July 6, 2011

By FedEx and Electronic Mail

The Honorable Ray LaHood Secretary of Transportation U.S. Department of Transportation 1200 New Jersey Avenue SE Washington, DC 20590

Re: Request to Postpone, or Stay, the E ffective Date of Ce rtain Provisions of the Enhancing Airline Passenger Protections Final Rule, 76 Fed. Reg. 23,110 (Apr. 25, 2011)

Dear Secretary LaHood:

INTRODUCTION AND REQUEST FOR RELIEF

Allegiant Air, LLC (“Allegiant”) and Spirit Airlines, Inc. (“Spirit”) (jointly, the “Petitioners”) have sought revi ew of various amendments to 14 C.F.R. Parts 259 and 399 in the United States Court of Appeals for th e District of Columbia Circuit. Spirit Airlines, Inc. v. DOT

, No. 11-1219, D.C. Cir. (filed June 15, 2011), consolidated with Allegiant Air, LLC v. DOT

, No. 11-1222, D.C. Cir. (filed June 16, 2011). These amendments were enacted in Enhancing Airline Passenger Protections, 76 Fed. Reg. 23,110 (Apr . 25, 2011) (the “Final Rule”). Pursuant to 5 U.S.C § 705 and Fed. R. App. P. 18, Petitione rs respectfully request that the Department postpone, or stay, the effective da te of the amendments pending judi cial review. We ask that you respond by 5:00 p.m. on July 14, 2011. We will construe the absence of a response as a denial of this request and will proceed to seek a stay from the Court.

In the Final Rule, the Department (1) reverses an almost-25 year policy permitting government taxes and fees to be stated separate ly from the base fare in airline advertising (§ 399.84(a)); (2) prohibits the sale of nonrefundable tickets pu rchased seven days or more before departure (§ 259.5(b)(4)); (3) prohibits post-purchase price increases, including increases to the price of ancillary serv ices and products, made after th e purchase of underlying air transportation (§ 399.88(a)); (4) dictates the manner in which baggage fees must be disclosed on e-ticket (electronic) confirmations (§ 399.85( c)); and (5) mandates when a carrier mustThe Honorable Ray LaHood Request for Postponement or Stay July 6, 2011

communicate notices regarding flight changes, delays or cancellations to its customers (§ 259.8). 1

These rules fall short of the procedural a nd substantive standards set forth in the

Administrative Procedure Act (the “APA”), 5 U.S.C. §§ 5 51-559, 701-706. As explained in detail, they are arbitrary and capricious, not in compliance with procedures required by law, contrary to the governing stat ute—the Airline Deregulation Ac t of 1978 (the “Deregulation Act”)—and, most problematically, contrary to air carrier commercial free speech rights as protected by the First Amendment. In add ition to imposing unreasonable implementation costs at a time of escalating fuel prices, these amen dments threaten to seriously harm Petitioners’ business models, which are based on the existing rules, as well as harm the millions of passengers who travel on these carri ers. For these reasons, justice re quires that relief be granted. Petitioners request that the De partment stay the effective date of the amendments until the judicial review proceedings are co ncluded in the Court of Appeals.

BACKGROUND

Allegiant and Spirit are post-de regulation, low-cost carriers th at cater to price-conscious

and underserved consumers. These carriers cont ribute significantly to the Deregulation Act’s goal of an air transportation system relying on actual and potential competition to provide efficiency, innovation, and low prices. 2

Allegiant is a Las Vegas-based, full-serv ice travel company, whose unique business model makes it possible for travelers from small communities throughout the United States to reach major destinations like Las Vegas, Phoeni x, Los Angeles, Orlando, Tampa/St. Petersburg and Ft. Lauderdale easily and economically. Al legiant now serves 63 small communities and 11 other destinations using its fleet of full-sized (not regi onal) jet aircraft. On all routes, Allegiant offers low-fare nonstop service that can be bund led with hotel accommodations and other travelrelated services. Allegiant’s average base fare in 2010 was a pproximately $76 and, in the first quarter of 2011, this figure was $89. In 2010, Alle giant ranked number one fo r low-cost carriers

in Aviation Week’s Top Performing Airlines study and ranked 25th on Fortune magazine’s Fastest-Growing Companies list.

