry study conducted since the 1960's has concluded that travel agents can process reservations and ticketing transaction information more efficiently than can the airlines. Nonetheless airlines have reduced travel agent commissions from an average of 10.8 percent in 1995, down to 6.9 percent in 1998, a rate significantly below travel agent costs. Millions of consumers now are being asked to pay transaction fees to agents, fees that agents have been forced to adopt to offset the airline commission cuts, the drastic cuts, I might add, in order for airline ticket agents to stay in business, the travel agents to stay in business. Consumers who are unwilling or unable to pay that transaction fee are, frankly, subject to going to the airlines directly and too often pay much higher fares as a result.

    The airlines have said travel agency commission cuts help save airlines money, and that savings is passed on to their consumers. There is not one shred of credible evidence that consumers benefit from airline savings as a result of reducing the commissions on travel agents. I'm concerned the goal for the airlines is not one of efficiency but an overt effort really to eliminate the only direct link that consumers have to comparative price information.
 Page 22       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    The airlines have instituted other policies that limit consumer choice and hurt travel agencies. One example is their restriction on the refund of so-called non-refundable tickets. It's customary airline practice to insist that travel agents refuse to issue refunds to consumers who have purchased non-refundable tickets. Transgressions are punished severely by the airlines. Yet, airlines themselves don't hesitate to issue their refunds. They will make refunds often after travel agents have refused the same refund in accordance with airline policy. And the airlines have typically forced travel agents to repay the commission earned on the original sale.

    There are other similar practices directed at travel agents that limit price-saving opportunities for traveling consumers. The airline policies directly limit the service travel agencies, Internet agents, and other independent ticket distributors can provide to consumers. And consumers, the flying public, are becoming more confused and more agitated because they expect travel agents, who are at the mercy of the airlines, to find and purchase tickets at the most convenient and lowest fares available. In some cases, the discriminatory policies force travel agents out of business entirely.

    The Consumer Access to Travel Information Act would require that the DOT investigate airline ticket distribution issues and report back to Congress any adverse impact airline policies have on consumers. The bill also directs the Department of Transportation, if necessary, to correct any anti-competitive behavior. If the major airlines have nothing to hide, and if the DOT finds no anti-competitive behavior, then no action will be taken or necessary.

    Well, let me stress that the Consumer Access to Travel Information Act does not regulate the airline industry. In fact, the bill should be a wake-up call for the industry. The Department of Transportation investigation I propose in this bill may bring to light practices that in some instances the airlines themselves may not even realize exist.
 Page 23       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Today, between 70 and 80 percent of U.S. air travelers depend upon the Nation's 250,000 travel agents to provide alternate schedules, fair quotes, and ticketing services for all of the airlines. Last year, 33,000 travel agencies, or over 50 percent of which are owned by women or minorities, processed $70 billion in consumer reservations and ticket transactions. There can be no doubt, Mr. Chairman and members of the committee, that if airlines gain more control over the ticket distribution system, smaller airlines and the traveling consumers will only be further disadvantaged. As travel agents are forced out of the industry and major airlines secure more and more direct consumer business, consumer options will continue to decrease and result in significantly higher travel costs.

    I respectfully urge the subcommittee to approve Consumer Access to Information Act, and ensure consumers and travel agencies are not subjected to ongoing discriminatory and anti-competitive practices that unfortunately are bringing us to an important day of reckoning for many of the mom and pop travel agencies across this country.

    And I again thank the chairman and members of the committee for their patience and for their interest in this most important issue.

    Mr. DUNCAN. Well, Mike, thank you very much. You've done a great job pointing out how important some of the issues around this are, and generally at this subcommittee we don't ask questions of the Members since we have a chance to do that later on the floor. And we know you have a very busy schedule and need to get on to other things. Of course, you're welcome also to stay or come back if you have the chance to do that. And we certainly appreciate your being with us today, but also we want to move on to our other witnesses as well. But thank you very much for taking time out from your busy schedule to be here with us this morning.
 Page 24       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. FORBES. Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you. We've been joined by Dr. Cooksey and Mr. Hutchinson, and I also saw Mr. Pease come in. Dr. Cooksey, do you have any statements you wish to make? And Mr. Hutchinson, I understand that on the first panel one of your constituents is involved.

    Let me go ahead and ask that panel number one come forward at this time. And the first panel consists of Mr. Paul M. Ruden, who is senior vice president for Legal and Industry Affairs for the American Society of Travel Agents; Ms. Lynn Hayes, who is owner of Lynn's Travel World on behalf of the Association of Retail Travel Agents; Ms. Lauraday Kelley, who is vice president of CruiseLink on behalf of the Coalition for Travel Industry Parity; Mr. John I. Williams, Jr., who is president and chief executive officer of Biztravel.com, Inc. on behalf of Interactive Travel Services Association; and Ms. Phyllis Reagan, who is senior vice president for Professional Travel, Navigant International. And I'd like to welcome all of you here. And we're pleased to have you with us. And before we start with your testimony though, I'd like to call on Mr. Hutchinson for any statement he wishes to make or an introduction at this time.

    Mr. HUTCHINSON. Thank you very much, Mr. Chairman. I want to express my appreciation to you for holding this important hearing and for all of the witnesses who will be testifying today. But I did want to extend my personal greetings to Lynn Hayes from Arkansas and appreciate your being here. Danville is not technically my district. We like to claim you anyway in the third district and a very important part of the Arkansas River Valley. And thank you for your leadership in the travel industry, look forward to your testimony today, and wanted to greet you this morning.
 Page 25       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Thank you, Mr. Chairman.

    Mr. DUNCAN. Well, thank you very much. All right, we generally proceed in the order in which the witnesses are listed in the call of the hearing. And so is it ''Ruden'' or ''Ruden?''

    Mr. RUDEN. ''Ruden.''

    Mr. DUNCAN. Mr. Ruden, we'll ask that you go ahead and give your testimony at this time. And thank you very much for being here with us.

TESTIMONY OF PAUL M. RUDEN, SENIOR VICE PRESIDENT, LEGAL AND INDUSTRY AFFAIRS, AMERICAN SOCIETY OF TRAVEL AGENTS, INC.; LYNN HAYES, OWNER, LYNN'S TRAVELWORLD, ON BEHALF OF THE ASSOCIATION OF RETAIL TRAVEL AGENTS; LAURADAY KELLEY, VICE PRESIDENT, EDUCATION AND TRAINING GEM/CRUISELINK, ON BEHALF OF THE COALITION FOR TRAVEL INDUSTRY PARITY; JOHN I. WILLIAMS, JR., PRESIDENT AND CEO, BIZTRAVEL.COM, INC., ON BEHALF OF INTERACTIVE TRAVEL SERVICES ASSOCIATION; AND PHYLLIS REAGAN, SENIOR VICE PRESIDENT, PROFESSIONAL TRAVEL CORPORATION, NAVIGANT INTERNATIONAL, AND PRESIDENT, SOCIETY OF TRAVEL AGENTS IN GOVERNMENT

    Mr. RUDEN. We, thank you, Mr. Chairman, for holding this hearing. The issues we're going to talk about, as Congressman Boehlert and others have indicated, are very important to travel agents, but even more, we believe there are consumer interests at stake here that can be vindicated if Congress acts in connection with the CATI Act and the preemption issues we're going to talk about. We really appreciate the opportunity to speak to this committee.
 Page 26       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    We're here today, Mr. Chairman, because the airlines are about to kill the goose that laid not one golden egg but a whole nest full. We're not asking Congress to solve these problems itself but rather to direct the Department of Transportation to put some of its considerable resources into the task of investigating these issues and taking action when the record justifies it.

    Even if the Department of Transportation wins the current fight over predation guidelines with respect to alleged large airline efforts to stop competition from smaller new entrants, the Department and the rest of country as well are going to lose the larger war to ensure long-term competitive conditions in air transportation. This is going to happen if the airlines are successful in undermining competition by abusing the distribution system that is essential to make the competitive process work.

    Mr. Chairman, travel agents in the United States are one of America's great business success stories. Almost all of them are very, very small businesses employing a handful of people. They rose as an industry from relative obscurity to become the dominant form of distribution of air travel and other travel services in the post-deregulation period. And as evidence of that, in the last 10 years alone, they issued 1.8 billion tickets producing revenue of $545 billion, without counting taxes, on behalf of the airline industry. The fact remains and has been the case throughout that the traveling public, likes and needs what travel agents do. And the airlines themselves have benefitted from having a stable, ubiquitous, and neutral distribution system as they adapted to the difficult business of competing in a deregulated environment. It is fair to say that without the travel agent distribution system as we know it, deregulation itself simply could not have occurred. The public continues to depend upon a vast network of independent, unbiased travel agents for information and advice.
 Page 27       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    In the early 1990's, however, the airlines learned some harsh lessons about the perils of unlimited competition. One of those was that travel agents were still out there telling consumers the whole unbiased story, finding lower fares and better routings and holding down the yields that the airlines were trying to raise. And, of course, travel agents continued selling those pesky, new-entrant low-fare carriers as well.

    It now seems to be pay-back time. In virtual unison, the major airlines have decided to reclaim the field and try to force many consumers back into direct dealing with the airlines. By denying or discouraging access to neutral independent sources of unbiased comparative information, the airlines can raise the yields of sold business without ever having to actually raise a single fare. They will do this by depriving the public of access to the very comparative information that they can obtain today only through the neutral travel agent distribution system.

    How are they doing it? You've heard reference already to the commission caps that were put in place in 1995, and the commission cuts that were instituted in September of 1997. The result of that was to reduce travel agent compensation below costs and to hold it there. This kind of activity simply could not occur unless the airlines are exerting market power in a marketplace that is supposed to be devoid, because of competition, from the exercise of market power. They've imposed discriminatory commission structures with respect to sales originating on the Internet for the purpose and with the effect of excluding travel agents from moving into that growing marketplace. They are discriminating with respect to fares that are available by making some fares available only through the Internet, which has the net effect of depriving many consumers of access to those fares. Those are consumers who call airlines direct, as well as those who deal through travel agents. It is no longer possible even for an airline representative to truthfully tell a consumer, ''I know what the lowest fare is.''
 Page 28       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    They discriminate, as you heard from the Congressmen who have spoken before me, with respect to the treatment of customers, with respect to things such as non-refundable tickets. It's simply outrageous for an airline to tell a travel agent upon severe threat of economic punishment, ''You will not refund this ticket, while I reserve the right to impair your relationship with your client by refunding it at will, without explanation, without justification, without communication, and in the process recalling the compensation that I originally agreed to pay you for selling that non-refundable ticket.''

    Finally, among the list, and I could go on for quite a while, but other witnesses have some things as well, there is the, again, outrageous exchange of competitive information that the airlines currently engage in. This activity is facilitated by the Airline Reporting Corporation and reinforced by the computer reservation systems, both of which are either owned wholly or substantially by the airlines.

    Time is running out. The industry is in a serious state of contraction. And if Congress does not act to drive DOT to pay attention to these issues, the long-term consequences for consumers are going to be severe indeed.

