# FlFL

# YERSRIGHTSOR~
BEFORE THE SECRETARY OF TRANSPORTATION U.S. DEPARTMENT OF TRANSPORTATION Anthony Foxx Secretary ofTransportation U.S. Department ofTransportation 1200 New JerseyAve., SE Washington, DC 20590-0001



## PETITIONFORRULEMAKING: LIMITATION ON CHANGE FEES FORINTERNATIONAL FLIGHTS

SUBMITTED BY: FL YERSRIGHTS.ORG 

# February 11, 2015

Pursuantto§ 553(e) ofthe Administrative Procedure Act1 and 49 C.F.R. 5.11, FlyersRights.org and the undersigned herebypetitionthe Department ofTransportation (DOT) to regulate change fees for foreign air transportation under 49 U.S.C. §§ 41501 and 41509. A corollary ofthe right to petition in§ 553(e) is the right to receive reasons ifthe petition is denied. The Supreme Court recently reaffirmed limitedjudicial review for the denial ofa rulemaking petition and for the adequacy ofthe reasons given?

1 5 USC§ 553(e). 2 See Massachusetts v. E.P.A., 549 U.S. 497 (2007). 1 

# /

### I. Introduction FlyersRights.org is the largest nonprofit airline passenger organization with over 50,000 members and supporters nationwide. Itwas the principal advocate ofthe 2009 Three Hour Rule ending tarmac confinements, for truth in scheduling regulations by the Department of Transportation, and for the 2012 inclusion ofairline passenger rights provisions in the 2012 FAA Modernization and Reform Act. Itpublishes a weekly online newsletter, operates a toll free hotline for airline passengers, and advocates for theirrights and interests.3 FlyersRights was founded by Kate Hanni in 2007 after she, along with thousands ofothers, was stranded onthe tarmac for over 9 hours.
In 1958, Congress enacted the Federal Aviation Act creating the Federal Aviation Administration and continuing the Civil Aeronautics Board while redefining their responsibilities.4 Congress fully deregulated the domestic airline industry through the Airline DeregulationAct of 1978 (ADA). 5 However, the passage ofthe International AirTransportation CompetitionAct of 1979 (IATCA) did not fully deregulate foreign air transportation butinstead left intact regulatory provisions from the Federal Aviation Act. 6 The Civil Aeronautics Board
was eventually disbanded and its remaining authority and responsibilities transferred to the Office ofthe Secretary within DOT. In 1994, Congress revised and codified existing transportation and aviation law.7 Every airline was required to establish and maintain "reasonable prices, classifications, rules and practices related to foreign air transportation." 8 By definition, "price" includes any "fare or charge" for air transportation. 9 Every airline that engaged in foreign air transportation was required to file tariffs withthe DOT. 10 DOT could reject any tariffthat was not consistent withthe statutory requirements or DOT regulations. 11 DOT could conduct a hearing, either on its own initiative or acting on a complaint, to determine

3 See www.flyersrights.org. 4 Federal Aviation Act, Pub. L. 85-726,72 Stat. 731 (1958) (codified in scattered titles ofthe U.S.C.). 5 Airline Deregulation Act of 1978, Pub. L. No. 95-504, 92 Stat. 1705 (1978) (codified in scattered titles ofthe U.S.C.) 6 International Air Transportation Competition Act of 1979, Pub. L. No. 96-192, 94 Stat. 35 (1980). 7 Revision ofTitle 49, United States Code, Pub. L. 103-272, 109 Stat. 745 (1994). 8 49 U.S.C. § 41501. 9 49 U.S.C. § 40102(a)(39). 10 49 U.S.C. § 41504(a) and (b). 11 49 U.S.C. § 41504(c). 2whether a tariffwas lawful. 12 DOT adopted extensive regulations to implementthis congressional plan. 13

In selectively exempting U.S. and foreign air carriers from international passenger tariffs, the DOT acknowledged a continuation inthe "evolution ofa policy where we rely onmarket forces rather than continual government oversightto setprices for air transportation." 14 In providing international passengertariffexemptions, DOT affirmed thatthis would "not materially lessen [DOT's] abilityto intervene inpassenger pricing matters should it be necessary." 15 Further, the DOT stated that it "has always had the statutory authority to take action directly against unfiled passenger fees and rules." 16 DOT confirmed thatunder 49 U.S.C. §§ 41501 and 41509, air carriers engaged in foreign air transportation must "establishreasonable rates and rules" and that DOT has the authority to "cancel a rule that is unreasonable after notice and hearing." 17 However, inthe more than "34 years since the passage ofthe Airline Deregulation Act," DOT has "declinedto use this authority to strike down fare rules in foreign air transportation." 18
DOT also has authority under§ 41712 to prohibit any "unfair or deceptive practice or an unfair method ofcompetition in air transportation or the sale ofair transportation." 19 This has been one ofDOT's most noteworthy powers and has beenused extensively to regulate air carriers, ticket agents, and other entities involved in air transportation. 2