Spirit is an ultra low-cost, low-fare carrier based in Ft. Lauderdale that provides affordable travel options in the United States an d between the United States and cities in Central

and South America and the Caribbean. Its ultr a-low cost carrier (ULCC) business model, instituted in 2007, allows it to offer the lowest possible fares combined with a range of optional services for additional fees, wh ich provides price-sensitive travelers valuable flexibility in selecting the combination of services that best suit s their needs. Spirit’s average passenger ticket revenue per segment in 2010 was approximately $77 a nd, in the first quarte r of 2011, this figure

1 Allegiant did not include a challenge to § 259.8 in its petition for review. However, Allegiant did challenge the sufficiency and validity of the cost-benefit regulatory ev aluation analysis of the Final Rule undertaken by the Department pursuant to applicable requirements.

2 49 U.S.C. § 40101(a)(12).

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was only $82. On a regular basis, Spirit offers promotional base fares as low as $9 (plus applicable taxes and fees).

Allegiant and Spirit have been successful principally due to their ability to innovate and market affordable base fares to very price-sensitiv e travelers. Offering affordable base fares with unbundled ancillary services allows Petitioners to stimulate demand in the markets they serve. This business model has enabled Allegiant to provide valuable service primarily to travelers

from small communities who otherwise would be without nonstop air service and have only limited ability to connect through larger citie s, at markedly more expensive fares.

In order to compete with the legacy airlines , these low-cost carriers have relied on the Department’s prior policies regarding price advertising, refundability of tickets, and postpurchase price changes. Their rapid growth in recent years has been due largely to their ability to differentiate themselves from legacy carriers and to target markets that are underserved or feature largely high-fare service, generating ne w traffic that in many instances would not otherwise have traveled by air, if at all. The Fi nal Rule threatens the carriers’ very way of doing business and ultimately will harm the pub lic and the communities they serve.

LEGAL ARGUMENT

Pursuant to APA, the Department may postpone the effective date of the rules “when the agency finds that justice so requ ires.” 5 U.S.C. § 705. In accorda nce with D.C. Cir. R. 18, such relief pending review is appropria te where (1) the moving party is likely to prevail on the merits; (2) the moving party will suffer ir reparable injury if relief is withheld; (3) no substantial harm will come to other parties if relief is granted; and (4) a stay serves the public interest. See CSX Transp., Inc. v. Williams , 406 F.3d 667, 670 (D.C. Cir. 2005). DOT has applied this four-part test to prior requests to postpone th e effective dates of final rules, e.g. , Letter from Jim L. Swart, Director, Office of Drug and Alcohol Policy and Compliance, to William F. Sheehan, Counsel for BNSF Railway Company, Docket DOT-OST-2003-15245 (Oct. 30, 2008).

I. Petitioners Are Likely To Succeed on the Merits.

A reviewing court shall hold unlawful and set aside ag ency actions, findings and conclusions when they are (a) ar bitrary, capricious, an abuse of discretion or otherwise not in accordance with law; (b) contrary to law or the Constitution; or (c) without observance of procedures required by law. 5 U.S.C. § 706(2)(A )-(D). The challenged rules fail one or more of these tests and, as a result, are likely to be set aside by the D.C Circuit. Because Petitioners are likely to prevail on the merits, and the carriers w ill be irreparably harmed if forced to comply, justice demands that the agency postpone the eff ective date of the rules pending judicial review.

Spirit and Allegiant made cl ear in their comments in the underlying rulemaking that certain of the proposed rules we re contrary to the purpose and spirit of the Deregulation Act, now codified at 49 U.S.C. § 40101. The Deregula tion Act eliminated gove rnment control over carrier routes, pricing and services and promoted, to the maximum extent possible, competitive forces that would result in, among other th ings, entry by new carri ers and innovation. Id.

3The Honorable Ray LaHood Request for Postponement or Stay July 6, 2011

Importantly, Congress specifically directed th e Department, in carrying out the agency’s regulatory functions, to foster the continued stre ngthening of small air carriers like Allegiant and Spirit. Id. In large part, the Deregulation Act has achieved those goals a nd spawned the birth and growth of carriers like Alle giant and Spirit, which have b een market innovators and have made it possible for millions of passengers to enjoy low-fare travel. The rules impose requirements that directly affect the price of air travel and the se rvices that carriers can offer. Since the Department has stifled innovation a nd competition without making any credible finding that the prohibited practices are unfair or deceptive, it has overstepped its statutory authority.

In addition, the rules are arbitrary and capricious or are not in compliance with procedures required by law. The Department has not examined the relevant data, has relied heavily on a few anecdotal and unsubstantiated public comments and a highly flawed regulatory analysis, 3 and has failed to articulate a satisfactory explanation for its action ( i.e. , a rational connection between the facts found and the choice made). See Motor Vehicle Mfrs. Ass’n v.