    I notice the yellow light is on so I want to spend just a moment, if I may, to talk about this preemption question. It's quite clear that preemption was intended to protect the airline industry from being re-regulated by the States and for no other purpose. It's equally clear that the courts have made a complete hash of this, denying access to State law which in practical effect, means denying access to any remedy at all because the Department of Transportation is not a court and cannot offer remedial damages, for example, to consumers or travel agents who have been impacted by adverse airline actions.
 Page 29       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    It's impossible to imagine that Congress could have intended to create an industry that's a law unto itself, a new form of corporate royalty that answers to no one. But that's the practical effect of the current state of preemption law in this country. There are some favorable cases, of course, that do permit in some instances consumers and travel agents to find a remedy in court under State law, but the problem is the courts are all over the lot on this and no travel agent or consumer ever knows whether he's going to have that opportunity.

    One very important case went to the Court of Appeals twice. A full en banc panel of nine judges finally heard it. The majority ruled that there was no preemption, but one judge agreed with the result, disagreed with the reasoning and there were two dissents. And so it's an impossible situation for consumers and for travel agents, easily remedied by adopting Section 10 of the Schumer bill.

    Thank you very much.

    Mr. DUNCAN. Well, thank you very much, Mr. Ruden.

    Before we go on with Ms. Hayes, we've now been joined by our very distinguished ranking member, Mr. Lipinski, and I would like to see if he has any statement he wishes to make at this time?

    Mr. LIPINSKI. First of all, Mr. Chairman, thanks for recognizing me. I apologize to the panelists for being late, but I was detained at another meeting that I had this morning. I'll submit my opening statement for the record, and wish to continue to hear the witnesses. Thank you.
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    [The prepared statement of Mr. Lipinski follows:]

    [Insert here.]

    Mr. DUNCAN. Well, thank you very much. I think we've had 75 or 80 hearings in this subcommittee over the last 3 or so years, and I think this is the first time you've ever run late. So I know it couldn't have been avoided. Ms. Hayes?

    Ms. HAYES. Chairman Duncan and esteemed members of the House Aviation Subcommittee, I want to begin by thanking you this morning for hope—giving small retail agents around the country some hope that there is light at the end of the long, dark tunnel we're facing.

    My name is Lynn Hayes. I serve as the elected chairman of the board of directors of the Association of Retail Travel Agents, known as ARTA. We're the largest nonprofit trade association in North America that represents travel agents exclusively. We have 4,500 members in small retail agencies around the United States and Canada.

    We know this morning that you will be hearing from Members of Congress and other experts on specific airline agent issues. Let me tell you where we stand on these issues. We support H.R. 3704, the Consumer Access to Travel Information Act, and we commend Representative Michael Forbes and his cosponsors for advancing this important legislation to require the Department of Transportation to study unfair airline practices. We support requested changes in the preemption provision in Section 10 of H.R. 3160; and we support an investigation of the unfair advantages enjoyed by the Scheduled Airline Traffic Office, SATO.
 Page 31       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    However, that is not why I've flown so far this week to talk to you. I have been an agency owner, manager, and front-line employee for more than 20 years. I make my living selling travel. In fact, travel agencies have historically given women and minorities an equal opportunity to support our families and build economic security. I've taken time away from my business to come here today to deliver one message: We need your help to survive the assault from the big airlines.

    If I owned a hardware store or a hair salon, I would probably not be here today. I could compete against other stores and salons on the field of free enterprise. If one hammer manufacturer or shampoo company introduced policies aimed at putting me out of business, I could simply pick another supplier and fight back.

    However, travel agents don't have those options because we must work with airline suppliers who have been given overwhelming, uncontested competitive advantages thanks to Federal deregulation. The airlines set 100 percent of the ticketing and operating rules under which travel agents sell airline tickets. And if we don't like the deal, the airlines simply say, ''Tough luck.''

    We're forced to use computerized reservation systems owned by the airlines themselves. And if we don't like the deal, the airlines say, ''Tough luck.''

    The airlines are cutting agents out of the deal with new discounted fares that are available only over the Internet. And if we don't like the deal, the airlines say, ''Tough luck.''
 Page 32       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    We're forced to sell the airlines that are strongest in our regions where they enjoy the benefits of the most uncompetitive industry in the country. And if we don't like the deal, the airlines say, ''Tough luck.''

    In short, travel agents can't compete on the same type of level playing field that almost every other small business in the United States enjoys. The big airlines plan to put us out of business, and we can't respond like other small businesses.

    That's why I'm appealing to you today. To go beyond today's agenda items in fixing the airline-agent relationship.

    These steps are a promising start, but thousands of small retail agency owners and workers around the country are counting on you to make the airline industry more competitive, to fix one-sided computerized reservation regulations, to force the airlines to compete fairly with the travel agents, excuse me.

    ARTA looks ahead to the 106th Congress for these solutions, and you will be hearing a lot from the small retail agents around the country—and from our highly respected Washington representative, Mr. Toby Roth—in coming months with suggestions for giving travel agents an equal shot at making a living in this business.

    Thank you again for scheduling today's hearing. It's a tremendous step in the direction of fair competition for travel agents around the U.S.A.

 Page 33       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    Mr. DUNCAN. Thank you very much, Ms. Hayes.

    Ms. Kelley?

    Ms. KELLEY. Thank you very much. Before I begin, I'd like to say I feel like I'm echoing Congressman Forbes here this morning. I think he had my text. He has great taste and I certainly appreciate his support.

    Good morning, Chairman Duncan and members of the subcommittee. I'm Lauraday Kelley, vice president of education and training for GEM/CRUISELINK, a consortium of over 4,000 members in the United States and Canada. And I am here today representing the Coalition for Travel Industry Parity, CTIP. In addition to my work at CRUISELINK, GEM, and CTIP, my husband and I have been owners of a travel agency in central Pennsylvania for over 23 years.

    I would like to thank you for holding this very important hearing on the issue of airline distribution policies and their effect on consumers. With me today also is Stuart Godwin, co-chairman of the Coalition for Travel Industry Parity, who is also available to answer any questions that the committee may have.

    Our coalition, CTIP, is comprised of 23 travel agency co-op, consortia, and franchise organizations with approximately 17,000 travel agency members.

    I am here today to talk about H.R. 3704, the Consumer Access to Travel Information Act of 1998, also known as the CATI Act. As you know, CTIP and the American Society of Travel Agents worked closely with Congressman Forbes and Senators D'Amato and Reid to help develop this legislation. The companion legislation, S. 1977, was introduced by Senators D'Amato and Reid in April. We believe enactment of this legislation would be a major step in arresting the further decline of competition in the air transportation industry.
 Page 34       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Some background information is in order here. Until the introduction of the CATI Act this past April, much attention in Congress and at the DOT had been directed to the issue of predation as it applies to major airlines, small airlines, and start-up airlines. These are important issues to consumers and travel agents. However, a paramount issue, which has not been vigorously addressed in Congress or at DOT, is the predatory effort by airlines to reduce or eliminate travel agents, Internet agents, and other independent distributors who are the only source for which consumers can acquire complete, comparative information on all airline services and on all airfares on all small and large airlines.

    In broad terms, the CATI Act asks the Department of Transportation to investigate distribution issues, report any adverse impact which airline distribution policies have on consumers, and, if necessary, correct such anti-competitive behavior as might be found. Please keep in mind that if the major airlines, as they claim, have nothing to hide and DOT finds no anti-competitive behavior, no action will be taken. However, we are confident that if you enact this legislation, DOT will, in fact, conclude that there is a pattern of substantial and harmful anti-competitive behavior throughout the entire distribution process.

    Last year, 33,000 travel agency locations efficiently processed $70 billion in consumer reservations and ticketing transactions. Travel agents define efficiency in terms of quickly delivering to consumers the complete, comparative information which consumers need to make decisions when purchasing air travel. On the other hand, major airlines define efficiency in terms of eliminating travel agents, limiting consumer access to comparative information, and raising airline yields. Their idea of efficient distribution is to force consumers to acquire comparative information by contacting several airlines, one airline at a time, by telephone or by forcing consumers to plod the airline-owned Internet sites, one site at a time. If airlines succeed in their mission, the result will be catastrophic for consumers, both in terms of efficiency and for higher fares.
 Page 35       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    In addition to distributing traditional travel agency services, airlines are vigorously pursuing policies which make it impossible for travel agents and other independent distributors to operate on the Internet. The airlines' method is simple. As in the case with traditional travel agency distribution, they keep independent distributors off the Internet with non-compensatory levels of commission, below what we believe to be their actual cost of distribution.

    One caution: Airlines will represent to you that travel agency commission cuts help save airlines money, and that airlines pass along these savings to consumers. Make no mistake about it, the money airlines save by reducing agency commissions goes into their coffers. There is not one shred of credible evidence that any airline savings are passed on to consumers, and the goal of the commission-cutting exercise is not one of efficiency but an overt effort to corrupt or eliminate the only link consumers have to comparative price information.

    Mr. Chairman, and the members of this distinguished committee, on behalf of the 22,050 travel agents across the United States, thank you for providing me this opportunity today.

    Mr. DUNCAN. Thank you very much, Ms. Kelley.

    Mr. Williams?

    Mr. WILLIAMS. Thank you for inviting me to appear before you and your colleagues today. My name is John Williams. I'm president and chief executive officer of Biztravel.com. I'm here today on behalf of the Interactive Travel Services Association, which is an association dedicated to educating the public and the travel industry with respect to the many benefits of online travel services.
 Page 36       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    We welcome the introduction of H.R. 3704, and as a New Yorker originally from the Long Island area, I'm particularly pleased that Michael Forbes is the chief sponsor of that legislation. We urge this committee to consider it favorably.

    While avoiding the specter of re-regulation of the airline industry, this bill would require DOT to investigate airline policies that discriminate against travel agents, whether online or off, and where justified, to issue an order to cease and desist such practices.

    Now, we regard this as important legislation, Mr. Chairman, for a number of reasons. First of all, the online segment of the travel industry is one of the driving currents of electronic commerce generally in our economy. This year alone over $1 billion in travel will be booked online. By 2002, Jupiter Communications forecasts this number will grow to nearly $12 billion.

    Second, independent online travel services, such as those provided by my company Biztravel.com, promote greater competition among airlines, both large and small, by cutting through the information fog that obscures the travel purchasing process, and putting the control where it belongs—with the consumer. Free and unfettered access to comparative price and service information about travel products helps every consumer make informed buying decisions.

    Third, we are deeply concerned that the great promise of the Internet to provide such free and unfettered access for consumers via the information superhighway is threatened today by major toll gates and speed bumps erected by the major carriers. For example, major carriers discriminate against online travel agencies, or traditional travel agencies who choose to also distribute travel services online, in the commission levels that are paid. Thus, if a consumer calls a traditional travel agent and books a flight, that agent may earn a commission of say $30 or $40. If that same consumer unplugs the phone wire from their handset and plugs it into their modem and books the exact same flight, the commission paid by the carrier would be far lower, as low as $10.
 Page 37       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Non-price examples are prevalent as well. For example, if a consumer calls a traditional travel agent and wants to book a group of any number of passengers, that number is freely allowed by the airlines. If, on the other hand, that same consumer wants to log on to my company's website and book any more than four passengers on a single record, that is disallowed by the airlines by their rules and regulations.

