[Federal Register Volume 64, Number 242 (Friday, December 17, 1999)]
[Rules and Regulations]
[Pages 70573-70576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32782]



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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: Final Rule.

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SUMMARY: The Department is amending its rule governing the minimum 
amount to which U.S. carriers may limit their liability to passengers 
for lost, damaged, or delayed baggage in domestic air transportation. 
We are raising the minimum liability limit from $1250 to $2500. Also, 
to keep the minimum liability limit current, the Department will review 
the Consumer Price Index for All Urban Consumers every two years and 
adjust the minimum limit if necessary. Doubling the current minimum 
limit to $2500 reflects judgments by the Department and some in 
Congress about fairness and the current value of some consumer baggage 
claims. The Department's intent in adopting the higher minimum limit is 
to offer consumers a more reasonable level of protection while 
continuing to allow airlines to limit their exposure to extraordinary 
claims.

DATES: This rule will become effective on January 18, 2000.

FOR FURTHER INFORMATION CONTACT: Joanne Petrie, Office of Regulation 
and Enforcement, Office of the General Counsel, U.S. Department of 
Transportation, 400 Seventh Street, SW., Washington, DC 20590, (202) 
366-9315.

SUPPLEMENTARY INFORMATION:

Background

    Part 254 of Title 14 of the Code of Federal Regulations (Part 254) 
puts a floor under the amount to which an air carrier may limit its 
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 $1250 for each 
passenger.'' 14 CFR 254.4 (1999).
    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 $1250 per passenger.'' 14 CFR 254.5 (1999).
    The minimum liability limit was last amended by a final rule, 
issued by the Civil Aeronautics Board (CAB) before its ``sunset,'' in 
1984. ER-1374, 49 FR 5065, February 10, 1984. The $1250 figure was 
based on the 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 minimum limit, the CAB 
attempted to determine the amount necessary to cover the value of 
passengers' baggage while still allowing air carriers to protect 
themselves from extraordinary claims.

Regulatory History of the Current Proposal

    In 1993, Public Citizen and the Aviation Consumer Action Project 
(ACAP) petitioned the Department to raise the minimum liability limit 
to $1850. In response to the petition, the Department issued a notice 
of proposed rulemaking (NPRM), requesting comment on three proposals. 
59 FR 49868, September 30, 1994.
    The first proposal would have raised the minimum liability limit to 
$1850. To assess the economic effects of this figure on the industry, 
the Department requested that air carriers submit annual data on 1993 
domestic baggage claims. The second proposal would have raised the 
minimum liability limit to $1850 with a mechanism that provided for 
periodic future increases based on the CPI-U. The third proposal would 
have raised the minimum liability limit to $2000. Comments and baggage 
data were due on November 29,
1994.
    In November 1994, the Air Transport Association (ATA) asked for an 
extension of the November 29, 1994, deadline. In response, the 
Department declined to alter the deadline for submission of baggage 
data, but agreed to publish the baggage data in the docket in aggregate 
form and to extend the comment period for 30 days after such 
publication. 59 FR 60926, November 29, 1994. The Department received 
several comments, which are accessible, along with the aggregate 
baggage data and other rulemaking documents, at the Department's Docket 
Management System website (http://dms.dot.gov) in Docket No. OST-1996-
1340. In 1998, ACAP filed an updated petition requesting that the 
Department raise the minimum liability limit, recalculated with the 
then-current       CPI-U index, to $2,100.
    On June 28, 1999, the Department issued a supplemental notice of 
proposed rulemaking (SNPRM) that proposed to double the minimum 
liability limit to $2,500 with an adjustment mechanism using the CPI-U. 
The Department based the proposed amount of the minimum limit on the 
Administration's legislative proposal, titled the ``Airline Passenger 
Fair Treatment Initiative,'' as well as the minimum liability limit 
Congress considered in H.R. 780. The Department selected the CPI-U as 
the basis for future increases because it is the best available measure 
of the current-dollar replacement cost to a consumer for replacing 
lost, damaged, or delayed items in checked baggage.
    In order to keep the minimum liability limit current, the 
Department proposed that it would review the       CPI-U every two 
years following the issuance of a final rule in this proceeding. The 
Department would increase the minimum liability limit (rounded to the 
nearest $100 for simplicity), if necessary, based on the July CPI-U of 
the second year following the previous amendment. Under this process, 
the Department would announce the increase by publishing a final rule 
in the Federal Register in early fall of the second year. Because this 
would merely reflect a mathematical computation of the minimum 
liability limit using the       CPI-U, the Department would not need to 
first publish a proposed rule. The new minimum liability limit and the 
revised notice requirement would be effective on the following January 
1.

