[Federal Register Volume 68, Number 18 (Tuesday, January 28, 2003)]
[Notices]
[Pages 4266-4268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2007]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary


Honoring Tickets of National Airlines Pursuant to the 
Requirements of the Section 145 of the Aviation and Transportation 
Security Act

    On November 14, 2002, the Department of Transportation issued a 
notice providing guidance for airlines and the traveling public 
regarding the obligation of airlines under section 145 of the Aviation 
and Transportation Security Act, Pub. L. 107-71, 115 Stat. 645 
(November 19, 2001) (``Act''), to transport passengers of airlines that 
have ceased operations due to insolvency or bankruptcy. That notice, 
issued after National Airlines' November 6, 2002, cessation of 
operations, followed a similar notice issued August 8, 2002, after 
Vanguard Airlines' July 2002 cessation of service. Both notices were 
intended to provide immediate guidance in response to numerous 
complaints from ticketed passengers and inquiries from airlines. In 
addition, the November 14 notice also requested comments from airlines 
and the traveling public about the cost to carriers of transporting 
passengers of carriers that had ceased operations. The purpose of this 
notice is to respond to those comments.
    Section 145 requires, in essence, that airlines operating on the 
same route as an insolvent carrier that has ceased operations transport 
the ticketed passengers of the insolvent carrier ``to the extent 
practicable.'' Our earlier notices mentioned several factors that we 
would look to in determining whether airlines were complying with 
section 145.\1\ We stated, among other things, our preliminary view 
that, at a minimum, section 145 requires that passengers holding valid 
confirmed tickets, whether paper or electronic, on an insolvent or 
bankrupt carrier be transported by other carriers who operate on the 
route for which the passenger is ticketed on a space-available basis, 
without significant additional charges.\2\ We made clear in our 
guidance, however, that we did not believe that Congress intended to 
prohibit carriers from recovering from accommodated passengers the 
amounts associated with the actual cost of providing such 
transportation. We stated that we did not foresee that such costs would 
exceed $25.00, an amount that we made clear was an estimate of the 
magnitude of the additional direct costs carriers might incur in 
transporting affected passengers on a standby basis.\3\
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    \1\ Failure by an airline to comply with section 145 may 
constitute an unfair and deceptive practice violation of 49 U.S.C. 
41712.
    \2\ We further pointed out that, under section 145, passengers 
whose transportation has been interrupted have 60 days after the 
date of the service interruption to make alternative arrangements 
with an airline for that transportation.
    \3\ We pointed out that examples of such costs include the cost 
of rewriting tickets, providing additional onboard meals, and the 
incremental fuel costs attributable to transporting an additional 
passenger.
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    In our November 14 notice, in response to informal concerns raised 
by several carriers that our $25.00 cost estimate is too low, we 
formally requested that any airline or person who believes that the 
Department's estimate of $25.00 is either insufficient, or is more than 
necessary to cover the direct costs of accommodating ticketed 
passengers on a space-available basis, contact the Department and 
provide written comments and cost evidence in support of that position. 
Our formal request for written comments was made after complaining 
carriers had failed to respond to our earlier, informal requests for 
such information, and after reports that consumers had been, at least 
initially, charged far in excess of $25.00 for transportation.\4\
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    \4\ Long before formal comments were requested, Department staff 
had informally advised carriers that expressed concerns about this 
guidance that, to the extent they experienced and could document 
reasonable direct costs in excess of $25.00, they should be entitled 
to recover such costs under the statute. At that time, Department 
staff specifically requested each airline that had expressed concern 
to provide evidence demonstrating that its reasonable direct costs 
exceeded the estimated $25.00 amount. No airline provided any 
documentation in response to that informal request. A few airlines 
also expressed separate concerns about difficulties in verifying 
confirmed reservations of passengers holding electronic tickets, in 
which case a hard-copy ticket would not be available. Department 
staff suggested it would be appropriate to require such passengers 
to provide proof of payment and confirmation, such as receipts and 
printed itineraries.
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    Delta Airlines (``Delta''), American Airlines (``American''), 
America West Airlines (``America West''), and United Airlines 
(``United'') filed comments in response to our request. Unfortunately, 
none of those carriers provided information responsive to our request 
or otherwise demonstrating costs in excess of $25.00 each way for 
space-available transportation. Instead, Delta and American chose to 
argue that the Department has no ratemaking authority, and the 
Department's suggestion that, for purposes of section 145, $25.00 each 
way is a reasonable estimate of the cost to a carrier of providing 
alternate, space-available transportation constitutes ratemaking.\5\ 
They both further argue that, even if the Department had authority 
under section 145 to review the reasonableness of fees charged to 
accommodate another airline's passengers, the marketplace should 
dictate the amount of that charge. American argues that in a 
deregulated environment passengers should assume the risk in booking 
with a financially weak carrier and, according to American and Delta, 
an airline's ``standard reticketing fee,'' which is charged to fare-
paying passengers who, under terms of their contract of carriage with 
the airline, voluntarily change their travel plans, is what the 
marketplace dictates. The carriers further argue that charging 
passengers of another airline that has ceased operations under section 
145 an amount less than that ``standard reticketing fee'' is unfair to 
their fare-paying passengers. American also asserts in its comments 
that we have not adequately addressed its concerns over establishing 
the validity of tickets, especially electronic tickets, of passengers 
seeking reaccommodation under section 145.
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    \5\ Both carriers have challenged the Department's efforts to 
provide guidance regarding section 145 in the U.S. Court of Appeals 
for the District of Columbia. See Delta Air Lines, Inc. and American 
Airlines, Inc. v. U.S. Department of Transportation, Case No. 02-
1309 (D.C. Cir. filed October 8, 2002).
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    America West and United both assert that their respective costs for 
providing alternate transportation on a space-available basis exceed 
$25.00 each way. Neither airline, however, provided information in 
support of that assertion, as requested by the Department. According to 
America West, the costs associated with transporting passengers of an 
airline that has ceased operations involve consideration of delays, 
security and baggage screening, and fraud, and could vary by market, 
time of service, and season. Accordingly, the carrier states, it did 
not have sufficient time to document all such costs. It states that 
instead, it elected to assess such passengers the same fare it would 
charge employees for friends and family members, under its ``buddy 
pass'' system, which permits those persons to