    Similarly, if we, if any one of us wanted to pick up a phone and call any of the tens of travel agents within a ten mile radius of this committee room to book a trip anywhere in the country or the world leaving today, we could do so with no difficulty. If you wanted to log on to any online travel service and do that same booking for same-day departure, that is not allowed by the airlines. We don't understand why these non-price discriminatory practices or regulations are imposed by the airlines, as well as the price regulations.

    Fourth, this arbitrary, unjustified unleveling of the playing field has the effect of depriving the traveling public of the benefits of a thriving online travel agency industry. These uneconomic levels of compensation discourage entry into the field of Internet travel. They also discourage future investments in the field by investors in companies like mine.

    Fifth, the airlines have also recommended certain requirements of online travel agents that, in our view, are radically at odds with the privacy principles our customers want us to follow.

    In summary, we urge the committee to act favorably with respect to H.R. 3704, and that the committee provide direction to the Department of Transportation to investigate and prohibit unfair price and non-price discrimination against online travel intermediaries, and the unwarranted invasion of privacy online.
 Page 38       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. Chairman, I also understand that you're interested in seeing a demonstration of our system, our online booking, and I'm prepared move to that at this time if that is your wish.

    Mr. DUNCAN. Go ahead.

    [Computer demonstration.]

    Mr. WILLIAMS. Thank you. Mr. Chairman and members, what you're looking at before you is Biztravel.com's web page and website online. We have a live connection currently, and we want to take you through the planning of a new trip. And as you may note, we've taken the liberty of enrolling you, Mr. Chairman, in our system.

    Welcome, to Biz reservations, the Honorable John J. Duncan, Jr. What you see here is our main menu, and what we're going to do is give you an example of a round-trip from Washington's Ronald Reagan National Airport to Knoxville, Tennessee in November, leaving on a Thursday evening, I think it's the 5th of November, at about 6:00 p.m. and returning the following Monday evening from Knoxville on what I understand might be a typical visit to your constituents back home.

    And so we've already set up departure for November 5th, returning November 9th at 6:00 p.m. And we're not going to need a car or hotel there. If we did, we'd just click some boxes down here. If my associate, Mike, will click ''Express Itinerary,'' what we will now do is refer in our software to your travel preferences which we've taken the liberty to specify for you on your behalf, Mr. Chairman. And those are the need to get the lowest price for this trip for your flight; secondly, to travel closest to your desired schedule; and, thirdly, to maximize your frequent flyer miles which is not necessarily our assumption of your preference, but to make it representative of what our business clientele's preference frequently is.
 Page 39       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    What you're seeing that you probably cannot read is the fact that the system is in fact looking at your profile, checking for flights from Washington to Knoxville and back, from Knoxville to Washington. We've finished checking all those available flights. We're searching for low fares at this time. And the system exhaustively searches for all of the various flights according to the preferences that the customer has specified in their profile. What this system uniquely does is put the power of the Internet and the power of the computer and the reservation system directly in the hands of the customer.

    We have now finished planning your flight live right now, and have come up with a round-trip with a fare of $176.50. It's the cheapest trip on that day and at that time, departing Washington at 6:40, and connecting, this is actually the cheapest flight. It's also the least convenient one. It's a triple connection, but it does demonstrate that it is, in fact, the cheapest which is what we assumed your preference would be, your first preference.

    Before we show additional choices, what I'd like to do is just show you that the itinerary gives you all the information about the departure, the arrival, your U.S. Airways frequent flyer number is already in the record. You'll get 244 miles for the first leg. It's a coach flight, et cetera—all the information you need as the traveler to make your choices.

    But we assume that a triple connection is not your preference, so we're going to put up more choices and show you the various alternatives that are available to you, the traveler. If we had hotels and cars, here we would be able to show you all those alternatives as well. So here we are on the flight choices screen. And we're going to scroll down through. Combination one is the combination that we just saw. Combination two is non-stop flights but departing at inconvenient times. Combination three is some connecting flights as well. And lo and behold, combination four is a combination of non-stop flights on U.S. Airways, but is about $100 more than the triple connection, still a very good fair, $261 round-trip.
 Page 40       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    So we're going to select combination four, and that will be slotted right into your itinerary, Mr. Chairman, that we just looked at, and have a much more convenient departure time on Thursday evening of 7:30 p.m., arriving in Knoxville at 9:21. And then returning on Monday evening at 5:50 p.m., arriving here in Washington at 7:39.

    Now, what you would be able to do at this point, in fact, what we'll go to do is click ''Purchase Now'' and show you how easy it is to actually go ahead and select your actual seat assignment on these flights. So we'll move down on this screen and go click the ''Seat'' button. This gives you an example of the power that we are placing in the hands of the customer at this point to determine their travel experience. We'll go to the seat selection screen and view the seat map for the outbound flight from Washington to Knoxville. And you'll actually see the real live seat grid, graphical seat map for that flight which shows the seats that are filled, illustrated by the figures sitting in the seats, and the 7A or D or F indicate the seats that remain on that flight. In fact, if we could go down to 9D, which is an exit aisle, Mr. Chairman, I'm going to take the liberty of putting you in an exit aisle to give you a little more leg room. So that's as easy as it is, as you saw, to select your own seat on the flight and we're done.

    At this point, what we would do if you were doing this for real is just print out your itinerary. You would select ''Electronic Ticket'' and you'd be good to go. We would also enable you to download your itinerary directly into your desktop calendar, or one of your aides might do that for you. And if you had a palm top, like a Palm Pilot, your information, all your itinerary details would be available for you.

 Page 41       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    And then finally, on your way to the airport, one hour before departure time, we would send you or one of your aides a page to let you know whether your flight is on-time, delayed, or canceled, the gate assignment for your flight, and the weather in Knoxville or at your destination.

    So I just wanted to give you this brief illustration of the power of the Internet, the power that we're placing at the hands of the customer, and the importance of this advancement in the delivery of information to customers which makes the level of competition in the industry that much more favorable for the benefit of the customer.

    Thank you, Mr. Chairman.

    Mr. DUNCAN. Well, thank you, Mr. Williams. That was very impressive. In fact, I have flown that flight on many occasions and I have tried to get seats in row 9 because it has more leg room, but I've never gotten that cheap of a rate before so I need to find out how you're doing that.

    We'll go ahead, Ms. Reagan. We've got a vote going on, but we'll go ahead with your statement and then we'll have to stop to go take a vote. You may begin your statement at this time.

    Ms. REAGAN. Thank you. Chairman Duncan, Congressman Lipinski, and members of the subcommittee, thank you for holding this hearing and for giving me the opportunity to testify about the unfair anti-competitive situation facing independent travel agencies today.
 Page 42       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Chairman Duncan, you clearly summarized our position very well, and we appreciate your understanding.

    I am Phyllis Reagan, president of STAG, the Society of Travel Agents in Government. STAG represents approximately 400 industry suppliers, mostly small businesses that employ thousands of people nationwide. The unfair and anti-competitive situation we face in our business today is one that is shared by thousands of independent agents all across this country who run small businesses, more than half of them are owned by women and minorities.

    Mr. Chairman, the major U.S. airlines are using unfair and anti-competitive practices to increase their own profits and squeeze independent travel agents like those I represent out of business. Eleven airlines, including the seven majors, jointly own their own travel agency, SATO Travel. The major airlines are repeatedly cutting commissions paid to independent travel agents while at the same time they are continuing to pay their own agency its total operating costs. As a result, independent agents cannot compete with SATO on an equal basis for Government and commercial business.

    Please let me be very clear from the outset: I believe in competition and in the free market. We're not looking for special treatment or any other kind of advantage. All we want is a fair opportunity and a level playing field. But the major airlines have given their cell phone travel agency a huge and unprecedented competitive advantage. I ask you to do whatever you can to stop the airlines from playing favorites and undercutting the true and fair competition in the travel service arena.

 Page 43       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    The Scheduled Airline Traffic Office, or SATO, was initially established by the airlines in the 1950's to provide services to the Federal Government. It held a virtual monopoly on the $4 billion annual business until Congress directed that the Federal travel services market be open to competition in the mid-1980's. In recent years, it has become clear the airlines are seeking to return to monopolistic and non-competitive dominance of the past.

    In 1994, SATO Travel entered the private market and has successfully pursued significant commercial accounts while maintaining their dominant market share in the Government arena. To demonstrate the huge advantage it has in this market, SATO Travel corporate sales increased from $7 million in 1995 to $300 million in 1997, an unprecedented increase of over 4,000 percent. At the same time, the airlines have twice unilaterally cut and capped the commissions they pay to independent travel agents from 10 percent of the value of all tickets to an effective rate of 6.9 percent or a maximum of $50 per round-trip. But the airlines did not apply these caps and cuts to their own agency. SATO was compensated directly on the basis of the costs it incurred in providing travel services. This means that SATO Travel is paid almost twice as much by the airlines as the independent agents doing the same services. To give SATO Travel this unique ability to offer prices, services, and rebates to consumers without charging them a fee, something no other travel agency can do, and as a result of the unequal methods of compensation, SATO has the ability to win any contract it desires and no other will be able to compete.

    At this point it's fair to ask why should Congress care? First, this will lead to the closing of hundreds, if not thousands, of small business all across the country and result in people losing their jobs through no fault of their own, but rather because of the unfair predatory practices of major airline corporations working together. This just isn't right. The long-term effects will be held by all consumers in terms of services and prices if the independent agent is driven out of the business and only SATO and the airlines remain standing. Both SATO agents and the in-house airline reservation agents are unlikely to provide the unbiased, complete market research that an independent agent can provide and does provide.
 Page 44       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    The airlines have demonstrated time and time again that when they are allowed to dominate a position with no competition, they rise prices and cut services. If these airlines are not required to treat all travel agents equally, the end result will be to force travelers to rely on SATO and the airlines own in-house agents—to rely on their own in-house agents, excuse me. Consumers will be losers because they will have less access to complete and accurate information on options, prices, and those options are sure to decrease while the prices will surely increase.

    Again, we're not asking for special treatment. We're simply asking for equal treatment and a true chance to compete in our chosen business on a level playing field. The airlines should not be allowed to pay independent agencies less than they pay their own agency for the same services rendered.

    Thank you, and I'd be happy to answer any questions you may have.

    Mr. DUNCAN. Well, thank you very much. We will have to break at this point to go cast this vote. And we'll take a brief recess at this time. Thank you.

    [Recess.]

    Mr. DUNCAN. Will the panel retake their seats once again? We are now also pleased to have been joined by Mr. Rahall and Dr. Ehlers and we've had the statements by all the members of this panel and we'll now get to the questions as soon as everyone has a chance to be seated. Let's see, is Mr. Ruden—is he—I guess he's momentarily stepped out.
 Page 45       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    All right, Mr. Ruden, you know that on the next panel we'll hear from the Airlines Reporting Corporation. You have in your statement that that corporation is being used to unfairly compete with travel agents. Would you explain how that's being done?

    Mr. RUDEN. Yes, sir. I appreciate the opportunity to do that.

