Draft FAA Policy Regarding Air Carrier Incentive Program, 7502-7509 [2023-01611]

Agencies

• Federal Aviation Administration
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 88, Number 23 (Friday, February 3, 2023)]
[Notices]
[Pages 7502-7509]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01611]


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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Docket No. FAA-2022-1204]


Draft FAA Policy Regarding Air Carrier Incentive Program

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Proposed policy; request for comments.

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SUMMARY: This notice announces a proposed update of FAA policy 
regarding incentives offered by airport sponsors to air carriers for 
improved air service. It is longstanding practice for airport operators 
to offer incentives to air carriers to promote new air service at an 
airport, including both new air carriers serving the airport and new 
destinations served.

DATES: The FAA will accept public comments on the proposed policy 
statement for 60 days. Comments must be submitted on or before April 4, 
2023. The FAA will consider comments on the proposed policy statement. 
In response to comments received, the FAA will consider appropriate 
revisions to the policy and publish a subsequent policy statement in 
the Federal Register.

ADDRESSES: You may send comments identified by Docket Number FAA-2022-
1204 using any of the following methods:
     Federal eRulemaking Portal: Go to https://www.regulations.gov and follow the online instructions for sending your 
comments electronically.
     Mail: Send comments to Docket Operations, M-30; U.S. 
Department of Transportation, 1200 New Jersey Avenue SE, Room W12-140, 
West Building Ground Floor, Washington, DC 20590-0001.
     Hand Delivery or Courier: Bring comments to Docket 
Operations in

[[Page 7503]]

Room W12-140 of the West Building Ground Floor at 1200 New Jersey 
Avenue SE, Washington, DC, between 9 a.m. and 5 p.m., Monday through 
Friday, except Federal holidays.
     Fax: Fax comments to Docket Operations at 202-493-2251.
    For more information on the process, see the SUPPLEMENTARY 
INFORMATION section of this document.
    Privacy: In accordance with 5 U.S.C. 553(c), the Department of 
Transportation (DOT) solicits comments from the public to better inform 
its process. DOT posts these comments, without edit, including any 
personal information the commenter provides, to www.regulations.gov, as 
described in the system of records notice (DOT/ALL-14 FDMS), which can 
be reviewed at www.dot.gov/privacy.
    Docket: To read background documents or comments received, go to 
https://www.regulations.gov and follow the online instructions for 
accessing the docket. Or, go to the Docket Management Facility in Room 
W12-140 of the West Building Ground Floor at 1200 New Jersey Avenue SE, 
Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, 
except Federal holidays.

FOR FURTHER INFORMATION CONTACT:  Kevin C. Willis, Director, Office of 
Airport Compliance and Management Analysis, ACO, Federal Aviation 
Administration, 800 Independence Avenue SW, Washington, DC 20591, 
telephone (202) 267-3085; facsimile: (202) 267-4629.

SUPPLEMENTARY INFORMATION: Airports obligated under the terms of an 
Airport Improvement Program grant agreement include virtually all 
commercial airports in the United States. At each of these airports, 
the airport sponsor must ensure that an air carrier incentive program 
is consistent with the sponsor's FAA grant agreements, including 
standard Grant Assurances relating to economic discrimination, 
reasonable fees, and use of airport revenue. In the 1999 Policy and 
Procedures Regarding the Use of Airport Revenue, the FAA provided that 
certain costs of activities promoting new air service and competition 
at an airport are permissible as a tool for commercial airports to 
establish or retain scheduled air service. In the 2010 Air Carrier 
Incentive Program Guidebook, the FAA provided more detailed guidance on 
both the use of airport revenue and the temporary reduction or waiver 
of airport fees as an incentive for carriers to begin serving an 
airport or begin service on a route not currently served from the 
airport. A number of U.S. airport sponsors have used air carrier 
incentive programs in recent years, and the agency had the opportunity 
to review many of these programs for consistency with the sponsor's 
grant agreements, Grant Assurances, and other Federal obligations. 
Based on that experience, the FAA is proposing a restatement of agency 
policy on air carrier incentive programs. This notice publishes and 
requests public comment on the proposed revised policy statement.

Availability of Documents

    You can get an electronic copy of this policy and all other 
documents in this docket using the internet by:
    (1) Searching the Federal eRulemaking portal (https://www.faa.gov/regulations/search);
    (2) Visiting FAA's Regulations and Policies web page at (https://www.faa.gov/regulations_policies; or
    (3) Accessing the Government Printing Office's web page at (https://www.gpoaccess.gov/.
    You can also get a copy by sending a request to the Federal 
Aviation Administration, Office of Airport Compliance and Management 
Analysis, 800 Independence Avenue SW, Washington, DC 20591, or by 
calling (202) 267-3085. Make sure to identify the docket number, notice 
number, or amendment number of this proceeding.

Authority for the Policy

    This notice is published under the authority described in Title 49 
of the United States Code, Subtitle VII, part B, chapter 471, section 
47122(a). The policy proposed under this notice will not have the force 
and effect of law and is not meant to bind the public in any way, and 
the notice is intended only to provide information to the public 
regarding existing requirements under the law and agency policies. 
Mandatory terms such as ``must'' in this notice describe established 
statutory or regulatory requirements.