State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43 (1983).

Also, the Department violated the APA’s notice-and-comment requirements, 5 U.S.C. § 553, by failing to provide prior notice of its evid ence purporting to establish the existence of consumer confusion, thus depriving Petitioners a nd other carriers of the meaningful opportunity to comment on the alleged evidence, including the final Regulatory Analysis, before the deadline for submitting comments on the Notice of Proposed Rulemaking. 4 The APA requires an agency to make available to the public the data and in formation on which it relies in its rulemaking. Am. Radio Relay League, Inc. v. FCC , 524 F.3d 227, 236 (D.C. Cir. 2008) (“Under APA notice and comment requirements, among the information that must be revealed for public evaluation are the...data upon which the agency relies in its rulemaking.” Also, “[c]onstruing se ction 553 of the APA, the court explained long ago that in order to allow for useful critic ism, it is especially important for the agency to identify and make av ailable...data that it has employed in reaching the decisions to propose particular ru les.”) (internal citations omitted); see also Am. Iron & Steel

Inst. v. OSHA , 939 F.2d 975-1009-10 (D.C. Cir. 1991) (“OSHA’s reliance on the 1987 Dun &

Bradstreet data without providing an opportunity for comment was improper.”).

Because the Department purports to have ba sed the Final Rule on evidence of consumer confusion, and minimal cost to the industry, the Department had an obligation under the APA to provide the evidence in the rulemaking record and to give interested parties a sufficient opportunity to examine and comment on it. For this additional reason, the Final Rule is deficient under the APA, and Petitioners are li kely to prevail on the merits.

3 Among other deficiencies, the Department’s regulatory anal ysis failed to evaluate alternatives or no-regulation scenarios, as required by Executive Order 12,866, 58 Fed. Reg. 51,735 (Oct. 4, 1993). The Econometrica, Inc. Final Regulatory Analysis was placed in the record only six working days before the Final Rule was issued which did not allow sufficient time for parties to review or comment on this document

4 Enhancing Airline Passenger Protections , 75 Fed. Reg. 32,318 (June 8, 2010) (“NPRM”).

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A. The Department’s Reversal of Its Enforcement Policy Regarding the FullFare Rule (§ 399.84) Violates Petition ers’ First Amendment Rights and is Arbitrary and Capricious.

1. The Department Prohibition Against Truthful, Non-Deceptive Base Fare Advertising Violates Petitioners’ Commercial Free Speech Rights Protected By the First Amendment.

Truthful, non-misleading advertising is pr otected commercial sp eech under the First

Amendment. Virginia State Pharmacy Bd. v. Virginia Citizens Consumer Council , 425 U.S. 748, 765 (1976). The DOT may not regulate this sp eech unless it can show that (1) it has a substantial interest in restricting the speech, (2) the regulation in questio n directly advances the government interest, and (3) the regulation is narrowly tailored to se rve that interest. See Central

Hudson Gas & Elec. Co. v. Public Service Comm’n of N.Y. , 447 U.S. 557, 566 (1980); Board of Trustees of the State University of New Yo rk v. Fox, 492 U.S. 469, 480 (1989) (discussing Central Hudson, 447 U.S. at 564-66). The Depart ment has failed to m eet this burden with respect to base fare advertising.

The Department has not established a substantial interest in prohibiting base fare advertising. The Department has not established through evidence in the record that base fare advertising is misleading. Indeed the current en forcement policy enables th e airlines to fully and fairly communicate important information to c onsumers about governmental charges affecting air travel. The Department itself has recognized, “passengers benefit from knowing how much they are paying to government entities apart from the fares they pay the carriers.” Order 88-8-2, 3 (Aug. 2, 1988). The Department reiterated this conclusion in 2006. 71 Fed. Reg. 55,398 (2006).

The regulation does not advance DOT’s inte rest in preventing unfair or deceptive practices in a “direct and material” way. Rubin v. Coors Brewing Co. , 514 U.S. 476, 487 (1994). The prohibition against ba se fare advertising creates consumer confusion rather than relieves it. Consumers are accustomed to seeing the actual pri ce of a product or service displayed separately from government-imposed fees, as this has been th e practice in the airlin e industry for nearly 25 years and is the norm in virt ually every other industry.

Most importantly, the prohibition on base fare advertising does not represent a

“reasonable fit” between the Department’s limited responsib ility under the Deregulation Act of preventing unfair and deceptive practices and the m eans chosen to advance that responsibility.