    There are a couple of things going on. Over our objections, the Airline Reporting Corporation is now engaged in the practice of accrediting corporate customers and providing them with what has come to be known technically as standard agent's ticket stock, the type of ticket stock that you would get as a passenger if you dealt with a travel agent. They will tell you that they've imposed higher standards on these folks than they have on travel agents and so on, in order to, in some sense, level this field. But we don't understand why it is necessary or desirable for the airline industry to collectively designate customers, many of whom are doing business with travel agents today, as special customers who are entitled to deal with the airlines through this collective mechanism.

    More seriously, in my judgment, the Airline Reporting Corporation is now issuing something called an electronic service provider number. At least one airline has informed the travel agency community that these numbers, which are in addition to the agencies' ARC number and in addition to the ticket number and any passenger reservation numbers which are assigned to transactions, must be attached to all records of transactions that originate on the Internet.

    Now there isn't any apparent purpose for these numbers that we can detect or understand—and we've met with ARC about this—except to permit the airlines to enforce their non-compensatory, discriminatory commission policies with respect to Internet transactions. And, in our judgment, the airlines who manifest themselves as ARC collectively—it's a joint enterprise of the airline industry—have no business doing anything that even remotely touches on commission practices. We've informed ARC we regard this particular activity to be extremely serious and we intend to pursue it in appropriate government places.
 Page 46       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    So those are two examples of ways in which ARC abuses its collective power to, in our view, treat agents unfairly on behalf of the airlines.

    Mr. DUNCAN. Well, let me ask you this: You know, almost everybody says that they don't want us to reregulate the airlines, but then in the next sentence they ask us to do something that comes very close. Do you think that we need some reregulation at this point? Do you want us to do some type of regulation in regard to prices or——

    Mr. RUDEN. Let me answer that unequivocally, Mr. Chairman. ASTA is not asking the Congress of the United States to reregulate airline prices, airline routes, or airline services. We're not asking the Congress to set travel agent commissions. What we are asking you to do is to order the Department of Transportation, which has the expertise and, we believe, the resources, to put those resources to work investigating these issues under section 411 of the Federal Aviation Act, which deals specifically with unfair competitive and deceptive practices. The Department is the proper body to do that investigation and make the determinations under the statute.

    They're focused entirely right now—and they've always been focused—on the issue of interairline competition. And it's understandable, to some extent, why that's so, given the history of the statute and so forth. And what they're doing is important. This predation guideline case is an important case.

    The position we took there, by the way, was maybe it's not so important to have guidelines. Maybe what they ought to do is cut to the chase, if they've got a case—and they say they have several cases—bring one. Sue an airline for unfair practices and make policy the old-fashioned way, case by case, and the airlines will then learn what the rules are, if they don't understand them already.
 Page 47       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    And let's take some of the resources and put them to work on the distribution side of the problem because the distribution side is where most of the traveling public interacts with the airline industry. And if they are allowed to subvert the distribution system, the public's going to pay a terrible high price. They're not going to be saved by the Internet. It's going to be made worse by the Internet.

    Mr. DUNCAN. All right.

    Mr. RUDEN. And that's all we're asking you to do right now. If the Department were to not proceed in good faith, which I think is hard to imagine, we'd be back to Congress asking for something more specific.

    Mr. DUNCAN. Okay. Ms. Kelley or Ms. Hayes, let me ask you—or even Ms. Reagan—in 1996, just 2 years ago, the GAO reported that several airlines, primarily smaller airlines, had told them that they had been forced to discontinue service in some cities because many travel agencies, particularly major travel agencies, would book passengers only on dominant airlines in order to get override commissions. Do you agree with the GAO that that is a problem, or has been a problem?

    Ms. HAYES. It's your larger agencies and consortiums that are getting the override commissions and, yes, they will put clients on particular airlines to get the commissions. In areas like where I am, we don't have as many of the larger agencies and consortiums to deal with and our air service is so limited that we don't have a lot of these airlines that you're talking about. All we have are the big guys coming in and so we have to use what we have. But, yes, I think it's going to be a real problem.
 Page 48       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Ms. KELLEY. In central Pennsylvania, where I'm located, I have to use an airport from Harrisburg. We had, at one time, predominately just U.S. Air. We had several small entrants come in, who are no longer there. They were driven out, not because the travel agents were no longer booking them. They were driven out of town because the airline in town dropped elective rates for the airfares between the cities that these particular carriers were serving to such a level that it was below anyone's costs, with the explicit purpose of driving the small entrants out of business.

    It was not due to the travel agents not booking them. The travel agents were booking them. We have to book what our consumers ask us. We have too many other travel agents in our area to compete with, so if we don't booked what is asked of us, we'll lose our clients to the other travel agencies, if not already to the airlines.

    Mr. DUNCAN. Let me ask you something else. What did you all think about Mr. Williams' presentation?

    Ms. KELLEY. I thought Mr. Williams presentation was excellent. I wish we could have had a little opportunity to have our own full service agency, and Lynn also has one, where we would have our computer reservation system in front of us. I have one airline—I believe she uses another one—they are faster. We could give you that information a lot quicker than the point and click.

    I will also say, however, that Mr. Williams' site is far more efficient than what you will get if you would compare other airline Internet sites. So I think that it's a definite plus for him but the small independent travel agent still has one other step that we do save and that's time.
 Page 49       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. DUNCAN. Well, I have some more questions but I'm going to go at this time to Mr. Lipinski.

    Mr. LIPINSKI. Thank you, Mr. Chairman. Mr. Williams, are you in competition with the local travel agents?

    Mr. WILLIAMS. Mr. Lipinski, we're in competition with all travel agents and anyone who distributes travel services, be they airline tickets, car rentals, or hotels, to the public. So we're offering a service in the free enterprise system to customers and, yes, we're in competition with other online travel agencies as well as other traditional travel agencies, just as every traditional travel agency is in competition with every other one.

    Mr. LIPINSKI. Are there any travel agencies that utilize your services?

    Mr. WILLIAMS. I'm sorry. I didn't hear you.

    Mr. LIPINSKI. Are there any travel agencies that you know of that utilize your service at all?

    Mr. WILLIAMS. There are a variety of services on our website, some of which are very suitable for use by travel agents for information services for their customers such as finding out the maps of different destinations or getting turn-by-turn driving directions or tracking flights literally in mid-flight through the on-route tracking service that we have on our website. There are a number of information-related services that travel agents would benefit by availing themselves of and offering to their customers merely by going to our website and printing that information out for the benefit of their customers. So, yes, we do believe that there are thousands of travel agents across the land who are doing that.
 Page 50       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    We don't ask them to self-identify themselves, as the airlines would have the online travel agencies self-identify ourselves, to perhaps discriminate against them in any way. We welcome them as we welcome any of the general public to our website to take advantage of the many services we provide.

    Mr. LIPINSKI. Do you know of any travel agency—anyone else know of any travel agencies that utilize Mr. Williams' service?

    Ms. KELLEY. We would be less likely to utilize the service because we have to tailor our efforts to those areas where we're compensated. In actuality, we are competitors. We are both offering travel—full travel services to our clientele and I am looking for some way to earn some money for the services I'm offering, such as Mr. Williams is also offering—or looking for ways to earn money for the services that he's offering. So I don't know of any. I don't know about you, Lynn.

    Ms. HAYES. I don't know of any that's using the service. I know of people that have clicked on and surfed his web and then brought the information to me and asked me to write a ticket if I could match his price. So they're still using their independent travel agents at home.

    Mr. WILLIAMS. Mr. Lipinski, I would add, if I may——

    Mr. LIPINSKI. Yes, you may.

 Page 51       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    Mr. WILLIAMS. Thank you. I'm sorry. One of the members of our association, Internet Travel Network, is an online travel agency that offers its services specifically for independent travel agencies to enable their customers to book services, book tickets on the web and have the local travel agent deliver the ticket to the customer. So there are members of our association who are, in fact, in the business of working cooperatively with the independent travel agencies as well.

    Mr. LIPINSKI. I have a question here for anyone on the panel that might want to answer it. How, if at all, could increased airline control of the ticket distribution affect the consumers' access to discounted airfares? Anyone want to tackle that question?

    Mr. WILLIAMS. If I may.

    Mr. RUDEN. You want to go ahead?

    Mr. LIPINSKI. You go ahead. And he'll clean up.

    Mr. RUDEN. If I understand the question, it's: how can airline control of the distribution system impact consumer access to lower fares? One of the ways that that could occur is that the airlines will simply prohibit travel agents from selling certain kinds of fares to the public in order to channel the public's business through sources and channels that they prefer it to go through. And all of the things that I enumerated in my testimony, I believe, are evidence of the existence and operation of market power, which is the capacity of a firm to control price and output.
 Page 52       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    The airlines could not do the kinds of things they are doing to this distribution system if they did not possess market power, as it's defined by the antitrust authorities. Whether it rises to the level of antitrust investigation or antitrust violations is another question, but there is no, I think, legitimate contest that they're exercising market power and that's why section 411 of the Federal Aviation Act is so appropriate as a vehicle to embrace an investigation of those issues, because under section 411, you don't need antitrust violations.

    Mr. LIPINSKI. Mr. Williams?

    Mr. WILLIAMS. Thank you. I think the principle that we're—that I'm representing here is that free and unfettered access by the consumer to all of the information available to them is what's in the best interests of competition. For example, one of our member companies in the Interactive Travel Services Association, Preview Travel, has very clear statistics on the percentage of their travel bookings that are made by their customers on Reno Air, which is twice the national average of market share that Reno Air enjoys generally. So that is a very pointed example that, when the customer has free and unfettered access to all the fare and service information on a comparative basis that is not filtered or biased or excluded in any way, the customer finds a way to find the service that best meets their needs. And in the case of Preview Travel, their customers are beating a path to Reno Air's door at twice the rate that Reno Air is enjoying nationally.

    So I think the point is that if information is constrained by the airlines directly, we will see just that type of cutoff of access for the customer.
 Page 53       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. LIPINSKI. Thank you. Let me ask the panel in general—I realize my red light's on, but I'll make it a quick question; make it a quick answer if possible—how did the travel agencies wind up originally selling so many airline tickets? Why didn't the airlines simply sell their tickets directly to their own company's corporation?

    Mr. RUDEN. The simple answer, Mr. Lipinski, is that when deregulation occurred the number and complexity of the airfares offered by the airlines multiplied geometrically and the public turned to travel agents who were the only source in the marketplace then and today who have all the fares, all the services, all the airlines, and the only people who understand the tricks and the games that are played with those things and can explain it to the public and assure them, for example, that they don't have to take, if they don't want to, a three-connection flight. There are almost always better ways to get there and that's what travel agents deliver and that's why the public has given them their patronage.

    Mr. LIPINSKI. Prior to deregulation, were most of the airline tickets sold directly from the airline to the consumer?

    Mr. RUDEN. Yes, sir, the majority were sold by the airlines. There were typically two or three fares in place in each market because the government regulated and set prices and nothing else was allowed. And, in the overwhelming number of markets, you had, at most, one and occasionally two and there may have been one or two instances of three airlines, with almost no movement. So it was a very simple marketplace for the public to deal with. After deregulation, it was a nightmare and remains one.

