UNITED STATES OF AMERICA

**DEPARTMENT OF TRANSPORTATION**

**OFFICE OF THE SECRETARY**

**WASHINGTON, DC**

Section 145, referrred to below, expired in 2006. Since that time there
has been no requirement for airlines to honor the tickets of another
airline that ceases operations(although some air carriers do so
voluntarily, usually with restrictions and/or a small fee).

#  

HONORING TICKETS OF NATIONAL AIRLINES PURSUANT TO THE REQUIREMENTS OF
SECTION 145 OF THE AVIATION AND TRANSPORTATION SECURITY ACT

# NOTICE

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, P.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]

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]

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.

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 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.

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]

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]

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]

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 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 7^th^ St., S.W., Washington, D.C. 20590, or he may
be contacted by telephone at (202) 366-9342.

By:

**Read C. Van de Water**

***Assistant Secretary for***

##  Aviation and International Affairs

Dated: January 23, 2003

(SEAL)

*An electronic version of this document is available on the World Wide
Web at http://dms.dot.gov/reports*

[^1]: Failure by an airline to comply with section 145 may constitute an
    unfair and deceptive practice in 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 cost attributable to transporting an additional
    passenger.

[^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.

[^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).

[^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.

[^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.

[^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.

[^10]: We note that both American and Delta assess a "standard
    reticketing fee" of \$150 for international travel.

[^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.