[Federal Register Volume 64, Number 123 (Monday, June 28, 1999)]
[Proposed Rules]
[Pages 34592-34595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15962]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
14 CFR Part 254
[Docket No. OST-1996-1340, formerly Docket 41690]
RIN 2105-AC07
Domestic Baggage Liability
AGENCY: Office of the Secretary, DOT.
ACTION: Supplemental Notice of Proposed Rulemaking (SNPRM).
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SUMMARY: The Department is proposing to amend its rule governing the
amount to which certain U.S. air carriers may limit their liability to
passengers for lost, damaged, and delayed baggage in interstate and
overseas air transportation. This action continues the proceeding
initiated by a petition from Public Citizen and Aviation Consumer
Action Project to increase the minimum domestic baggage liability
limit. This SNPRM reports and evaluates aggregate baggage data
submitted by certain air carriers in response to the Department's 1994
NPRM and responds to comments received from various parties subsequent
to the issuance of the NPRM. DOT now requests comment on raising the
minimum liability limit to $2,500 with a mechanism that would provide
for periodic updates every two years.
DATES: Comments are requested by August 27, 1999; late-filed comments
will be considered only to the extent practicable.
ADDRESSES: Address comments to the Dockets Management System, U.S.
Department of Transportation, 400 Seventh Street, SW., PL-401,
Washington, D.C. 20590-0001. Comments should identify the docket number
and two copies should be submitted. Persons wishing to receive
confirmation of receipt of their written comments should include a
self-addressed, stamped postcard. The Dockets Management System is
located on the Plaza level of the Nassif Building at the Department of
Transportation at the above address. Public dockets may be reviewed
there between the hours of 9:30 a.m. and 5:00 p.m., Monday through
Friday, except Federal holidays. Comments also may be reviewed on-line
at the DOT Dockets Management System web site, http://dms.dot.gov/.
FOR FURTHER INFORMATION CONTACT: Joanne Petrie, Office of Regulation
and Enforcement, Office of General Counsel, U.S. Department of
Transportation, 400 Seventh Street SW., Washington, DC 20590, (202)
366-9306.
SUPPLEMENTARY INFORMATION:
Background
Lost, damaged and delayed baggage ranks as one of the top sources
of aviation consumer complaints filed with the Department of
Transportation and is a major source of consumer dissatisfaction. In
the Air Travel Consumer Report published by the Department, major U.S.
air carriers reported the following number of domestic mishandled-
baggage reports per year:
------------------------------------------------------------------------
Number of
mishandled
Year baggage
reports
------------------------------------------------------------------------
1993.................................................... 2,282,903
1994.................................................... 2,321,524
1995.................................................... 2,227,599
[[Page 34593]]
1996.................................................... 2,460,487
1997.................................................... 2,278,841
1998.................................................... 2,484,841
------------------------------------------------------------------------
14 CFR Part 254 sets forth the minimum level for permissible
limitations of air carrier liability for loss, damage or delay in the
carriage of passenger baggage in domestic air transportation. The rule
applies to both charter and scheduled service. It provides, ``[i]n any
flight segment using large aircraft [any aircraft designed to have a
maximum passenger capacity of more than 60 seats], or on any flight
segment that is included on the same ticket as another flight segment
that uses large aircraft, an air carrier shall not limit its liability
for provable direct or consequential damages resulting from the
disappearance of, damage to, or delay in delivery of a passenger's
personal property, including baggage, in its custody to an amount less
than $1,250 for each passenger.''
In addition, Part 254 requires a carrier to provide certain types
of notice to passengers. It provides, ``[i]n any flight segment using
large aircraft, or on any flight segment that is included on the same
ticket as another flight segment that uses large aircraft, an air
carrier shall provide to passengers, by conspicuous written material
included on or with its ticket, either: (a) notice of any monetary
limitation on its baggage liability to passengers; or (b) the following
notice: ``Federal rules require any limit on an airline's baggage
liability to be at least $1,250 per passenger.''
The amount of the minimum liability limit was last amended by a
final rule (ER-1374, 49 FR 5065, February 10, 1984), issued by the
Civil Aeronautics Board (CAB) before its ``sunset,'' in 1984. The
$1,250 figure was calculated based upon the percentage increase in the
``Consumer Price Index for all Urban Consumers'' (CPI-U) between the
date of the previous amendment in May 1977 and September 1983. When
setting the limit, the CAB attempted to balance the amount necessary to
cover the value of passengers' baggage while still allowing the air
carriers to protect themselves from extraordinary claims.