Fox , 492 U.S. at 480. Where disclosure can eff ectively achieve the govern ment’s goal it is constitutionally preferable to prohibition. Pearson v. Shalala , 164 F.3d 650, 657 (1998). Clearly the Department’s goal of providing consumers with the total price of a ticket at the first point of contact is achieved through the current rule by requiring base fare ads to list governmentimposed taxes and fees separately and in a manner that is “clear and the total amount to be paid by the customer can be easily calculated,” 54 Fed. Reg. at 31,052, without suppressing truthful

information about the base fa re of an airline ticket.

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2. The Department Reversal of Its Longstanding Airline Price Advertising Policy, on Which Petitioners Based Th eir Innovative, Consumer-Friendly Low-Cost Business Models, is Arbitrary and Capricious

For almost 25 years, the Department has perm itted carriers to quote advertised base fares separately from non- ad valorem government-imposed taxes and fees collected on a perpassenger basis, provided the existence and amount of such taxes and fees is disclosed in accordance with Department requirements. Among other advantages, this policy enabled customers to more readily see what they were paying the airline and what was paid to the government. Allegiant and Spirit developed their business models around the marketing of the base price charged by the carrier. Nearly all ot her air carriers—including Southwest Airlines, the largest domestic airline—a dvertise their products this way. Signi ficantly, virtually all other retail

and service industries also adve rtise prices without applicable government taxes and fees. Consumers readily understand such taxes and fees are charged separately from the price of virtually all goods and services they buy. For near ly the last 25 years, literally billions of passengers have seen these ads, purchased ti ckets and traveled—app arently without being confused about their airfares. Indeed, the orig inal exception was created to prevent confusion.

See Order 88-3-25 (March 10, 1988).

Importantly, less than five years ago, the De partment found the reasons for maintaining this policy “most compelling.” Price Adve rtising, 71 Fed. Reg. 55,398, 55,401 (Sept. 22, 2006). In deciding to withdraw a Notice of Proposed Ru lemaking in which the Department considered eliminating the taxes and fees ex ception, the Department stated, “ As enforced, § 399.84 protects consumers, facilitates price comparison, fost ers fare competition, and affords sellers an appropriate degree of freedom to innovate. ” Id. Nothing in the instant rulemaking record supports this abrupt reversal of longstanding policy heavily relied on by the entire airline industry. Given industry reliance—especially by low-fare carriers like Allegiant and Spirit—on the prior enforcement policy regarding taxes a nd fees, which the Department reaffirmed as recently as 2006, this was arbitrary and capricious.

The Department has asserted in the Final Rule that the landscape relating to airfare advertising has changed since 2006, and has iden tified three recent innovations: (1) advertising

via social media outlets such as Facebook and Twitter, (2) unbundling in connection with fees for ancillary services, and (3) offering routings with multiple connections that may increase the amount of taxes and fees a traveler has to pay. 76 Fed. Reg. at 23,143.

Missing from the rulemaking record, however, is any explanation of how the advent of these innovations now renders a pr actice endorsed for more than tw o decades suddenly unfair or deceptive. By requiring carriers to bundle payments going to the government with the price going to the carrier, the rule make s it more difficult to compare the base price char ged by carriers Speculative analysis in the Final Regulatory Anal ysis that changing this rule will save three minutes in search time for 0.74 pe rcent of the passengers who trav eled in 2010 hardly supports a finding of an unfair or deceptive practice. 5 Because the Department failed to establish that its prior policy regarding the full-fare rule results in unfair or deceptive advertising, the decision to

5 See Final Regulatory Analysis, Docket OST-2010-0140, 58 (Apr. 8, 2011).

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eliminate its longstanding policy is arbitrary and capricious, and Petitioners are likely to succeed

on the merits of this claim.

B. The Department’s Decision to Require Carriers to Permit Consumers to

Hold Fares Without Purchase or to R eceive Cash Refunds Within 24 Hours of Reservation (§ 259.5)—a Form of Fare Regulation Eliminated by the Airline Deregulation Act—Exceeds th e Department’s Authority and is Arbitrary and Capricious.

With respect to § 259.5(b)(4), which require s carriers to permit consumers to hold an airfare without payment for 24 hours, or to rece ive a refund without pena lty after purchase if requested within 24 hours, the Department has exceeded its statutory authority. As a direct result of this requirement, airfares will rise. Because this requirement is effe ctively a prohibited rules tariff and will directly affect th e price of tickets, this requireme nt is a form of regulation that Congress eliminated in the Airline Deregulation Act.

