Disclosure of Code-Sharing and Long-Term Wet Lease Arrangements, 44848-44851 [05-15426]

Agencies

• Office of the Secretary
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 70, Number 149 (Thursday, August 4, 2005)]
[Rules and Regulations]
[Pages 44848-44851]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-15426]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 257

[OST Docket No. 2004-19083]
RIN 2105-AD49


Disclosure of Code-Sharing and Long-Term Wet Lease Arrangements

AGENCY: Department of Transportation; Office of the Secretary.

ACTION: Final rule.

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SUMMARY: This action amends the rule governing the disclosure of code-
share and long-term wet lease arrangements in print advertisements of 
scheduled passenger services to permit carriers to disclose generically 
that some of the advertised service may involve travel on another 
carrier, so long as they also identify a list of all potential carriers 
involved in serving the markets advertised. The action is taken in 
response to a petition for rulemaking filed by United Airlines, Inc.

DATES: This final rule becomes effective September 6, 2005.

FOR FURTHER INFORMATION CONTACT: Trace Atkinson, Air Carrier Fitness 
Division, Office of Aviation Analysis (X-56), U.S. Department of 
Transportation, 400 Seventh Street, SW., Room 6401, Washington, DC 
20590, 202-366-3176 or Daeleen Chesley, Office of the Assistant General 
Counsel for Aviation Enforcement and Proceedings (C-70), U.S. 
Department of Transportation, 400 Seventh Street, SW., Room 10118, 
Washington, DC 20590, 202-366-1617.

SUPPLEMENTARY INFORMATION: 

Background

Notice of Proposed Rulemaking

    These amendments follow a Notice of Proposed Rulemaking (NPRM) 
published in the Federal Register on January 30, 2005 (70 FR 2372). In 
that NPRM, the Department of Transportation (Department) proposed to 
amend Part 257 of its rules, 14 CFR Part 257. Section 257.5(d) requires 
carriers in any print advertisement for service in a city-pair market 
that is provided under a code-sharing arrangement or long-term wet 
lease to clearly indicate the nature of the service in reasonably sized 
type and identify the transporting carrier[s] by corporate name and by 
any other name under which the service is held out to the public. The 
NPRM proposed to amend the rule to permit carriers to disclose 
generically that some of the advertised service may involve travel on 
another carrier, so long as they also identify a list of all potential 
carriers involved in serving the markets advertised.
    The NPRM was prompted by a petition for rulemaking filed by United 
Airlines, Inc., (United) with the Department on September 7, 2004. In 
that filing, United asserted that the current print advertisement 
disclosure regime required by section 257.5(d) has become increasingly 
burdensome on network carriers while failing to provide meaningful off-
setting consumer benefits and asked that we amend that provision. 
United pointed out that a network carrier typically publishes print 
advertisements offering service for travel in multiple domestic and 
international city-pairs over a large number of alternative routings, 
some of which are provided by carriers other than the advertising 
carrier pursuant to a code-share or a wet lease arrangement. Currently, 
in order to comply with section 257.5(d), such a carrier must provide 
consumers with a detailed set of disclosures that will vary depending 
on the number of alternative routings that may be available for travel 
in a specific city-pair. Compliance with the current rule results in 
print advertisements that include numerous footnotes relating 
exclusively to the disclosure of code-share and wet lease arrangements. 
According to United, not only do such disclosures impose a significant 
administrative burden on carriers, but the excessive footnoting 
required by the rule may also serve to increase consumer confusion and, 
at best, provides only limited information to consumers about the 
carrier that will be operating a particular flight.
    To ease the burden on carriers, United requested that section 
257.5(d) be reinterpreted to permit carriers to provide a generic 
disclosure in print advertisements indicating that some of the service 
offered may involve travel on one or more of its listed partner 
carriers. United contended that if its proposal were adopted, the 
information consumers obtain, in practical terms, would not change and 
the burden on carriers would be eliminated. United emphasized that 
print advertisements serve only as the first opportunity to inform 
consumers about an airline's service offerings and consumers will, 
through telephone inquiries to reservation offices or by reviewing 
Internet flight listings, continue to receive sufficiently detailed 
disclosure concerning any code-sharing arrangement relevant to their 
travel plans before making any travel purchase decisions.
    In commenting on United's petition, American Airlines and Orbitz 
urged that any change to the Department's rule governing the disclosure 
of code-share and long-term wet lease arrangements in print 
advertisements be applied to Internet advertisements as well.
    In issuing our NPRM, we granted United's petition and proposed to 
amend our rule governing code-share and long-term wet lease disclosure 
in print advertisements to permit the inclusion of a generic statement 
representing that some of the advertised service may involve travel on 
another carrier, so long as such advertisements also included a list of 
all potential code-share or wet lease carriers involved in serving the 
markets advertised. However, we pointed out that we tentatively were 
not persuaded that the same relief would be warranted with respect to 
Internet advertisements. Rather, the Department posited that entities 
soliciting air transportation via the Internet can easily and clearly 
disclose information to consumers regarding each specific partner 
carrier that serves each particular city-pair route or market being 
advertised by using hyperlinks or other techniques. Accordingly, the 
Department did not propose to include Internet solicitations in the 
changes to our code-share and wet lease disclosure rule being proposed 
in the NPRM. However, we did solicit comments on any differences or 
similarities between Internet and print