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    Mr. LIPINSKI. Thank you very much. Mr. Williams, we will catch you on the next round. My time is up. Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you, Mr. Lipinski. Dr. Ehlers.

    Mr. EHLERS. Thank you, Mr. Chairman. The Starr report intrudes even in this committee.

    [Laughter.]

    I apologize. I also apologize I was not able to make the first—to hear the testimony. But I do have a few comments to make and I'd basically ask the panel to correct me if my impression is wrong.

    It seems to me that, first of all, the—what you are selling is a service, not tickets. That's as a consumer and I consume a lot of airline tickets and miles. It also seems to me that the Internet is changing a great many businesses, including yours. And I would think—I still use a travel agent even though I now have to pay $5.00 for every ticket I buy, because it's worth it to me. I get better services from a travel agent than I do from ordering from the individual airline, plus I think one of the most important services of the travel agent is the comparative shopping. If you want to do that with all the airlines, you have to make 10 calls or get on the Internet and look at 10 sites to make the comparison. So I think the travel agency is offering a valuable public service and it's worth $5.00 to me to find the lowest fare and the best times and so forth. And that's what you should be advertising.

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    But also, as I say, the Internet is changing a lot of businesses, not just yours, but a lot of them. In fact, I can't—it's hard to find one that isn't being changed by it. I know if I were operating a travel agency, I'd be looking very hard at setting up my own website to serve my own companies in my own city. I would also be talking to the association or associations regarding travel agencies and saying please set up a website that we can link to which will give us all the information that Mr. Williams is providing his customers, because you can't do it as an individual travel agent. It's too expensive to provide that and keep it updated. But your—as an association, you can do that and every agent could link to it and get all that information and then simply place the order with you.

    It's a very competitive business and it's going to remain that way. And it seems to me that's the direction the industry is going to take in the future. You're going to have the airlines competing for business directly. You're going to have Mr. Williams and other Internet operators competing for it directly from central locations. You're going to have to meet that competition and the way to meet it, I think, is to use the Internet and not object to it. So I'd welcome any reactions to my analysis of this.

    Ms. KELLEY. Can I answer that on behalf of travel agents?

    Mr. EHLERS. Yes.

    Ms. KELLEY. I represent CTIP, sir, and it's over 17,000 travel agents. Every one of us belongs to a consortium, franchise, or coop. Every one of those consortiums, franchise, or coops have their own website. So we do have our websites. We all have access, one way or another. The travel agency community is embracing the Internet. We are being forced to whether those who have been in the industry a lot of years want to or not. So we are using the tools that are given to us and the tools that are coming online daily.
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    What we are objecting to is the fact that the rules are different for us in selling airline tickets than the rules are that are set by the airlines themselves. The airlines set the rules. For instance, on back-to-back ticketing, which I'm sure many of you are familiar with, you cannot sell a round-trip ticket if you don't have a Saturday at a decent airfare. So it is probably unlikely that you gentlemen would like to spend all your time in Washington. You might want to fly in on Monday, fly home on Friday so you can spend Saturday and Sunday with your families at home. So you're flying two tickets so that you're showing the Saturday night overstay. You'll buy one for Monday to come back the following Friday. You'll buy one from the Friday, to return the following Friday.

    That is not legal, in the terms of the airline, for a travel agent to book and sell you that type of ticket. However, you can call the airline direct, you can get on the Internet yourself, and you can book some of these tickets. The air police does not come after you for going to airline and booking it direct and doing something that they do not allow us to do. They come after us. They charge us a fine, a penalty for doing such, and then they antagonize our clients when they get to the airport by saying, well, your travel agent knows better. This is illegal. There are other types of instances of fare structures that I could give you that do the same thing.

    And so all we're asking, sir, is we can compete, yes, we have the service; we know we have the service. We can compete, based on service. We cannot compete if the rules are different. The rules of the game are different from us than they are for the airlines that have imposed those rules on us.

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    Mr. EHLERS. I appreciate that and let me just say I solve the problem by flying from Washington to my home every weekend and flying back so—instead of flying from my home to here and back.

    But the—let me clarify what I'm talking about, the use of the Internet. I'm talking about each agency setting up their own website. But you need the collective information because you cannot afford to maintain your own websites. So the customers, instead of going on the web, Mr. Williams, or to the airlines, will go online to you and say this is what I need, and order the ticket. Maybe you're doing that already too. Fine.

    Mr. RUDEN. Everything that you've described is happening in our industry. And I think the pace of change in response to the Internet is increasing. There's no reason for travel agents to fear the Internet. This Jupiter Company that you heard referred to earlier in the testimony probably has the best handle on the numbers. Their projections for total sales to travel on the Internet by the year 2002 are $10 to $12 billion. Travel agents in 1997 sold $126 billion. And many of those agents are going to be part of that $12 billion on the Internet. So it's not the Internet that's the problem. It's the fact that the airlines are trying to shut the travel agency community out of the Internet so they can have it to themselves.

    Mr. EHLERS. Thank you.

    Mr. DUNCAN. Thank you very much, Dr. Ehlers. Mr. DeFazio.

    Mr. DEFAZIO. Thank you, Mr. Chairman. Mr. Williams, I have some questions because I've been trying to deal with this issue of transparency of fares. I mean, you'd only have a perfect market—supposedly we have this competitive perfect market, but we know that the consumers don't have the information they need in this idealized version of the market. You seem to be meeting some of that need.
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    But my question to you would be: How good is the information you get? Where do you get it from the airline? And how often is your information refreshed? As I understand load management, they can be virtually on an hourly or bi-hourly basis changing fares. How good is the information you're getting that you're using in your system to come up with that probable lowest fare?

    Mr. WILLIAMS. Well, you're quite right that we're dependent upon the degree and the accuracy of the information that is made available through the reservation system. I can tell you that we're using the same reservation system that travel agents generally are using throughout the United States and the world. We happen to be connected to the Worldspan CRS or reservation system, and our software is designed to be able to also connect to SABRE or Galileo or any of the other systems that travel agents rely on day in and day out to provide this type of fare and availability of information to customers.

    But you're quite right. The airlines and the hotels and the car rental companies do have the opportunity to manage the availability of that information in the reservation systems themselves. But we are at no greater or lesser disadvantage at conveying that information to customers than any travel agent because we rely on the same source of information, the common reservation systems available to all travel agents.

    Mr. DEFAZIO. Okay, well I understand that and I have a concern both as it goes to you and/or the travel agents in terms of the lack of transparency. And I've been struggling with a way to resolve that in legislation. Now I'm not as much of an expert in this area as some others, but, for instance, in the area of energy the way that was resolved in wholesale energy deregulation was that every transaction of wholesale energy had to be posted real-time on a net site or website so that people could then use that information in placing their own bids. And I've been trying to think of way, without being overly burdensome, to require some additional transparency.
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    And I would invite you or anybody else that has an idea of how we could require that sort of transparency to offer ideas because that's the key to me. I want to empower consumers. I want to have a level playing field. And then, whether people choose to go to your website and do their own search or they want to go someplace else that has much more raw data on it and develop their own program and do a search or they want to use the services of a travel agent. For instance, as I get your system, you are primarily providing e-tickets, unless people work through a travel agent——

    Mr. WILLIAMS. Well, actually, just to correct that, we offer e-tickets as well as paper tickets. So if you want a paper ticket——

    Mr. DEFAZIO. Yes. I don't think any consumer should go to the airport without a paper ticket.

    Mr. WILLIAMS. Well, that's an interesting——

    Mr. DEFAZIO. The way I have been treated, if the airline goes on strike or the airline goes bankrupt or they just happen to have lost you in the computer. I have trouble when I've got my ticket, my booking, and my seat. I still have trouble when I fly, and I'm a premiere executive on United and they still say, oh, gee, sorry about that. So, I just don't believe we're ready for that. But how can we get to this transparency so everybody has a level playing field, with all the information they need about what is truly the lowest fare available, real-time?

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    Mr. WILLIAMS. Well, I think what you're really addressing is the load management——

    Mr. DEFAZIO. Right.

    Mr. WILLIAMS. ——value management, yield management systems that the airlines have development to a fine art over the last 5 to 10 years and that's a much broader and different topic than the one we came prepared to address today.

    Mr. DEFAZIO. Okay, well I would invite anybody who's there and I see someone else wants to respond to either respond now or later with suggestions on how we could do that. Yes, ma'am.

    Ms. KELLEY. I don't have a suggestion, but it goes back to an earlier question we had on our ability to compete in that these systems that we have to have in our agencies that we pay for, we rent, or we buy, or whatever, the information that is furnished us is furnished by the airlines. The airlines now are holding back certain fares that you can call the airline direct or you can book on their websites that is not available to Mr. Williams, Ms. Hayes, Mrs. Kelly, Ms. Reagan.

    Mr. DEFAZIO. Okay. That to me is sort of the fallacy of this free market that we're supposedly in. You know, the airlines say, ''no, we don't want regulation.'' But it's not a truly free market, in a classical sense because consumers don't have all the information they need to make rational choices and the airline consumer information project or whatever it is called—that group—did a survey in California of city fares on 1-day, over a 24-hour period in January and they came up with fares that varied as much as $700 to $800 for what was supposed to be the lowest-priced ticket on the same city fare on the same day.
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    Ms. HAYES. That's why we're——

    Mr. DEFAZIO. And that's disturbing.

    Ms. HAYES. That's why we're asking for a level playing field. Give us all of the prices. Give us everything so that we can be competitive.

    Mr. RUDEN. Historically, Mr. DeFazio—if I may, briefly—historically, I think this industry, the travel agency component of this industry, has operated as competitively and as transparently as almost any industry one can think of in the country. Any other product you go searching for you have an enormous task on your hands, even in a relatively small community, to be sure you've checked out every price and every option. Most travel agencies in the United States for the last two decades have been able to provide consumers all the information that there is that's reliable, recognizing where it came from, and consumers have had the capacity to double-check on those folks. So it has worked very well. It's that very fact that we are trying to sustain and continue for the benefit of the public in these proceedings.

    Mr. DEFAZIO. Well, now that we've all agreed on that and we've talked about transparency, let me ask another question, if I could, Mr. Chairman. I think also that it would be fair that there be a qualification or disclosure made to clients about any incentives or overrides that are offered for booking on a particular airline. Would you agree with that?

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    Mr. RUDEN. No, sir, I'm afraid I would not.

    Mr. DEFAZIO. All right. So we can have transparency, but if I'm getting an extra bonus for putting you on this airline, then we don't want to disclose that.

    Mr. RUDEN. When the point comes that someone could show a meaningful harm to the public having occurred from dealing with travel agents on this basis—and I could go on for a long time about the issue whether those big companies that we talked about earlier can or cannot take care of themselves. It's inconceivable that those companies allow a travel agency to distort their buying preferences so the agent can make a couple of extra bucks on overrides. Most of the time, the override money goes to the company anyway and the agent nowadays is on service fees, so the issues just don't come up. Small businesses would have to be certifiably insane to risk the future patronage of their customers, which they come by with great difficulty and treasure the repetition of vitally, they'd have to be insane to risk that for a few bucks of override commission. And the agents who are sitting here can tell you how it works in practice.