# ° FlyersRights would like to see DOT take similar actions under the agency's § 41501 authority.

12 49 U.S.C. § 41509(a). 13 See 14 C.F.R. § 221. 14 Exemption from Passenger Tariff-Filing Requirements in Certain Instances, 62 Fed. Reg. 10758-1078, (Mar. 10, 1997). 1s Id. 16 Id. 17 Petition for Rulemaking and Third-Party Complaint ofDonald L. Pevsner, Esq., Docket OST 2012-0109, Order 2012-11-4, 5 (November 6, 2012), available athttp://www.dot.gov/sites/dot.gov/files/docs/eo

_2012-11-4.pdf [hereinafterPevsner DenialJ. 18 Id. 19 49 U.S.C. § 41712. 20 See Jol Silversmith, UnitedStates: DOTEnforcement Of Its Prohibitions on UnfairAndDeceptive Practices, 2013, Zuckert Scoutt & Rasenberger, Jan. 2014, available athttp://www.mondaq.com/unitedstates/x/331870/ Aviati on/DOT+Enforcement+Of+lts+Prohibitions+On+Unfair+And+Deceptive. 3FlyersRights.org petitions DOTto exercise its statutory authority under § § 41501 and 41509 to impose reasonable regulations limiting the extent ofchange fees inforeign air transportation. 

### IL Massachusetts v. E.P.A. and DOT's Statutory Obligation and Authority A. The U.S. Supreme Court inMassachusetts v. E.P.A. held that a federal agency cannot refuse to regulate matters within its regulatory mandate for policy or political reasons
In 1999, a group ofprivate organizations filed a rulemaking petition asking the EPA to regulate "greenhouse gas emissions from newmotor vehicles under§ 202 ofthe Clean Air Act."21 In 2003, EPA entered an order denying the petition stating that: "(1) the CleanAir Act does not authorize EPAto issue regulations addressing climate change; and (2) that even ifEPA had the authority to set greenhouse gas emission standards, it wouldbe unwise to do so at this time.'o22 The U.S. Supreme Court rejected these arguments, holding instead that EPA did have authority to issue suchregulations and that EPA could avoid taking regulatory action only ifit determined that greenhouse gases do not contribute to climate change or ifit provided some reasonable explanation as to why it cannot orwill not exercise its discretion to determine whetherthey do. 23 The Courttookthe standard EPA was required to use during rulemaking proceedings and required it to apply that standard in deciding whetherto institute rulemaking proceedings in the first place.24
The Court disposed ofthe authority issue first. The Clean AirAct in relevant part "provides that EPA 'shall by regulation prescribe

... standards applicable to the emission ofany air pollutant from any class or classes ofnew motor vehicles ornewmotor vehicle engines, which in [the Administrator's]judgment cause, or contribute to, air pollutionwhich may reasonably be anticipated to endangerpublic health orwelfare."'25 Since the Clean AirAct

21 Massachusetts v. E.P.A., 549 U.S. 497, 510 (2007). 22 !d. at 511. 23 !d. at 497. 24 Jeffrey A. Rosen,A Chance forA SecondLook: JudicialReview of RulemakingPetition Denials, Admin. & Reg. L. News, Fall2009, at 7-8. 25 Massachusetts v. E.P.A., 549 U.S. at 528 (citing 42 U.S.C. § 7521(a)(l)). 4defines "airpollutant" as including any substance emitted or entering the atmosphere, the statute is unambiguous and EPA possesses authority to regulate greenhouse gas emissions?6
The Courtnext disposed ofEPA's second reason for denial. The Clean Air Act language above does condition the exercise ofEPA's authority on the Administrator'sjudgment. However, thatjudgment only relates to whether an air pollutant "cause[s], or contribute[s] to, air pollution which mayreasonably be anticipated to endangerpublic health or welfare.'m "Put another way, the use ofthe word 'judgment' is not a roving license to ignore the statutory text. It is but a direction to exercise discretion within defined statutory limits."28
"IfEPA makes a finding ofendangerment, the CleanAir Actrequires the Agency to regulate emissions ofthe deleterious pollutant from new motor vehicles."29 EPA has significant latitude as the how to go about regulating the pollutant but once it has responded to a rulemaking petition, its reasons for action or inaction must conform to the authorizing statute?0 EPA could avoid taking further action only ifit either determined that greenhouse gases pose no endangerment or ifitprovided a reasonable explanation as to why it would not make that determination in the first place. 31 To the extentthat "this constrains agency discretion