In addition, DOT has failed agai n to provide any explanation of how a carrier that offers a nonrefundable ticket (after havi ng made clear to the consum er the ticket’s nonrefundable nature) has engaged in an unfai r or deceptive practice. In the Final Rule, the Department recounts in some detail the objections raised by vari ous carriers with respect to this requirement, 76 Fed. Reg. at 23,125-26, but provides no substantiv e response to these objections. Indeed, the Department’s Final Regulatory Analysis baldly attempts to justify the new mandate for every carrier by simply asserting that “most reporting U.S. carriers curren tly allow travelers either to hold a reservation for 24 hours without payment or to cancel ticket pu rchases within 24 hours without penalty.” 6

Moreover, the Department provides no rati onal explanation for why the sale of

nonrefundable tickets is per se unfair or deceptive. There is zero evidence in the record that passengers cannot shop for the fare that best suits their needs befo re making a final purchase. If the ability to obtain a refund is important, customer s can purchase their tick ets from a carrier that voluntarily offers a refund. This is how the competitive marketplace required by the Airline Deregulation Act is intended to function—customers exercise th eir choices from a range of options offered by different airlines.

The Final Rule fails to addres s the substantial objections that Spirit and other carriers raised in the rulemaking docket co ncerning the impact this provision will have on the price of tickets and airline reservation sy stems, and thus fails to save the Department’s decision on this matter from being arbitrary and capricious. Petitio ners, therefore, are likely to succeed on the

merits of this claim.

6 Final Regulatory Analysis at 5.

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C. The Department’s Decision to Prohib it Post-Purchase Price Increases for

Services not Purchased with the Ticket (§ 399.88) is Arbitrary and Capricious and Oversteps Its Statutory Authority.

Before the Final Rule, carriers were permitte d to adjust a passenger’s air transportation costs after ticket pur chase, so long as this was made clear in the contract of carriage and so long as the passenger received direct notice. The new rule prevents carriers from collecting increased charges for separate, ancillary services ( e.g. , baggage, advance se at selection, flight insurance, etc .) selected and paid for after the passenger purchased his ticket. 14 C.F.R. § 399.88(a). The effect of this ru le is to require carriers to make these ancillary services available at the charge in place at the time the passenger pays for his ticket, rather than the charge in place at the time—which could be w eeks or even months later—when the passenger looks to select and pay for the ancillary servic e. Indeed, keeping track of when a passenger purchased a ticket and determining the cost of th e ancillary service at that point in time will involve substantial programming costs on Spirit and other carriers that sell other services after the time the ticket is purchased. The rule also prevents Allegiant from offering an innovative, pro-consumer “flex-fare” that could go up or down based on the price of jet fuel and which

consumers could choose as an altern ative to a higher, locked-in fare. 7

This rule is arbitrary and capricious. The Department has failed to articulate a rational basis for deeming post-ticket purchase price increa ses by carriers relating to charges for separate, ancillary services unfair or deceptive, or why offering customers properly explained flex-fares would be unfair or deceptive. In addition, the fina l regulatory analysis altogether fails to address this rule in the context of transactions involving only carriers rather than air tour operators. The cost-benefit studies examine this issue only with re spect to package tours, where air travel is but one component of the purchase. (This would app ear to be a direct resu lt of the Department’s determination, as noted in the NPRM, that it had not observed carriers making post-purchase price increases. See 75 Fed. Reg. at 32,330.

Because the Department has not found that carriers have engaged in unfair or deceptive practices with respect to post-purchase price increases, the Department has not established a rational basis for adopting an across-the-board prohibition on post-purc hase price increases (except for government-imposed charges). The agency has overstepped its statutory authority and acted arbitrarily and capriciously. Petitioners, therefore, are likely to succeed on the merits

of this claim.

D. The Department’s Decision to Require Carriers to Provide Individualized Baggage Charge Information on E-Ticket and Other Electronic Confirmations Oversteps Its Statutory Authority and Is Arbitrary and Capricious.

Section 399.85(c) requires carr iers to include informati on in “text form” about the specific baggage allowances and baggage fees th at apply to the individual passenger on all

7 This concept was discussed in greater depth in Allegiant’s supplementary comments filed February 16, 2011,

Docket DOT-OST-2010-0140.