Background

Air Carrier Incentive Programs

    Airports and communities of all sizes use air carrier incentives in 
order to attract new air service. Incentives may be offered to new 
entrant carriers to begin service at an airport or to incumbent 
carriers at an airport to add new routes. Incentives may apply to 
international or domestic service. Air carrier incentive programs 
(ACIP) can be divided into two primary categories: programs funded by 
the airport itself (``airport-sponsored incentives'') and those funded 
by the local community (``community-sponsored incentives''). The 
primary distinction between these two groups relates to the funding 
used for an incentive. For airport-sponsored incentives using airport 
funds, the use of the funds must comply with the requirements of 
Federal law and FAA grant agreements for use of airport revenue. In 
contrast, community-sponsored incentives using non-airport funds may be 
used in a broader set of ways. Community-sponsored incentives have been 
funded by various community groups, including local governments, local 
chambers of commerce and tourism organizations and local businesses. 
Airport-sponsored incentives largely involve a reduction or waiver of 
landing fees and other airport fees. Airport sponsors may also 
contribute to marketing programs, provided the marketing focuses on the 
airport rather than destination marketing. Community-sponsored 
incentives can include more direct financing of routes, including 
minimum revenue guarantees, travel banks, and marketing funding that 
may include destination marketing. Another important distinction is the 
role played by the airport sponsor. The sponsor may have a direct 
management role of the airport-sponsored incentive program, or a 
limited role advising the non-airport entity responsible for the 
community-sponsored incentive program.

Federal Obligations

    Airport sponsors that have accepted grants under the Airport 
Improvement Program (AIP) have agreed to comply with certain Federal 
requirements included in each AIP grant agreement as sponsor 
assurances. The Airport and Airway Improvement Act of 1982 (AAIA) (Pub. 
L. 97-248), as amended and recodified at 49 U.S.C. 47101 et seq., 
requires that the FAA obtain certain assurances from an airport sponsor 
as a condition of receiving an AIP grant. Several of these standard 
Grant Assurances relate to the extent to which an airport sponsor can 
provide incentives to an air carrier in return for new air service at 
the airport.
    Grant Assurance 22: Economic discrimination. Grant Assurance 22, 
paragraph 22.a. requires the airport sponsor to allow access by 
aeronautical operators and services on reasonable terms and without 
unjust discrimination. Paragraph 22.e. of Grant Assurance 22 further 
requires:
    Each air carrier using such airport . . . shall be subject to such 
nondiscriminatory and substantially comparable rules, regulations, 
conditions, rates, fees, rentals, and other charges with respect to 
facilities directly and substantially related to providing

[[Page 7504]]

