Order 2007-9-16

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Action on IATA Agreement Issued by the Department of Transportation

on the 14 th day of September, 2007

ORDER AMENDING EXEMPTION

By Order 2006-12-24, served January 2, 2007, the Department granted an exemption from condition # 2 imposed on IATA’s Procedures for the Conduct of the IATA Traffic Conferences by Order 68-7-55, to the extent that IATA need not file certain tariff conference resolutions for review and approval by the Department. The resolutions established a new “Flex Fares”

mechanism for the establishment of IATA inte rline passenger fares for travel within the European Common Aviation Area (ECAA). 1

The resolutions were listed in an appendix to the Order. Under the Flex Fares mechanism, IATA will establish interline business-class and economy-class normal fares by computing an average of IATA carriers’ own fully-flexible market fares for each city pair, based on certain criteria, and then adding a six-percent “interline premium.” The flex fares will be recomputed twice yearly, and the six-percent interline premium may be amended through the E-Tariffs process, an internet platform operated by IATA. Essentially, the new IATA mechanism was designed by IATA to comply initially with the European Commission’s withdrawal of the prior block exemption for tariff coordination from EU competition law, by eliminating consultations among carriers, through face-to-face meetings, mail votes, or other means of direct communication, for the periodic establishment of business-class and economy-class fares for interline travel within the

ECAA. 2 The Department’s order exempted from our agreement-filing condition the new

1 IATA defines the ECAA to include the European Union (EU) member states plus Switzerland, Norway, Iceland

and Lichtenstein.

2 Regulation (EC) No. 1459/2006, adopted September 28, 2006, terminated the prior block exemption from EU competition law for such interline consu ltations effective January 1, 2007. Amendment of exemption under 49 U.S.C.

40109 from the conditions of CAB Order 68-7-55 for Passenger Tariff Coordinating

Conference Action Served: September 19th, 2007

Docket OST-2006-26409-2-

resolutions, future amendments to those resolutions, and fares generated under the resolutions, provided that the resolutions and amendments thereto are limited to the establishment of fares for

travel within the ECAA. 3

On June 11, 2007, IATA filed an application for an amendment to the exemption granted by Order 2006-12-24 to expand its scope to cover an expansion by IATA of the same Flex Fare resolutions to be applicable within all of Eu rope. For non-ECAA points, first-class flex fares will be established in addition to business and economy-class fares. 4 IATA requests that, as before, the exemption encompass the amended Flex Fare resolutions, future amendments of them, and fares generated under the resolutions, provided that they are limited to travel within Europe.

In support of its request, IATA states that the reasons justifying the expanded exemption as consistent with the public interest are substantially the same as relied upon the Order 2006-12-24: (1) intra-Europe fare agreements typically have been approved using expedited procedures because they seldom raise any public interest issues involving U.S. passengers under U.S. aviation policy or U.S. antitrust laws; (2) the Flex Fares system will be subject to the EU competition laws and the competition laws of other European nations; and (3) the exemption is consistent with actions the Department has taken on other IATA agreements that do not present significant issues under U.S. antitrust laws, such as exemption from filing numerous agreements produced by IATA services and agency conferences.

On June 20, 2007, IATA filed an additional application to broaden further the scope of the exemption to Flex Fare resolutions applicable between Europe and the South West Pacific. Flex fares would be established for first, business and economy class, and the interline premium would be 12 percent. 5 The reasons provided in justification of this expansion were substantially the same as those given in support of an expansion to all of Europe. 6

On August 2, 2007, IATA filed an additional application to broaden further the scope of the exemption to Flex Fare resolutions applicable between Europe and the South Asian

Subcontinent. 7

3 In the Order, the Department sua sponte also exempted from condition 2 to the same extent any agreements of the passenger and cargo agency conferences insofar as they involve only IATA carrier agents within the ECAA.

4 For passenger tariff purposes, IATA defines “Europe” as c onsisting of the ECAA states plus Albania, Algeria, Andorra, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Georgia, Gibr altar, Macedonia (FYROM), Moldova, Monaco, Montenegro, Morocco, Russian Federation (west of the Urals), San Marino, Tunisia, Turkey and

Ukraine.

5 IATA defines the “South West Pacific” for passenger tari ff purposes as consisting of American Samoa, Australia, Cook Islands, Fiji, French Polynesia, Kiribati, Nauru, New Caledonia, New Zealand, Niue, Norfolk Island, Papua New Guinea, Samoa, Solomon Islands, Tonga, T uvalu, Vanuatu, and Wallis and Futuna Islands.

6 The EU Regulation of September 28, 2006, terminated the block exemption for tariff coordination between the EU and Australia effective June 30, 2007.

7 IATA defines the “South Asian Subcontinent” for pa ssenger tariff purposes as consisting of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.-3-

Flex fares would be established for first, business and economy class, and the interline premium would be 15 percent. The reasons provided in justification of this expansion were substantially the same as those given in support of an expansion to all of Europe.