[[Page 4267]]

travel on a space-available basis.\6\ United states that its 
``preliminary'' review persuades it that its costs exceed $25.00 each 
way but, due a lack of time in the immediate aftermath of the Vanguard 
and National shutdowns for detailed cost analyses and in view of the 
small number of passengers involved, it elected as a matter of policy 
to charge affected passengers $25.00 each way. United states that, 
because it has chosen to abide by the suggested $25.00 amount, it does 
not wish to burden itself with providing cost information at this time. 
United points out, however, that a variety of factors may affect its 
costs in any future instance where section 145 comes into play, such as 
fuel costs, the number of passengers affected, and the itineraries 
involved, such as domestic versus international travel. United states 
that it may, in some instances, impose a charge higher than $25.00 each 
way but adds that it will advise the Department before doing so.
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    \6\ We have reason to believe that such a system would result in 
charges far in excess of $25.00 each way. Soon after National ceased 
operations, America West orally advised a Department staff member 
posing as a National passenger that its charge for transportation 
from Las Vegas to Chicago and return would be $168.50. At that time, 
the walk-up fare for any passenger was $276. Upon further inquiry by 
the Department, America West stated that this system was no longer 
being used in connection with section 145 and that it was assessing 
National passengers a $25 charge each way for standby travel.
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    We see no reason, based on the comments submitted, to change our 
guidance with respect to the implementation by carriers of the 
requirements of section 145. We find particularly unpersuasive Delta's 
and American's argument that we lack the authority to provide any 
guidance with respect to section 145, and that our actions are unlawful 
ratemaking. Equally unpersuasive is the carriers' argument that the so-
called ``marketplace'' rate, i.e. whatever rate those carriers elect to 
charge, is what Congress intended in requiring carriers to accommodate 
displaced passengers ``to the extent practicable.'' \7\
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    \7\ Section 145 cannot be viewed in a vacuum. Congress enacted 
section 145 in an effort, at least in part, to ensure some measure 
of relief to aviation consumers who might be adversely affected by 
the serious economic consequences on airlines resulting from the 
terrorist attacks on September 11, 2001. At the same time it imposed 
these new duties on airlines, it also provided them with 
compensation totaling billions of dollars.
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    We are not, as suggested by Delta and American, setting rates. As 
we stated in our earlier notices, in requiring carriers to accommodate 
passengers of a failed carrier ``to the extent practicable,'' it is 
reasonable to assume that Congress did not intend to prohibit carriers 
from recovering minimal amounts associated with the actual cost of 
providing alternate transportation.\8\ Adoption of Delta's and 
American's ``marketplace'' charge argument would render section 145 
meaningless. Prior to enactment of section 145, airlines were free to 
transport passengers of a carrier that had ceased operations on a 
standby or confirmed basis at whatever charge they deemed appropriate. 
If, as Delta and American suggest, Congress intended to permit carriers 
to continue to charge passengers of carriers that had ceased operations 
a so-called ``marketplace'' rate, i.e., whatever rate the carriers deem 
appropriate, then Congress need not have enacted section 145 in the 
first place.\9\
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    \8\ However, since section 145 is silent on the issue of whether 
any fees may be assessed for transporting passengers of a carrier 
that has ceased service on a route, another possible interpretation 
might be that Congress intended that carriers not charge passengers 
at all for carriage under section 145.
    \9\ For this same reason, American's argument that Congress 
intended that passengers should assume the risk in booking with a 
financially weak carrier would, if adopted, necessarily render 
section 145 meaningless.
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    Furthermore, the carriers' argument that it is unfair to charge a 
section 145 passenger less than they charge their own passengers to be 
reticketed is inapposite. Some of American's and Delta's domestic 
passengers are assessed a ``standard reticketing fee'' under terms of 
their contract of carriage with the respective airline for the fare 
under which they were ticketed, but only after they have voluntarily 
changed their travel plans as provided in the contract of carriage. 
Such change fees are in large measure assessed not simply to recoup 
reticketing costs, but in order to differentiate one fare product from 
another, i.e., as a ``penalty'' to affect passengers'' purchasing 
behavior. Indeed, some fare-paying passengers of American and Delta may 
change their travel plans at will and are not required to pay any 
``reticketing'' fee at all.
    We believe that the airlines'' normal pricing practices provide 
powerful evidence that the carriers' domestic ``standard reticketing 
fee'' of $100 far exceeds any costs of providing that service.\10\ Each 
day, tens of thousands of Delta and American passengers are charged 
less than $100 each way, including taxes, by those carriers for their 
air transportation. Indeed, statistics filed with the Department by 
Delta show that in the second quarter of 2002, more than 3 million of 
Delta's fare-paying passengers, about 36 percent, paid less than $100 
each way to travel on the carrier.\11\ Similarly, statistics filed with 
the Department by American show that, for the same period, more than 
2.3 million passengers, about 28 percent, paid less than $100 each way 
to travel on the carrier. Thus, it appears that unless those two 
carriers are offering a large percentage of their seat inventory at 
prices below their cost, there is no relation between the ``standard 
reticketing fee'' and Delta's or American's cost to carry a 
passenger.\12\
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    \10\ We note that both American and Delta assess a ``standard 
reticketing fee'' of $150 for international travel.
    \11\ 11 This information is based on Passenger Origin-
Destination Survey data filed with the Department. Most passengers 
purchase tickets on a round trip basis.
    \12\ In addition, the position asserted in the comments filed by 
Delta and American is inconsistent with information provided to us 
by those airlines during our reviews of competition issues. In those 
cases, and in court proceedings under the antitrust laws, airlines 
routinely contend that their incremental cost of carrying an 
additional passenger is minimal, being made up largely of Computer 
Reservations System or other booking fees, credit card fees, 
commissions, marketing fees, and minor costs for fuel and food. In 
fact, we have recently been advised by a Delta official that the 
variable cost of accepting an additional passenger is $25 or less.
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    American also asserts that we have not adequately addressed its 
concerns over establishing the validity of tickets, especially 
electronic tickets, of passengers seeking to be reaccommodated under 
section 145. We disagree. We continue to believe that, in the case of 
electronic tickets, it is reasonable for airlines to take steps to 
satisfy themselves of the bona fides of the ticketholder requesting 
alternate transportation. Our suggestion that it would be appropriate 
to require passengers to provide proof of payment and confirmation, 
such as receipts and printed itineraries, was not intended to be 
exclusive, but only an example of the types of steps that might be 
taken by a carrier to satisfy itself of the validity of a passenger's 
claim to transportation under section 145. We recognize that there may 
be instances in which, absent verification of the passenger's status by 
the failed carrier, an airline cannot confirm the validity of the 
passenger's claim to transportation under section 145. However, that 
fact does not require the conclusion that the only way in which to 
validate a passenger's status is through a paper ticket or access to 
the failed carrier's reservation system.
    As we have made clear in our prior notices, we are sympathetic to 
carriers' concerns that they not suffer uncompensated additional 
expenses in transporting passengers pursuant to section 145. We are 
disappointed, however, that no carrier, particularly those raising the 
strongest objections about our prior notices, chose to provide