air transportation as are applicable to all such air carriers which 
make similar use of such airport and utilize similar facilities, 
subject to reasonable classifications such as tenants or non-tenants 
and signatory carriers and non- signatory carriers.
    The FAA has determined that a carrier starting new service at an 
airport is temporarily not similarly situated to carriers with 
established route service at the same airport. Accordingly, an airport 
sponsor may offer a waiver or reduction of fees and jointly market new 
service, for a fixed time and within certain limits, without unjustly 
discriminating against carriers not offering new service and not 
participating in the air carrier incentive program.
    Grant Assurance 22 also serves to prohibit an airport sponsor from 
charging carriers and other operators not participating in an incentive 
program for any costs of an air carrier incentive program. Charging 
non-participating operators for the costs of an incentive would be a 
cross-subsidy of the incentive program, and therefore not a reasonable 
fee component for non-participating operators.
    Grant Assurance 24, Fee and Rental Structure: Grant Assurance 24 
generally requires that an airport sponsor maintain an airport rate 
structure that makes the airport as self-sustaining as possible. For 
purposes of planning and implementing an ACIP, the airport sponsor must 
assure that a marketing program to promote increases in air passenger 
service does not adversely affect the airport's self-sustainability and 
the existing resources needed for the operation and maintenance of the 
airport.
    Grant Assurance 25, Airport Revenues: Grant Assurance 25, which 
implements 49 U.S.C. 47107(b), generally requires that airport revenues 
be used for the capital and operating costs of the airport or local 
airport system. Title 49 U.S.C. 47133 imposes the same requirement 
directly on obligated airport sponsors. The FAA Policy and Procedures 
Regarding the Use of Airport Revenue, in section V.A.2, provides that 
expenditures for the promotion of an airport, promotion of new air 
service and competition at the airport, and marketing of airport 
services are legitimate costs of an airport's operation. Air carrier 
operations are not a capital or operating cost of an airport; 
therefore, use of airport revenue for a carrier's operations is a 
prohibited use of airport revenue. Accordingly, while an airport 
sponsor can assume certain marketing costs relating to service at the 
airport, the sponsor may not make payments in any form from airport 
revenue to a carrier for operating at the airport, including for 
providing air service at the airport.
Related Federal Programs
    Essential Air Service Program. Following deregulation of the 
airline industry, the Essential Air Service (EAS) program was put into 
place to guarantee that communities that were served by certificated 
air carriers before airline deregulation maintain a minimal level of 
scheduled air service. The United States Department of Transportation 
(the Department) implements this program by subsidizing at least a 
minimum of daily flights from each designated EAS community/airport, 
usually to a large- or medium-hub airport, except for within Alaska. As 
of late 2022, the Department subsidizes commuter and air carriers, and 
air taxis to serve 61 communities in Alaska and 111 communities in the 
48 contiguous states and Puerto Rico that otherwise would not receive 
any passenger air transportation. Because the EAS program largely 
involves Federal payments to air carriers, the [EAS] program does not 
affect the responsibilities of an airport sponsor for use of airport 
revenue or compliance with other AIP Grant Assurances. Eleven (11) 
communities receive funding, via grant agreements, through the 
Alternate Essential Air Service (AEAS) program. Those 11 communities 
obtain their own air service, currently all from a commuter air 
carrier, operating all flights as public charters under DOT Part 380 
regulations.
    Small Community Air Service Development Program. The Small 
Community Air Service Development Program (SCASDP) is a Federal grant 
program designed to provide financial assistance to small communities 
to help them enhance their air service. The program is managed by the 
Associate Director, Small Community Air Service Development Program, 
under the Office of Aviation Analysis, in the Office of the Secretary 
of Transportation. Grantees must be public entities and can include 
local governments and airport operators. Grant funds may be used for a 
variety of measures to promote air service and are dispersed on a 
reimbursable basis. SCASDP grant funds are not airport revenue and may 
be used for purposes for which airport revenue is prohibited, including 
direct subsidy of air carrier operations. Holding a SCASDP grant does 
not affect an airport sponsor's obligations under its AIP grant 
agreements. The Department's order awarding SCASDP grants states that a 
SCASDP grant does not relieve the airport sponsor from the obligation 
to use airport revenues only for purposes permitted by the AIP Grant 
Assurances and Federal law. Accordingly, if airport revenues are used 
as local match funds for a SCASDP grant, those funds remain subject to 
Grant Assurance 25, however this would not prevent an airport sponsor 
using airport revenue as a local match to SCASDP grants similar to 
airport revenue being used as a local match to AIP grants. This permits 
airport sponsors to pursue reasonable strategies to promote the airport 
and provide incentives to encourage new air service.
The 2010 Air Carrier Incentive Guidebook
    FAA policy on air carrier incentive programs is currently published 
in the Air Carrier Incentive Program Guidebook, issued in September 
2010 (and referred to below as ``the Guidebook'' or ``the 2010 
Guidebook''). The Guidebook is available on the FAA Airports website 
at: https://www.faa.gov/airports/airport_compliance/media/air-carrier-incentive-2010.pdf. While the Guidebook has served as a useful 
description of FAA policy on ACIPs since 2010, the agency is 
considering a policy grounded more in basic principles rather than in a 
detailed list of prohibited practices. The intention is to provide more 
flexibility for airport sponsors to design particular incentive 
programs while remaining in compliance with Federal obligations 
regarding economic discrimination, reasonable fees, and use of airport 
revenue.
FAA Experience With ACIPs
    In the last 20 years, and particularly since the publication of the 
2010 Guidebook, there has been a proliferation of ACIPs. ACIPs have 
been implemented at more than 250 U.S. commercial service airports. 
Some airport sponsors have used ACIPs on occasion or intermittently, 
while others have maintained ACIPs on a recurring and renewable annual 
basis. ACIPs have been used at smaller airports seeking to acquire and 
maintain any level of air carrier service, while sponsors of larger hub 
airports have also used ACIPs to add to existing service patterns.
    While most ACIPs have complied with Federal obligations as outlined 
in the 2010 Guidebook, several practices have raised issues of 
compliance:
     There have been cases where an airport sponsor has sought 
service from a specific air carrier and tailored its ACIP for that 
purpose, which can present an issue of unjust discrimination.

[[Page 7505]]