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e-ticket confirmations (including confirmations provided at the end of an online purchase transaction and sent to the consumer by e-mail after purchase), taking in to account factors that affect the particular charges that apply to the passenger ( e.g. , military, frequent flyer status, early purchase, etc .). In the Final Rule, the Department conf irms that it has “determined that there is value in providing [this information],” 76 Fed. Reg. at 23,147, and concludes that the Final Rule will include this requirement. However—as before —the Department fails to explain how current practices regarding the disclosu re of baggage allowances and baggage charges are unfair or deceptive and fails to articulate the basis for regu lating in this area. Im portantly, the Final Rule permits “agents,” but not airlines, to provide this information via a link to the baggage fee page

of a carrier website. 8 If a link is good enough for an “agent” to use in interfacing with the public, why is a link not good enough for the airlines?

In the preamble, the Department identified two purported benefits associated with this provision—(1) reduced consumer confusion over baggage charges and (2) time savings for both consumers and airlines ( id. ). Econometrica’s regulatory analysis identifies “improved customer good will toward carriers” also as a benefit flow ing from this requirement. Final Regulatory Analysis at 63. But nowhere in the record has th e Department quantified these alleged benefits. On the other hand, the Department has estim ated that this requirement will involve implementation and compliance costs of nearly $8 million (discounted cost, 2012-2021). Id. at 65. Section 399.85(c), therefore, oversteps the Department’s st atutory authorit y to prevent only practices that are unfair and deceptive, a nd is arbitrary and capricious. Petitioners, therefore, are likely to succeed on the merits of this claim.

E. The Department’s Decision to Require Fl ight Status Notifications (§ 259.8) is Arbitrary and Capricious.

Section 259.8 requires all U.S. and foreign carriers (such as Allegiant and Spirit) that operate at least one aircraft with 30 or more s eats to notify passengers within 30 minutes when a flight is cancelled, diverted or delayed by 30 minutes or more. Notification must be made in the boarding gate area, on the carrie r’s website, via the carrier’s te lephone reservation line and on airport display boards. In the NPRM, DOT propos ed to apply this requirement only to those larger carriers required to report their operatin g statistics, explaining that “[t]he Department tentatively believes that the cost of requiring smaller carriers to provide this information outweighs the benefits to consum ers in general in light of the fact that the operations of the reporting carriers account for nearly 90 percent of all domestic passenger enplanements.” 75 Fed. Reg. at 32,331.

Because the Department gave smaller carrier s reason to believe the requirement would not apply to them, DOT received no information that would disturb its tentative conclusion or support the version of the requir ement included in the Final Rule . Moreover, the Department’s regulatory analysis fails to addre ss the cost impacts associated with this requirement. Both flight

8 If the Department agrees to permit carriers to comply with § 399.85(c) by providing the required notice of applicable baggage charges via a link to a page or pop-up on the carrier’s website, which supplies a detailed explanation of the carrier’s baggage charges and the factors that affect them, Petitioners will exclude their objection to this provision of the Final Rule from their litigation.

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cancellations and delays will increase under the rule . This outcome will result because airlines routinely post tentative cancellation and delay information in anticipation of bad weather but do

not make final decisions about wh ether to operate a flight until closer to departure. If bad weather does not materialize, the flights return to their original schedules. But—under the new rule, which requires notification of potential flight irregularities within 30 minutes of “knowledge of a delay”—airlines may be forced to cancel or delay flight s even if the weather improves, because—upon learning that a flight might be cancelled or delayed—some passengers will immediately make alternative travel arrangemen ts or decide not to travel, or arrive at the departing airport very clos e to actual boarding time.

DOT’s decision to adopt this requirement and to apply it to smaller carriers was arbitrary and capricious because it is unsupported by any we ighing of the relative costs and benefits and therefore does not reflect a reasoned judgment. Petitioners, therefore, are likely to succeed on

the merits of this claim.

II. Petitioners Will Suffer Irreparable Harm Un less the Department Stays the Effective

Date of the Rules

As explained in section I.A. above, the new full- fare advertising rule violates Petitioners’ commercial free speech rights protected under the First Amendment. This constitutional violation involves a special type of irreparable harm. The Supreme Court has stated that the

“free flow of commercial in formation is indispensable.” Virginia Bd. of Pharmacy v. Virginia
Citizens Consumer Council , 425 U.S. 748, 765 (1976). Suppression or “loss of First Amendment freedoms, for even minimal periods of time, unque stionably constitutes irreparable injury.”