[[Page 44849]]

advertisements and the possible benefits or detriments of extending the 
changes in the proposed rule to Internet advertising.

Discussion of Comments

    During the comment period for this rulemaking proceeding, we 
received twenty-eight comments and after March 14, 2005, the closing 
date for receipt of comments, we received two additional comments. 
Independence Air, Inc. (Independence), Southwest Airlines, Inc. 
(Southwest), JetBlue, Inc. (JetBlue), Edward Hasbrouk, who identifies 
himself as an independent travel consultant and author of ``The 
Practical Nomad,'' and several other individual commenters filed 
comments opposing the revisions to section 257.5(d) proposed in the 
NPRM. The American Society of Travel Agents (ASTA) and sixteen air 
carriers \1\ filed comments supporting the proposed rule change. 
Additionally, each of the commenters who filed comments supporting the 
Department's proposed rule change also requested that the Department 
extend the proposed change to cover Internet as well as print 
advertising. Over half of the comments received from individuals and 
one air carrier, Independence, used the occasion to opine that, as a 
general matter, the practice of code sharing, in and of itself, is 
deceptive and misleading and can lead to customer confusion. In 
addition, a few individual commenters argued that code sharing should 
be altogether abolished.
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    \1\ Those carriers are American Airlines, Inc. (American); 
United Airlines, Inc. (United); Delta Airlines, Inc. (Delta); 
Continental Airlines, Inc. (Continental); Northwest Airlines, Inc. 
(Northwest); and U.S. Airways, Inc. (US Airways), and the following 
carriers collectively referred to as the ``Regional Carriers'': Air 
Wisconsin Airlines Corporation; American Eagle Airlines, Inc.; 
Atlantic Southeast Airlines, Inc.; ExpressJet Airlines, Inc.; 
Gulfstream International Airlines, Inc.; Mesaba Airlines, Pinnacle 
Airlines, Inc.; PSA Airlines, Inc.; Regionsair Inc.; and Skywest 
Airlines, Inc.
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A. Print Advertisements