     While sponsors have avoided direct cash subsidies to 
carriers, some ACIPs have included incentives that could be seen as 
efforts to circumvent the clear prohibition on the use of airport 
revenue for subsidy of carrier operations.
     Sponsors have made direct cash payments to carriers for 
marketing costs under a joint marketing program.
     Use of a sponsor's community funds for practices such as 
airline subsidies and revenue guarantees for a carrier may be 
inconsistent with the sponsor's Grant Assurances.
     Sponsors have entered into incentive arrangements with a 
carrier with no notice to the public or other carriers of the terms of 
the incentive program. Non-participating carriers may have no means of 
determining whether and how the incentive program affects aeronautical 
fees at the airport.
    In consideration of agency experience with the oversight of ACIPs 
in recent years, the FAA is proposing a restatement of the agency 
policy on ACIPs.
Guiding General Principles
    The framework of Federal statutes and grant agreements in which an 
ACIP can be implemented can be summarized in five basic principles. The 
proposed restatement of policy on ACIPs includes a statement of each of 
these principles, as the agency interpretation of what Federal statutes 
and grant agreements allow. While the policy statement describes in 
more detail whether certain elements of an ACIP are acceptable, FAA 
determinations of whether an ACIP is consistent with Federal 
obligations will ultimately be based on application of the general 
principles. The proposed principles and the authorities on which they 
are based are as follows:
     Discrimination between carriers participating in an ACIP 
and non-participating carriers must be justified and time-limited. 
Grant Assurance 22 prohibits unjust discrimination among air carriers 
at an airport. Discrimination in the form of fee reductions for a 
participating carrier is only justified until the carrier has had a 
reasonable opportunity to market the new service. After that time the 
carrier is considered similarly situated to other carriers at the 
airport, and must operate under the same terms and fees as other 
carriers.
     A sponsor may not use airport revenues to subsidize air 
carriers. 49 U.S.C. 47133 and Grant Assurance 25, Airport Revenues, 
prohibit use of airport revenue for purposes other than those listed in 
U.S.C. 47107(b) and 47133. Payments to an air carrier to operate at an 
airport are not considered a capital or operating cost of the airport, 
and are prohibited by 49 U.S.C. 47107 and 47133, and Grant Assurance 
25.
     A sponsor may not cross-charge non-participating carriers 
or other aeronautical users to subsidize ACIP carriers. Grant Assurance 
22 requires that aeronautical fees be reasonable and not unjustly 
discriminatory. FAA policy on aeronautical fees, in the Policy 
Regarding Airport Rates and Charges, provides that the portion of 
allocated costs among aeronautical users, which includes air carriers, 
should not exceed an amount that reflects the proportionate 
aeronautical use. A carrier not participating in an ACIP may be charged 
an appropriate amount for its own proportionate use of the airport, but 
not any additional amount to cover the shortfall in total collections 
resulting from a fee reduction or waiver for a carrier participating in 
an ACIP. The same policy extends to other aeronautical users of the 
airport, such as general aviation tenants and operators.
     The terms of an ACIP should be made public. The Policy 
Regarding Airport Rates and Charges provides that airport sponsors 
should advise aeronautical users well in advance of a change in airport 
charges, and provide adequate information to permit aeronautical users 
to evaluate the change and the justification for the change. An ACIP 
that reduces or waives fees for a participating carrier is a change in 
airport fee methodology, and carriers and other aeronautical users of 
the airport should be advised of a proposed ACIP incentive in advance. 
While notice of an ACIP to airport users is not expressly required in 
the AIP Grant Assurances, the planning and implementation of an ACIP 
without notice to all eligible carriers substantially increases the 
likelihood that the incentives will be considered unjustly 
discriminatory. Similarly, adoption of an ACIP without notice to 
carriers and other aeronautical users at the airport, or the 
opportunity for those users to review the proposed ACIP terms, leaves 
the airport sponsor vulnerable to a complaint that the ACIP adversely 
affects the fees charged to non-participating users.
     Use of airport funds for an incentive program must not 
adversely affect the resources needed for operation and maintenance of 
the airport. As required by Grant Assurance 24, a sponsor adopting an 
ACIP must maintain a self-sustaining rate structure that continues to 
provide adequate funds for required operations and maintenance 
responsibilities, without increasing rates charged to non-participating 
operators or otherwise violating Grant Assurance 22.
Summary of Key Provisions
    Federal law and standard Grant Assurance language affecting ACIPs 
have not changed since 2010, and FAA policy on ACIPs remains 
substantially the same as stated in the 2010 Guidebook. However, the 
FAA had the opportunity to review compliance with AIP Grant Assurances 
under the 2010 guidance, and to consider whether a revised policy 
statement could provide additional clarity in problem areas to prevent 
potential noncompliance. For this reason, the proposed policy differs 
to some extent from the 2010 guidance on certain elements of an ACIP. 
This could affect the planning and implementation of new ACIPs and the 
continuation of existing programs, and the agency is seeking industry 
and public comment on the proposed guidance.
    In addition to the statement of general guiding principles, key 
provisions of the new policy that differ from the 2010 Guidebook are:
    Definition of new service. The 2010 Guidebook defined new service 
as:
    (a) service to an airport destination not currently served, (b) 
nonstop service where no nonstop service is currently offered, (c) new 
entrant carrier, and/or (d) increased frequency of flights to a 
specific destination.
    The proposed policy defines new service as:
    Any nonstop service to an airport destination not currently served 
with nonstop service, or any service to an airport by a new entrant 
carrier.
    Only new nonstop service to a destination or any service by a new 
entrant carrier qualifies as new service for the purposes of the 
policy. Note that service is not considered new if any frequency of 
service is provided in that market, even if the existing service is 
less than 7 days a week. An increase in frequency to a destination 
already served, i.e., (d) of the current definition, therefore would no 
longer be considered new service, on the basis that such an increase 
would not justify incentives to a carrier offering only the increased 
frequency. The FAA particularly requests comments on how the proposed 
definition would affect existing and planned ACIPs.
    Seasonal service. The 2010 Guidebook does not recognize repeated 
seasonal service as new service. Some airport sponsors in resort and 
similar destinations, with service offered only in certain months of 
the year, have commented to FAA that a carrier may not have sufficient 
time to market and

[[Page 7506]]