Elrod v. Burns , 427 U.S. 347, 373 (U.S. 1976) ; see Community Communications, Inc. v. City of

Boulder , 660 F.2d 1370 (10th Cir. 1981). For example, the new rule will undermine Spirit’s $9 Fare Club, a popular program for its customers. The appeal of the program is the availability of base fares as low, or lower than $9. Members are well aware that these fares do not include government taxes and fees and, if purchased on the Internet, a convenience fee. The fare advertising rule will hide what Spirit is chargi ng and wrap it in various governmental taxes and fees that have absolutely nothing to do with what Spirit is actually charging for its service. No customer will look at the tax and fee explanatio n, which the Department will now require to be hidden in small print away from the displayed “full fare.” The potential loss of this program will directly reduce Spirit’s subs cription revenues and force tic ket prices to rise.

Allegiant and Spirit will suffer irreparable harm in the form of compliance costs and economic losses unless the Department stays the e ffective date of the rules pending judicial review. In addition to the Fare Club, Spirit and A llegiant will be forced to dramatically change or abandon the marketing, distribution, and prici ng models that allowed them to keep ticket prices low and to compete effectively with legacy carriers as well as with non-aviation alternatives. If the rule is ultimately set asid e, these compliance expenditures will have been unnecessary and will be unrecovera ble, either through litigation or market participation. The harm done to Petitioners’ business models and customer goodwill would be impossible to undo.

The rules impose disproportionate compliance costs on low fare carriers, like Allegiant and Spirit, which the Department did not consider. The initial compliance costs will be

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substantial, imminent, and unrecoverable. Petitione rs will need to make significant changes to their websites and the way they communicate with their customers. These changes will not be simple and will require substantia l information technology (IT) invest ments. Allegiant and Spirit estimate their combined compliance costs for the amended full-fare rule alone will amount to more than $2.6 million. Spirit estimates its total implementation costs at over $5 million. Allegiant and Spirit are both ra pidly growing carriers, and thes e compliance expenditures will detract significantly from their ability to inve st in additional routes and services. These additional opportunity costs are unquantifiable and unrecoverable.

Additional marketing expenditures will have to be made to educate consumers regarding the change in the full-fare advertising rule to prevent the misconception consumers will have that air travel prices have increased. It bears emph asis that for low cost carriers, the apparent percentage increases will be much larger than fo r the higher fare, legacy carriers. Despite these efforts, consumers will likely be confused. If th e rule is ultimately set aside, more money will have to be spent on transitioning back to Petitioners’ preferred, time-tested method of advertising, resulting in further consumer c onfusion and potential loss of customers. The damage done to the business models Petitioners have developed in reliance on the Department’s prior rules will be substantial and irreparable.

The carriers will suffer irreparable harm in the form of unrecoverable compliance expenditures, lost opportunity co sts, and damage to their cor porate systems and identities. Petitioners would not be able to recoup thes e costs through subsequent litigation, as the Department is protected by sovereign immunity a nd, even if they could, the damages would be impossible to quantify. This unrecoverable harm to Petitioners’ business qualifies as irreparable

harm. See Iowa Utils. Bd. v. FCC , 109 F.3d 418, 426 (8th Cir. 1986) (“The threat of unrecoverable economic loss...qualif[ies] as irreparable harm.”); Feiner man v. Bernardi, 558 F. Supp. 2d 36, 51 (D.D.C. 2008); Nat’l Mining Ass’n v. Jackson , No. 10-cv-1220, 2011 U.S. Dist. LEXIS 3710, *46 (D.D.C. Jan. 14, 2011). Furthe rmore, unquantifiable damages, such as

the harm that will be caused to Petitioners’ corporate identities and lost opportunity costs, constitute irreparable harm. See CSX Transp. Co. v. Williams , 406 F.3d 667, 673 (D.C. Cir 2005).

Implementation of this rule will threaten Petitioners’ viability. Allegiant and Spirit are products of a deregulated ai rline industry. They ar e small and have relative ly little market power compared to most of their competitors. Their vi ability in the airline industry depends on their ability to innovate new products , services, and means of dist ribution in order to compete aggressively with the much larg er legacy carriers, not to men tion competing against non-aviation alternatives. Advertising low base fares is essential for attracting customers and increasing

demand in the markets served. Non-refundable ticke ts, flexibility in ancill ary fees and services, and efficiency in relaying information to custom ers are all essential to keeping Petitioners’ ticket prices low and differentiating th emselves from their larger competition. The Final Rule essentially seeks to apply inflexible uniform standa rds to all air carriers and results in a forced commoditization of services, leaving little distinction between the low fare carriers and legacy carriers. Ultimately, this will hinde r the ability of low-cost carrier s to survive in the market and will frustrate the objectives of the Deregul ation Act, to the public’s detriment.