... [it] is the congressional design."32
Instead ofcomplying with its "clear statutory command," EPA instead offered a "laundry list ofreasons" not to regulate. 33 The Court acknowledged that while thejudiciaryhas "neither the expertise nor the authority" to evaluate the merits ofsuchpolicyjudgments, it is immaterial
as "theyhave nothing to do with whether greenhouse gas emissions contributed to global warming."34 Forthe EPA, the statutory question was whether sufficient information existed to make an endangerment finding, not whetherpolicy reasons exist to not make that finding. 35 The

26 See id. at 528-29. 27 /d. at 532. 28 !d. 29 !d. at 533. 30 See id. 31 !d. 32 !d. 33 !d. 34/d. at 524. 35 /d. 5Court suggested that EPA would need to present a reason it "could not" make a statutory endangerment finding, rather thanrely onpolicy reasons why it would "prefer not" to do so. 36


### B. DOT's statutory authority and obligations require it to regulate and prohibit unreasonable, unfair and deceptive international change fees
The situation addressed inMassachusetts v. E.P.A. is analogous in many ways to DOT's refusal to provide any regulation ofprices in foreign air transportation. § 41501 provides that every "air carrier and foreign air carrier shall establish, comply with and enforce

... reasonable prices, classifications, rules, and practices related to foreign air transportation."37 "Price" includes any "rate, fare, or charge."38 The Secretary "may conduct a hearing to decide whether a price

... is lawful" and ifafter the hearing the Secretary "decides that the price

... is orwill be umeasonable" thenthe Secretary may "preventthe use ofthe price."39 The Secretary may also, with or without a hearing, "preventthe use ofa price

... when the Secretary decides

... [it] is in the public interest."40 The combination of§§ 41501 and 41509 creates a similar set ofstatutory authority and obligations as§ 41712, under which DOThas regulated extensively to combat unfair and deceptive practices.
While DOT's regulatory authority overprices is discretionary this it is not a roving license to ignore the statutory text. DOT must determine whether or not the price offares and fees charged in foreign air transportation are "reasonable" and exercise its regulatory authority when they are not. DOT can only avoid taking regulatory action ifit determines that the prices
are "reasonable" or ifit canprovide a valid explanation as to why it cannot or will not make that determination. The congressional design ofthe statute was to constrain DOT discretion. Itdoes this by imposing a mandate ofreasonableness onprices in foreign air transportation. DOT has latitude inhowto address umeasonable prices and fees, but it must address them.

36 Rosen, supra note 24, at 7-8. 37 49 U.S.C. § 41501. 38 49 U.S.C. § 40102(a)(39). 39 49 U.S.C. § 41509(a)(l). 40 49 U.S.C. § 41509(a)(2). 6DOT has offered policy arguments for notregulating,41 butregardless oftheir merits such policyjudgments are immaterial as they have nothing to do with whether ornot a fare or fee is reasonable. For DOT,just as inMassachusetts v. E.P.A., the statutory question is whether sufficient information exists to make a reasonableness finding, not whether policy reasons exist to ignore their statutory obligations and abdicate their responsibilities. As DOT does not contest that it has the authority to regulate ancillary fees for foreign air transportation, it must regulate such fees where they are found to be umeasonable. Further, in any attempt to avoid making a determination ofreasonableness, any argument that limiting excessive ancillary fees was not intended by Congress and therefore outside the purview ofthe DOT is incorrect. The U.S. Supreme Court has held thatbecause "a statute can be applied in situations not expressly anticipated by Congress does not demonstrate ambiguity. It demonstrates breadth."42 Finally, the Court inMassachusetts reemphasized the broad discretion afforded to government agencies under Chevron USA. Inc. v. Natural Resources Defense Council, Inc. in choosing how best to marshal their limited resources and personnel to carry out their delegated responsibilities.43 However, the Court acknowledged key differences surrounding the denial ofa rulemaking petition. 44 "Refusals to promulgate rules are thus susceptible tojudicial review, though such review is 'extremelylimited' and 'highly deferential."'45