    I understand about the GAO reports. They've been publishing for years. But there's no evidence——

    Mr. DEFAZIO. But how can—excuse me, but how would they know? If I'm flying out of New York City and you say you're giving me the lowest fare, but you're actually getting a TACO for one particular airline and maybe it's close to the lowest fare, but not quite and it's otherwise convenient to make, how am I ever going to know that you didn't, on that day, when the fare changed 12 times, give me what was absolutely the lowest fare on that day? I'm never going to know that so there is no risk.
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    And I don't see what would be the problem with a simple disclosure saying, you know, if I offer you a United booking, you should know that United Airlines pays us, a special commission if we book more than 50 percent of our clients on United on a monthly basis. Now that takes about 15 or 20 seconds. You could do it just before you book the ticket or whatever. What would be the harm in that? What's the harm in saying that to a consumer?

    Then the consumer has all the information they need and then they say, ''are you really giving me the lowest fare or are you putting me on United'' and you say, ''no, I'm giving you the lowest fare, it just happens to be United, regardless of the override.'' Now what would be the harm in that?

    Mr. RUDEN. Well, one of the harms is that you've injected into this transaction—which ultimately, I suggest to you, must be based on trust between the customer and the provider of the service—you've injected into the proposition, by law, to this industry only and to no other that I know of in the United States, a requirement that the agency disclose information which will appear to make the agent untrustworthy to his customer. And what will then ensue, if the customer's willing to go through the trouble of it, is a lengthy conversation, more computer checks going over the same information.

    And the fact of the matter is, the way this industry operates—not because travel agents drive it, but because of the way the airlines drive it—the information is constantly changing. And that's one of the reasons why you see on TV these reports where people say, I called up and they told me the fare was $400; I called back and it was $1,000 and I called someone else and it was $700. All of those people are telling you the truth because they're looking at the computer system that the airlines only control and that's the information it provides at any particular moment.
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    It's all driven by their yield management programs and, unless the government's prepared to go into that, in the absence of evidence of consumer harm—as I respectfully suggest, there is no evidence that any consumer or meaningful number of consumers has ever been damaged in any way by dealing with travel agents for this reason or any other reason—if the government's prepared to go into that, we're talking about a massive change in the relationship between the government and the airline industry which we're not prepared to advocate.

    Mr. DEFAZIO. Well, if I just could——

    Mr. RUDEN. In the absence of some showing of harm.

    Mr. DEFAZIO. In the GAO report, Frontier said that with the cap on travel agent commissions—which is the opposite of what you said earlier—''Incentive overrides have become dearly important to travel agents. One of our competitors in North Dakota is telling agents they can only receive overrides if they book more than 90 percent of their flights on it. How can we compete when 90 percent of travel agent customers are steered away from us?''

    Mr. RUDEN. With all respect, Mr. DeFazio, it doesn't follow from the fact that an airline said you can only get overrides if you do this, that agents are getting overrides and, in fact, doing that.

    Mr. DEFAZIO. Well, maybe—how about if we just outlawed overrides?
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    Mr. RUDEN. Well, it's kind of hard for me to imagine the United States of America injecting itself into this industry ——

    Mr. DEFAZIO. Okay, well then we're going one way or another. I'll tell you, I'm going for disclosure or we're going to outlaw it. But, I mean, to be getting an incentive which is not disclosed to a consumer and then you're telling me no one's ever been harmed is a global statement that I can't accept knowing that every industry has good and bad apples or people who are under differing financial pressures. So I'm glad we agreed on the first thing and we'll just have to disagree on this. My time's expired. Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you, Mr. DeFazio. Mr. Boswell.

    Ms. KELLEY. Excuse me, Stewart Godman, the co-chair of CTIP, would like to respond to Mr. DeFazio——

    Mr. DUNCAN. I'm sorry. We can't. We've got another panel after this, and—Mr. Ehlers, do you have any other questions?

    Mr. EHLERS. No other question, just a comment. I found this last interchange amusing because it sounds to me like you're saying you've got to regulate the airline industry because we really don't trust them, but don't regulate us because you can trust us.

    Mr. RUDEN. I don't think we're advocating regulating anyone. If that impression has been given, I hope we can correct that. We're not asking anybody to be regulated. What we're asking is that the government, through the Department of Transportation, conduct an investigation into these practices.
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    By the way, the Department is already investigating override commissions and what we have said in response to the announcement that they were going to do it was go right ahead. The Department of Justice has already conducted a thorough investigation of this very subject and closed the investigation without action. The DOT says, well, they'll operating under a more restrictive statute. We'd like to take another look. And our answer is ''fine.'' Go right ahead and take another look. We don't believe you will turn up anything that will be cause for concern for the government. If they do, they will. But we're not afraid of that investigation. It's going on right now.

    Mr. WILLIAMS. If I may, we at the Interactive Travel Services Association believe that this is one of the very reasons why online access for consumers to all of the information, all the fares and schedules, unmasks and debunks any concern anyone has about a filter between the information that's available, be it fully and unfetteredly available, as the Congressman pointed out, and the customer. So on our system or any of our member's systems, there is no one standing between the customer and all the fares, all of the schedules. And the customer can make their informed judgment based on all the information in front of them. So that that is in fact the transparency that the Internet brings to this whole process.

    And the concern with the unlevel playing field of offering higher commissions to traditionally booked travel versus online booked travel is that it tends to take resources and investment and incentives away from an industry that is, in fact, providing the greatest degree of transparency available today to customers. And that's to show them all of the fares and all of the schedules and let them be the judge.

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    Ms. KELLEY. But readdressing this transparency, I can't stress strong enough that we, as small businesspeople, have, in our agencies, computer reservation systems that are furnished to us by the airline that we have been told, time and time again, have every air fare and every piece of service in it. And we have documented proof now that there are air fares that are not being given to the travel agent in our own reservation sys—in their own reservation systems that are supplying to us.

    And we're saying, if you want us to have a disclosure—my agency, in fact, for years had a guarantee on the bottom of our invoice saying, we guarantee the lowest air fare. We had contracts with our corporate accounts saying, if at any time a traveler from your company determines that we did not offer you the lowest air fare, we will refund you the difference. We had to take that off there this past year because we no longer can say that because the airlines that are providing our reservation systems are not providing us with the airfares that they're offering on the Internet or to the general public. We need to compete fairly.

    Mr. DUNCAN. Let me ask somebody on the panel that—why do you all think that the Justice Department didn't find a problem with SATO when they looked at it a couple of years ago?

    Mr. RUDEN. Remains one of the great mysteries of the ages——

    [Laughter.]

    Mr. RUDEN. ——as to why the Department of Justice didn't find a problem. And I say that very seriously. There's nothing, to my knowledge, in American industry that quite parallels what goes on with SATO. There's no market failure going on. There's no place the airlines can point to the market and say, well, travel agents have let us down there or there's not enough agency service to accommodate the needs of corporate America.
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    They can't say that. Never tried to say it. And yet they're managing a joint sales operation to compete with agents. They have other devices for acquiring information about travel agents that in a normal marketplace they would not be entitled to get. If they sat around a table like this table and exchanged the kind of information that they routinely acquire from the computer reservation systems, I think the Department of Justice would want to lock them up and would be right to do so. But they're allowed, under DOT regulations right now, to provide to each other with all of the details of the operation of every travel agency's business not only on their own lines, but on the lines of their competition.

    Mr. DUNCAN. Do you think that—do you all think that Congress should require the airlines to divest themselves of SATO and get out of this? Is that what you really want?

    Mr. RUDEN. The approach we've taken maybe is a softer approach. And step number one is to try to get—persuade Congress to order DOT to look into this and—under their statute, as opposed to the Sherman Anti-Trust Act, and find out how it operates and see the anti-competitive ways in which it's used and make a decision. If I thought it were possible to get Congress to do it directly, I'd certainly advocate that in a heartbeat. But we have chosen, because we don't believe Congress is prepared to do it as the first step, to ask that this government agency, which has the skills and the resources and experienced people to investigate this, perhaps differently than the Department of Justice did.

    Justice, typically, looks for Sherman Act violations when they do these examinations and maybe DOT will take a different perspective at it if they can be motivated, or directed in this case, under the CATI Act, to do the job.
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    Mr. DUNCAN. Let me ask you something else. I think almost all Americans root for the underdog and almost all Americans probably root or prefer small business over the big giants and I think most of the Congress is that way. And so I think there's a lot of sympathy for small travel agents and mom-and-pop type operations in the travel agency business and other businesses. But the staff of the committee's given me a report here that says that travel agents still sell 80 percent of all tickets and that agency sales increased 25 percent to $126 billion it says in 1997 and the percentage of agencies earning a profit increased from 71 percent in 1994 to 76 percent in 1997.

    And, do you all have—are these statistics wrong? Are there small travel agencies that are going out of business at a rapid rate? I mean, is it because of the competition from SATO and are the airlines, do you think, putting small travel agencies out of business? And, if so, I mean, do you have statistics that say these figures are wrong?

    Mr. RUDEN. Mr. Chairman, those figures are probably right. However—and I will just hold this up so you can see it. We'll provide this to the committee for the record. I've got a whole series of charts like this. This is a chart showing retail deletions, voluntary exits from the industry, since January of 1994. That straight line is the trend and you can see it rises at about a 30 degree angle. If, on the other hand, you look at the home offices, the owned companies in the business since January 1994—and I will supply this to the committee for the record—you will see that the line goes down at about 40 degrees, the trend line. These are computer-generated trend lines. I wouldn't deem to do this kind of work myself. The same thing is true with respect to branches in business and with respect to firms like these folks, the independents, one-office locations. So that is what's happening to the industry.
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    [The information follows:]

    [Insert here]

    Mr. RUDEN. There's no question that sales are good. Business is booming across the board because the public loves what travel agents do. But the airline industry is not prepared to pay them a compensatory wage and, combined with these other practices they're using, we believe that what's going on is effectively a plan—I'm not alleging a conspiracy—but, in unison, they have found a way to contract and corral this industry. Ultimately, it's not about the travel agents. It's about the public. It's about the information that they get. That's the message we're trying to give to the committee.

    What it's all really about, at the end of the day, is trying to get the public to be bereft of this source of comparative price information. And what will happen when that occurs—economic theory teaches it and practice shows it—people will end up spending more money. And the value of that possibility to the airlines alone is worth billions every year. And that's what we think this is really all about.

    And they're achieving it. This data shows—these are ARC figures. We didn't generate these ourselves by a survey. This comes right from the airlines—

    Mr. DUNCAN. Okay. I've got to—we've got to—let me see if somebody else wants to say something. Mr. Ruden.

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    Ms. KELLEY. Mr. Chairman. I'm sorry.

    Mr. DUNCAN. No, Ms. Kelly. You wanted to say something.

    Ms. KELLEY. Yes. The airlines for the last 12 months had the biggest financial growth in the history of the airline industry. So it only stands to reason, if they had a growth in airline sales, travel agents still must sell airline tickets. We still must get our passengers to the pier. We still must get our passengers to destination points. So we still must sell airline tickets. The travel industry rate of commission and cost of commission decreased for the biggest decrease in the industry in our history ever.