11The Honorable Ray LaHood Request for Postponement or Stay July 6, 2011

III. Because No Other Parties Will Be Harm ed, the Balance of Equities Favors Postponing the Effective Date of the Rules

Granting relief pending judicial review will not harm other parties. The Department has made no showing that that the challenged rules a ddress substantial consumer harm in need of

immediate redress. The rulemaki ng process itself took more than ten months, ex cluding the time to develop the NPRM.

While the Department has an interest in prev enting unfair and deceptive practices, its role is not to regulate every prac tice that a small number of pa ssengers finds inconvenient. Importantly, in light of the fact that the Depart ment has not explained how any of the challenged provisions addresses an unfair or deceptive practice, maintaining the status quo will not harm the public interest. Given the significant harm to Pet itioners, and the airline i ndustry in general, that will result from not postponing the rules, the balance of equities strongly tilts in favor of granting

relief.

Not postponing the effectiveness of the rules will harm Petitioners, other carriers, and ultimately consumers. Air carriers have already started to invest substantial amounts of time and money in developing means of complying with th e Final Rule. Given th e substantial likelihood the rules will be set aside, preventing the indu stry from incurring these unnecessary costs and ultimately having to pass them on to consumers in the form of higher ticket prices benefits both the industry and the public.

IV. The Public Interest

The public interest is best served by maintain ing the existing rules and practices while the court determines if the challenged rules ar e contrary to the policy mandates and legal requirements of the Airline Deregulation Act, violate the constitution or are arbitrary and capricious.

If the rules are ultimately set aside, the pub lic will be confused if carriers change their price advertising and other practi ces to comply with the rules onl y to later revert to time-honored practices. For nearly 25 years, airline cons umers have come to understand that airfare advertisements display the base fare without g overnment taxes and fees. Pursuant to DOT’s established enforcement policy, the nature and am ount of taxes and fees were prominently and proximately disclosed, and consumers were informed of the total price before purchase. This has been the practice in the airline industry dating b ack at least as long ago as 1988, and it continues to be the widespread practice in other industr ies. Maintaining the status quo while review is pending will avoid the substantia l likelihood that the public will be confused if the rules are overturned (or changed) as a result of Petitione rs’ challenge. Avoiding consumer confusion will best serve the public interest.

In addition, the public has a vital interest in having as much access as possible to truthful, nondeceptive information about prices for air transpor tation, an interest that a stay will protect. Given the difficulty airlines will have with comp lying with the new fare advertising requirements (because of the difficulty of dete rmining a final ticket price before an individual customer selects

12The Honorable Ray LaHood Request for Postponement or Stay July 6, 2011

a specific itinerary), and the risk of costly penalties for violations, airlines are likely to significantly scale back the price information they make available to the public. A stay would preserve the free circulation of (truthful, nond eceptive) information in the public domain, an important public interest protected by the First Amendment.

The public has a strong inte rest in “good government,” wh ich—in the context of this case—means that an agency acts within its stat utory authority and make s decisions that are supported by the record and not arbitrary and ca pricious. For the reas ons explained above, the Department has fallen short of these requirements, and relief will help to en sure that these public interests are preserved while judici al review proceeds. Importantl y, relief will help ensure that

confusion and inconvenience of th e traveling public is avoided.

CONCLUSION

Because Petitioners meet the applicable standard s for a judicial stay in the D.C. Circuit, the Department has ample reason to find that jus tice requires relief pending judicial review. In particular, Petitioners are likely to succeed on the merits of their challenge, the harm visited upon

them in the absence of relief wi ll be immediate and irre parable, no other parties will be harmed by the relief, and relief will serve important public interests. For these reasons, Petitioners request that, pursuant to APA § 705, the Department stay the effective date of the rules, as

described herein.

Sincerely,

Joanne W. Young

David M. Kirstein Counsel for Petitioners

Aaron A. Goerlich

Garofalo Goerlich Hainbach PC 1200 New Hampshire Avenue NW Washington, DC 20036-6802 Tel (202) 776-3970 agoerlich@ggh-airlaw.com Of Counsel for Allegiant Air, LLC

cc: Robert Rivkin, Esq. Samuel Podberesky, Esq.

Docket DOT-OST-2010-0140

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