Petition for Rulemaking
On December 21, 1993, Public Citizen and Aviation Consumer Action
Project (ACAP) petitioned the Department to raise the minimum limit to
$1,850, which was calculated by factoring in the increase in the CPI-U
from the previous amendment of September 1983 and compensating for
inflation changes until the implementation of the final rule (estimated
to be one year from the date of the petition). In support of the
formula, ACAP conducted a study that concluded that the CPI-U increase
was a good proxy for the price increases for specific consumer goods
cited in the study. ACAP stated that, if the rulemaking process
proceeded past one year or if the inflation rate changed unexpectedly
during this time, the Department should recalculate a new figure using
the same methodology.
The NPRM
On September 30, 1994, in response to ACAP's petition, the
Department issued an NPRM, requesting comment on three proposals (59 FR
49868). First, based on a 46.4 percent increase in the CPI-U calculated
from September 1983 until April 1994, the Department proposed to raise
the limit to ACAP's proposal of $1,850. The Department stated that this
calculated figure should compensate passengers based on the present
value of money and constructively influence air carriers to remedy the
causes of baggage problems. To assess the economic effects of this
figure on the industry, air carriers were requested to submit annual
data on 1993 domestic baggage claims, specifically: (1) The total
number of domestic baggage claims (defined in the NPRM) for
reimbursement and the total amount claimed (i.e., the amount that the
claimants requested); (2) the total amount paid by the carrier in
settling those claims; and (3) the number and total dollar amount of
claims that exceeded $1,250, and the number and total dollar amount
that exceeded $1,850.
As additional alternatives, the Department proposed: (1) To raise
the minimum limit to $1,850 with a mechanism that automatically
provides for periodic future increases, or (2) to raise the minimum
liability limit to $2,000. The first alternative proposal would have
provided for an automatic increase of the minimum liability limit every
other year based on changes in the CPI-U. DOT asked commenters on the
first alternative proposal to address the administrative burden on the
airline industry of a periodic update, evaluate current technology, and
state their opinions concerning the best method of notice for each rate
change. Commenters on the second alternative proposal were asked to
focus on the benefits of a fixed minimum liability limit in terms of
advance planning and administrative costs. Finally, the Department
asked for comment on several proposed time frames for the
implementation of the final rule and future automatic adjustments,
taking into account ticket stock procurement procedures in the
industry. The Department suggested that the new minimum dollar limit go
into effect 30 days after issuance of the final rule, but that the
revised notice requirement be implemented 60 days after the final rule
is issued. In conjunction with these proposals, the Department asked
the public and the industry to consider and address several options,
such as electronic tickets, a ticket addendum, and ticket stickers. If
the automatic adjustment proposal were selected, the Department
requested comment on whether a 30-day effective date would be
sufficient for future adjustments. Comments and baggage data were due
on November 29, 1994.
Request for Extension of Comment Period
On November 10, 1994, the Air Transport Association (ATA) asked for
an extension of the November 29, 1994 deadline. ATA requested that the
baggage data be published in aggregate form and asked for the comment
period to be extended to 60 days after the Department publishes the
aggregate baggage data in the docket. ATA cited a critical need for
sufficient time for the public to analyze and comment on the baggage
data, as well as the need for the Department to fulfill its procedural
responsibilities and make a decision based on the most complete
information. In response, the Department partially granted ATA's
request. The Department stated in a document issued in the Federal
Register (59 FR 60926, November 29, 1994) that carrier data would be
due November 29, 1994 and the aggregated information would be published
in the docket, followed by a 30-day comment period.
Comments Received
Comments were received from American Trans Air, Atlantic Southeast
Airlines, North American Airlines, Michael Kees, and ACAP. The three
air carriers agreed that the minimum liability limit should not exceed
$2,000. North American believed that the limit should not be adjusted
at all, because the excess liability is covered through excess value
insurance offered by airlines for a fee, homeowners insurance, or
supplemental baggage coverage provided by some credit cards. If the
minimum level is raised, North American claimed carriers would be
forced to devote more financial resources to paying and scrutinizing
claims, resulting in higher fares. North American believed that
carriers
[[Page 34594]]
themselves should set the minimum level based on market forces and
consumer choice. Additionally, North American stated that if the level
were raised, the level should not exceed $1,600. It argued that that
the all-item index of the CPI-U no longer realistically reflects
changes in individual indices, such as apparel. (The Department
interprets this comment as saying that the all-item CPI-U index is
disproportionately influenced by particular items other than items that
passengers would normally pack in their baggage when flying
domestically, such as food and gas.) North American proposed that the
methodology utilize the lower apparel index, rather than the higher
CPI-U all-item index. North American objected to the automatic
adjustment proposal, claiming that the rate for baggage mishaps only
increased slightly from the last rate amendment and that the NAFTA and
GATT agreements might affect future apparel index ratings.
American Trans Air favored a fixed liability limit of $2,000 and 90
days advance notice before implementation of a final rule.
