[Federal Register: February 1, 2006 (Volume 71, Number 21)]
[Notices]
[Page 5404-5406]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01fe06-172]
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DEPARTMENT OF TRANSPORTATION
Office of the Secretary
[Docket OST-2005-21790]
Notice on the Essential Air Service Code-Sharing Pilot Program
AGENCY: Office of the Secretary, DOT.
ACTION: Notice.
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SUMMARY: Vision 100--Century of Aviation Reauthorization Act, Public
Law 108-176, Title IV, subtitle A, section 406 requires the Secretary
of Transportation to establish a pilot program, under which the
Secretary would have discretion to require air carriers receiving
Essential Air Service (EAS) subsidy and major carriers serving large
hub airports to participate in code-sharing arrangements for up to 10
EAS communities. Public comments were invited about such a prospective
program; all of the comments raised objections, particularly concerns
that the Department would use the authority to force carriers to
participate involuntarily in the program. This Notice discusses the
comments, advises of the establishment of the pilot program, solicits
applications for participation in the program, and specifies issues
that should be addressed in such applications.
FOR FURTHER INFORMATION CONTACT: Kevin Schlemmer, U.S. Department of
Transportation, Office of Aviation Analysis, 400 7th Street, SW.,
Washington, DC 20590. Telephone (202) 366-3176. E-mail:
kevin.schlemmer@dot.gov.
SUPPLEMENTARY INFORMATION: The Essential Air Service program,
established in 1978 by the Airline Deregulation Act, Public Law 95-504,
enables small communities that were served by certificated air carriers
before deregulation to maintain at least a minimal level of scheduled
air service. Under this program, the Department currently provides
subsidies to air carriers so that approximately 150 rural communities,
including 37 in Alaska, can receive such service. DOT's program
determines the minimum level of service at each community by specifying
a hub through which the community is linked to the national
transportation system, a minimum number of round trips and available
seats that must be provided to that hub, certain characteristics of the
aircraft to be used, and the maximum number of permissible intermediate
stops to the hub.
A code-sharing agreement is a marketing arrangement between two
carriers that allows one to publish schedules and sell tickets on
flights operated by another. Typically, code-sharing allows carriers to
broaden their network of destinations, to feed additional passengers to
their hub airports, and to serve destinations that they could not
otherwise serve on a profitable basis. Major airlines now commonly
enter into voluntary code-share contracts with others, including
smaller, regional carriers. Most airports covered under the EAS program
have service provided by a carrier that has at least one major
airline's code attached to its flights out of the airport. However,
some carriers that provide subsidized service under the EAS program do
not have any code-share arrangements in some of the markets that they
serve.
On December 12, 2003, President Bush signed the Vision 100--Century
of Aviation Reauthorization Act, Public Law 108-176. Title IV, subtitle
A, section 406 of that statute required the Secretary of Transportation
to establish a pilot program, under which the Secretary would have
discretion to require air carriers receiving EAS subsidy and major
carriers serving large hub airports to participate in code-sharing
arrangements for up to 10 EAS communities. Section 406 provides as
follows:
Code-Sharing Program
(a) In General.--The Secretary of Transportation shall establish a
pilot program under which the Secretary may require air carriers
providing air service with compensation under subchapter II of chapter
417 of title 49, United States code, and major carriers (as defined in
section 41716(a)(2) of such title) serving large hub airports (as
defined in section 40102 of such title) to participate in multiple
code-sharing arrangements consistent with normal industry practice
whenever and wherever the Secretary determines that such multiple
[[Page 5405]]
code-sharing arrangements would improve air transportation services.
Limitation.--The Secretary may not require air carriers to
participate in the pilot program under this section for more than 10
communities receiving service under subchapter II of chapter 417 of
title 49, United States Code.
On July 12, 2005, the Department solicited expressions of interest
by air carriers regarding participation in the pilot program,
suggestions as to how such a pilot program might be structured, and
other comments concerning the practical aspects of mandating code-share
arrangements. 70 FR 40098 (July 12, 2005).
Comments: We received comments from the Air Transport Association
of America, Inc. (ATA), American Airlines, Inc. (American), The Boyd
Group, Inc., Pacific Wings Airlines Limited (Pacific Wings), the
Regional Airline Association (RAA), Southwest Airlines Co. (Southwest),
and United Air Lines, Inc. (United).
All commenters objected in some manner to a mandated code-sharing
program. Commenters also typically questioned the legal authority of
DOT to enforce such a regulation, cited the apparent conflict of a
mandated program with the laws and policies promoting deregulation of
the airline industry, and asserted that carriers would experience
substantial difficulties and costs in implementing such a program.
ATA, American, The Boyd Group, RAA, and Southwest all strongly
opposed the mandatory aspect of participation in the program. ATA
believed intrusive government involvement would seriously harm the
dynamics of commercially viable code-share relationships. American,
Southwest and The Boyd Group noted the considerable expense and close
coordination required for code-share relationships even among willing
participants. United stated that it desires to make its route decisions
voluntarily and coordinate with EAS providers based on code-share
relationships that strengthen its product and route network. Pacific
Wings generally objected, but stated that it could support mandatory
code-sharing in limited cases with certain restrictions in Hawaii, an
area that the carrier serves. RAA noted that, while it is a strong
supporter of the EAS program in general, it would prefer to see
carriers enter into any program voluntarily.
