Order 20 1 4

- 2

- 16

Served: February 21, 2014

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Action on IATA Agreement

Issued by the Department of Tr ansportation

on the 21 st day of February, 20 14

ORDER EXPANDING EXEMPTION

By application filed with the Departm ent on April 26, 2013 , the International Air Transport

Association (IATA) requests that the Department grant IATA and its member airlines an exemption

from Condition #2, one of the existing conditions imposed upon it s traffic conference system as part

of t he Department’s continued approval of its “Provisions for the Conduct of the IATA Traffic

Conferences” ( bylaws). The condition requires that the U.S. air carrier members of IATA submit to

the Department for appropriate action all recommended practices, ag reements and resolutions

adopted by IATA and each of its conferences and permanent conference committees. IATA is

seeking further expansion of the exemption granted for establishing passenger F lex F ares.

By Order 2012

- 4

- 18, served April 13, 2012, the Dep artment granted an expanded exemption from

C ondition #2, designed to facilitate prompt implementation of routine but essential standard

- setting

and interline coordination agreements without antitrust immunity, while preserving public notice and

regulatory options.

Order 2012

- 4

- 18 established a three

- tiered system for the filing and implementation of IATA

agreements. The first tier includes all traffic conference agreements except those included in tiers

two and three. IATA may declare Tier 1 agreements ef fective 30 days after filing unless the

Department extends the review period for another 60 days. The second tier consists of agreements in

specific subject areas, listed in Order 2012

- 4

- 18, in Appendix B, that the Department wishes to

review on a case

- by

- ca se basis before implementation. After review the Department may approve,

disapprove, or exempt each Tier 2 agreement. The third tier consists of recommended practices,

agreements or resolutions that IATA still wishes to file with the Department for app roval and

antitrust immunity under sections 41308 and 41309 of 49 U.S.C. All such third tier filings would

have to await Department’s review and appropriate action before implementation. Agreement Adopted by the Traffic

Conference of the International Air

Transport Association Docket OST

- 20 13

- 0 09 8- 2

-

Under t he Flex Fares mechanism

, IATA establish es interline fares by computing an average of

IATA carriers’ market fares for each city pair, based on certain criteria, and then adding a n

“interline premium.” The F lex F ares are recomputed periodically , and the interline premium may

be amended through the E

- Tariffs process, an internet platform operated by IATA. Essentially,

the new IATA mechanism was originally designed by IATA to comply with the European

Commission’s denial of a block exemption for tariff coordination from E uropean U nion

competition law . Specifi cally, the mechanism eliminates consultations among carriers, whether

through face

- to

- face meetings, mail votes, or other means of direct communication, for the

periodic establishment of fares for interline travel within the European Common Aviation Area

( ECAA ) and between the ECAA and other countries

. The mechanism was subsequently

extended to other international markets including routes to/from the United States

. The

Department’s order s exempted from our agreement

- filing condition the new resolutions, f uture

amendments to those resolut ions, and fares generated under the resolutions, provided that the

resolutions and amendments thereto were limited to the establishment of fares for travel within

the areas covered by the respective exemption applications

.

IATA has filed an additional application to broaden the scope of the exemption for Flex Fares

resolutions: 1

Traffic Conference (TC) Area 1 2 via Area 3 Pacific 2

. Flex F ares would be established for first,

business / intermediate, and economy class fa res, with an interline premium of 1 5 percent ;

t raditional IATA interline fare resolutions would be rescinded and the associated fares deleted.

We will grant the expanded exemption as requested, under the same conditions. We find that

exemptin g Flex Fares in t he U.S. markets included in this application is consistent with the

public interest, for the reason s state d in Orders 2008

- 7

- 4, 2010

- 5

- 5 , 2011

- 8

- 1 and 2012

- 5

- 29.

The Flex Fare system is a mechanistic, computer

- driven process that involves no direct conta ct

between carriers. It produces IATA interline fares based on adjusted averages of market fares,

rather than negotiations among competitors. The annual and exceptional updates to the fares, as

well as amendments to the methodology or the interline premi um, likewise involve no direct

contacts between carriers, and the process is open to participation by non

- IATA carriers. We

believe that under th is system , there is minimal risk that the Flex Fares process, or the resulting

IATA interline fares, will have a significant spillover effect on individual airline prices. In

addition, there is no reason to believe that non

- IATA interline fares will cease to be widely

available.

1 Application filed April 26, 2013 , IATA Memo PTC 1 2 via TC3 0 00 1

. 2 IATA defines Traffic Conference Area 1 as all of the North and South American Contine nts and adjacent islands,

Greenland, Bermuda, the West Indies and Islands of the Caribbean, the Hawaiian Islands (including Midway and

Palmyra), Traffic Conference Area 2 as consisting of all of Europe (including that part of the Russian Federation

west of the Urals) and adjacent islands, Iceland, the Azores, all of Africa and adjacent Islands, Ascension Island, that

part of Asia lying west of and including Iran, and Traffic Conference 3 as consisting of all of Asia and adjacent

Islands, except the portion included in Area 2, all of the East Indies, Australia, New Zealand and adjacent Islands,

and the Islands of the Pacific Ocea n except those includ ed in Area 1

. Area “TC12” covers transportation between

Area 1 and Area 2.- 3

-

ACCORDINGLY,

Pursuant to the authority duly delegated under the Department’s Regulations, 385.13(a)(4):

1. We exempt the Passenger Tariff Coordinating Conference resolutions identified in the

Appendix to this order, amendments to them , and fares generated under the resolutions, from

C ondition #2 imposed on IATA ’ s Procedures for th e 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 I ATA members, provided that the resolutions and amendments

thereto are limited to the establish ment of fares for travel in the TC12 via TC3 Pacific area.

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

3

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

Persons entitled to petition the Department for review of this order, under 14 CFR 385.30, may

file such petitions within seven days after the date of service of this order.

This order shall be effective a nd become the action of the Department of Transportation upon

expiration of the above period, unless within such period a petition for review is filed or the

Assistant Secretary for Aviation and International Affairs gives notice that s he will review this

order on h er own motion.

By:

Paul L. Gretch

Director, Office of International Aviation

(SEAL)

An electronic version of this document is available on the World Wide Web at:

http://www.regulations .gov/Appendix

Reso IATA

No. No. Title Expiry

R

- 1 0 15v Add

- Ons (Except in USA/US Territories ) In definite

R

- 2 111 pa TC 1 2 via TC3 PA Flex Fares Indefinite

R

- 3 04 6pa TC 1 2 via TC3 PA Inter mediate/Business Class Flex Indefinite

Fares

R

- 4 05 6pa TC 1 2 via TC3 PA First Class Flex Fares Indefinite

R

- 5 06 6pa TC 1 2 via TC3 PA Economy Class Flex Fares Indefinite