develop passenger business in one season. Accordingly, the proposed 
policy defines seasonal service as service offered for less than 6 
months a year. The proposed policy permits incentives for seasonal 
service for 3 seasons, up to 3 years from the start of the service.
    Aircraft size/upgauging. The proposed policy would continue the 
general policy stated in the 2010 Guidebook prohibiting an incentive 
based on the type or size of aircraft. In 2011, the Clark County 
Department of Aviation petitioned the FAA to permit the County to 
implement an ACIP at Las Vegas McCarran Airport that would ``induce 
increases in landed weight'' of air carrier aircraft, or ``upgauging.'' 
The County requested that the agency's definition of ``new service'' be 
amended to include ``increases in landed weight.'' The FAA granted the 
petition in part (77 FR 21146; April 9, 2012), with several conditions. 
A carrier receiving the incentive could not contract its schedule, to 
operate fewer flights with the larger aircraft or cancel other routes 
at the airport. Also, upgauging could not be the only incentive in the 
sponsor's ACIP. The FAA requests comment on whether or not the proposed 
policy should be revised to exclude a conditional upgauging element 
similar to that allowed for Clark County in 2012.
    Air cargo incentives. The policy clarifies that an ACIP may be 
offered for new cargo service, separate from any ACIP offered for new 
passenger service.
    Per Passenger and per seat-mile incentives. Incentives offered for 
specific aircraft types or number of seats continues to be 
unacceptable, because they are so easily adapted to directing 
incentives to particular carriers at an airport. However, the FAA 
recognizes that incentives have been offered that are related to the 
number of passengers actually carried, which rewards the success of the 
new service, or the seat-miles of the new service, which rewards longer 
routes without limitation to particular destinations. The proposed 
policy would allow both kinds of incentives, although on condition that 
the incentives be structured to avoid unjust discrimination. Also, the 
resulting reduction in fees could not exceed the amount of the standard 
fees the carrier would have been charged without the incentive.
    Transparency. The 2010 Guidebook stated that it was advisable for 
airport sponsors to consult with incumbent air carriers before 
initiating an incentive program, but not required. In practice, the FAA 
is aware that some airport sponsors have adopted an ACIP without 
disclosing the terms or even the existence of the ACIP to other 
carriers or airport users. Failure to consult with or even notify other 
carriers of an incentive provided to one carrier has the very real 
potential of unjust discrimination against carriers that would have 
been eligible for the incentive but were not advised of it. This 
discriminatory effect could apply to potential new entrant carriers not 
currently serving the airport as well as the airport's current tenant 
carriers. Failure to notify other carriers of an ACIP also raises a 
question of whether the incentives will adversely affect the rates of 
non-participating carriers, since there will be no independent review 
of the funding of the incentives. There are costs to an ACIP, including 
marketing costs and the replacement of standard fees that would have 
been paid by a participating carrier if that carrier were not receiving 
a fee reduction. An ACIP may not increase the rates charged non-
participating carriers to cover these costs, since any increase would 
be a prohibited cross-subsidy of the carrier receiving the incentive. 
If the terms of an ACIP are not disclosed to non-participating 
carriers, there may be no way for those carriers to determine whether 
their fees are affected by the ACIP.
    Accordingly, the proposed policy includes stronger direction on 
disclosure of proposed ACIPs and incentives. Specifically, the FAA 
expects an airport sponsor:
     To disclose, as a core element of an acceptable ACIP, the 
availability and details of a planned ACIP to both incumbent carriers 
and the carrier industry, and to periodically post the incentives 
actually granted.
     To provide advance notice of the execution of an ACIP 
agreement.
     To issue the ACIP as a separate document, rather than as a 
provision in a participating carrier's lease and use agreement.
     To provide financial information on the costs and funding 
of an ACIP to all aeronautical users of the airport.
    Sponsor assistance to non-sponsor ACIPs. The 2010 Guidebook 
effectively prohibited airport sponsor staff from assisting or advising 
a non-airport entity on an ACIP that used general community funds, not 
airport funds, and was not subject to the terms of the sponsor's AIP 
grant agreements. However, in many cities the airport staff is often 
the best source of expertise on the airport's air service needs and the 
airline industry in general. The FAA acknowledges that this prohibition 
was impractical and probably not observed in practice. Accordingly, the 
proposed policy would permit an airport sponsor to participate in the 
use of non-airport funds for an ACIP, with certain limitations:
     An airport sponsor may use general government funds (i.e., 
non-airport revenue) for uses that would be prohibited by Grant 
Assurance 25 for airport funds, including subsidy of air carrier 
operations. However, the sponsor would remain subject to Grant 
Assurance obligations for unjust discrimination in the use of the non-
airport funds.
     A non-sponsor entity may use its funds for an ACIP without 
limitation by the airport sponsor's Grant Assurances, on two general 
conditions:
    [cir] The funds may not be commingled with airport funds. If the 
non-airport entity's funds are added to an airport account, the funds 
will be considered airport revenues and subject to Grant Assurance 25.
    [cir] The airport sponsor may provide technical advice on airport 
and air carrier matters to the non-airport entity, i.e., the local 
chamber of commerce, but may not participate in the entity's decision-
making process on the use of the funds or the handling of funds. If 
airport sponsor staff take any responsibility for allocation of the 
funds, the use of the funds becomes subject to the sponsor's 
obligations under Grant Assurance 22, prohibiting unjust 
discrimination.
    Payments for marketing new service. The 2010 Guidebook recommended 
that an airport sponsor pay marketing and advertising costs to the 
entity providing the market services, rather than to the carrier. 
However, on further reconsideration of this guidance as a 
recommendation only, the FAA has concluded that placing any airport 
funds at the disposal of a carrier is inconsistent with the prohibition 
on use of airport funds for a carrier subsidy. Payment to the carrier 
directly is also entirely unnecessary for an ACIP marketing program, 
since all acceptable services will normally be provided by a third-
party contractor who can be paid directly by the sponsor as well as the 
carrier. Accordingly, the proposed policy makes clear, consistent with 
the revenue use statutes, that payments to a carrier will be considered 
a prohibited diversion of airport revenue, and allows payments of 
airport revenue for marketing only to the entity providing the 
marketing services.
    Limited budget for an ACIP. The 2010 Guidebook made a distinction 
between small airports and larger airports, without defining the 
distinction. Small airports with a limited budget that would support 
incentives for only one