    Mr. DUNCAN. What was the rate of commission, average rate of commission, before deregulation?

    Ms. KELLEY. Ten point seven, I think, and it's now 6.9.

    Mr. DUNCAN. Well. Before deregulation it was——

    Mr. RUDEN. No, I'm sorry. I think she misunderstood what you were asking.

    Mr. DUNCAN. What was it before deregulation?

    Mr. RUDEN. It was a multi-tiered commission structure that averaged 7 to 8 percent I think would be a fair statement.
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    Ms. KELLEY. I thought you meant before the caps, sir. I'm sorry.

    Mr. DUNCAN. Mr. Williams, let me ask you this. You said—you gave us earlier—what?

    Mr. RUDEN. I'm sorry if I could add one thought. That commission rate was imposed by an airline cartel which had the government's approval and had antitrust immunity conferred on it. That was not a market rate. When the market came into play in the early 1980s, the rate rose to 10 percent very, very swiftly and stayed at 10 percent until February of 1995 when the caps were put in. So that early rate was not at all a market rate.

    Mr. WILLIAMS. And, whereas the current rate is 6.9 percent in general, for the online travel agencies, the rate is closer to 3, 2.8, 3 percent.

    Mr. DUNCAN. You gave some figures earlier that said that online sales were going to rise to $12 billion by what year?

    Mr. WILLIAMS. Two thousand two, sir.

    Mr. DUNCAN. Do you think that 25 or 30 years from now that people are going to be calling travel agents or are they going to be just going to their home computer and doing this? What do you think about that?

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    Mr. WILLIAMS. Well, 25 to 30 years is a long time in the Internet business. What we call Internet years are measured in months in normal time span. But in 25 to 30 years, I think that's the kind of time span that we could compare to what has happened in automated teller machines. I remember the days when I stood in line and got to the bank by 3 p.m. on a Friday to deposit my paycheck and held back my $50.00 to hold me over to 2 weeks later to get my next check. I don't do that anymore. There are new advances in technology that change the way people live their lives and do their daily functions and the Internet is certainly one that is tailor made for the travel business. It's an information business.

    The single greatest—Mr. DeFazio pointed out the difference between e-tickets, electronic tickets, and paper tickets. In my judgment, the single greatest threat to the existing distribution system of 30,000 travel agents dotting the landscape—twice the number of bank branches—is the electronic ticket. No longer being required to deliver a paper ticket, a tangible product to the customer, eliminates a lot of the tangible need for that adjacency, that physical adjacency. Just as we need distribution outlets to deliver perishable milk in a convenient way to customers, and groceries, et cetera, we have needed 30,000 or 35,000 locations dotting the landscape, twice the number of locations as bank branches in this country, to deliver physical paper tickets. Now, with electronic tickets—and 70 percent of the tickets that we sell are, in fact, electronic tickets because our customers, in contrast to the member, find them to be tremendously convenient—the airlines stand to gain tremendously from the lack of a need to distribute these tickets physically and can centralize that distribution with e-tickets. So I think e-tickets are a very large threat in this overall context and need to be part of that discussion.

    Mr. DUNCAN. All right. Mr. Lipinski.
 Page 74       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. LIPINSKI. Thank you, Mr. Chairman. I'll be brief. We have panels, obviously, come before us all the time and the chairman makes sure that we investigate every subject in depth dealing with aviation. And I have to say in all candor that your panel, like many of the other panels, come before us and tell us about problems in the aviation industry, problems that they are having. But then, when the chairman or myself or one of the other members of the committee ask about possible reregulation of the aviation industry, everybody runs away from those words.

    But, in reality, what you are advocating really is a certain degree of reregulation in the aviation industry. And I'm not telling you I'm opposed to that. I guess what I am saying, though, is that your panel and numerous other panels that we have had here have, without saying the words reregulate the aviation industry, they are, in essence, advocating that. Even, to a certain extent, are some of the airlines when it comes to international competition. It seems like every aspect of the aviation industry wants a certain degree of reregulation for their area of the aviation industry, but not for the rest of the aviation industry.

    I believe and I believe it very strongly that if we continue to go the way we are going with various areas of aviation feuding with one another because of the profit motive, we are definitely going to be driven back into reregulating the aviation industry. Now it may be advantageous to you to reregulate it. It may be advantageous to some other sectors to reregulate it. I don't know.

    But I guess what I'm saying to you and to anybody else in the aviation industry that's interested in this particular issue of competition, I believe that the Congress is moving back in that direction because panel after panel, witness after witness comes up here and tells us about problems in the aviation industry that, in reality, only the Federal Government and reregulation by the Federal Government can possibly balance the playing field.
 Page 75       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. Chairman, that's it for today.

    Mr. DUNCAN. Okay. All right, well, we do—we could go on at great length about all of this, but we do need to move on because we've got another witness that we have to hear from and so I wanted to, again, thank each of you for being here. You've all been very fine witnesses and we appreciate your being here with us today. Thank you very much.

    All right. At this time we're going to hear from Mr. David Collins who is president of the Airlines Reporting Corporation. Mr. Collins, welcome and thank you for being here. And as soon as you take a deep breath, I guess, and get you a cup of water, you can go ahead and begin your testimony and give us any statement that you wish to present at this time. And thank you very much.

TESTIMONY OF DAVID COLLINS, PRESIDENT, AIRLINES REPORTING CORPORATION

    Mr. COLLINS. Thank you, Chairman Duncan, and thank you, Congressman Lipinski, and members of the—distinguished members of the Aviation Subcommittee. I appreciate the opportunity to be with you today.

    My name is David Collins and I'm president of the Airlines Reporting Corporation and I use a travel agent for my personal travel needs. One thing I would like to open with is a comment on your opening remarks, Mr. Chairman, when you talked about the role of the small business in the distribution system in our industry. And I believe that the mechanisms of ARC has been one of the key reasons over the course of time why small travel agents have continued to be the backbone of the system.
 Page 76       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. Ruden made a comment earlier that deregulation could probably not have happened without the travel agency distribution system that's out there. I think there's a lot to that statement. But I'd also make a statement that without an organization like ARC, it would not be easy for small agents and small business to enter the market as easily as they do. Because what ARC does is it enables a travel agent to come to one place to represent the over 140 airlines that we represent, he just has to make one application to represent them. He deals with us centrally for all the needs, ticket stock, boarding settlement. It would be very costly to a business to have to set up relationships with 140 different airlines and for them to report and settle with all those airlines individually. So I think the ARC mechanism has been a mechanism over the years that has enabled small businesses to come into the market very easily.

    I want to highlight three points in my written testimony. And, in doing so, I'd like to stress that we're not opposed to the Department of Transportation conducting studies. After all, it's the mission of the DOT to make sure that the consumer has access to the most efficient transportation system. Rather, it's the premise of the need for the study I'd like to address, namely, the position that there is a real danger that the consumer will no longer have access to the professional, impartial advice of the travel agent.

    ARC is recognized as a neutral and credible source of statistical data in the industry. That data that we've been publishing does not indicate that there is a crisis and that the very existence of the travel agency is threatened. There is no question that some changes are taking place, but I would submit that those changes are evolutionary and in response to changing economic circumstances.

 Page 77       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    It's been recognized in the industry for some time that travel agents have an 80 percent share of the market. That is 80 percent of all airline tickets, both domestic and international sold in the United States, are sold by travel agents. During the past 4 years, ARC has continued to see growth, strong growth, in air transportation sales by travel agents. And this growth has paralleled the growth in the market. There is no evidence that there has been any decline in the travel agent's share of the market.

    Nor has there been any dramatic decline in the number of travel agencies locations. We have seen a turnaround in the number of travel agency locations which historically have grown year over year and, in the last 2 years, we have seen the number of locations decline on an annual rate of approximately 1 to 2 percent. But we in ARC believe that several factors are at work here and some of them, I would submit, are not necessarily bad trends.

    Firstly, we believe that, with the economic changes that have taken place in the past few years, what we call the hobbyists have been getting out of the market. These are the people who got into the travel business to start with not to run a successful business necessarily, but because travel was fun.

    Secondly, there's been consolidation in the industry at all levels. Again, I would submit that seeking ways to operate more efficiently is not a bad trend.

    The third trend is that technology is making possible a move away from brick and mortar locations and this trend will continue in the future. For example, we have a lot of what we call satellite ticket delivery locations. These are locations whose function is to deliver tickets to the premises of corporate clients where the volume does not justify a fully staffed location. With the growth of electronic ticketing, the need for these locations is diminishing. Reduction in these type of locations is in no way related to a reduction in the retail travel agency presence.
 Page 78       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    In the past, we saw growth in sales year over year. And we saw growth in travel agency locations year over year. Therefore, there was not strong growth in sales-per-location. Now, since sales are grower strongly this year but locations are declining by 1 to 2 percent, we're seeing good growth in the sales-per-location and this has the potential to make the nationwide travel agency network economically stronger, particularly when coupled with some of the steps the travel agents have been taking to grow their businesses.

    The second point that I want to make to you is that the backbone of the travel agency system has always been the small entrepreneur. I've been in the industry for 30 years and I remember back in the 1970s when people used to say that the travel agency business was going to go the way of the grocery business, that the corner store was going to be made extinct by the supermarket. That did not happen in our business. In fact, the number of small travel agencies continue to grow year over year.

    History shows that when change has taken place in our industry, travel agents saw it not as a problem, but as an opportunity. For example, in the early 1970s, the travel agency's share of the market was less than 50 percent. When deregulation took place and we moved from a winter and summer fare, which the travel agency probably had memorized, to a maze of fares which eventually changed at least daily, the travel agency saw this as an opportunity because consumers needed a professional to guide them through the maze. As a result, the travel agent's share of the market went from under 50 percent to 80 percent. And I'm confident that the entrepreneurial spirit in the travel agency community will see the changes currently taking place and particularly the technological change that is sweeping through our industry as an opportunity and not a problem.
 Page 79       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    The third reason that I wanted to be here today is that in materials that relate to this hearing, I've seen two specific allegations that I would like to answer. The first allegation is that we've not been helpful in assisting travel agents who wish to implement service fees to their clients. The second is that the airlines through ARC are trying to drive travel agents out of the market.

    If such were to be the case, we're doing a pretty poor job of it because the travel agent's share of the market has not declined in any way. On the contrary, the record shows that we have taken a number of steps to help the travel agents with the revenue expense and productivity challenges they have faced with the economic changes of the past few years. And the actions we have taken have been with the full support, including financial support, of the airlines.

    Just to give a few examples of what we've done to help travel agents meet the economic challenges, I would like to start with service fees. In 1995, when airlines first made marketplace changes, travel agents came to us and asked for help in implementing service fee programs, whereby they would start charging for their professional services. And the problem was primarily with the smaller travel agents who had difficulty obtaining credit card merchant agreements. They asked ARC to be their credit card merchant and so we agreed to do exactly that. And, within 3 months, we had a program in place to bill service fees for travel agents to their client's credit cards. We were helping the small businesses put a new system in place to help them.