We will grant the expanded exemptions as requested, under the same conditions. We find that an expansion of the Flex Fare mechanism to include IATA interline fares for travel within Europe, as defined by IATA for purposes of its TC2 geographic tariff conference, is consistent with the public interest for the reasons stated in Order 2006-12-24. While technically, the prior block exemption from EU competition law for tariff coordination between the ECAA and other points in Europe is still in force, 8 we have no fundamental concern that IATA’s new mechanism

will differ when the other European states and regi ons are added. The intra-ECAA markets are by far the predominant ones within the TC2 (Europe) tariff conference, and it makes practical sense for IATA to apply its new procedures in their entirety to the whole geographic conference. More significantly, as we noted in Order 2006-12-24, IATA fares for travel not only within the EU but within Europe in general typically present no pub lic interest concerns justifying our review of agreements limited to such travel.

For similar reasons, we will also expand our exemption to cover passenger and cargo agency conference resolutions that apply solely to agents within Europe as defined by IATA in its amended request.

Finally, we will grant the expanded exemption requested for the Europe-South West Pacific and Europe-South Asian Subcontinent regions, as defined by IATA for purposes of its TC23 geographic tariff conference. This exemption w ould cover both an expansion of the Flex Fare

mechanism to include IATA interline fares for tr avel between Europe and the South West Pacific and South Asian Subcontinent, as well as passenger and cargo agency conference resolutions that apply solely to agents within the South West Pacific and the South Asian Subcontinent.

ACCORDINGLY,

1. We exempt the Passenger Tariff Coordinating Conference resolutions identified in Appendix A to this order, amendments to them, and fares generated under the resolutions, from condition #2 imposed on IATA’s Procedures for the Conduct of the IATA Traffic Conferences, Agreement 1175, as amended by Order 68-7-55, to the extent that IATA need not file the resolutions for review and approval by the Department prior to a declaration of effectiveness by IATA and implementation by IATA members, provided that the resolutions and amendments thereto are limited to the establishment of fares for travel within Europe;

-4-

8 The EU regulation of September 28, 2006, made IATA passenger fare coordination between the ECAA and, inter

alia , other places within Europe subject to EU competition law as of October 31, 2007. On June 29, 2007, the European Commission reaffirmed that the block exempti on regulation would not be renewed beyond that date.2. We exempt Passenger Agency Conference and Cargo Agency Conference resolutions that apply solely to agents within Europe, from condition #2 imposed on IATA’s Procedures for the Conduct of the IATA Traffic Conferences, Agreement 1175, as amended, by Order 68-7- 55, to the extent that IATA need not file the resolutions for review and approval by the Department prior to a declaration of eff ectiveness by IATA and implementation by IATA members;

3. We extend the exemption in paragraph 1 to Passenger Tariff Coordinating Conference resolutions corresponding to those in Appendix B to this Order for travel between Europe and the South West Pacific, and extend the exemption in paragraph 2 to Passenger Agency Conference and Cargo Agency Conference resolutions that apply solely to agents within the South West Pacific;

4. We extend the exemption in paragraph 1 to Passenger Tariff Coordinating Conference resolutions corresponding to those in Appendix C to this Order for travel between Europe and the South Asian Subcontinent, and extend the exemption in paragraph 2 to Passenger Agency Conference and Cargo Agency Conference resolutions that apply solely to agents within the South Asian Subcontinent;

5. This exemption may be revoked in whole or in part, at any time; and

6. This Order will be served on the International Air Transport Association.

By:

Andrew B. Steinberg Assistant Secretary for Aviation

and International Affairs

(SEAL)

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

Reso IATA No. No. Title Expiry R-1 002 TC2 Amending Resolution within Europe Indefinite

R-2 111eu TC2 Within Europe Flex Fares Indefinite

R-3 042eu TC2 Within Europe Intermediate/Business Class Indefinite

R-4 052eu TC2 Within Europe First Class Flex Fares Indefinite

R-5 062eu TC2 Within Europe Economy Class Flex Fares Indefinite

Appendix BReso IATA No. No. Title Expiry R-1 002 TC23/123 Amending Resolution between Europe and Indefinite

South West Pacific

R-2 111bb TC23/123 Flex Fares between Europe and South Indefinite

West Pacific

R-3 045bb TC23/123 Intermediate/Business Class Flex Fares Indefinite between Europe and South West Pacific

R-4 055bb TC23/123 First Class Flex Fares between Europe Indefinite

and South West Pacific

R-5 065bb TC23/123 Economy Class Flex Fares between Indefinite Europe and South West PacificAppendix C

Reso IATA No. No. Title Expiry R-1 002 TC23 Amending Resolution between Europe and South Indefinite

Asian Subcontinent

R-2 111c TC23 Flex Fares between Europe and South Asian Indefinite

Subcontinent

R-3 045cc TC23 Intermediate/Business Class Flex Fares between Indefinite Europe and South Asian Subcontinent

R-4 055cc TC23 First Class Flex Fares between Europe and South Indefinite

Asian Subcontinent

R-5 065cc TC23 Economy Class Flex Fares between Europe and Indefinite

South Asian Subcontinent