Order 2012

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UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of T ransportation

On the Ninth day of May, 2012

People Express Airlines, Inc. Docket OST 2012

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Violations of 49 U.S.C. § 41101 and 14 CFR 201.5(a) Served May 9, 2012

CONSENT ORDER

This order concerns the offer and sale of memberships by People Express Airlines, Inc., (People Express) in its “Club Travelati” in violation of 49 U.S.C. § 41101 and 14 CFR 201.5(a). It directs People Express to cease and desist from future violations of these provisions and assesses People Express a compromise civil penalty of $10,000.

Applicable Law

In order to engage directly or indirectly in air transportation, citizens of the United States 1 are required to hold economic authority from the Departme nt pursuant to 49 U.S.C. § 41101, either in the form of a “certificate of public convenience and necessity” or in the form of an exemption from the certificate requirement. An entity that does not have economic authority may not hold out air transportatio n. Such conduct would constitute “engaging” in air transportation and would violate 49 U.S.C. § 41101. 2 In addition, 14

1 A “citizen of the United States” includes a corporation or association organized in the United States that 1) meets certain specified standards regarding the citizenship of its president, officers and directors, and holders of its voting interest and 2) is under the actual control of citizens of the United States. 49 U.S.C. § 40102(a)(15).

2 From the standpoint of the requirements of section 41101, the holding out of air service, as well as the actual operation of air service, constitutes “engaging” in air transportation. Prior to 1994, when Title 49

of the United States Code was recodifi ed and simplified, 49 U.S.C. § 41101 stated that no carrier could “engage” in air transportation without appropriate authority. Although the wording of section 41101 now states that what is prohibited is “providing” air transportation without authority, C ongress made clear when it recodified Title 49 that in doing so it did not intend any substantive change to the statute. Act of July 5, 1994, Pub. L. 103

- 272, § 6(a), 108 Stat. 745, 1378.2

CFR 201.5(a) prohibits an applicant for new or amended authority from advertising the air transportation covered by its application un til the application has been approved by the Department. Operating, advertising, or otherwise holding out or selling air transportation to the public as a certificated carrier without having such authority violates

section 41101 and Part 201.

Backgroun d

People Express is a Virginia

- based corporation. It does not hold economic authority from the Department to engage in air transportation. On March 19, 2012, People Express applied for authority to engage in interstate scheduled passenger air transportatio n. Its application is currently pending with the Department. Between February 13 and March 27, 2012, People Express advertised on its Internet website memberships in its “Club Travelati” by offering prospective members, among other things, the opportuni ty to receive after scheduled service began “ULTRA

- LOW discount offers” and discount certificates to be used towards their first “PEOPLExpressTM ticket for any scheduled flight or fare.” As a result, People Express sold more than 130 memberships through it s website. By advertising and selling club memberships offering future discounts before it received effective economic authority for that service, People Express violated 49 U.S.C. § 41101 and 14 CFR 201.5.

Mitigation

In mitigation , People Express sta tes that it takes full compliance with the Department’s consumer protection regulations very seriously. People Express emphasizes that it moved immediately and decisively to address the Department’s issues about its Club Travelati (“Club”), changing its w ebsite to eliminate all substantive web content related to the Club within one hour of being informed by the Department of its concerns. People Express believes that this response demonstrates its favorable compliance disposition.

People Express maintains that it was not its intent to advertise, hold out

, or sell air transportation. Rather, People Express asserts that the Club membership offered non

- air

fare and non

- air service related benefits, including “first to know” information about the company for Charter Club members, as well as a charter member souvenir pin. People Express states that it intended the Club to promote interest in the company, not to sell

airline services.

People Express states that it did not believe that its offerings constitut ed advertising, sale or holding out of air transportation and that it established safeguards to avoid running afoul of the “pre

- sales” prohibition in the Department’s regulations by making clear on

its website and in the Club’s Terms and Conditions that Cl ub membership would not become effective (and Club benefits would not arise) until after People Express operated its first scheduled departure (which necessarily means that People Express had received all of its regulatory approvals and certificates to ope rate air transportation). People Express asserts that its intent was to ensure that no fare or air transportation related benefits would accrue or have validity prior to the receipt of regulatory approvals and the3

commencement of service. Quoting from its website, People Express states that the

Charter m ember benefits were limited only to “our pre

- launch plans, including all of our exciting announcements and events” and that other benefits would not begin until after the company began scheduled service. With respect to “ ULTRA Low

- Fare offers” and

discount certificates , People Express asserts that only “after we begin our schedul ed

service” would Club members be entitled to later receive fare “offers” or pay $15 for a

discount certificate.

Finally, People Express states that it has agreed to settle this matter without admitting violations in order to avoid the burden and expense of litigation and to put this issue behind it to avoid any delay to the consideration of its pending application for certificate authority before the Department.

DECISION

The Office of Aviation Enforcement and Proceedings (Enforcement Office) has carefully considered the information provided by People Express, but continues to believe that enforcement action is warranted. The Enforcement Office and People Express have

reac hed a settlement of this matter in order to avoid litigation. Without admitting the violations described above, People Express consents to the issuance of this order to cease and desist from future violations of 49 U.S.C. § 41101 and 14 CFR Part 201 and t o the assessment of $10,000 in compromise of potential civil penalties otherwise due and payable pursuant to 49 U.S.C. § 46301. This assessment is appropriate considering the nature and extent of the violations described herein and serves the public inter est. It establishes a strong deterrent against future noncompliance with the Department’s requirements governing the conduct of applicants for certificate authority.

This order is issued under the authority contained in 49 CFR 1.57a and 14 CFR 385.15.

A CCORDINGLY

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1. Based on the above discussion, we approve this settlement and the provisions of this order as being in the public interest;

2. We find that People Express Airlines, Inc., violated 49 U.S.C. § 41101 and 14 CFR 201.5 by advertising and selling cl ub memberships offering future discounts on air travel without having first been granted the authority to engage in passenger air services;

3. We order People Express Airlines, Inc., and all other entities owned or controlled by or under common ownership wi th People Express Airlines, Inc., and its successors and assignees to cease and desist from further violations of 49 U.S.C. § 41101 and 14 CFR Part 201;

4. We assess People Express Airlines, Inc., a compromise civil penalty of $10,000 in lieu of civil penalties that might otherwise be assessed for the violation found in4

ordering paragraph 2, above, which amount shall be due and payable within thirty (30) days of the date of the issuance of this order. Failure to pay the penalty as ordered shall also subject People Express Airlines, Inc., to the assessment of interest, penalty, and collection charges under the Debt Collection Act and to possible enforcement act ion for failure to comply with this order; and

5. Payment shall be made by wire transfer through the Federal Reserve Communication System, commonly known as “Fed Wire,” to the account of the U.S. Treasury in accordance with the attached instructions.

This o rder will become a final order of the Department 10 days after its service date unless a timely petition for review is filed or the Department takes review on its own

motion.

BY:

ROSALIND A. KNAPP Deputy General Counsel

(SEAL)

An elec tronic version of this document is available at www.regulations.gov