### III. Reasonableness A. DOT currently lacks any regulatory scheme for regulating or prohibiting unreasonable fees for international air travel
In an antitrust price-fixing case brought against foreign airlines in U.S. District Court, neither the district court nor anyparty could find evidence that the DOT ever disapproved ofan

41 DOT has a general beliefin using the "marketplace" and "pro-competitive policies" when dealing with prices, reasonable ornot, in foreign air transportation. See Pevsner Denial, supranote 17, at 5. 42 Massachusetts v. E.P.A., 549 U.S. 497, 505 (2007) (citing Pennsylvania Dept. of Corrections v. Yeskey, 524 U.S. 206,212 (1998)). 43 Jd. at 527. 44 See id. 45 Jd. at 527-28. 7international rate or fare based on its pricing level or reasonableness. 46 The court found no evidence "thatthe DOT has ever rejected as umeasonable any international air fare" and that with respect to unfiled air fares the agency had "effectively abdicated its authority."47 This lack ofDOT regulation also extends to additional fees such as fuel charges, withthe DOT announcing that it "wouldnot 'effectively monitor' fuel surcharges" and the court finding "no evidence of any ongoing regulation."48 Finally, DOThas itselfstated that inthe more than "34 years since the passage ofthe Airline DeregulationAct," it has "declinedto use this authority to strike down fare rules in foreign air transportation."49
To compoundthe harm caused by DOT's abdication ofauthority and responsibility in ensuring reasonable prices and fees in foreign air transportation, there is no private right of action in orderto enforce the provisions of49 U.S.C. § 41501. 5

# ° Federal preemption also denies
consumers state law remedies.5 1 Therefore, the onus is solely onDOTto act to protect
consumers. DOThas not previously regulated prices inforeign air transportation. We urge them to rectify this mistake.
B. What is reasonable?
The hardest question to answer in this petition is defining what exactly is reasonable for change and cancellation fees in foreign air transportation. Airlines may argue that any and all fees are reasonable at any level and DOT, by declining to regulate at all inthis arena, has apparently accepted that premise.
In life there are many eventualities that consumers cannot expect or plan for. They should not be left holding the bag while airlines charge exorbitant fees umelatedto the actual costs of the passengers' actions. Neither should airlines needlessly suffer financially because oftheir passengers' actions. Therefore, reasonableness, for the purposes of§ 41501, should be tied to the actual cost or loss incurred by an air carrier when a passenger changes a flight.

46 In re Transpacific PassengerAir Transp. AntitrustLitig., 2014 WL 4744512, at *5 (N.D. Cal. Sept. 23, 2014). 47 !d. at *10-12. 48 /d. at *13. 49 Pevsner Denial, supra note 17, at 5. 50 SeeAm. Exp. Travel RelatedServs. Co. v. Marco, 611 F. Supp. 938, 942 (S.D.N.Y. 1985). 51 49 U.S.C. § 41713. 8In most instances, the airline bears no burden from passengers changing flights, quite the opposite. The passenger typically must paythe differential in price for the new flight along with
a hefty change fee. As the costs associated with shifting a passenger's electronic reservation from one flight to another are minimal, the effect ofchanging that passenger from what is typically a cheaper to a more expensive ticket, coupled with a change fee, amounts to a windfall profit for the airline. As a result, such change fees end up being an unfair and umeasonable profit
source for airlines, not a reasonable charge to cover the actual costs. Furthermore, there is no deterrence rationale strong enough for a passenger changing flights that would necessitate the exorbitant change fees we currently see. However, airlines have made deterrence-based arguments for higher change fees and at least one airline CEO has stated that change fees are in fact intended to discourage changes.52 Airlines have argued that lower change fees could lead to consumers speculatively buying tickets far ahead ofpotential travel, but since airlines charge the differential in ticketprice along with the change fee this would not in fact be a beneficial practice for consumers. Airlines have also argued that another cost necessitating high change fees is the loss ofrevenue airlines will experience ifconsumers purchase regular fares instead ofhigh priced flexible orrefundable fares. Once could argue this would force airlines to increase regular fares to compensate. However, as we address in the next section, refundable/flexible fares are already a minority oftickets purchased and priced so comparatively high that a reduction in change fees wouldhave little to no impact ontheir sale. Furthermore, Southwest continues to successfully charge no change fees without succumbing to the plethora ofnegative consequences described by others inthe airline industry.
There is, to some minor extent, an opportunity cost for airlines when a personmakes a reservation, as it deprives the airline ofthe opportunityto sell that seat to another. Ifthe passenger ultimately returns the seat by changing flights, the airline is free to sell itto someone else but nowhas a smaller window within which to make that sale. However, a passenger who changes flights is still flying with that airline,justin a different seat (and after adjusting for the difference in fares and a change fee, paying significantlymore). When customers make changes far in advance, airlines can usually resell their original seat while still charging them the fare

