International Air Transport Association

OST-2007-28556

June 19, 2007

Application for Approval of Agreements - Bookmarked

These Flex Fares agreements provide mechanisms for establishing highly traveler-friendly passenger fare products for fully flexible first class, business class and economy class travel. The materials submitted for DOT review do not include specific numerical fare prices for the numerous city pairs involved; rather, what is submitted for review is a process and algorithm for defining Flex Fares products and computing their prices, including procedures for making system adjustments as market conditions change.

While posing no substantial risk to competition, the Flex Fares products do offer benefits (the flexibility to change airlines after ticketing, the ability to develop and change complex itineraries within a single ticketed price) that other products offered by single airlines, or groups of airlines, cannot match. Only time will tell whether travelers feel those benefits are valuable enough to them to warrant paying a premium price. IATA respectfully submits such decisions should be left to the market, rather than regulation. Consequently, the requested approval and immunity should be granted.

Counsel: IATA, Douglas Lavin, 202-293-9292

Order 2008-7-4
OST-2006-25307 - Traffic Conference Proceeding
OST-2007-28556 - Flex Fares
OST-2007-28558 - Inclusive Tours
OST-2007-28569 - Flex Fares
OST-2007-28570 - Inclusive Tours

Issued July 1, 2008 | Served July 7, 2008

Order - Bookmarked

Our final order disapproving IATA's Provisions addressed IATA's longstanding tariff conference procedures, which provide for airline discussions and agreements on interlineable fares at meetings, by mail votes, and in conference calls. The Flex Fares system, by contrast, is a mechanistic, computer-driven process that involves no direct contact between carriers. It will produce IATA interline fares based on adjusted averages of market fares, rather than negotiations among competitors. The annual and exceptional updates to the fares, as well as amendments to the methodology or the interline premium, likewise involve no direct contacts between carriers, and the process is open to participation by non-IATA carriers. We believe that under the system proposed, there is much less risk that the Flex Fares process, or the resulting IATA interline fares, will have a significant spillover effect on individual airline prices. In addition, there is no reason to believe that non-IATA interline fares will cease to be widely available.

However, we are not prepared to approve and immunize the Flex Fares agreements. IATA argues at great length that the Flex Fares system is competitively benign, and we are not convinced by its contradictory assertion that approval and immunity are warranted in order to remove the specter of private antitrust suits that would allegedly frighten carriers away from participating in Flex Fares. The proposed Flex Fares system does not appear to present the type of conduct we prohibited in our final order, and if the new system is indeed competitively benign there is no reason it should not be able to operate fully subject to U.S. antitrust laws.

The agreements we are exempting would implement Flex Fares in all U.S.-Europe and U.S.-Southwest Pacific markets. Our final order in the IATA Tariff Conference Proceeding disapproved the IATA Provisions insofar as they applied to pricing in the U.S.-ECAA and U.S.-Australia markets, but left them in place in other U.S.-Europe and U.S.-Southwest Pacific markets. Thus, while traditional tariff coordination is prohibited on U.S.-ECAA and U.S.-Australia routes, the terms of our order do not bar it on the other routes, and absent further Department action it would be theoretically possible for lATA to conduct both traditional and Flex Fares coordination on them. While we do not believe it is IATA's intention to operate a dual system, to remove any ambiguity we will condition our exemption on non-application of the Provisions to the remaining U.S.-Europe and U.S.-Southwest Pacific markets.

By: Michael Reynolds