    Commenters supporting the proposed change to section 257.5(d) 
unanimously agree that the requirements of the current rule are unduly 
burdensome and fail to provide commensurate and meaningful consumer 
benefits. American and the Regional Carriers, in concurring with the 
proposed rule change, reiterate that a generic code-share disclosure in 
a print advertisement must list all potential carriers involved in 
serving the markets advertised. American asserts that such a disclosure 
provides adequate notice to consumers that code-share or wet-lease 
service is offered in the markets advertised and that other 
requirements of Part 257 with respect to explicit code-share disclosure 
on specific itineraries, including notice in schedules, oral notice to 
prospective passengers, and written notice in itineraries, will 
continue to provide ample notice to passengers of the identity of the 
transporting carrier under code-share arrangements. The Regional 
Carriers support the accurate and detailed disclosure of code-sharing 
and wet lease arrangements for specific flight options before consumers 
purchase their flights, whether such information appears in printed 
schedules, through telephone reservation centers, or on Web sites. U.S. 
Airways and United both point out that the proposed rule is not unlike 
circumstances that lawfully occur under the current rule, since the 
current rule permits generic footnotes for individual city-pairs and, 
as such, the passenger cannot know the specific carrier he/she will be 
traveling on until the consumer speaks with an air carrier 
representative and a specific itinerary is selected. Additionally, 
United points out that consumers may be confused because multiple 
footnotes must be attached to some of the fares it advertises, and 
these footnotes do not actually tell consumers whether they will be 
flying on flights operated by a code-share partner, let alone the name 
of the carrier actually operating the flight. Delta, United, and U.S. 
Airways contend that, absent the rule change, network carriers will 
focus their advertising resources on larger markets rather than engage 
in the production of what ASTA calls the ``blizzard of footnotes'' 
required under the current rule.\2\ U.S. Airways and United agree that 
a failure to adopt the proposed rule change will have a disparate 
effect on smaller markets where the level of print advertising may be 
diminished. For example, U.S. Airways states that, in markets where 
U.S. Airways operates a variety of U.S. Airways Express services, 
extensive footnoting of code-share flights results in a disincentive to 
use multi-market city-pair advertising.\3\ In summation, all of the 
supporters of the proposed rule contend that it will alleviate a 
substantial administrative burden on airlines who are engaged in 
advertising code-share operations while continuing to guarantee that 
consumers receive prompt and accurate notice regarding the carrier(s) 
actually operating the specific flight(s).
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    \2\ ASTA further asserts that these footnotes do nothing to aid 
the consumer in his/her travel plans.
    \3\ In support of this position, U.S. Airways states that 97 
percent of these same non-hub locales are serviced by network 
carriers and their code-share partners and only 3 percent of non-hub 
community service is provided by low cost carriers.
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    Each of the carriers opposing the change to section 257.5(d) as 
proposed in the NPRM urge the Department to retain its current policy 
of requiring specific code-share and long-term wet lease arrangement 
disclosure for each city-pair enumerated in print advertisements for 
air service on the basis that the proposed change is not justified by 
the record. Independence contends that the proposed revised rule 
contradicts the rationale used to justify the rule as initially 
promulgated, where the Department observed that a network carrier's 
name may be used by numerous independent, separately-owned and managed 
carriers, which could result in passengers erroneously believing that 
they are traveling on a major carrier that may bear no legal 
responsibility to the passenger. Independence further contends that 
passengers with disabilities may be disadvantaged by not knowing the 
name of the operating code-share carrier since regional aircraft may be 
less accessible than mainline aircraft, and that the generic statement 
contemplated in the revised rule will allow carriers engaged in code-
share and long-term wet lease arrangements to appear to have larger 
market penetration than they do in reality. JetBlue contends, and 
Independence essentially agrees, that code-share partners may fail to 
provide the same service, aircraft or amenities that a mainline air 
carrier can provide. For this reason, a passenger should be able to 
clearly understand the type of customer service and distinct product 
offered by the air carrier on which he or she will be a passenger. 
Southwest states that the NPRM does not explain how relaxing the 
existing market-specific disclosure rule squares with the Department's 
policy to require full disclosure of all relevant information to 
consumers at the outset of their decision-making process. Southwest 
further adds that the possibility of customer confusion and the cost of 
specifically footnoting each flight as required by the current rule, 
which it asserts is de minimis, are insufficient justifications for the 
Department to change course in its policy regarding the disclosure of 
code-share and long-term wet lease arrangements in print 
advertisements.