52 Ted Reed, The Highest Fees in theAirline Business, TheStreet, Jul. 9, 2013, available at http://www.thestreet.com/story/11970320/l/the-highest-fees-in-the-airline-business.html. 9differential and a change fee. 53 When changes are made several weeks or more in advance there is really no rationale for a change fee at all.
In reality, change fees no longer bear any resemblance to a reasonable approximation of the cost incurred bythe airlines but exist merely as a tool to gouge consumers faced with the unpredictable nature oflife. The CEO ofAmericanAirlines stated that demand is "whatwe should base ourpricing on, not our cost structure."54 The standard change fee for the major U.S. airlines has progressively gone up inthe last 15 years from "$50, then $75, then $100" before hitting $150 in 2008. 55 In April of2013, the major U.S. airlines raised their change fees again so that the average fee to change international tickets hovered around $300. 56 At the high end, on some discounted first class international tickets, American Airlines charged $750. 57 From 2007 to 2014, airline revenue from cancellation and change fees went from $915 millionto over $2.9 billion, an increase ofmore than 225 percent.58 Accordingly, current international change and cancellation fees (often in excess of$300) should be consideredper se unreasonable giventhat a dozen years ago airlines charged fees of$25-50 and there has been no material increase inthe costs associated with flight change tojustifythe astronomical growth ofthese fees.


### C. Refundable fares and travel insurance are not real alternatives
A commonrefrain, both within the airline industry and from DOT,59 is that passengers concerned withthe possibility ofhaving to change or cancel a flight are able to purchase fully refundable tickets for a higher fare that allow them to avoid change and cancellation fees. The DOT has reiterated "thatthe lower price for nonrefundable tickets is a trade-offfor passengers agreeing to a restriction that allows a carrier to manage its inventory and cash flow." 60 However,

53 Scott McCartney, WhyAirlinesReschedule Flights More Often andMore Drastically, WSJ, Feb. 5, 2013, available at http://www.wsj.com/news/articles/SB10001424052702303496804579364973804887940. 54 Thomas Frank,Airlineprofits soaryetno relief forpassengers, USA Today, Jan. 27, 2015, available at http://www.usatoday.com/story/news/2015/01/27 /airline-profits-soar-passengers-fuel/22395509/. 55 BradTuttle, Oof Airline Fees Rise YetAgain, atLeast200 to Change a Flight, Time, Apr. 24, 2013, available at http:/ /business.time.com/20 13/04/24/oof-airline-fees-rise-yet-again-at-least-200-to-change-a-flight/. 56 Reed, supra note 52. 57 Id. 58 Bureau ofTransportation Statistics, Reservation Cancellation/Change Fees byAirline, Dept. ofTransportation, available athttp://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/subject_ areas/airline _information! reservation_cancellation_ change _fees/index.html; see also Exhibit 1. 59 See Pevsner Denial, supra note 17, at 5. 60 Jd. 10this argument falls apart when presented with the typically wide gulfbetween standard and refundable fares. Indeed, DOT acknowledged that bypurchasing a standard fare and paying the change fee the petitioner inthe Pevsnermatter "wouldhave saved $1338 over purchasing a fully refundable ticket."61 A National Consumer League study ofthe least expensive refundable and nonrefundable fares available in major U.S. air corridors found that "on average, a refundable ticket is 350% more expensive than a non-refundable ticket." 62 Since 1993, restricted fare tickets have "made up more than 80% ofall ticket sales across all fare classes."63 While such data is for domestic fares it is instructive for foreign air transportation. The cost is simplyprohibitive for the majority ofconsumers. Offering refundable tickets at an unreasonably prohibitive price as a realistic option for consumers to avoid change fees is absurd on its face.
Another common answer from airlines is thatpassengers should buytravel insurance. Unfortunately, travel insurance policies exclude most ofthe commonreasons leading passengers to change or cancel and trip and often leave them uncovered.64 The marketing oftravel insurance all too often relies on misleading language and dense policy descriptions.65 Due to such broad exclusions, confusing policies and misleading marketing, travel insurance is not a realistic option for the majority ofpassengers. 

