AMERICAN Airlines' decision not to announce future fare increases on the Computer Reservations Systems (CRS) used by travel agents was a victory in the government's antitrust suit against six major carriers. Ironically, it was also a major blow to commercial air travelers, the purported beneficiaries of the suit. Travelers who reserve seats will have difficulty learning if fares are scheduled to rise before their purchases are made, creating more uncertainty in an already volatile market.
The implications for air travelers are so devastating that Public Citizen, a group that normally supports federal antitrust suits, protested the proposed settlement. They are joined in their opposition by the National Consumers League, the American Society of Travel Agents, and a coalition of 14 travel organizations.
Two months ago the Justice Department filed suit against the airlines for conspiring to coordinate fare changes through the CRS networks. According to the suit, an airline would announce a prospective fare increase on the networks, and others would respond with possible increases of their own, until a mutually agreeable set of prices was determined.
The Justice Department's complaint doesn't cite a single example of this phenomenon. The department's Competitive Impact Statement on the airline industry only suggests how it might occur. The airlines contend that the alleged practice is not price-fixing, but a common form of price competition long recognized as legal.
Government attorneys have offered to settle out of court with airlines that sign a decree promising not to announce fare increases on CRS networks. United and USAir have signed; American has agreed to abide by its terms. Six airlines are fighting the suit.
If airlines have been rigging prices, they've been terribly inept. During the last three years the industry has lost $8 billion dollars in ruthless fare wars facilitated by the very technology the department is indicting: CRS.
The CRS networks, which extend into 95 percent of American travel agencies, allow agents and customers to make rapid and inexpensive comparisons of fares and other information. Travel agents can conduct purchases and print tickets using CRS. This tool has made commercial air travel one of the most competitive industries in the US. On some days, over 2 million price changes are processed and relayed to the CRS networks.
Despite its benefits, CRS has suffered government harassment since 1967, when the threat of antitrust prosecution prevented 21 major carriers from developing a national system. After nine years of failed efforts, United and American airlines assumed the risk themselves, investing in the Apollo and Sabre systems, respectively. Soon other airlines created their own versions.
The airlines recovered the enormous cost of their risky investment in the new technology partly by giving themselves a prominent position in flight listings seen by travel agents. They also allowed other airlines to purchase higher positions on the screen, in effect permitting them to pay for advertising. Although television and other media charge advertisers varying rates for prominent positions in their audience's viewing schedule, the Department of Transportation claimed the practice was "biased" and "unfair." In 1984, it was prohibited, silencing a useful form of commercial speech.
In the years following, opportunists repeatedly tried to extract damage awards from CRS vendors through federal antitrust laws, using vague accusations of monopolization that often had been made in governmental pub-lications. In every case, CRS vendors were exonerated in the courts. In 1989 a jury decided that the two largest CRS networks didn't possess monopoly power.
That changed early last year when a class action lawsuit that charged the airlines with price-fixing over the CRS networks was settled out of court in favor of the plaintiffs. Four airlines involved in the suit paid $450 million in ticket rebates rather than fight the charge, and their response was understandable - antitrust cases can drag on for decades. The Justice Department soon followed with its own suit, supported by similar accusations.
If successful, the government's suit could set a debilitating precedent for regulating electronic communications. The case implicitly announces a double standard for commercial speech, allowing the content and form of advertising to be decided by the market only when it takes place outside a computer network. The Justice Department's consent decree recognizes such a division, permitting airlines to announce fare increases on TV, radio, magazines, and billboards - just not CRS. Computer networks, which ma y someday become the dominant medium of communication in America, should be protected from such destructive intrusions.