ASA stated that the Department's claim that a low liability limit
will simply prompt the air carriers to pay damages rather than fix
their baggage system is a ``disservice'' to the industry. It argued
that because baggage claims result in profit erosion and customer
dissatisfaction, air carriers have operational incentives to improve
baggage service and do not need monetary incentives from liability
limitations. For example, ASA noted that airlines are purchasing and
using enhanced baggage tracing systems. ASA believed that a comparison
should be made to the passenger bus and rail industries, which have
kept their liability limits relatively low in comparison to the air
carrier industry. ASA also believed that an $1,850 minimum limit is not
necessary because of supplemental insurance offered to the passenger by
credit card companies, air carriers and homeowner policies for a modest
premium. ASA objected to the proposal for regular future increases,
stating that the periodic-increase provision is not applied to other
transportation modes and is costly and burdensome, especially to
smaller carriers that cannot invest as heavily in cost-saving
technology. Finally, ASA suggested that an increase in the liability
limit would place air carriers at risk for an increasing number of
fraudulent baggage claims.
Mr. Michael Kees, a passenger affected by baggage problems,
believed that the limit should be raised to $2,500. Alternatively, he
also proposed adding an unlimited-compensation provision, enabling
passengers to replace lost items at current costs. Mr. Kees believed it
is unfair to compel passengers who want additional insurance to utilize
their homeowners policy. According to this commenter, a passenger
should not have to pay a deductible and file a claim with the
passenger's insurance policy because of the actions of an air carrier.
The Department also received confidential 1993 baggage data from
American Airlines, American Trans Air, Atlantic Southeast Airlines,
Delta Air Lines, Northwest Airlines, Southwest Airlines, United
Airlines, USAir (now US Airways), and Trans World Airlines. Although
the carriers' individual data are confidential, the aggregated industry
data are not. The air carriers were asked to send data responding to:
(1) The total number of domestic baggage claims for reimbursement and
the total amount claimed; (2) the total amount paid by the carrier in
settling those claims; and (3) the number and total dollar amount of
such claims that exceeded $1,250, and the number and total dollar
amount that exceeded $1,850. The Department offered the opportunity to
air carriers through their industry groups to submit updated material
on June 12, 1998. No updates were provided. As a result, the Department
will proceed with reporting baggage data submitted in 1993. Because
some air carriers did not submit data for certain categories, the
Department can only report limited information. In 1993, the submitting
air carriers reported 819,480 baggage claims for reimbursement.
Reimbursement claims that exceeded $1,250 constituted 3.2% of the
aggregate baggage claim total and reimbursement claims that exceeded
$1,850 constituted 1.4% of this total, according to the carriers.
Second ACAP Petition
ACAP submitted an updated petition on May 1, 1998, requesting that
the Department raise the minimum domestic baggage liability level to
$2,100. ACAP calculated a $2,005.47 limit using the CPI-U index, with
an additional $94.53 that provides an incentive for the airlines to
provide improved baggage facilities and services.
The Current Proposal
After reviewing the comments and baggage data, the Department now
proposes to increase the minimum domestic baggage liability limit to
$2,500. This figure is based on the Administration's ``Airline
Passenger Fair Treatment Initiative,'' as well as the minimum liability
limitation being considered by Congress in H.R 780. This figure was
based on doubling the current $1,250 regulatory minimum liability
limitation and reflects both the Administration's and a Congressional
judgment about fairness and the current value of some claims.
Future increases would be based on any increase to the Consumer
Price Index for all Urban Consumers from the time the final rule in
this proceeding is issued. The Department believes the CPI-U is a
proper measuring tool for price changes. The CPI-U is an index of price
change, reflecting spending patterns for approximately 80% of the total
U.S. population. The index encompasses expenditures reported by persons
living in urban areas, including professional employees, the self-
employed, the poor, the unemployed, retired persons, urban wage
earners, and clerical workers. The CPI-U is considered by many to be
the best measure for adjusting payments to consumers when the payer's
intent is to allow the consumer to purchase the same items in current
dollars. The index includes all goods for consumption by urban
households and reflects sales tax. The apparel index, which was
advocated by North American, does not accurately represent the wide
variety of items passengers pack in their luggage. Because of the
impossibility of identifying an individual index covering all items in
a traveler's checked baggage, the aggregate CPI-U index is the best
indicator.
In order to keep the liability limitation current, the Department
would review the Consumer Price Index for All Urban Consumers every two
years following the issuance of a final rule in this proceeding. The
minimum baggage liability limitation would be increased, if necessary,
based on the July CPI-U rounded to the nearest $100 for simplicity.
Under this process, the Department would publish a final rule in the
Federal Register in early fall of the second year following the
previous amendment. Because this would be a mathematical computation of
the CPI-U on the liability limit in accordance with this proposed rule,
the Department would not need to publish a proposed rule first. The
liability limitation and the revised notice requirement would be
effective on the following January 1. We are proposing January 1 for
simplicity and to tie in with publication cycle of Title 14 of the Code
of Federal Regulations. Consequently, if this rule is issued in 1999,
the first adjustment would be calculated in 2001 and would go into
effect on January 1, 2002.