Comments Received on the SNPRM

    As part of the airline industry's Airline Customer Service 
Commitment, released on June 17, 1999, the Air Transport Association 
(ATA) petitioned the Department to increase the minimum liability 
limit. ATA represents the airlines that carry roughly 95 percent of the 
nation's air travelers. In comments that ATA filed separately

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from its petition, it supports the increase in the minimum liability 
limit to $2500. ATA's opinion is, however, that the CPI-U does not 
reflect accurately the effect of inflation on contents of baggage and 
should, therefore, not be used to adjust the minimum liability limit. 
Since ``most of the contents of baggage are apparel,'' ATA asserts that 
the apparel component of the Consumer Price Index (CPI) is a more 
sensible index to use to adjust the minimum liability limit. To address 
concerns that air travelers also often pack relatively more expensive 
electronic equipment in their checked baggage, ATA points out that the 
video and audio component of the CPI is more stable than that for 
apparel. Using the apparel component of the CPI would not, therefore, 
disadvantage travelers with respect to non-apparel items in their 
checked baggage. Atlantic Southeast Airlines (ASA) also opposes using 
the CPI-U to adjust the minimum liability limit. ASA asserts that 
passenger baggage generally contains clothing and personal hygiene 
products, whose rate of inflation tends to be lower than for many items 
included in the aggregate CPI-U.
    Trans World Airlines, Inc. (TWA) supports the proposed $2500 
minimum liability limit, but believes the Department should reconsider 
its proposal to adjust the minimum limit every two years. Because the 
inflation rate has been, in recent years, very low, TWA suggests that 
the Department revise the minimum limit, if necessary, every five years 
instead.
    The Regional Airline Association (RAA), which is not a party to the 
Airline Customer Service Commitment, does not support the Department's 
proposal to increase the minimum liability limit to $2500. The RAA 
questions whether the DOT's minimum liability limits have ever 
accurately reflected the value of the contents of passengers' baggage. 
Further, the RAA, like the ATA, argues that the CPI-U is the wrong 
measure of inflation to use to adjust the minimum liability limit since 
it includes more than apparel, which the RAA asserts is the primary 
component of passengers' baggage.
    Sky Trek International Airlines (Sky Trek) is opposed to the 
Department's proposal to amend its domestic baggage liability rule. Sky 
Trek states, ``[T]he airlines themselves should determine the extent to 
which baggage liability should affect their product's marketability.'' 
Further, Sky Trek argues that, contrary to the Department's assertion, 
domestic carriers have actively improved their baggage handling 
systems. Sky Trek bases this argument on the Department's statistics 
that indicate a steady number of mishandled baggage complaints in the 
face of dramatic increases in enplanements from 1993 through 1998.
    Also, Sky Trek believes that most mishandled baggage is the result 
of employee misconduct. Sky Trek suggests, therefore, that the 
Department permit a portion of Passenger Facility Charges (PFCs) to be 
used to enhance security in those airport areas where baggage is most 
at-risk of loss or damage. Further, Sky Trek suggested that an airline 
task force, not the Department, should establish industry guidelines 
for resolving damaged baggage claims.
    The Luggage and Leather Goods Manufacturers of America, Inc. 
(LLGMA) supports both the proposed increase in the minimum liability 
limit and the biannual update mechanism. LLGMA represents over 300 
producers, distributors, and retailers of travel goods, including 
luggage. LLGMA's comments express a concern, however, that these 
measures will contribute further to the passing back of repair or 
replacement costs to its members by air carriers. LLGMA accused the 
airlines of failing to improve their baggage handling systems and 
causing most of the damage to passengers' baggage.
    LLGMA made the following recommendations to prevent the airlines 
from evading responsibility for their actions that result in damaged 
baggage. First, LLGMA urges the Department to monitor airline claims 
departments closely to determine whether airlines are accepting 
responsibility for bags that their baggage handling systems damage. 
Second, LLGMA recommends that the Department report in its monthly Air 
Travel Consumer Report (ATCR) the number of mishandled baggage 
complaints that involve damage. LLGMA also requests that the ATCR 
include information on the resolution of these complaints. LLGMA 
asserts that these measures will encourage the airlines to improve 
their baggage handling systems and provide LLGMA with information it 
needs to determine the frequency of damaged baggage and whether 
airlines are resolving the damaged baggage complaints.
    Several airline passengers, such as Rita Altamore, wrote to support 
the increase in the minimum liability limit as long overdue. Emmett 
Scully suggests that the proposed figure of $2500 is too low. Several 
of these passengers note that stricter enforcement of carry-on baggage 
limitations forces them to check more of their belongings. Joan Junger 
comments that some elderly passengers or passengers with disabilities 
must place all their belongings in checked baggage since they may be 
unable to carry carry-on baggage. Further, Walter and Christa Barke and 
an anonymous commenter urge airlines to prevent loss and damage to 
baggage by doing things such as securing baggage areas and requiring 
persons to show baggage claim checks before leaving secured areas.
    Finally, ATA further suggests that the Department redraft the 
notice requirement in 14 CFR 254.5 to state that the Department has 
established the minimum liability limit at $2500, that the amount is 
subject to periodic revision, and that passengers should consult their 
travel agents or airlines for further information. ATA asserts that 
this kind of notice would disclose clearly and directly to passengers 
the minimum liability limit without requiring repeated revisions to 
ticket stock and related documents. Alternatively, TWA suggests that 
the Department permit airlines to deplete existing ticket stock when 
the minimum liability limit changes, since the old stock would disclose 
a lower than actual minimum liability limit, which would not result in 
any harm to consumers.