### D. Change fees in foreign air transportation should be capped
In looking to change fees in foreign air transportation, there are several potential ways to create a reasonable cost cap such as limiting change fees to a percentage ofthe base or newfare,
a flat cap, or a tiered fee structure based on chosen flight factors. We ultimately believe a cap of $100 for change fees, while allowing airlines to charge for the differential in fare values, would prove reasonable. However, when changes are made far enough in advance (long enough for airlines to resell the seat) the onus should be onthe airlines tojustifythe reasonableness of

61 !d. 62 Nat'l Consumers League, $tuff Happens: Airlines BenefitHandsomely From the Unexpected

... and Consumers' FearAboutIt, Sep. 23, 2013, 8-9, available at http://www.nclnet.org/images/PDF/airtravel_insurance _report.pdf; see also Exhibit 2. 63 !d. at 7. 64 See id. at 14-20. 65 See id. at 10-17. 11anything butthe most minimal fee. For specific flight circumstances where airlines can demonstrate a cost greaterthan $100, then DOT may approve higher fees. 

### IV. Competition and DOT Policy A. DOT's policy ofrelying solely on airline competition is flawed and obsolete
In 1995, DOTreiterated its unwavering policy since deregulation that "the best way to achieve this goal is to rely onthe marketplace and unrestricted, fair competitionto determine the variety, quality, and price ofair service."66 This was reaffirmed in 2003 67 and again in 201268 for both domestic and foreign air transportation. DOT applies this logic to change fees.
Times have changed however, and DOT's policy ofrelying totally on "marketforces" with a complete lack ofregulation in foreign air transportation pricing no longer makes sense. Consolidation has caused the U.S. airline industry to become incredibly concentrated. Now only four airlines control 87 percent ofdomestic flights and control ofinternational flights are similarly concentrated.69 While the public once benefited from lower fares flowing from deregulation, the tide has turned inthe other direction due to airline consolidation. The industry is no longer as competitive as it once was or as it should be.
A combination ofvolatile fuel prices, the financial crisis, and the ensuing economic recession of2007-2009 "sparked a wave ofconsolidation across the airline industry."70 Delta acquired Northwest in 2008, United and Continental merged in 2010, Southwest acquired AirTran in 2011, and US Airways and American Airlines won merger approval in 2014. 71 American, Delta, Southwest, and United accounted for approximately 85 percent ofpassenger traffic in the United States in 2013.72 Consolidationwithin the airline industry has "acted like a

66 Statement ofthe U.S. Inti. Air-Transportation Policy, 60 Fed. Reg. 21841-21845, (May 3, 1995). 67 Petition for Rulemaking ofJoel Kaufman, Docket OST 2003-14334, Order 2003-3-11, 2 (March 18, 2003), available at http://www.dot.gov/sites/dot.gov/files/docs/2003-3-ll.pdf. 68 Pevsner Denial, supra note 17, at 5. 69 Phil LeBeau,NewAmericanAirlinesMeans 'Big 4' Control US Skies, CNBC, Feb. 14, 2013, available at http://www.cnbc.com/id/100461115#. 70 U.S. GOV'T ACCOUNTABILITY OFFICE, REP. NO. GA0-14-515,AIRLINE COMPETITION 5 (2014) [hereinafter GAO]. 71 See Exhibit 3 (timeline ofmergers for four remaining major carriers). 72 GAO, supra note 70, at 5. 12rising tide" by boosting airline profits, butit has also managed to "drown consumers with fee and fare hikes." 73
Since 2008, airlines have greatly improved their financial positions. 74 Airlines made a combined $8 billion inthe first three quarters of201475 and have seen their stock prices skyrocket. 76 The recent strong financial results from U.S. airlines are partially a result ofpricing power made possible through consolidation withinthe industry. 77 The GAO determined that the
success ofthe airline industry was primarily driven by a growth in revenues corning from three factors: (1) an increase in passenger traffic; (2) capacity restraint (i.e., limiting the supply of available seats inrelation to the level ofdemand); and (3) increased ancillary fees. 78
Restraint in capacityhas contributed significantly to airline profitability since 2007. 79 Until onlyrecently it was "common inthe U.S. airline market for any reduction in capacityto be quickly replaced." 80 This has led to ever higher load factors as planes today fly at over 86 percent capacity. 81 Flights were 69 percent full on average in 2003 and 56 percent full in 1991.82 Between 2007 and 2013, U.S. airlines eliminated about 1.2 million flights. 83 As demand has increased, capacityrestraint has resulted in higher airfares. 84 For example, domestic fares have increased 

