Initial Regulatory Flexibility Analysis

Consumer Rulemaking NPRM:

Enhancing Airline Passenger Protections II 

Contract No.:

GS-10F-0269K

Order No.:

DTOS59-09-F-10089

Project No.:

1029-000

Submitted To:

Office of the Assistant General Counsel

Aviation Enforcement and Proceedings

U.S. Department of Transportation

1200 New Jersey Avenue, SE

West Wing

Washington, DC 20590-0001

Submitted By:

Econometrica, Inc.

4416 East-West Highway

Suite 215

Bethesda, Maryland 20814

&

HDR Decision Economics

Silver Spring, Maryland

May 12, 2010
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Table of Contents

Executive Summary...................................................................................................................... 4

Introduction................................................................................................................................... 5

1. Rationale for DOT Consideration of these Requirements................................................... 6

2. Objectives and Legal Basis for the Proposed Rule ............................................................... 6

3. Types and Numbers of Affected Small Entities .................................................................... 7

3.1. Small U.S. and Foreign Air Carriers ............................................................................... 7

3.2. Airports............................................................................................................................... 8

3.3. Travel Agencies and Tour Operators .............................................................................. 9

4. Nature and Impact of Proposed Rule on Affected Small Entities..................................... 11

5. Other Applicable Federal Regulations................................................................................. 12
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List of Tables

Table 1 - Number of U.S. Carriers by Size Class, 2008 ................................................................. 7

Table 2 - Passenger Enplanements by Size of Airport, 2008 ......................................................... 9

Table 3 - Travel Agencies and Tour Operators, 2006 .................................................................. 10
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Executive Summary

The Department of Transportation (DOT) is proposing a rule to provide airline passengers with 

additional protections in the areas of airline service provision and consumer information. Some 

of the provisions in this proposed rule build on regulatory requirements recently adopted as part 

of the Final Rule on Enhanced Airline Passenger Protections (EAPP1), which was published in 

the Federal Register on December 30, 2009. Econometrica and its subcontractor HDR Decision 

Economics were tasked with developing a regulatory evaluation and small entity impact analysis 

for the requirements that are included in the Notice of Proposed Rulemaking (NPRM). 

The Regulatory Flexibility Act of 1980, as amended, requires Federal agencies to conduct a 

separate analysis of the economic impact of rules on small entities. The Regulatory Flexibility 

Act requires that Federal Agencies take small entity’s particular concerns into account when 

developing, writing, publicizing, promulgating, and enforcing regulations. To this end, the Act 

requires that agencies detail how they have met these concerns, by including a Regulatory 

Flexibility Analysis (RFA). An initial RFA, which accompanies a NPRM, must include the 

following five elements:

1. A description of the reasons why action by the Agency is being considered;

2. A succinct statement of the objectives of, and legal basis for, the proposed rule;

3. A description of and, where feasible, an estimate of the number of small entities to which 

the proposed rule would apply;

4. A description of the proposed reporting, recordkeeping, and other compliance 

requirements of the proposed rule, including an estimate of the classes of small entities 

that would be subject to the requirements and the type of professional skills necessary for 

preparing the report or record; and

5. Identification, to the extent practicable, of all Federal rules which may duplicate, overlap, 

or conflict with the proposed rule.

A discussion of each of these requirements follows.
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Introduction

The Department of Transportation (DOT) is proposing a rule to provide airline passengers with 

additional protections in the areas of airline service provision and consumer information. Some 

of the provisions in this proposed rule build on regulatory requirements recently adopted as part 

of the Final Rule on Enhanced Airline Passenger Protections (EAPP1), which was published in 

the Federal Register on December 30, 2009. Econometrica and its subcontractor HDR Decision 

Economics were tasked with developing a regulatory evaluation and small entity impact analysis 

for the requirements that are included in the Notice of Proposed Rulemaking (NPRM). 