DOT's Response to the Comments

    The Department's proposal to double the current minimum liability 
limit to $2500 reflects the Department's judgment about fairness and 
the current value of some baggage claims. Some members of Congress also 
considered $2500 to be an appropriate minimum limit. H.R. 780, 106th 
Cong. Sec. 101(a) (1999). Further, ATA, in its Airline Customer Service 
Commitment, vowed to support this increase in the minimum liability 
limit. Also, the Department applauds both American Airlines and Midwest 
Express Airlines for voluntarily raising their minimum liability limits 
in advance of this rule.
    Although the CPI-U includes many goods and services that are not 
associated with passengers' baggage, the apparel component of the CPI-U 
also does not accurately reflect the wide variety of items passengers 
pack in their luggage. The Department believes the CPI-U is the proper 
index to use for its proposed biannual updates of the minimum liability 
limit. The CPI-U reflects spending patterns for approximately 80 
percent of the U.S. population. The CPI-U is the best measure for 
adjusting payments to consumers when the intent is to allow consumers 
to purchase the same items in current dollars. Since no single index or 
component of an index covers all items in passengers' baggage, the 
aggregate CPI-U is the best available measure of the cost to passengers 
of

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replacing their belongings when an airline loses, damages, or delays 
their baggage.
    The Department recognizes that airlines often order ticket stock 
and related documents that contain the baggage liability notice that 
Part 254 requires in bulk to receive discounted rates. Under this rule, 
the Department will review the minimum liability limit every two years. 
Since the Department will always round the minimum liability limit to 
the nearest hundred-dollar amount, however, the minimum limit will 
likely not change every two years. If, as TWA suggests, the inflation 
rate continues to remain steady, uncertainty involving the amount of 
the minimum liability limit will not be as burdensome as ATA and TWA 
represent. The Department continues to believe that notice to consumers 
of the minimum liability limit, as 14 CFR 254.5 requires, should 
contain the current minimum liability limit.
    For a reasonable time, however, the Department will not enforce the 
notice requirement in Sec. 254.5 while airlines deplete their current 
ticket stock that contains the old minimum liability limit. During this 
time, the Department encourages airlines to use inserts or other means 
to notify passengers of the new $2500 minimum liability limit.
    As a final matter, the Department wishes to call attention to a 
change in the formula used to adjust the minimum liability limit from 
the formula published in the SNPRM. The formula in this final rule is 
merely a technical correction to reflect the Department's description 
of the adjustment mechanism in the preambles of the SNPRM and this 
final rule.