    And, last of all, when another marketplace change took place, travel agents asked us to implement some key enhancements to that program and we had those enhancements in place within 3 months. And that operated—that program's now operating very successful and we are obtaining significant amounts of revenue for travel agencies.
 Page 80       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Another important program we have put in place to help reduce expenses is interactive agent reporting or electronic reporting. Travel agents have to report to us each week for all sales made on airlines. In the past, this has been a paper-intensive and costly process. Our new program, in which we have already over 9,000 travel agency locations participating, changes this from a paper to an electronic process with significant cost and productivity benefits for travel agents.

    Just to give a few examples, one large travel agent told us they saved $250,000 in the first half of this year. In the small travel agency community, a small travel agency owner told us she can now go on the road on Tuesdays, out selling. Previously she stayed in the agency to supervise financial reporting, but now she has gained an extra selling day every week. Another agency had an employee working full time on our reporting. With our new system, that employee now does ARC work part-time and sells cruises as well. A non-producing employee has been turned into a producing employee.

    And I submit we have other examples where we have been helping the travel agents. Another one is electronic ticketing. When airlines started talking about electronic ticketing in the summer of 1994, we moved quickly to make sure travel agents would have access to this product as well. And this gives them the ability to reduce costs incurred in delivering paper products to their—paper tickets to their customers.

    There are other examples I have, but I think I've run my time. But, in summary, Mr. Chairman, I'd like to say that we in ARC do not believe that there is any danger of a consumer losing access to the professional impartial travel agents—travel advice provided by the travel agency community and from our role in the industry, we are doing all we can to make sure travel agents remain profitable into the future. Thank you.
 Page 81       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. DUNCAN. All right. Thank you very much, Mr. Collins. I'm going to go to Mr. Lipinski.

    Mr. LIPINSKI. Thank you, Mr. Chairman. Mr. Collins, very nice to see you once again.

    Mr. COLLINS. Thank you.

    Mr. LIPINSKI. Very interesting testimony you gave. It seems to be almost in direct contradiction to the testimony we received from most of the members of the first panel. We'll have to weed through that and try to find out exactly where those two testimonies meet.

    But I want to ask you a question pertaining to another subject. You were here in—excuse me—you were here in February when we held hearings on the problem of stolen airline ticket stock and, as you probably know, in July there were 12 travel agencies in Illinois that were burglarized and their ticket stock was once again stolen. Has there been any efforts on the part of ARC to improve the situation and to put an end to the problem of stolen tickets?

    Mr. COLLINS. Yes, Congressman Lipinski. I did actually send a letter to your office I believe it was on Friday detailing a number of things we have done, a number of things that have happened in our industry since I saw you in February.

 Page 82       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    Mr. LIPINSKI. Could you run some of them by me? Because I haven't seen your letter yet.

    Mr. COLLINS. I can just give you some highlights. And I would like to remind you, too, one of the things I said in February is that we have been engaged in trying to attack this problem for many years and, as a result, since 1992, the number of crimes against travel agents have come down quite substantially. So, in my opinion in February, it wasn't that we were seeing a sudden crisis. I know from the individual travel agent's point of view it was very serious and they have my personal sympathies on their view. But the overall trend has been coming down.

    Now some of the things we have done, if I can just talk about briefly. First of all, I talked about our relations with the FBI and we did meet with Mr. Gallagher. You remember, Mr. Gallagher was—of the FBI was on one of the panels? We met with him and had a very good exchange of views. Plus we had a briefing from him on what the FBI was going to go and do in this area. That was encouraging.

    Secondly, I think that the fact that you had the hearings brought more attention to the subject and we've seen some good impact from that. We've seen much more increased activity from law enforcement around the country. As a result, we have seen some good arrests. I talked to you about the California problem. The New York authorities arrested a gentleman and he was extradited from California who we believe has been directing quite a lot of the activity.

    In response to the Chicago, the recent events, we have hired a special consultant. He, in fact, was somebody else you saw on the law enforcement panel. His name is Gary Yallelus. He probably, in law enforcement, is the most knowledgeable person in the country about the stolen ticket problem. And he has been hired by us. He's in the Chicago area and he is doing two things. He's going around to travel agents to provide them with consultancy services on their security. And, secondly, he's educating law enforcement at all levels in the Chicago area as well. Because we want to beat that problem in Chicago.
 Page 83       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    There are other things in there we've done. We have been more aggressive in providing help to airlines as well. We are attacking the problem in all directions and beefing up our resources to be able to go out on the road and train airlines in how to better spot their tickets.

    Mr. LIPINSKI. Is this a problem that's bigger in the Chicago area than it is in other parts of the country or am I just more sensitized to the Chicago situation because of the fact that I come from that area?

    Mr. COLLINS. No, you're correct. It's a problem that is unique to the Chicago area. We're not having similar activity in the rest of the country.

    Mr. LIPINSKI. And, off the top of your head, do you have any idea why it might be happening in Chicago? Is it because of O'Hare itself?

    Mr. COLLINS. I don't know. I can only speculate. Because these thieves—generally the people who do the actual thefts are probably not locals, so they need a major metropolitan area in which they can fly into, very easily, into and out of very quickly. Since they're around from California, I guess they probably don't to do it on their own doorstep and risk a greater degree of getting caught. I think we did believe there might be one gentleman who may be part of the ring who actually is resident and he may, in fact, be around the Chicago area casing agencies, but he doesn't do the thefts. Others come from outside the area to do the thefts.

 Page 84       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    That's the only sort of information or speculation I can give on why the problem—I would dearly love to see that problem go away. And that is, of course, why we have based our consultant in the Chicago area, because that's where all the problems are. And that's why we want to go around to the agents and help them as much as we can to sensitize them in what to do to help reduce still further the crimes against them.

    Mr. LIPINSKI. All right. Thank you for that information. I thank you for staying on top of the situation. I hope you continue to do so. I look forward to reading the letter that you sent to me so I'll have a full report on what is going on. I'm sure that after I read the letter I'll probably have some comments or questions for you and will be communicating with you.

    Mr. COLLINS. I'd be very happy to answer them.

    Mr. LIPINSKI. Thank you, Mr. Chairman.

    Mr. DUNCAN. Thank you, Mr. Lipinski. Mr. Collins—and I'm glad Mr. Lipinski asked those questions—I also was interested in the stolen ticket situation, although I had the impression from an earlier hearing that it's much more than just a Chicago problem, but let me ask you this.

    You said in your testimony—you've got my curiosity up a little bit—you said in your testimony that you think that the consolidation in the travel agency industry or the decrease in the number of travel agencies is running about 1 or 2 percent a year and it's mainly just what you referred to as the hobbyists getting out of the business. But the staff has provided me with information from the most recent survey by Travel Weekly magazine. And according to that survey, the number of small agencies, it says, dropped from 10,000 in 1995 to 6,502 in the last 2 years. Now that is a whopping decrease. That's about a 35 percent decrease in just 2 years time. Where did your figures come from or can you tell me why you think there is such a discrepancy there?
 Page 85       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. COLLINS. Well, I wouldn't say there was a discrepancy. I know the survey you're referring to. It's the Travel Weekly one, an excellent survey that came out a few weeks ago. What they didn't study, it really didn't show, was it defined a small agency as somebody under a certain sales bracket. What it didn't study was how many people who were originally in that sales bracket combined with somebody else in that sales bracket, which in fact took them into the next sales bracket. So I'm not sure that the survey—the survey just said how many people are in these different brackets. I don't think it really went beyond that to look into, you know, how is the shift.

    But I think it's widely recognized in the industry that there is substantial consolidation that has been going on. And, I think one of the reasons, obviously, is people are looking at ways of becoming more efficient, sharing resources. And one of the things that we've done in ARC is we responded to a travel agency association request to allow in our accreditation system for travel agents to share premises precisely for the reason so they could go in together and share overhead and become more efficient. And so that's another area where I think we've taken a step to help the small businesses meet the challenges they're facing.

    Mr. DUNCAN. Your answer to that question and much of your testimony has taken the approach that you are really doing a lot of things to help travel agents, but ASTA's testimony—their statement says, at one point, quote, ''The airlines are engaged in a campaign to reduce the public's access to independent sources of neutral information about prices and services.'' Do you see evidence of that? And, assuming that you don't, why do you think that apparently many, many travel agents feel that way?

 Page 86       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    Mr. COLLINS. I'm not sure how to answer that question because I think I've seen comments like that and I'm—they are allegations and I don't see sort of specifics to substantiate them. But, from the seat I sit in, I don't see any activity on the part of the airlines to try and specifically drive travel agents out of the market. If anything, you know, we're trying to help them survive and I'm an optimist and I think travel agents are going to survive. And some of them are doing very well this year.

    Mr. DUNCAN. And so you just don't have any clue as to why they would have something like that in their statement?

    Mr. COLLINS. I have never in my position been given any mission to decrease the number of participants in our system or even increase them. My mission is to run as an efficient and effective system for the industry. That includes both travel agents and airlines.

    Mr. DUNCAN. Let me ask you this. In the volume of documents that you are processing do you see an increase or a larger number now from travel agents that are charging service fees in addition to their commissions?

    Mr. COLLINS. Well, we don't report the number of service fees coming through our industry as part of our overall statistics. We really have two programs. In effect, we have our basic system, which is the airline ticket system and the volume coming through those—that system has been growing and at a strong rate. As far as our service fee system is concerned, that is also growing very strongly. We process—last year we processed $23 million through that system. But this year we're going to process $120 million through that system for travel agents. And that's all going to them as revenue, straight to their bottom line.
 Page 87       PREV PAGE       TOP OF DOC    Segment 2 Of 2  

    Mr. DUNCAN. Let me ask you about another complaint of travel agents and that is that ARC sells to the airlines confidential business information. Do you do that? Do you think they have any reason or justification for complaining about that?

    Mr. COLLINS. Well, let me just explain to you what we do sell and what we don't sell. What we do provide to the airlines is their own, individual data, and they're obviously entitled to that. What we also provide to them is the total sales at every location. What we do not provide is we do not tell airline what another airline's activity is at another location. That is strictly against our internal policies.

    Now the agents have expressed concerns about that in the past. In fact, we had an arbitration proceeding, kind of industry arbitration, several years ago when the travel agency industry challenged that practice. And the arbitration proceeding upheld what we were doing. I would point out that, in the course of that proceeding, we actually had travel agents testifying for us because they felt that information in the hands of the airlines was very important because it was the basis for many of the override programs from which they were benefitting. So they wanted the airlines to have that information so the override programs were there.

    Secondly, I think we had an expert witness, an economics professor, a marketing professor, from Harvard University who really testified that this activity was very pro-competitive and really helped—was very beneficial to the industry to have that information there.

 Page 88       PREV PAGE       TOP OF DOC    Segment 2 Of 2  
    Mr. DUNCAN. All right. Well, thank you very much. You've been another—you've added a lot to this and we certainly appreciate your being here and we will, at this point, conclude this hearing. Thank you very much.

    Mr. COLLINS. Thank you, Mr. Chairman.

    [Whereupon, at 12:40 p.m., the subcommittee adjourned subject to the call of the Chair.]

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