In the accompanying preliminary regulatory analysis, we provide estimates of the benefits and 

costs for specific proposals in the NPRM that would add regulatory requirements in the 

following areas:

Req. # Requirement Description

1 Expansion of tarmac delay contingency plan requirements and extension of 

EAPP1 Final Rule requirements to cover foreign carriers

2 Expanded tarmac delay reporting and application to foreign carriers

3 Establishment of minimum standards for customer service plans (CSPs) and 

extension of EAPP1 Final Rule requirements to cover foreign carriers

4 Incorporation of tarmac delay contingency plans and CSPs into carrier contracts 

of carriage

5 Extension of EAPP1 Final Rule requirements for carriers to respond to consumer 

complaints to cover foreign carriers

6 Changes in denied boarding compensation (DBC) policy

7 Full-fare advertising and prohibition on opt-out provisions

8 Expanded requirements for disclosure of baggage and other optional fees

9 Prohibition on post-purchase price increases

10 Prompt passenger notification of flight status changes

11 Limitations on venue provisions in contracts of carriage.

The Regulatory Flexibility Act of 1980, as amended, requires Federal agencies to conduct a 

separate analysis of the economic impact of rules on small entities. The Regulatory Flexibility 

Act requires that Federal Agencies take small entity’s particular concerns into account when 

developing, writing, publicizing, promulgating, and enforcing regulations. To this end, the Act 

requires that agencies detail how they have met these concerns, by including a Regulatory 

Flexibility Analysis (RFA).

An initial RFA, which accompanies a NPRM, must include the following five elements:

1. A description of the reasons why action by the Agency is being considered;

2. A succinct statement of the objectives of, and legal basis for, the proposed rule;

3. A description of and, where feasible, an estimate of the number of small entities to which 

the proposed rule would apply;
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4. A description of the proposed reporting, recordkeeping, and other compliance 

requirements of the proposed rule, including an estimate of the classes of small entities 

that would be subject to the requirements and the type of professional skills necessary for 

preparing the report or record; and

5. Identification, to the extent practicable, of all Federal rules which may duplicate, overlap, 

or conflict with the proposed rule.

A discussion of each of these requirements follows.

1. Rationale for DOT Consideration of these Requirements

The Department of Transportation is proposing to improve the air travel environment for 

consumers by: requiring carriers to provide passengers timely notice of flight status changes, 

delays, or cancellations; increasing the number of carriers that are required to report tarmac delay 

information; enhancing protections afforded passengers in oversale situations, including 

increasing the maximum denied boarding compensation airlines must pay to passengers oversold 

from flights; prohibiting carriers from imposing unfair contract of carriage choice of forum 

provisions; increasing the number of carriers that are required to adopt tarmac delay contingency 

plans and the airports at which they must adhere to the plan’s terms; expanding the carriers that 

are required to adopt, follow, and audit customer service plans and establishing minimum 

standards for the subjects all carriers must cover in such plans; requiring carriers to include their 

contingency plans and customer service plans in their contracts of carriage; increasing the 

number of carriers that must respond to consumer complaints; strengthening, codifying and 

clarifying the Department’s enforcement policies concerning air transportation price advertising 

practices; requiring carriers to notify consumers of significant optional fees related to air 

transportation and of increases in baggage fees; and prohibiting post-purchase price increases. 

The Department is proposing to take this action to strengthen the rights of air passengers in the 

event of denied boarding, flight cancellation or long delays, and to ensure that passengers have 

accurate and adequate information to make informed decisions when selecting flights.

2. Objectives and Legal Basis for the Proposed Rule

On December 8, 2008, the Department issued a Notice of Proposed Rulemaking (NPRM) on 

enhancing airline passenger protections. See 73 FR 74586 (December 8, 2008). After 

reviewing and considering the comments on the NPRM, on December 30, 2009, the Department 

published a final rule in which the Department required certain U.S. air carriers to adopt 

contingency plans for lengthy tarmac delays; respond to consumer problems; post flight delay 

information on their websites; and adopt, follow, and audit customer service plans. The rule also 

defined chronically delayed flights and deemed them to be an “unfair and deceptive” practice. 