Regulatory Analyses and Notices

E.O. 12866 and DOT Regulatory Policies and Procedures

    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. Interested parties can access the 
regulatory evaluation that examines the projected costs and impacts of 
the proposal in the docket (OST-1996-1340). Since this final rule is 
the same as the proposed rule and since we have received no comments 
providing information that warrants changing any of the analysis, the 
Department has decided to adopt the draft regulatory evaluation as 
final.

Regulatory Flexibility Act

    The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.) 
requires a review of rules to assess their impact on small entities. 
The Department certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. The 
Department received no comments in response to the SNPRM on potential 
impacts on small entities. By its express terms, the rule applies only 
to flight segments that use large aircraft, or on any flight segment 
that is included on the same ticket as another flight segment 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 also do not believe this rule would have significant 
economic impact because most claim payments are currently well below 
the existing $1250 minimum liability limit. Claimants still need to 
demonstrate the extent of their actual losses and are not automatically 
entitled to compensation at the higher level.

Federalism Implications

    The Department believes that a federalism assessment is unnecessary 
since this rule does not have sufficient federalism implications under 
Executive Order 13132.

Compliance with the Unfunded Mandates Reform Act of 1995

    Pursuant to the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), each federal agency ``shall, unless otherwise prohibited by law, 
assess the effects of Federal Regulatory actions on State, local, and 
tribal governments, and the private sector (other than to the extent 
that such regulations incorporate requirements specifically set forth 
in law).'' Sec. 201. Section 202 of the Unfunded Mandates Reform Act 
further requires that ``before promulgating any general notice of 
proposed rulemaking that is likely to result in promulgation of any 
rule that includes any Federal mandate that may result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $100,000,000 or more (adjusted annually 
for inflation) in any 1 year, and before promulgating any final rule 
for which a general notice of proposed rulemaking was published, the 
agency shall prepare a written statement'' detailing the effect on 
state, local, and tribal government and the private sector. Since this 
rule does not result in an unfunded mandate, the Department did not 
prepare a statement.

List of Subject in 14 CFR Part 254

    Air carriers, Consumer protection, Reporting and recordkeeping 
requirements.

    For reasons set forth in the preamble, the Department amends 14 CFR 
Part 254 as follows:

PART 254--DOMESTIC BAGGAGE LIABILITY

    1. The authority citation for part 254 is 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'' is removed and the 
phrase ``and intrastate'' is added in its place.


Sec. 254.2  [Amended]

    3. In Sec. 254.2, the phrase ``or overseas'' is removed and the 
phrase ``or intrastate'' is added in its place.
    4. Section 254.4 is 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 $2500 for each passenger.


Sec. 254.5  [Amended]

    5. In Sec. 254.5(b), the amount ``$1250'' is revised to read 
``$2500.''
    6. Section 254.6 is added to read as follows:


Sec. 254.6  Periodic Adjustments

    The Department of Transportation will review the minimum limit of 
liability prescribed in this part every two years. The Department will 
use the Consumer Price Index for All Urban Consumers as of July of each 
review year to calculate the revised minimum liability amount. The 
Department will use the following formula:

$2500  x  (a/b) rounded to the nearest $100 where:
a = July CPI-U of year of current adjustment
b = Most current CPI-U figure when final rule is issued.


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    Issued in Washington, DC under authority delegated by 49 CFR 
1.56a(h)2 on December 13, 1999.
Robert Goldner,
Acting Deputy Assistant Secretary for Aviation and International 
Affairs.
[FR Doc. 99-32782 Filed 12-16-99; 8:45 am]
BILLING CODE 4910-62-P