### not includingfees by about 9 percent for network airlines and 17 percent for low-cost airlines between 2007 and 2012. 85 Fares, 

### not includingfees, at the U.S.'s busiest airports are rising at double the rate ofinflation since 2011. 86 Once you include the unbundling offares and the increased use ofancillary fees by airlines, this increase is even higher. Many fees that were

73 Cyrus Sanati, Deltaproves that consolidation drives up ticket fares, Fortune, Oct. 23,2013, available at http:/ /fortune.com/2013I10/23/delta-proves-that-consolidation-drives-up-ticket-fares/. 74 See GAO, supra note 70, at 11-12. 75 Frank, supra note 54. 76 !d. (In June, 2009, United's stocktraded at $3.17. In January 2015 it was up to $73.62). 77 See Sanati, supra note 73. 78 GAO, supra note 70, at 13. 79 !d. at 14. 80 !d. 81 Lonnie Shekhtman, Passengers find complaints to airlines can go nowhere fast, Boston Globe, Jan. 25, 2015, available at http://www.bostonglobe.com/business/2015/01/25/complaints-grow-but-airlines-still-allowed-get-awaywith-poor-service/vuLOn2L6FPPe9b2veyXB21/story.html. 82 Frank, supra note 54. 83 !d. 84 GAO, supra note 70, at 16. 85 !d. 86 Chico Harlan, The UnitedStates is becoming a terribleplace for air travel, Wash. Post, Feb. 3, 2015, available at http://www.washingtonpost.com/bI ogs/wonkbI og/wp/2015/02/03/airfare-is-falling-over-the-world-except-in-theunited-states/?tid=pm_ business __pop. 13previously included inthe price ofairfare are now "optional" and priced independently. The growth in these ancillary fees has significantly supplemented airline revenues.87
Consolidation has made capacity restraint a viable option for the airline industry.88 It has also created opportunities for other collusive behaviors, including parallel price increases. For example, inApril2013, United, American, Delta and US Airways all raised their domestic change fees to $200 within two weeks ofeach other.89
Consumers bearthe brunt ofthe costs associated with consolidation. Airline complaints to DOThave risen 30 percent over the past five years. 90 In the past, consumers might have balked at suchtreatment, such as being subjected to exorbitant change fees, and chosen to fly on a different airline. They have no such optiontoday. Consolidation has further resulted in leaving many routes and destinations directly serviced by only one carrier.91
The situation is further exacerbated in foreign air transportation by the fact that DOThas exercised its statutory authority to grant certain groups ofairlines within international alliances immunity from U.S. antitrust laws affecting international transportation. 92 This permits the participants to coordinate onprices, scheduling, and marketing,93 which has provided the impetus for a shift for network airlines as they focus more on international routes that "are more profitable" and "face less competition."94 In 2012, the international capacity ofU.S. network airlines represented 42 percent oftheir total capacity. 95


### B. DOT regulation
DOT already has promulgated extensive regulations in similar areas. 96 There are many other examples ofsuccessful "government intrusion" into the free market ofthe airline industry,

87 See GAO, supra note 70, at 17; see also Exhibit 1. 88 See GAO, supra note 70, at 33. 89 Associated Press,AirlineMergers HaveAlreadyIncreasedFares, CBS, Aug. 14, 2013, available at http://dfw.cbs1ocal.com/20 13/08/14/air1ine-mergers-have-a1ready-increased-fares/. 90 Shekhtman, supra note 81. 91 See Sanati, supra note 73. 92 GAO, supra note 70, at 48-49. 9" "GAO,supra note 70, at 49. 94 GAO, supra note 70, at 17. 95 Id. 96 See, e.g., 14 C.F.R. 253.7, 14 C.F.R. 259.5(b)(4), and 14 C.F.R. 399.84(a). 14such as the three hour rule for tarmac delays, which penalizes airlines who kept passengers waiting onthe tarmac for more thanthree hours. Airline executives complained vociferously about the introduction ofthe tarmac rule, stating it "would create chaos" and describing it as "stupid, unreasonable and costly."97 However, carriers quickly learned howto cope and DOT stated that the regulations ontarmac delays "have virtually eliminated the long waits aboard aircraft thatpassengers used to experience too frequently." 98 In 2009, the last full year before the tarmac rule went into effect, airlines reported 868 domestic flights withtarmac delays overthree hours and 55 international flights with tarmac delays longer than four hours. 99 2014 saw a record low with only 30 domestic flights withtarmac delays longer thanthree hours and nine international flights with tarmac delays longerthan four hours. 100 In other words, government regulation addressing the problem oftarmac delays worked wonders. The exercise ofDOT's statutory authority to regulate airline change fees would bejust as effective.
While Congress has recognized that "there are differences betweeninternational and domestic aviation," it has also instructedthat even in the foreign sphere reliance will be placed "to the maximum extentpossible" on competition, rather than on "detailed and burdensome government regulation." 101 Nevertheless, in enacting the IATCA Congress tasked DOT with "taking account, nevertheless, ofmaterial differences