That rule took effect on April 29, 2010. See 74 FR 68983 (December 30, 2009). 
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In the preamble to the final rule, the Department noted that it planned to review additional ways 

to further enhance protections afforded airline passengers and listed a number of subject areas 

that it was considering addressing in a future rulemaking. The areas specifically mentioned as 

being under consideration were as follows: (1) DOT review and approval of contingency plans 

for lengthy tarmac delays ; (2) reporting of tarmac delay data; (3) standards for customer service 

plans; (4) notification to passengers of flight status changes; (5) inflation adjustment for denied 

boarding compensation; (6) alternative transportation for passengers on canceled flights; (7) optout provisions where certain services are pre-selected for consumers at additional costs (e.g., 

travel insurance, seat selection); (8) contract of carriage venue designation provisions; (9) 

baggage fees disclosure; (10) full fare advertising; and (11) responses to complaints about 

charter service. The NPRM addresses most of those issues, as well as other matters that the 

Department believes necessary to ensure fair treatment of passengers.

3. Types and Numbers of Affected Small Entities

This section provides an overview of important features of the passenger air travel sector: U.S. 

and foreign carriers, airports, flights and passengers, regulatory authorities, and travel agencies 

and tour operators.

3.1. Small U.S. and Foreign Air Carriers

The proposed requirements for reporting tarmac delays (Requirement2), changes in the denied 

boarding compensation (DBC) policy, enhancements to EPP1 Final Rule requirements, full-fare 

advertising, and fee disclosure would apply to a number of small domestic carriers that provide 

passenger service using at least one aircraft with between 30 and 60 seats. In addition, the fullfare advertising and fee disclosure requirements would also apply to carriers providing passenger 

service exclusively with planes that have fewer than 30 seats. The regulatory evaluation 

accompanying the NPRM estimates the numbers of these carriers as follows:

Table 1 - Number of U.S. Carriers by Size Class, 2008

Group

Seat 

Criterion Total

Out of 

Business Active

Contract 

Carriers Other

Large > 60 41 2 39 17 22

Small 30 - 60 14 1 13 6 7

Very Small < 30 43 8 35 2 33

Charter-only 19 2 17 0 17

Total 117 13 104 25 79

Source: BTS T-100 Segment database, 2008; BTS B-43 Aircraft database, 2007

DOT defines small carriers based on the standard published in 14 CFR 399.73: 

For the purposes of the Department's implementation of chapter 6 of title 5, 

United State Code (Regulatory Flexibility Act), a direct air carrier or foreign air 

carrier is a small business if it provides air transportation only with small aircraft 
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as defined in §298.3 of this chapter (up to 60 seats/18,000 pound payload 

capacity).

A maximum of 47 independently-owned small U.S. carriers provide scheduled passenger 

service exclusively with aircraft that seat no more than 60 passengers. These small U.S. 

carriers would potentially have to comply with the proposed requirements pertaining to full 

fares advertising (requirement to display full fares on websites and in print advertising and 

prohibition on opt-out provisions), disclosure of baggage and other fees, and prohibition on 

post-purchase price increases. Of these 47 small U.S. carriers, 12 provide scheduled passenger 

service with least one aircraft with between 30 and 60 seats. These 12 carriers would also have 

to comply with the proposed requirements relating to denied boarding compensation (DBC) 

and lengthy tarmac delays.

1

Four of the 17 U.S. carriers that provide only non-scheduled (i.e., charter) passenger service do 

so exclusively with aircraft that have a maximum of 60 seats. Three of these 4 small U.S. 

charter airlines operate fleets comprised exclusively of aircraft with fewer than 30 seats.

