OST-96-1629 / Transatlantic, Transpacific and Latin American Mail Rates / Objections of American Airlines / January 7, 1999
TRANSATLANTIC, TRANSPACIFIC : AND LATIN AMERICAN SERVICE MAIL RATES INVESTIGATION
OBJECTIONS OF AMERICAN AIRLINES, INC.
TO ORDER 98-11-18
American Airlines, Inc. hereby objects to
Order 98-11-18, November 23, 1998, proposing international service mail rates for the period January 1 through December 31, 1999.The terminal charge proposed by Order 98-11-18 for the Atlantic service area would result in a 1.0% decline relative to the rates for the second half of 1998. A review of the expense component drivers of this decline give compelling reasons for concern in the validity of such a reduction. As in
Order 98-10-25, October 28, 1998. establishing mail rates for the second half of 1998, the expenses reported by one carrier, Delta Air Lines, have seemingly skewed the calculated regional expenses, to such an extent that the proposed terminal charge is shown to decline, when it otherwise would have increased.American urges that Delta's cost allocation methodology and reported statistics should once again be scrutinized for accuracy and consistency with the reports of other carriers. If Delta is unable to explain the steep drop in its non
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capacity expense relative to its reported traffic increase, Delta's statistics should be excluded from the development of the Atlantic service area cost adjustment factors used in calculating the new rate.
As shown in Exhibit A, a review of the non-capacity expense 'the carrier pool of costs that determines the terminal rate) per ton of baggage and cargo uplifted for the carriers selected to represent costs in the Atlantic region reveals that the total non-capacity expense per ton has declined 7.9% versus the year ended June 30, 1997. The detail shows that Delta's reported decline of 35.4% in expense per ton is far greater than that: of the next closest declining carrier, Northwest Airlines, at 6.2%. If Delta's non-capacity expense is excluded from the Atlantic area data, then the resulting change in non-capacity expense per ton would be an increase of 3.3%.
In Order 98-10-25 finalizing the service mail rates for the second half of 1998, the Department found that Delta had committed a significant reporting error in the classification of certain handling expenses in its system. Non-capacity expenses were subsequently adjusted to higher figures for the preceding two-year period. The adjusted results, however, still reflect a questionable reduction in non-capacity expenses over the past two years when Delta's ton uplifted have increased, as shown in Exhibit B.
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Following
Order 98-6-16 proposing international mail rates for the period July 1 through December 31, 1998, American objected to the Department's methodology in projecting Form 41 cost-based rates. See Answer in Support of Objections, OST-961629, July 23, 1998. American believes that the practice of using two data points of recent Form 41 cost information to trend out: straight-line projections of future unit costs is inappropriate, given the variability of airline reported costs. The Department responded in Order 98-10-25 that while it is willing to explore alternative rate methodologies in the future, its current practice will not be changed without full discussion of the issues by the parties.While we await the opportunity do discuss the issues associated with what we believe are the shortcomings in the Department's methodology, it is imperative that the rates established in the meantime be constructed by using data that is without question representative of true operating costs in the respective rate areas. For this reason, American objects to the inclusion of Delta's statistics in the construction of Atlantic area service rates until such time as Delta's Form 41 statistics, both past and present, can be validated by the Department for consistency and accuracy.
Respectfully submitted,
SPENCER K. DICKINSON
Managing Director, Postal
Sales and Services
Cargo Division
American Airlines, Inc.
(817) 963-4225
January 7, 1999