B. Internet Advertisements

    It would appear that commenters Southwest, Independence, and 
JetBlue, in requesting that the Department retain its existing code-
share rule are, in effect, urging the Department not to extend the 
proposed rule change to encompass

[[Page 44850]]

Internet advertising. Each of the commenters arguing in favor of the 
rule change regarding print advertisements urges the Department to 
extend the rule to Internet advertisements as well. The majority of 
these commenters generally assert that there should be no difference in 
the treatment afforded the two advertising media. United points out 
that the issues involving code-share disclosures that may be required 
in conjunction with Internet advertising do not materially differ from 
those provided in the footnotes that appear in print advertisements in 
that they are burdensome for carriers and may also confuse customers. 
Continental added that there is no reason to retain the existing 
complex and burdensome disclosures of each specific operating airline 
on each route for service advertised on the Internet. Delta asserts 
that, similar to print advertising, a failure to extend the proposed 
rule change to the Internet will have a disparate effect on small 
communities because increased administrative costs in developing highly 
detailed disclosures for small markets, combined with the modest 
numbers of potential passengers, would negatively impact the promotion 
of special offers.
    ASTA adds that, while at one point the Department stated its 
intention as a matter of policy to apply any rule covering print 
advertisements to advertisements on the Internet, when Part 257 was 
adopted, the Internet ``was not even mentioned,'' which it asserts 
suggests an intention to abandon that policy. ASTA contends that, 
nonetheless, there is no justification to differentiate between the two 
media and the Department should apply the same rule to both printed and 
Internet advertising.