The Department believes that these biyearly adjustments are in the
public
[[Page 34595]]
interest because they will keep the liability limitation in line with
inflation. This is particularly important in light of decreasing
opportunities for passengers to carry luggage into the cabin. In
addition, this periodic update is consistent with a similar recent
statutory requirement, the Federal Civil Penalties Inflation Adjustment
Act of 1990 amended by the Debt Collection Improvement Act of 1996.
In September of 1983, when the $1,250 rule was issued, the CPI-U
was 100.7. The May 1999 CPI-U is 166.2. If the current limitation were
adjusted solely based on the change in the CPI-U during this period,
the minimum baggage liability limitation would be $2,063, and likely
higher before the final rule is issued. Although we are proposing to
raise the baseline to $2,500, we note that the two numbers are very
close.
The escalator provision we are proposing today would use the most
recent CPI-U figure that is available at the time the final rule is
issued as the baseline. For clarity, we would state exactly what that
number is. The formula for these biyearly increases would be as
follows:
1x (a-b)/(b) x ($2,500)
a= July CPI-U of year of new adjustment
b= the most current CPI-U figure when final rule is issued
[The numerical result would be rounded to the nearest $100.]
Regulatory Analyses and Notices
The Department has determined that this action is not a significant
regulatory action under Executive Order 12866 or under the Department's
Regulatory Policies and Procedures. A regulatory evaluation that
examines the projected costs and impacts of the proposal has been
placed in the docket.
The Department certifies that this rule, if adopted, would not have
a significant economic impact on a substantial number of small
entities. There were no comments on small entity impacts in response to
the NPRM. By its express terms, the rule only applies to flight
segments using large aircraft, or on any flight segment that is
included on the same ticket as another flight segments that uses large
aircraft. Few, if any, air carriers operating large aircraft would
qualify as small entities. The rule could apply to some air carriers
that might be considered small entities to the extent that they
interline or codeshare with large air carriers. Based on our analysis,
we do not believe this rule would have a significant economic impact
because most claim payments are currently well below $1,250. Aggrieved
passengers still need to document their loss and are not automatically
entitled to compensation at the higher level. Nevertheless, the
Department seeks comment on whether there are further unidentified
small entity impacts that should be considered. If comments provide
information that there are significant small-entity impacts, the
Department will prepare a regulatory flexibility analysis at the final
rule stage. The Department does not believe that there would be
sufficient federalism implications to warrant the preparation of a
federalism assessment. The proposal would not result in an unfunded
mandate.
List of Subjects in 14 CFR Part 254
Air carriers, Consumer protection, Reporting and recordkeeping
requirements.
For reasons set forth in the preamble, the Department proposes to
amend 14 CFR part 254, as follows:
PART 254--DOMESTIC BAGGAGE LIABILITY
1. The authority citation for part 254 would be revised to read as
follows:
Authority: 49 U.S.C. 40113, 41501, 41504, 41510, 41702, and
41707.
Sec. 254.1 [Amended]
2. In Sec. 254.1, the phrase ``and overseas'' would be removed and
the phrase ``and intrastate'' would be added in its place.
Sec. 254.2 [Amended]
3. In Sec. 254.2, the phrase ``or overseas'' would be removed and
the phrase ``or intrastate'' would be added in its place.
4. Section 254.4 would be revised to read as follows:
Sec. 254.4 Carrier liability.
On any flight segment using large aircraft, or on any flight
segment that is included on the same ticket as another flight segment
that uses large aircraft, an air carrier shall not limit its liability
for provable direct or consequential damages resulting from the
disappearance of, damage to, or delay in delivery of a passenger's
personal property, including baggage, in its custody to an amount less
than $2,500 for each passenger.
Sec. 254.5 [Amended]
5. In Sec. 254.5(b), the amount ``$1250'' would be revised to read
``$2,500''.
6. Section 254.6 would be added to read as follows
Sec. 254.6 Periodic adjustments.
The minimum limit of liability prescribed in this part will be
reviewed every two years by the Department of Transportation based on
changes in the Consumer Price Index for All Urban Consumers. The
Consumer Price Index for All Urban Consumers as of July will be used to
calculate the revised liability limit pursuant to the following
formula:
1x (a-b/b) x ($2,500) rounded to the nearest $100
Where:
a= July CPI-U of year of current adjustment.
b= The most current CPI-U figure when final rule is issued.
Issued in Washington, DC on June 17, 1999, under authority
delegated by 49 CFR 1.56a(h)2.
A. Bradley Mims,
Acting Assistant Secretary for Aviation and International Affairs.
[FR Doc. 99-15962 Filed 6-25-99; 8:45 am]
BILLING CODE 4910-62-P