[[Page 7507]]

carrier were encouraged to select the carrier through an RFP process, 
although not required to do so. Larger airports were advised to budget 
enough funds for incentives to all interested carriers. The FAA 
recognizes that airports of all sizes may have reasons to limit the 
budget for an ACIP, and the proposed policy does not make a distinction 
among airports based on size. Similarly, the proposed policy no longer 
includes a preference for use of an RFP to select a carrier for 
incentives, since other processes can be acceptable. However, to avoid 
undisclosed dealings with a favored carrier, for example, the FAA 
expects an airport sponsor implementing an ACIP limited to one carrier 
to publish information on the ACIP at least 30 days prior to entering 
into a carrier agreement for incentives.
    Restart of service. As a result of the 2020-21 COVID 19 pandemic, 
air carriers canceled a number of U.S. routes due to the falloff in 
demand for air travel. Both air carriers and airport sponsors have 
since asked the FAA for guidance on the use of incentives for service 
that was subject to a prior ACIP but then cancelled during the 
pandemic. Since the circumstances can vary, the proposed policy leaves 
discretion to the airport sponsor on the use of incentives to restart 
service previously subject to an incentive but canceled. This provision 
is not to be used to extend an incentive beyond the limits otherwise 
applicable under the policy, however.
    Applicability to existing ACIPs. The FAA recognizes that some ACIPs 
and carrier incentives are currently in effect based on guidance in the 
2010 Guidebook, and that some terms of those ACIPs may not be 
consistent with the policy statement proposed in this Notice. 
Accordingly, carrier incentives initiated prior to the issuance date of 
this policy, under programs that complied with the FAA's previous 
policy guidance, would be permitted to continue as implemented until 
they expire. All such incentives will necessarily expire within 2 years 
of the issuance date of a final policy statement. Regardless of the 
terms of an existing ACIP, incentives initiated on or after the 
issuance date of the final policy must conform to the guidance in the 
final policy statement for compliance with sponsor Grant Assurances.

The Proposed Policy

    For the above reasons, the FAA is proposing the following statement 
of policy on air carrier incentive programs, to supersede the Air 
Carrier Incentive Program Guidebook issued in 2010.

Air Carrier Incentive Programs

    Many U.S. airport sponsors have found it beneficial to encourage 
new air service and new carriers at their airports by offering air 
carrier incentive programs (ACIPs), in the form of reductions or 
waivers of airport charges, and/or support for marketing new service.
    ACIPs represent a limited exception to the general rule stated in 
Grant Assurance 22 paragraph 22.e., guaranteeing all carriers non-
discriminatory and equivalent rates and charges for each carrier's 
category. FAA has reconciled this exception with the general rule on 
the understanding that a new carrier operating at an airport, or a 
carrier starting a new route, operates at a disadvantage with 
established carriers until the new service becomes known and accepted. 
In that sense, the carrier operating new service is not similarly 
situated to established carriers, and a sponsor may reduce charges to 
the new service carrier in some circumstances, for a limited time, 
without violating Grant Assurances 22, 23, 24, or 25.
    In considering whether an ACIP complies with a sponsor's Federal 
grant agreements, the FAA will apply these general principles to the 
particular elements of the ACIP:
     Discrimination between carriers participating in an ACIP 
and non-participating carriers must be justified and time-limited. 
Differences in airport charges for carriers under an ACIP from those 
charged to other carriers at an airport must not be unjustly 
discriminatory. Differences in charges must be justified by differences 
in the carriers' costs of starting and marketing new service at the 
airport and must be temporary.
     A sponsor may not use airport revenues to subsidize air 
carriers. Using airport revenue for cash payments and other forms of 
subsidy for a carrier providing new service is considered revenue 
diversion and is therefore prohibited by grant agreements and Federal 
law.
     A sponsor may not cross-charge non-participating carriers 
or other aeronautical users to subsidize ACIP carriers. Carriers not 
participating in an ACIP may not be charged for the costs of the ACIP 
or for airport costs left uncovered as a result of the reduction or 
waiver of charges for an ACIP carrier, unless all non-participating 
carriers agree.
     The terms of an ACIP should be made public. Publishing the 
intent to implement an ACIP, as well as information on how the ACIP is 
being used, ensures all eligible carriers are aware of the program, 
allows non-participating operators to review the potential effect of 
the ACIP on standard airport rates and charges, and minimizes the 
grounds for complaints of unjust discrimination.
     Use of airport funds for an ACIP must not adversely affect 
airport operations or maintenance. A sponsor adopting an ACIP must 
maintain a self-sustaining rate structure that continues to provide 
funds for necessary operations and maintenance responsibilities, 
without increasing rates charged to non-participating operators.
    Guidance on particular program elements in this policy applies 
generally to each of those elements. For variations on those elements, 
or program elements not specifically addressed in this guidance, the 
above five principles will govern the agency's ultimate determination 
of whether a particular ACIP is consistent with the sponsor's AIP Grant 
Assurances.
Definitions
     New Service: Any nonstop service to an airport destination 
not currently served with nonstop service, or any service to an airport 
by a new entrant carrier.
     Seasonal Service: Nonstop service that is offered for less 
than 6 months of the calendar year.
     New Entrant Carrier: An air carrier that was not 
previously providing any air service to an airport.
     Incumbent Carrier: An air carrier already actively 
providing service to an airport.
     Preexisting service: Service to any airport destination 
that is currently served nonstop.
An ACIP May Contain Any of Several Elements That Do Not Unjustly 
Discriminate Against Non-Participating Carriers, Consistent With Grant 
Assurances 22 and 23
I. New Service v. Preexisting Service
    a. Limiting an incentive to new service is not in itself unjust 
discrimination. Incentives for flights to a destination not currently 
served with nonstop service may be provided for up to two years.
    b. New seasonal services (to a destination not currently served) 
are allowed to receive incentives for 3 seasons of service, up to 3 
years from the start of the incentive.
    c. Generally, new service incentives must be available to all 
carriers offering new service on the same basis but are subject to the 
distinctions permitted under Section II of this policy.