Decision

    This final rule adopts the amendment proposed in the NPRM with 
respect to print advertisements without any modifications or changes. 
We have also determined, upon reconsideration of our tentative 
decision, that the amendments proposed in the NPRM should also be 
extended to cover Internet advertisements.
    As an initial matter, we wish to note our disagreement with the 
commenters who opined that code sharing is inherently deceptive. The 
prohibition of the practice is far beyond the scope contemplated in 
this proceeding, which is limited to the issue of the code-share notice 
required by section 257.5(d). Furthermore, as a matter of policy, the 
Department has long held that code sharing is not inherently unfair or 
deceptive so long as the public is provided adequate notice of the 
practice.\4\
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    \4\ See Final Rule, 50 FR 38508, September 17; 1985, Notice of 
Proposed Rulemaking, 59 FR 40836, August 10, 1994; and Final Rule, 
64 FR 12838, March 15, 1999.
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    As noted above, the Department has a long history of requiring 
code-share and wet lease disclosures in print advertisements. Many of 
the reasons for requiring such disclosures were discussed in the notice 
of proposed rulemaking dated August 10, 1994, and the final rule dated 
March 15, 1999.\5\ However, since that time, there have been many 
changes in the marketplace, including an increase in the number of 
carriers providing service in multiple domestic and international city-
pair markets over a large number of alternative routings, many of which 
are provided by carriers other than the advertising carrier pursuant to 
a code-share or a wet lease arrangement. The unintended practical 
effect of current section 257.5(d) is that carriers that rely 
extensively on code sharing to serve customers must now include 
numerous footnotes relating exclusively to the disclosure of code-share 
and wet lease arrangements in print advertisements.
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    \5\ 59 FR 40836 and 64 FR 12838, respectively.
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    As a general matter, the more information provided consumers, the 
better they are able to make informed choices in the marketplace. 
However, requiring the provision of too much information in a 
necessarily complicated format can result in increased customer 
confusion. Furthermore, compliance with such requirements is often a 
substantial burden on advertising carriers. Therefore, we must balance 
the needs of consumers with the burden on the marketplace of strictly 
regulating the form and content of that information. After careful 
consideration of all the comments in this proceeding, we continue to be 
of the opinion that our rule, as proposed, strikes the proper balance 
between the need of the public for useful information regarding their 
travel choices at the initial stage of their inquiry and the burdens on 
carriers and the public of continuing to require very detailed 
information that may be confusing or misinterpreted when considering an 
advertisement as a whole. We not only agree that these footnotes are 
burdensome for carriers, but we also see merit in the argument that the 
many separate footnotes now required where multiple markets are 
contained in a single advertisement may also confuse customers rather 
than inform them of advertised services. Therefore, while we will 
continue to consider a failure to disclose code-share and wet lease 
arrangements in print advertisements to be an unfair and deceptive 
trade practice and to vigorously enforce any such violations, we are of 
the opinion that continuing to require carriers to enumerate each 
specific partner carrier that serves each particular city-pair route or 
market being advertised in a print advertisement is not necessary at 
this stage of consumer inquiry to provide adequate notice to consumers 
of the nature of the advertised service.
    Accordingly, we will make final our proposal to amend our rule 
governing code-share and long-term wet lease disclosure in print 
advertisements to permit a generic statement indicating that some of 
the advertised service may involve travel on another carrier, so long 
as such advertisements also include a list of all potential code-share 
or wet lease carriers involved in serving the markets being advertised.
    With regard to the issue of code-share advertising via the 
Internet, as an initial matter, we wish to make clear that ASTA's 
statement that the Internet ``was not even mentioned'' during the Part 
257 rulemaking and its suggestion that we may have intended to abandon 
our policy to ensure that Internet displays meet the notice 
requirements of Part 257 is incorrect. In this regard, section 257.5(a) 
specifies that, for ``electronic'' schedule information available to 
the public, ``each flight'' on which the designator code is not that of 
the transporting carrier must be identified by a mark and the corporate 
name of the carrier providing the service must be disclosed. We have 
always considered public schedule information to be a form of 
advertising and the notice requirement of section 257.5(a) is 
consistent with that of section 257.5(d) applicable to print 
advertisements. Moreover, neither the Department nor its Enforcement 
Office has ever taken the narrow view that ``print'' advertisements are 
limited to those in newspapers. Indeed, the Enforcement Office has 
provided informal guidance to carriers and agents that their fare 
advertisements on the Internet involving code-share arrangements must 
provide information consistent with Part 257.
    That being said, after careful consideration, we have decided that 
the change in the rule we are adopting should be extended to the 
Internet. We have revised the language of section 257.5(d) to make it 
clear that ``printed advertisements'' as used in the rule cover those 
on the Internet. Although we do not believe that the types of 
advertising layouts common to newsprint that gave rise to this

[[Page 44851]]

proceeding are common on the Internet, to the extent that they are 
similar, we believe that similar treatment is justified. This is the 
case, however, only so long as the code-share information required 
under Part 257 is provided the consumer using the Internet when he or 
she requests further information about the fare. For example, under our 
proposed rule, in a newsprint advertisement where information regarding 
all potential transporting carriers involved in the markets being 
advertised is provided, a consumer calling the carrier or a travel 
agent and requesting a specific itinerary that involves such a code-
share will, as required by section 257.5(b), be told before booking the 
flight the corporate name of the transporting carrier. Similarly, 
should an Internet advertisement have a similar layout and contain 
similar ``generic'' code-share information, a consumer requesting 
further information online about an advertised fare must, upon 
requesting further information about the specific fare and itinerary 
involved, be told, as required by section 257.5(a), the corporate name 
of the transporting carrier. In this regard, nothing in this final rule 
changes the applicability of section 257.5(a) to schedules displayed on 
the Internet involving code-share arrangements, including the 
requirement that such schedules include the corporate name of the 
carrier actually providing the service and any other name under which 
it operates.
    Our Office of Aviation Enforcement and Proceedings will, of course, 
continue to monitor newspaper and Internet advertisements involving 
code-share arrangements, as well as any complaints from the public 
regarding such solicitations, and that office and the Department have 
ample authority to act to correct any deceptive practices or other 
problems that may arise with respect to such advertisements.

