Opinion ID: 394180
Heading Depth: 1
Heading Rank: 2

Heading: unreasonable rates

Text: 18 The FAA § 404, 49 U.S.C. § 1374(a)(2) requires that all rates be just and reasonable. It is a longstanding principle that rates should be geared to the costs of service. Order 76-3-81 at 5. 19 Reasonable rates, in this regulated industry as in others, are those which are as low as possible but still allow the industry to provide adequate and efficient service and earn a reasonable rate of return, thus assuring its ability to attract necessary capital in the future. 20 Moss v. C.A.B., 521 F.2d 298, 308 (D.C.Cir.1975), cert. denied, 424 U.S. 966, 96 S.Ct. 1460, 47 L.Ed.2d 732 (1976). 21 The CAB found that the rate differential between passenger and courier baggage was economically justified and therefore not unreasonable because courier baggage on the average costs the airlines more to handle than passenger baggage. Order 80-2-148 at 3. The CAB noted that couriers tender, on the average, a greater number of bags of heavier weight. Id. The CAB approved the use of 30 kilograms as the average weight for a piece of courier baggage. It then approved the multiplication of that weight by the rate approved in the Excess Baggage Case, 0.7% of the economy passenger fare per kilogram of baggage, to produce a flat rate for courier baggage. 22 DHL and Gelco contend that the courier baggage tariff is not cost-justified because the approved rate rests on two erroneous assumptions: (1) courier baggage weighs, on the average, 30 kilograms while passenger baggage weighs 12 kilograms 14 and (2), assuming arguendo that there is a difference in weight, it does not justify the price differential. 23 The CAB in its order did not expressly find that the average weight of courier baggage is 30 kilograms. Pan Am's tariff justification stated that it had determined, and DHL conceded, that the average weight is approximately 30 kilograms. In approving the requested tariff, the CAB tacitly accepted this figure. DHL contends that it never conceded the weight figure. Even assuming that DHL implicitly accepted this figure, GELCO clearly did not. In its complaint, GELCO alleged: 24 Pan Am's determination that the average weight per piece of a courier shipment is 30 kilograms is patently unfair to Gelco. Gelco shipments average approximately 23 kilograms. If it were required to pay Pan Am's proposed charge, Gelco would in essence by paying for 7 kilograms of excess per piece which it is not using. 25 The only basis for concluding that a 30 kilogram figure was reasonably accurate is a statement by a Pan Am witness, at a prehearing conference for investigation of an earlier proposed tariff, that a survey had been conducted and a 30 kilogram figure was derived. At the same time, Pan Am stated that it could produce information regarding the average weight of courier baggage. In any event, the details of the alleged survey were not presented to the CAB so that it had no basis to judge its accuracy. Gelco stated in its complaint that the average weight of its shipments was 23 kilograms. Because there was no evidence before the CAB that the average weight was 30 kilograms and Gelco alleged that the weight was 23 kilograms, we believe that the acceptance of the 30 kilogram figure without an evidentiary investigation was an abuse of discretion. 15 26 We do not believe, however, that the CAB abused its discretion in approving a flat rate for baggage of the applicable weight times the formula established in the Excess Baggage Case. The complainants contend that: (1) the CAB inappropriately applied the Excess Baggage Case because it requires that any increased rate be based on the space a piece of baggage occupies rather than its weight and (2) the Excess Baggage Case is not applicable. 27 The Excess Baggage Case arose from a request that the CAB investigate the lawfulness of tariffs which established the baggage allowances and excess-baggage charges applicable to international flights. The tariffs under consideration: (1) allowed, without additional charge, 30 kilograms of baggage for first class passengers and 20 kilograms for economy passengers and (2) charged excess baggage at the rate of one percent of the applicable first-class fare per kilogram. In determining that the free allowances were unjust and unreasonable because based solely on weight, the CAB in a lengthy historical discussion, found that space, not weight, is the chief component in determining the cost of baggage service. 