[[Page 7508]]

    i. However, an airport sponsor is allowed to restrict incentives 
for new service if they have a limited budget. An airport sponsor is 
allowed to restrict incentives to one carrier if they have disclosed to 
all carriers that they are limiting incentives to only the first air 
carrier that establishes new service.
    ii. Airport sponsors are expected to provide public notification of 
the availability of an ACIP and post their planned incentives, 
including any limits on availability, for a minimum of 30 days before 
signing a contract with a carrier.
II. New Entrant Carriers
    a. Incentives for a new entrant carrier on a route not currently 
served can be provided for up to two years.
    b. Incentives can be offered to new entrant carriers for providing 
service to a destination already flown with nonstop service, while 
excluding incumbent air carriers. In that case, the new entrant 
incentives are limited to no more than one year. After one year, the 
new entrant would be considered an incumbent air carrier, and similarly 
situated to other carriers at the airport. This applies to new entrants 
providing seasonal service as well as those providing year-round 
service.
    c. Generally, new entrant incentives must be available to all new 
carriers on the same basis. The ACIP may not select one new entrant and 
deny the program to another new entrant.
    i. However, if an airport sponsor has a limited budget and has 
disclosed to all carriers that they are restricting incentives to only 
the first new entrant that enters the market, then the airport sponsor 
is allowed to limit incentives to one carrier.
    ii. Airport sponsors are expected to provide public notification of 
the availability of an ACIP and post their planned incentives, 
including any limits on availability, for a minimum of 30 days before 
signing a contract with a carrier.
III. Service Frequency
    a. It is not unjustly discriminatory to offer different levels of 
incentives for different frequencies of service (i.e., daily vs less 
than daily). For example, incentives typically offered for 5 days a 
week service can be discounted 40% for 3 days a week service.
IV. Cargo Carriers
    a. It is not unjustly discriminatory for incentives to distinguish 
between passenger and cargo carriers.
V. Per-Passenger and Per-Seat Mile Incentives
    a. Incentives on a per passenger or per seat-mile basis are not 
inherently unjustly discriminatory, but the airport sponsor should 
ensure that the incentives offered would not be considered a subsidy or 
would result in unjust discrimination against non-participating 
carriers.
    b. The total value of fee reductions offered as an incentive on a 
per passenger or per seat-mile basis cannot exceed the amount of the 
fees that otherwise would have been incurred by a carrier for its 
operations at the airport.
VI. Aircraft Type
    a. Incentives based on aircraft type are unjustly discriminatory 
because this could unreasonably exclude certain carriers that do not 
operate the type of aircraft identified. Incentives for upgauging, to 
the extent they are allowed, must be structured to avoid limitation to 
a particular aircraft type or types.
VII. Legacy v. Low-Cost Carriers
    a. Incentives cannot target carriers with particular types of 
business models (e.g., legacy, low-cost carriers), nor should they be 
designed for a preferred carrier.
VIII. ACIP Transparency
    a. The FAA expects airport sponsors to provide effective 
notification of the availability and implementation of ACIPs to both 
incumbent and potential new entrant carriers (e.g., posting on an 
airport sponsor's public website; notification to industry trade 
groups). Information posted for the public should include the 
incentives offered; the program eligibility criteria; identification of 
the targeted or desired new service; and for incentives awarded, a 
periodic listing of all carriers benefiting from the ACIP, the 
incentives received, and identification of the incentivized service.
    b. An airport sponsor is expected to provide effective public 
notice of an ACIP at least 30 days before signing an agreement with a 
carrier to implement an incentive.
    c. To ensure transparency, an ACIP agreement should be a standalone 
document, consistent with the published ACIP information, and not 
embedded with any other agreement the airport sponsor and the carrier 
may enter into, such as a lease or operating agreement.
    d. Airport sponsors should make information on funding for any ACIP 
available to all aeronautical users at the airport, and sponsors should 
be ready to provide the necessary financial documentation to 
demonstrate that there is no cross-charging and that the program has no 
effect on rates and charges of other aeronautical users.
An ACIP May Not Include Direct or Indirect Subsidies of Air Carriers, 
as Prohibited by 49 U.S.C. 47133 and 49 U.S.C. 47107, and Grant 
Assurance 25
I. Incentives v. Subsidies
    a. A subsidy occurs when airport funds flow, under all 
circumstances or conditionally, to a carrier with no goods or services 
being provided to the airport in return. For this purpose, air service 
is not considered a ``service'' provided to the airport. Any incentives 
where airport funds or assets (e.g., fuel) are transferred to a 
carrier, directly or indirectly (e.g., revenue or loan guarantees) 
would be regarded as prohibited subsidies.
    b. A waiver of costs that an airport sponsor would otherwise charge 
a carrier (e.g., landing fees or terminal rents) is not considered a 
subsidy, if for a limited duration consistent with the policies above. 
However, a waiver or assumption of costs that would normally be charged 
by a third party (ground handling, fuel, etc.) would be considered a 
subsidy and is not permissible for an ACIP. Incentives tied to specific 
customer service metrics (on-time performance, luggage delivery, etc.) 
are also not permissible.
II. Airport v. Non-Airport Revenues and Application to Subsidies and 
Other Revenue Guarantees
    a. Airport sponsors are prohibited from using airport funds to 
subsidize air carrier operations.
    b. A sponsor local government may use non-airport funds for 
subsidies and other uses that would be prohibited if airport funds were 
used. However, any use of funds would still need to meet Grant 
Assurance obligations prohibiting unjust discrimination.
    c. Local governments and community organizations not party to an 
AIP grant agreement, however, can use non-airport funds for incentives 
that would not be permissible for an obligated airport sponsor, 
including directing incentives toward a specific carrier and using 
their non-airport funds for revenue guarantees.
    i. If a local government or community organization chooses to fund 
a program to support new air service using non-airport funds, those 
funds may not be commingled with airport funds. Any funds placed in an 
airport's account are treated as airport revenues. As long as community 
incentives are kept separate