A number of commenters questioned DOT's legal authority to mediate
or intervene when code-share parties under any such program disagreed
over the terms of the commitment. ATA asserted that such involvement
would constitute a ``serious intrusion into the commercial processes
through which code-share arrangements are established in the free
market.'' Moreover, RAA contended that DOT does not have the
operational or financial expertise to structure and administer such a
program. American echoes this, arguing that such interference is
antithetical to free enterprise. In a similar vein, Southwest
maintained that compulsory code-sharing would be inconsistent with a
deregulated industry and would require an unequivocal expression by
Congress to re-regulate the industry before the Department should
consider implementation. And United stated that DOT cannot force two
independent carriers into a code-share agreement any more that it can
force a carrier to enter an EAS market.
Difficulty and oversight of implementation are other concerns
cited. In RAA's view, highly complicated issues are involved, among
them the terms and conditions of contracts including liability for such
matters as lost baggage and bumped passengers, coordination of
schedules, passenger and freight pricing, allocation of airport
facilities and staff, family assistance assignments, frequent flier
programs, and revenue sharing. The Boyd Group and Southwest echo RAA in
raising concerns as to the complexity of these issues. While Pacific
Wings believed that DOT could help facilitate code-sharing by dealing
with technological issues of real-time connections to the host's
computer reservations system (CRS) to manage inventory, confirm
reservations, and reaccommodate passengers, United points to a more
practical matter: it has a shortage of 4 digit flight numbers and the
company already has to sacrifice certain code-share markets due to the
technological problem of flight number shortages.
Several commenters questioned the potential effectiveness of any
such program. The Boyd Group says that, before this program is
implemented, the entire EAS program should first be reevaluated and
updated to adjust to the air transportation system that has changed
considerably since the industry was deregulated in 1978. It stated that
while code-sharing would appear to boost traffic at EAS communities, it
does not in fact necessarily do this. RAA further expressed doubt
whether a mandatory code-share program would increase enplanements,
especially where there is a major airport within reasonable driving
distance.
American, Southwest, and RAA further noted that the plain language
used in the statute specifies only that the Secretary ``may'' require
air carriers to participate. Southwest argued that this plain language
does not mandate that DOT require major carrier participation. American
urged that, during a time of unprecedented distress in the industry,
the DOT should not harm major carriers by imposing ``substantial non-
recoverable costs'' that this program would entail. It stated that,
should DOT err and implement this program, several limitations should
be imposed, including limiting the display of the major carrier's code
on flights operated by the EAS carrier between the EAS point and the
large hub airport, limiting the mandated code sharing to one EAS route
per major carrier, and not entering into agreement with any EAS carrier
unless it has been in operation for at least five years. It also would
have the Department require that any EAS partner have compatible
systems interfaces with the major carrier (including electronic
ticketing capability), and be a full participant in the Airline
Reporting Corporation (ARC) before the EAS carrier could apply for a
mandatory code-share agreement. American further proposed that all
implementation and recurring expenses be borne by the EAS carrier.
Decision: We generally agree with the commenters that requiring
code-sharing between unwilling partners would raise serious policy and
practical issues. From a policy standpoint, we acknowledge that
requiring and enforcing involuntary code-sharing would intrude on
carrier management of rates, routes, and services in a manner that is,
at a minimum, inconsistent with the basic thrust of the Airline
Deregulation Act of 1978 and its implementing Federal policies. From a
practical standpoint, even if we were inclined to require code-sharing,
the implementation problems would be difficult, if not impossible, to
overcome. Under a voluntary arrangement, the major carrier could work
with the EAS carrier to delineate the specific details of revenue
sharing arrangements and technical considerations within the scope of
their business plans and methods. However, because major airlines are
under considerable pressure to control costs, when they devote valuable
and sometimes scarce resources (such as planning staff, gate agents,
and ramp space) they should be confident that there would be a positive
revenue outcome for each carrier. Compelling a carrier to enter into an
arrangement may cause financial losses. Gate space at hub airports for
small aircraft is a concern, as some airlines
[[Page 5406]]
have no room for additional aircraft at their existing gates. Some
airports now require aircraft parked on certain gates to have a minimum
amount of seats and, generally, the EAS carriers would not meet that
requirement.
Nonetheless, under some circumstances, code-sharing can make EAS
more attractive to customers, increasing traffic and reducing subsidy
costs. We agree that carriers should be encouraged to expand code-
sharing to small and underserved communities, and look to whether the
obstacles some perceive can be overcome. While we find the comments
highly persuasive, we are unwilling to state categorically that there
are no circumstances where mandatory code-sharing might work.
Therefore, we will fulfill our statutory obligation to establish a
program, and in doing so encourage any carrier interested in
participating in it to submit an application in the context of
particular communities or goals. In doing so, however, an applicant
should address why its proposal should be implemented in a manner in
which the various objections discussed above can be resolved or
minimized. If it has a particular code-share partner in mind, it should
address any specific objections that carrier has to participating with
it in a code-share relationship. This program is limited to subsidized
EAS communities. Proposals should be thorough, with a well-laid out
plan why the proposed arrangement would be beneficial to the community
and the carriers involved. Applicants that do not satisfactorily
address the concerns that we have outlined in this Notice, and the
concerns of the partner(s) with which it wishes to establish a code-
share relationship, should expect to have their applications rejected.
Applicants should file any such applications in Docket No. OST-2005-
21790.
Issued in Washington, DC on January 26, 2006.
Michael W. Reynolds,
Acting Assistant Secretary for Aviation and International Affairs.
[FR Doc. E6-1322 Filed 1-31-06; 8:45 am]
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