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OST-00-7406

International Air Transport Association

By:  David O'Connor

International Air Transport Association

Pursuant to your letter of April 29, 1992 to David O'Connor, American Airlines/Delta Air Lines/United Air Lines, herewith submits Justification for the subject cargo rate agreement. The IATA carriers adopted the agreement circulated by Memorandum CTC COMP 0281 dated 23 May 2000. The subject resolution affects cargo transported from points in Japan to the USA/U.S Territories. All of American's current Pacific operations are between the United States and Japan and all eastbound services will be affected by the agreement.

The Resolution would permit carriers to introduce a surcharge of JPY 12 per kilogram on all freight originating in Japan on or after July 1, 2000 and destined to the United States 2 or U.S. Territories . The resolution was introduced to offset the extraordinary increase in the cost of fuel and other operating expenses.

By:  David O'Connor

International Air Transport Association

Fuel prices have increased significantly since the Spring of i 999. Increasing fuel costs were most recently recognized by DOT in Order 2000-4-8, Establishment Of The Standard Foreign Fare Level. In the Pacific entity, U.S. Flag carrier fuel prices were predicted to increase by 43% in the second quarter of 2000 over the base price of 570 per gallon during the year ending December 1999.3 For FedEx, fuel expense in Pacific operations were $94 million during the year ended December 1999. A 43% increase in fuel expense in the year 2000 would result in a $40 million annual increase in fuel expense.  In many countries cargo rate increases to recover the added expenses associated with the recent increases in fuel expense have been implemented by the carriers acting unilaterally. However, the tariff filing mechanism in Japan prohibits carriers from taking independent action to implement mechanisms such as a surcharge for recovering costs. The Japanese doing business model relies on consensus. Uniformity is desirable and consequently the proposed 12 JPY surcharge represents an uniform and transparent mechanism for recovering these extraordinary fuel and other cost increases. Furthermore, applying the surcharge to all routes is considered desirable. DOT should consider the interest of the Japanese doing business practices when it considers the surcharge.

By:  David O'Connor

International Air Transport Association

By:  David O'Connor

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