Order 20 11

- 8

- 1

Served: August 4 , 2011

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 1 st day of August

, 20 11

ORDER EXPANDING EXEMPTION

Under t he “ f lex f ares ” mechanism

, the International Air Transport Association ( IATA )

establishes interline fares by computing an average of IATA carriers’ market fares for each city

pair, based on certain criteria, and then adding an “interline premium.” The flex fares are

recomputed periodically, and also on an exception al basis in respo nse to unexpected events

producing widespread significant changes to normal fares. 1

By Order 2008

- 7

- 4, served July 7, 2008, the Department granted exemptions from condition # 2

imposed by Order 68

- 7

- 55 on the Procedures for the Conduct of the IATA Traffic Conferences,

to the extent that IATA need not file flex fare agreement s covering flex fares between

U.S./Canada

- Europe and U.S./Canada

- Southwest Pacific markets

. 2

IATA has now filed additional application s to broaden the scope of the exemption : (1) to

establish flex fares in the TC1 Caribbean, Longhaul, and within South America areas ; 3 and (2) to

1 IATA developed the flex fares mechanism in response to the Department’s Order 2007

- 3

- 23, Docket

OST

- 2006

- 25307, which disapproved IATA’s traditional mechanism of setting interline fares in face

- to

- face

meetings among competitors.

2 Order 2008

- 7

- 4, Dockets 2006

- 25307, 2007

- 28556, 28558, 28569, and 28570.

3 IATA defines “Caribbean” as between USA (excluding Puerto Rico and the US Virgin Islands) on the one hand

and Bermuda, Bahamas, the Caribbean Islands, Guyana, Suriname, French Gu iana on the other; between Canada

and Mexico on the one hand and Bermuda, Bahamas, the Caribbean Islands (including Puerto Rico and the US

Virgin Islands ), Guyana, Suriname, French Guiana on the other; within the area composed of Bermuda, Bahamas,

the Car ibbean Islands (including Puerto Rico and the US Virgin Islands); within the area composed of Bermuda,

Bahamas, the Caribbean Islands (including Puerto Rico and the US Virgin Islands) on the one hand and Guyana,

Suriname and French Guiana on the other. IA TA defines “Longhaul” as between the USA, Canada, Mexico on the

one hand and Central America and South America on the other; between Bermuda, Bahamas, the Caribbean Islands,

Guyana, Suriname and French Guiana on the one hand and Central America and South A merica on the other;

between Central America on the hand and South America on the other; and within Central America. IATA defines

“Within South America” as within the area composed of Argentina, Bolivia, Brazil, Chile, Columbia, Ecuador,

French Guiana, Gu yana, Panama, Paraguay, Peru, Suriname, Uruguay and Venezuela. Amendment of exemption under 49 U.S.C.

40109 from the conditions of CAB Order

68

- 7

- 55 for Passenger Tariff Coordinating

Conference Action Docket s OST

- 200 9

- 0073 and

OST

- 2011

- 0015- 2

-

remove discounts for children and infant s from the first and business

- class flex fares resolutions

in those areas

. 4

TC1 Caribbean, Longhaul, within

- South America

. Flex fares would be established for first,

business and economy class normal fares and for excursion discount fares, with an interline

premium of 20 percent.

In its application, IATA states that broadening the exemption is justifie d by substantially the

same reasons the Department relied on in Order 2006

- 12

- 24 granting the original exemption

, and

subsequent orders 2007

- 9

- 16, 2008

- 4

- 45, 2008

- 7

- 4, 2008

- 7

- 24, and 2008

- 11

- 20 expanding the

exemption

, where the Department found that fares for travel within these regions typically

present no public interest concerns justifying pre

- implementation review of agreements limited

to such travel

.

We will grant the expanded exemption s as requested, under the same conditions. IATA fares for

trave l between non

- U.S. markets typically present no public interest concerns involving U.S.

passengers under U.S. aviation policy or U.S. antitrust laws to justify our review of agreements

limited to such travel. We find that an expansion of the f lex f are mechanism to include IATA

interline fares for travel in the additional non

- U.S. markets is consistent with the public interest

for the reasons stated in Order 2006

- 12

- 24.

We also find that exempting the U.S. markets included in the application is cons istent with the

public interest, for the reasons stated in Order 2008

- 7

- 4. The f lex f are system is a mechanistic,

computer

- driven process that involves no direct contact between carriers. It produces IATA

interline fares based on adjusted averages of ma rket fares, rather than negotiations among

competitors. The annual and exceptional update s to the fares, as well as amendments to the

methodology or the interline premium, likewise involve no direct contacts between carriers, and

the process is open to p articipation by non

- IATA carriers. We believe that under the system

proposed, there is much less risk that the f lex f ares 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. Finally, charging the

full flex fares for children and infants seated in first and business class is consistent with our

policy of affording carriers wide lati tude in pricing premium services.

Pursuant to the authority duly assigned under the Department’s Regulations, 49 CFR 1.54(b)(1):

We find that the agreements in Docket OST

- 2009

- 0073 and 2011

- 0015 , as s et forth in the

attached Appendixes , should be granted an exemption from filing with the Department for prior

approval under condition #2 imposed on IATA bylaws.

4 Applications filed March 23, 2009, IATA memo PTC1 0391 and January 27, 2011, IATA memo PTC1 0395.- 3

-

ACCORDINGLY,

1

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

Appendix es 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 fil e 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 establish ment of fares for travel in the Caribbean, Longhaul, and

within

- South America sub

- area s of Traffic Conference 1 ;

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 entit led 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 come effective and become the action of the Department of Transportation

up on 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 A

Docket OST

- 2009

- 0073

Reso IATA

No. No. Title Expiry

R

- 1 002 TC 1 Amending Resolution between the Caribbean, In definite

Longhaul, within South America

R

- 2 111 ee TC 1 Flex Fares between the Caribbean , Longhaul, Indefinite

w ithin South America

R

- 3 04 1ee TC 1 Intermediate/Business Class Flex Fares Indefinite

between the Caribbean, Longhaul, w ithin

South America

R

- 4 05 1ee TC 1 First Class Flex Fares between the C aribbean, Indefinite

Longhaul, w ithin South America

R

- 5 06 1ee TC 1 Economy Class Flex Fares between the Caribbean, Indefinite

Longhaul, w ithin South America

R

- 6 070 ef TC 1 Excursion Flex Fare s between the Caribbean, Indefinite

Longhaul, wi thin South AmericaAppendix B

Docket OST

- 2011

- 0015

Reso IATA

No. No. Title Expiry

R

- 1 04 1ee TC1 Intermediate/Business Class Flex Fares Indefinite

(Amending)

R

- 2 05 1ee TC 1 First Class Flex Fares Indefinite

(Amending)