... between interstate

... and foreign air transportation." 102 Congress left inplace DOT's regulatory authority overprices and rules in foreign air transportation for a reason and clearly recognizes that not all government regulation is burdensome. Here, with regard to change fees which are clearly unreasonable and have reach exorbitant levels, the Secretary ofTransportation has the power and duty to act.
V. 

### Conclusion
DOT has the statutory authority to regulate fares and fees in foreign air transportation and is obligated to do so. While DOT has regulated extensively in analogous areas it has yet to promulgate rules concerning change fees in foreign air transportation. We urge DOT to rectify

97 Tuttle, supranote 55. 98 !d. 99 Dept. ofTransportation, LowestNumbers of Tarmac Delays on Record in 2014, Feb. 10, 2015, available at http://www.dot.gov/briefing-room/lowest-numbers-tarmac-delays-record-2014. 100 !d. 101 H.R. Rep. No. 96-602, at 1-2 (1979). 102 International Air Transportation Competition Act of 1979, Pub. L. No. 96-192, 94 Stat. 35 (1980). 15this situation and prevent unreasonably high fees by imposing caps on change fees. While the use ofcompetitionto mitigate high fares was the intent ofCongress inpassing the Airline DeregulationAct and has been DOT's policy since, consolidation within the industry and antitrust exemptions granted by DOT have thwarted this hands-offapproach. Some level of governrnent intervention is necessary to protect consumers. Accordingly, we respectfully petition DOT to cap change fees at $100 on international routes absent a convincing costjustificationby airlines.

16 Submittedby: FlyersRights.org 218 D St SE, 2nct Floor Washington, DC 20003 Fax: (240) 399-1923

Paul Hudson President (800) 662-1859 paul@flyersrights.org

Richard Baxle Staff Attorney (574) 612-7381 richard@flyersrights.org

### Exhibit 1

Full year reservation cancellation/change fee revenue for U.S. airlines 2007 

### I 2008 

### I 2009 

### I 2010 

### I 2011 

### I 2012 

### I 2013 

### I 2014* $915,231,000 J$1,658,748,ooo1 $2,373,o19,oooJ$2,297,377,0001$2,380,157,000 l$2,554,658,oool$2,814,o69,ooo1 $2,982,948,000 $3,500,000,000
$3.oo:woo.ooo**~** $2,500,000,000 

# _____.-**--~-~---** 

# .. ......-- 

# / "' $2,000,000,000 

# /**----~-----** $1,500,000,000 

# / $1,000,000,000
---**~**

$500,000,000
$0 2007 2006 2009 2010 2011 2012 2013 2014*
Source: United States Department ofTransportation, Bureau ofTransportation Statistics •oata notyet available for quarter4, estimated by average quarters 1through g_ 

### Exhibit 2

50**~** 

### B 40 ;:ill 0 

## f: 30 0**~** 20 10

0 0 

## /o 

# Differences Between Non-Restricted & 

# Restricted Fareson MajorU.S. Air Routes

8

__l)___

____

0-249% 250-499% 500-749% 750-1000% >1000% Non-restrirtedfRestrictedFareDifference%

Source:National Consumers League[2013)



### 17

### Exhibit 3

Figure 1: Selected U.S. Airline Mergers and Acquisitions, 1929-2013**Aiflfn~**

American

De»a

Southwest

United 

### • 1929



## • 1934 1953 Chicago and

Southem Airlines**~** 1982 Capital Airlines f:') Acquisition or merger • Company founded ) 1972 Northeast Airlines 

### • 1971

Sources· Calhay Financml and <Hrline company documents

18 1990 Eastern Airlines Latin American routes**:3~"** 1987 1991 Western Pan Am transAirlines atianlic routes and shuttle <l<OI(;t' 2000 ASAand Comair ') 

# ·- 1994 Morris Air

### 1986=1~1991 Pan Am Pan Am PanAm Pacific london LatinAmerican mutes routes routes**""41~** 2006 Northwest f:')w% 2011 AlrTran**WWV?P'IWEj~** 2010 Continental 

## ••