International Air Transport Association

OST-2007-28569

June 20, 2007

Application for Approval of Agreements

002 Special Amending Resolution between South West Pacific and North America, Caribbean 111dd South Pacific Flex Fares, South West Pacific-Canada, USA (except between French Polynesia, New Caledonia, New Zealand and USA) via PA 046dd Intermediate/Business Class Flex Fares, South West Pacific-Canada, USA (except between French Polynesia, New Caledonia, New Zealand and USA) via PA 056dd First Class Flex Fares, South West Pacific-Canada, USA (except between French Polynesia, New Caledonia, New Zealand and USA) via PA 066dd Economy Class Flex Fares, South West Pacific-Canada, USA (except between French Polynesia, New Caledonia, New Zealand and USA) via PA Intended effective date: 1 July for Implementation 1 September 2007.

Counsel: IATA, Douglas Lavin

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