16 28 The CAB held that weight may not be the sole determinant for baggage charges but it did not suggest that weight-related costs should have no bearing.... Order 76-3-81 at 6 (emphasis in original). In fact, the CAB, approved the formula for passenger excess baggage charges of 0.7% of the economy fare per kilogram, which is, of course, a weight, rather than a space-related formula. After approving this formula, the CAB stated in essence that if a carrier proposed that rate as its tariff, it would be treated as presumptively valid and a carrier would not be required to provide economic justification. This policy avoids lengthy hearings. 17 Consequently, when Pan Am and British Airways proposed a rate matching that formula the CAB did not require economic justification. 29 The apparent inconsistency between the CAB's holding regarding free baggage and its approval of a rate for excess baggage using a weight, not a space or volume factor, leads to the complainants' first argument. To find the proper rate for excess baggage, the weight of the bag is multiplied by the approved formula. In Order 77-4-97, the CAB approved a flat rate for excess baggage by multiplying the weight of the average passenger bag by the approved formula. This same process was applied to courier bags. Assuming the average courier bag weighs 2.7 times the weight of a passenger bag, or 30 kilograms, that courier bags could be charged approximately 2.7 times the rate for passenger baggage. The couriers argue that this is impermissible because the tariff is based solely on weight. 30 The couriers argument only follows if in approving the formula the CAB did not take into account the space utilized by a piece of baggage. In the Excess Baggage Case, the CAB had to determine what was a reasonable cost-related charge for excess baggage. Based on a survey, the CAB determined the percentage of the fare allocable to the cost of providing capacity and services for baggage carriage. It then translated that figure to a per kilogram rate formula, a more practical means to determine excess baggage charges than endeavoring to determine cubic measurements. Giving the CAB its due deference regarding technical knowledge, Las Vegas Hacienda v. C.A.B., 298 F.2d 430, 433-34 (9th Cir.), cert. denied, 369 U.S. 885, 82 S.Ct. 1158, 8 L.Ed.2d 286 (1962), we believe that the CAB adequately considered space utilization in reaching its formula. Thus, when that formula is applied using a weight factor, it accounts for space. The Excess Baggage Case requires only that weight not be the sole determinant and we hold that here it was not. 31 The complainants alternative argument is that the Excess Baggage Case should not be applied to their baggage because it is of a different type than passenger baggage. The Excess Baggage Case concerns the cost of handling passenger baggage. The complainants maintain that their baggage is passenger baggage, but if it is not, as we held above, then the Excess Baggage Case cannot be applied to courier baggage because it is a unique type. That case addressed the cost of handling passenger baggage; it did not develop weight or cost data with respect to courier baggage. Consequently, the couriers argue, it is arbitrary to apply the Excess Baggage Case to this new separate classification courier baggage. 32 We believe that the CAB did not abuse its discretion in applying the formula established in the Excess Baggage Case to courier baggage. Couriers receive the same baggage service as is accorded to a piece of ordinary passenger baggage. The Excess Baggage Case formula was developed to compensate for the cost of this service. Hence, the CAB could reasonably conclude that the formula derived for the cost of handling a piece of excess baggage in general could be appropriately applied to courier baggage. We do note, however, that the Excess Baggage Case also presumes that a carrier, in order to fully cover the costs of its services, might be expected to incorporate into the fare paid by a passenger the cost of moving some amount of baggage. The passenger ticket price compensates the airlines for some baggage handling: the so-called free baggage allowance. The couriers have alleged that the airlines deny couriers the right to tender courier bags as part of the free baggage allowance. They suggest that this procedure results in the anomaly that a courier traveling with only courier bags will be assessed an extra courier baggage charge on each bag and allowed no free baggage allowance. Differences in the number and weight of courier bags tendered affect the cost to the airline of servicing the courier and justify, as we hold in Part I, distinctions in the rates charged. Such distinctions do not necessarily justify requiring the courier to forfeit completely that portion of his ticket price allocable to free baggage handling. Thus, in addition to the limited evidentiary remand to determine the average weight of courier bags, the Board should review the free baggage allowance and determine what, if any allowance, is available to couriers as part of the passenger ticket price. 18