Small foreign carriers would also need to comply with all of the proposed requirements

applicable to small U.S. carriers operating aircraft of the same size. In addition, small foreign 

carriers that provide scheduled passenger service with least one aircraft with between 30 and 

60 seats would have to comply with additional requirements relating to tarmac contingency 

plans, customer service plans, and responding to consumer complaints.2 

Based on data from the BTS-100 air traffic database for 2008, only three foreign air carriers 

operate scheduled passenger service to and from the U.S. exclusively with aircraft that have 

fewer than 60 seats. One small foreign carrier operates service to and from the U.S. using 

aircraft with more than 29 but fewer than 61 seats. It would be required to comply with 

proposed requirements described above for U.S. carriers of this size-class, as well as the 

requirements relating to tarmac delay contingency plans, customer service plans, and customer 

problems/complaints that were instituted for covered U.S. carriers in a previous proceeding.

The other two small foreign carriers provide service to and from the U.S. exclusively with 

aircraft that have fewer than 19 seats. These two small foreign carriers would potentially have 

to comply with the proposed requirements pertaining to full fares advertising (requirement to 

display full fares on websites and in print advertising and prohibition on opt-out provisions), 

disclosure of baggage and other fees, and prohibition on post-purchase price increases. 

3.2. Airports

Under one provision of Requirement 1 in the NPRM, covered carriers would be required to 

coordinate their tarmac contingency plans with small-hub and non-hub airports (EAPP1 already 

requires coordination of these plans with large and medium hubs). The Department has 

 

1 One additional small carrier, Piedmont Airlines, is not included in these counts because it is a wholly-owned 

subsidiary of a larger airline.

2

Small domestic carriers are already required to comply with these requirements under the EAPP1 Final Rule.
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tentatively decided not to require carrier coordination of these plans with commercial airports 

that have fewer than 10,000 passenger enplanements annually.

The Federal Aviation Administration (FAA) categorizes airports based on the number of 

passengers departing annually (“enplanements”):

Table 2 - Passenger Enplanements by Size of Airport, 2008

Category

Minimum %/# 

of Passengers

# of 

Airports

Passengers 

(millions) % of Total

Passengers 

/ Airport 

(millions)

Large Hub >1% of total 29 504.0 68.5% 17.38

Medium Hub >0.25% of total 37 147.0 20.0% 3.97

Small Hub >0.05% of total 72 60.8 8.3% 0.84

Non-Hub >10,000/year 244 22.9 3.1% 0.09

Total 382 734.7 1.46

Source: Federal Aviation Administration, Primary and Non-Primary Commercial Service Airports, 2008

According to the FAA data, there were also 121 commercial service airports with between 2,500 

and 10,000 passenger enplanements in 2008; 64 of these were located in Alaska. The 2008 BTS 

T-100 data indicate that at least one scheduled passenger service flight departed from 759 U.S. 

airports, indicating that there were 256 airports with fewer than 2,500 passengers departing in 

2008. Of these, 184 were located in Alaska.

SBA size standards define privately-owned airports as small businesses if annual revenues do not 

exceed $7 million and publicly-owned airports as small businesses if they are airports owned by 

small governmental jurisdictions with a population less than 50,000. However, the Department 

does not have information that would allow it to make a reliable determination of the numbers of 

the small-hub and non-hub airports that would be classified as small under these standards.

3.3. Travel Agencies and Tour Operators

While most regulation of the air transportation sector is concerned with carriers and airports, 

other sellers of air transportation must comply with OST advertising regulations and guidelines. 

Travel agencies and tour operators are the two largest industry sectors (in addition to carriers) 

that sell tickets to passengers for scheduled service flights. These sales sometimes are made on a 

stand-alone basis and sometimes as part of a package that may include accommodations, 

activities, and ground transportation. Small travel agents and tour operators would be affected by 

proposed Requirement 7, which would require display of full fares, including all government 

fees and taxes, in both online and print media advertising of air fares. Some of these firms may 

also be affected by proposed Requirement 9, which would prohibit ticket agents from unilaterally 

increasing the price charged for air travel after the purchase has been completed.

Four large online travel agencies (OTAs)—Expedia, Orbitz, Priceline, and Travelocity—

reportedly account for 96 percent of all online sales by travel intermediaries in the leisure travel 
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market segment.3 However, the travel agent and tour operator sectors consist primarily of small 

businesses with fewer than 20 employees per firm. A significant number of these small entities 

offer online booking of air transportation and travel packages. Offline travel agencies and tour 

operators book these services through global distribution system (GDS) operators and/or directly 

with carriers.