Regulatory Analysis and Notices

Executive Order 12866 (Regulatory Planning and Review) and DOT 
Regulatory Policies and Procedures

    The Department has determined that this final rule would not be a 
significant regulatory action under Executive Order 12866 or under the 
Department's Regulatory Policies and Procedures. It was not reviewed by 
the Office of Management and Budget. The rule would require the 
disclosure of slightly less information than is presently required and 
the Department expects an adoption of the rule to reduce the regulatory 
burden currently imposed. This rule is expected to have a minimal 
economic effect and further regulatory evaluation is not necessary.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an 
agency to review regulations to assess their impact on small entities 
unless the agency determines that a rule is not expected to have a 
significant economic impact on a substantial number of small entities. 
The Department certifies that this rule would not have a significant 
economic impact on a substantial number of small entities. The rule 
would reduce the regulatory burden on large network carriers that rely 
extensively on code sharing to serve customers but does not impose any 
additional burdens on either small or large carriers.

Executive Order 13132 (Federalism)

    This rule has been analyzed in accordance with the principles and 
criteria contained in Executive Order 13132. The Department has 
determined that this rule would not have a substantial direct effect on 
the States, on the relationship between the National Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government, and therefore would not have federalism 
implications.

Executive Order 13084

    This rule has been analyzed in accordance with the principles and 
criteria contained in Executive Order 13084 (``Consultation and 
Coordination with Indian Tribal Governments''). Because this rule would 
not significantly or uniquely affect the Indian tribal communities, and 
would not impose substantial direct compliance costs, the funding and 
consultation requirements of the Executive Order do not apply.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (the Act), 
enacted as Pub. L. 104-4 on March 22, 1995, requires each Federal 
agency, to the extent permitted by law, to prepare a written assessment 
of the effects of any Federal mandate in a proposed or final agency 
rule that may result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more (adjusted annually for inflation) in any one year. The 
rule does not contain any Federal mandate that would result in such 
expenditures. Therefore, the requirements of Title II of the Act do not 
apply.

Paperwork Reduction Act

    The rule does not contain information collection requirements that 
require approval by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act (44 U.S.C. 2507 et seq.). There is a current 
OMB control number assigned to this rule, and the OMB number is 2105-
0537.

List of Subjects in 14 CFR Part 257

    Air carriers, Consumer protection, Foreign air carriers.


0
For the reasons set forth in the preamble, the Department of 
Transportation 14 CFR Part 257 is amended as follows:

CHAPTER II--OFFICE OF THE SECRETARY, DEPARTMENT OF TRANSPORTATION

PART 257--DISCLOSURE OF CODE-SHARING ARRANGEMENTS AND LONG-TERM WET 
LEASES

0
1. The authority for 14 CFR Part 257 continues to read as follows:

    Authority: 49 U.S.C. 40113(a) and 41712.

0
2. Section 257.5(d) is revised to read as follows:


Sec.  257.5  Notice requirement.

* * * * *
    (d) In any printed advertisement published in or mailed to or from 
the United States (including those published through the Internet) for 
service in a city-pair market that is provided under a code-sharing 
arrangement or long-term wet lease, the advertisement shall prominently 
disclose that the advertised service may involve travel on another 
carrier and clearly indicate the nature of the service in reasonably 
sized type and shall identify all potential transporting carriers 
involved in the markets being advertised by corporate name and by any 
other name under which that service is held out to the public. In any 
radio or television advertisement broadcast in the United States for 
service in a city-pair market that is provided under a code-sharing or 
long-term wet lease, the advertisement shall include at least a generic 
disclosure statement, such as ``Some services are provided by other 
airlines.''

    Issued this 29th day of July, 2005, at Washington DC.
Karan K. Bhatia,
Assistant Secretary for Aviation and International Affairs.
[FR Doc. 05-15426 Filed 8-3-05; 8:45 am]
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