[[Page 7509]]

from airport funds, the community organization's funding would not be 
considered airport revenue and therefore not subject to its special 
requirements.
    ii. Airport staff can provide technical assistance to non-airport 
entities regarding ACIPs that do not use airport revenue, where the 
non-airport entity, and not the airport sponsor, is the agency 
responsible for decisions on expenditure of the funds. The role of 
airport staff can be advisory, but the airport staff cannot be involved 
in the decision-making process or handle non-airport funds. The airport 
staff's assistance may include:
    1. Guidance on the economic viability of prospective markets.
    2. Understanding of carrier business models and aircraft 
performance characteristics.
    3. Information on the availability of the airport sponsor's ACIP to 
support the new service within the limits described in this policy.
III. Marketing Incentives
    a. Airport sponsors are permitted to contribute to the marketing of 
new service, but funds must flow directly to the marketing provider; 
transferring funds to a carrier is considered a prohibited subsidy.
    b. A marketing program must promote use of the airport. Use of 
airport funds for general economic development or for marketing and 
promotional activities unrelated to the airport is prohibited by 49 
U.S.C. 47107(k)(2)(B).
IV. Incentives for Individual Travelers
    a. Airport sponsors are prohibited from offering cash incentives to 
travelers for flying a route, as this indirectly subsidizes the carrier 
serving that route.
    b. However, airport sponsors are allowed to offer coupons for food, 
parking or other benefits tied to general use of the airport, as long 
as the benefit is not restricted to passengers who fly a specific 
carrier or route.
An ACIP May Not Result in an Increase in Charges for Non-Participating 
Carriers or Other Aeronautical Users of the Airport
I. An ACIP may not increase fees charged to non-participating carriers 
or other aeronautical users and tenants of the airport subject to the 
requirement for reasonable fees under 49 U.S.C. 47107(a)(1) and Grant 
Assurance 22.

    a. The costs of an ACIP may not be passed on to non-participating 
carriers or other aeronautical users in any form. The costs of an ACIP 
include direct costs, such as marketing, and the general costs of 
airport operation and maintenance that are not covered by the carrier 
in an ACIP as a result of a reduction or waiver of fees.
    b. An acceptable ACIP will not result in an increase in the sponsor 
charges to non-participating carriers, i.e., on the charges that 
carriers would have paid in the absence of the incentivized service.
    c. For an airport sponsor with a residual fee methodology, an ACIP 
may not reduce the residual payment to non-participating carriers each 
year.
An ACIP May Not Adversely Affect an Airport's Self-Sustaining Rate 
Structure, as Required by Grant Assurance 24
I. An ACIP must be funded from a source that not only does not increase 
rates for non-participating parties, but also does not involve the use 
of funds necessary for the proper operation and maintenance of the 
airport.
FAA Oversight/Administration
I. Restart of Previous Service
    a. Airport sponsors can use their own discretion when choosing 
whether to offer incentives for a carrier to re-start service that the 
same carrier had offered previously but cancelled either due to 
significant external circumstances (e.g., an extreme natural, manmade, 
or public health crisis, such as hurricanes, terrorism, pandemic) or 
poor route performance in past years.
    b. In any event, discretion for service re-start may not be used to 
extend an incentive beyond the limits provided in this policy.
II. FAA Review
    a. At an airport sponsor's request, the FAA will review an ACIP for 
compliance with the sponsor's Federal obligations. The FAA does not 
approve ACIPs.
III. Existing Incentives
    a. Existing carrier incentives initiated prior to the issuance date 
of this policy, under programs that complied with the FAA's previous 
policy guidance, may continue as implemented until they expire. All 
such incentives will expire within 2 years of the issuance date of this 
policy statement. Incentives provided on or after the issuance date of 
this policy must conform to the guidance in this policy statement.

    Issued in Washington, DC.
Kevin C. Willis,
Director, Office of Airport Compliance and Management Analysis.
[FR Doc. 2023-01611 Filed 2-2-23; 8:45 am]
BILLING CODE 4910-13-P