The preliminary RIA assessed the costs of compliance for these firms based on the number of 

employees and whether or not they offered online booking capability. Compliance costs were 

estimated only for firms that were in business year-round. The numbers of large and small firms 

in these sectors were estimated from 2006 County Business Patterns data, as follows:

Table 3 - Travel Agencies and Tour Operators, 2006

Total Firms

Large 

OTAs

Online 

Sales 

Capability

Offline 

Sales Only

20+ 

Employees

<20 

Employees

Travel Agencies 12,248 4 2,078 10,166 669 11,579

Tour Operators 2,629 0 447 2,182 254 2,375

Sources: Bureau of the Census, County Business Patterns, 2006; PhoCusWright, The Role and Value of the 

Global Distribution Systems in Travel Distribution, 2009.

However, the applicable SBA size standards designate travel agencies with no more than $3.5 

million in annual revenues and tour operators with no more than $7.0 million as small 

businesses. Data on the revenues of these firms are available from the Economic Census, which 

was last conducted in 2007. Detailed results from the 2007 survey for the travel agent and tour 

operator sectors are not yet available. Consequently, estimating the numbers of small firms 

requires use of data of the 2002 Economic Census.

The 2002 Economic Census estimates that there were 15,509 travel agencies operating for at 

least part of the year in 2002. Only 172 of these had revenues in excess of $5,000,000. There 

were also 149 firms with estimated revenues in the $2,500,000-4,999,999 range. Assuming that 

firm revenues are uniformly distributed within this size class, approximately 59 firms of these 

149 firms could be expected to have had revenues that exceeded $3,500,000. Accordingly, there 

may be as many as 15,278 small firms (15,509-172-59) in this sector that could be affected by 

the proposed requirement for full-fare advertising and prohibitions on opt-outs and unilateral 

post-purchase increases in the price of air travel.

The 2002 Economic Census estimates that there were 2,929 tour operators operating for at least 

part of the year in 2002. Only 47 of these had revenues in excess of $10,000,000. There were 

also 81 firms with estimated revenues in the $5,000,000-9,999,999 range. Assuming that firm 

revenues are uniformly distributed within this size class, approximately 49 firms of these 81 

firms could be expected to have had revenues that exceeded $3,500,000. Accordingly, there may 

be as many as 2,833 small firms (2,929-47-49) in this sector that could be affected by the 

proposed requirement for full-fare advertising and prohibitions on opt-outs and unilateral postpurchase increases in the price of air travel.

 

3

 PhoCusWright, The Role and Value of the Global Distribution Systems in Travel Distribution, November 2009.
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Relative to the size-class distinctions used in the preliminary RIA, applying the SBA size 

standards increases the estimated number of small businesses that would be affected by the 

proposed requirements. However, the estimated costs of compliance with these requirements are 

very low in relation to the average annual revenues of the relatively larger small travel agencies 

and tour operators with 20 or more employees that would be classified as small firms under the 

SBA size standards.

4. Nature and Impact of Proposed Rule on Affected Small Entities

This NPRM proposes two new collections of information:

The first is a requirement that domestic and foreign air carriers that operate scheduled 

passenger service to or from the U.S. using any aircraft with more than 30 passenger 

seats report to the Bureau of Transportation Statistics (BTS) and retain for two years the 

following information about any ground delay that lasts at least three hours: the length of 

the delay, the precise cause of the delay, the actions taken to minimize hardships for 

passengers, whether the flight ultimately took off (in the case of a departure delay or 

diversion) or returned to the gate; and an explanation for any tarmac delay that exceeded 

3 hours. The Department plans to use the information to investigate instances of long 

delays on the ground and to identify any trends and patterns that may develop. 