[[Page 4268]]

us with any information on their direct costs of carrying passengers on 
a space-available basis pursuant to section 145.
    Notwithstanding our public invitation to all affected parties, 
there is no evidence in any of the comments submitted to us indicating 
that our suggested charge of $25.00 each way to accommodate passengers 
under section 145 is unreasonable. As we informally made clear to every 
carrier that inquired at the outset, and as is plain from our November 
14 notice requesting comments on the cost issue, we understand that 
costs may vary by carrier. We also agree with the commenters who 
suggested that the cost to a particular carrier of complying with 
section 145 may be affected by a variety of factors, including the 
number of passengers, the current fuel costs to carriers, and the 
markets and itineraries involved. We note that, consistent with our 
statutory responsibilities, including those under 49 U.S.C. 41712, it 
is important in implementing section 145 to avoid uncertainty and 
unnecessary harm to the industry and the public. We therefore intend to 
continue to monitor this situation and work with all carriers 
informally to ensure that the Congressional intent of section 145 is 
effectuated in any given situation.
    Questions regarding this notice may be addressed in writing to 
Dayton Lehman, Deputy Assistant General Counsel, Office of Aviation 
Enforcement and Proceedings, 400 7th St., SW., Washington, DC 20590, or 
he may be contacted by telephone at (202) 366-9342.
    An electronic version of this document is available on the World 
Wide Web at http://dms.dot.gov/reports.

    Dated: January 23, 2003.
Read C. Van de Water,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 03-2007 Filed 1-24-03; 11:13 am]
BILLING CODE 4910-62-P