The second is a requirement that any foreign air carrier that operates scheduled passenger 

service to and from the U.S. using any aircraft with 30 or more passenger seats adopt a 

customer service plan, audit its adherence to the plan annually, and retain the results for 

two years. The Department plans to review the audits to monitor carriers' compliance 

with their plans and take enforcement action when appropriate. 

Small domestic carriers would have to comply with the requirement to report information about 

3-hour or longer tarmac delays to the Bureau of Transportation Statistics (BTS). The regulatory 

evaluation that accompanies the NPRM estimates that non-reporting (i.e., all but the largest 19) 

U.S. carriers would have had 289 reportable tarmac delays in 2009. It would be reasonable to 

expect that small non-reporting carriers would have between 100 and 120 reportable tarmac 

delays annually under the proposed requirement, based on their approximate share of scheduled 

passenger service flights. Data collection and transmission costs are estimated at $600 per report. 

Small carriers that opt to set up an automated system to handle reporting would incur estimated 

set-up expenses of approximately $35,000 in 2011 and $3,500 to maintain and update these 

systems. Each of the small carriers that is likely to set up this type of system had more than $20 

million in revenue in 2008.

Based on data from the BTS-100 air traffic database for 2008, there appears to be a maximum of 

9 foreign air carriers that operate passenger service to and from the U.S. only with aircraft that 

have fewer than 60 seats. However, it is not possible to determine if these carriers do in fact 

operate passenger service using one or more aircraft with more than 60 seats, because foreign 

carriers do not have to report Form B-43 information on their fleets to the BTS. Moreover, 3 of 

these 9 carriers are subsidiaries of foreign airlines that operate international passenger service 
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with larger aircraft. It is unlikely that any of the other 6 small foreign carriers would have even a 

single reportable tarmac delay in a typical calendar year.

Small foreign carriers would need to develop, implement, and self-audit their compliance with 

customer service plans (CSPs) under the proposed Requirement 3 in the NPRM. The regulatory 

evaluation accompanying the NPRM estimates the first-year costs of setting up a compliant CSP 

at $3,850 for a small carrier. Annual self-audit costs are estimated to be $6,248 for a small 

carrier.

Small privately-owned and municipal airports would incur only minimal compliance costs 

associated with providing a point-of-contact for carriers to coordinate their tarmac delay 

contingency plans. Coordinating each plan would take no more than 1 or 2 hours annually. Nonhub airports serve an average of 2.5 carriers that would have to coordinate these plans with the 

airport authorities, for a total burden of between 2.5 and 5.0 hours of airport personnel time

annually. The preliminary RIA does not attempt to assess the extent, if any, to which airports 

may incur additional costs associated with planes returning to the gate to comply with tarmac 

delay contingency plan requirements. However, the affected airports would receive additional 

gate fees in these situations that may exceed the costs of any services they are requested by 

carriers to provide.

Small travel agencies and tour operators would have to comply with the full-fare advertising and 

opt-out provisions of proposed Requirement 9. Small entities in these sectors would have to 

revise their print media advertising. Per-firm costs are estimated at $3,000 that would have to 

revise all of its promotional materials. However, given the anticipated six-month lag between the 

rule publication date and the effective date for these provisions, it is likely that most materials 

that do not comply with the proposed requirement would no longer be in use. The preliminary 

regulatory evaluation estimates that this would be the case for 90 percent of the printed 

advertising currently in circulation.

Both domestic and foreign air carriers already have to comply with reporting, recordkeeping, and 

compliance requirements under existing regulatory provisions. Therefore carriers possess staff 

with the professional skills to meet these requirements.

5. Other Applicable Federal Regulations

The Department has sole authority to regulate air carriers and the advertising of air fares. It is 

not aware of any federal rules that would duplicate, overlap, or conflict with the proposed rule.

In some instances (e.g., Requirements 9 and 11), the proposed requirements would codify 

existing Department enforcement policy. In the case of the proposed denied boarding 

compensation (DBC) and full-fare advertising provisions, the proposed requirements would 

incorporate changes to existing enforcement policy.