BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. In the Matter of TRANSPARENCY OF AIRLINE ANCILLARY FEES DOT-OST-2014-0056 AND OTHER CONSUMER PROTECTION ISSUES Notice of Proposed Rulemaking COMMENTS OF AMERICAN AIRLINES, DELTA AIRLINES, AND UNITED AIR LINES American Airlines, Inc. ( American, Delta Airlines, Inc. ( Delta and United Air Lines, Inc. ( United provide these comments to the Notice of Proposed Rulemaking ( NPRM issued in this docket on May 23, 2014, regarding proposed changes to longstanding regulation 14 CFR 234.6. These comments are directed to the particular proposal to revise 14 CFR 234.6 by replacing the current mishandled bags computation methodology of mishandled bag reports per unit of domestic enplanements to mishandled baggage per unit of checked bags. 1 The three carriers are strongly opposed to any change in the current MBR reporting methodology. These comments demonstrate that: The existing reporting methodology of mishandled bags per unit of enplanements is longstanding and works. The Department itself has in the past rejected the proposed new standard, and the rationale supporting that rejection remains valid. No compelling, empirically supported, pro-consumer case has been made for changing to the proposed standard of mishandled bags per unit of checked bags. The proposed methodology change is biased against the business models of the majority of carriers, which carry the majority of domestic passengers. The proposed methodology change would unfairly, and inappropriately, benefit Southwest Airlines Co. ( Southwest, whose real 1 American, Delta and United are also signatories to the comments of Airlines for America ( A4A filed in this docket and fully support those comments. 1

interest is to mask its poor baggage handling record and improve its ranking by manipulating the statistics. As noted in this NPRM, the Department first proposed these unnecessary changes in methodology more than three years ago, in the Reporting Ancillary Airline Passenger Revenues NPRM, Docket No. RITA-2011-001 (the ancillary fees NPRM. 2 The Air Transport Association (now A4A and Regional Airline Association ( RAA 3 and a number of individual carriers filed comments opposing the proposed metric change in the ancillary fees NPRM. Among airlines, only Southwest supported the proposed metric change (which favors Southwest s business model. The arguments against the proposed change in mishandled bag metric are even stronger today than they were when first made, as they provide no consumer benefits and, if adopted, will harm consumers by masking poor baggage handling, increasing costs, and creating operational delays. The Department should withdraw the proposed metric change in both this NPRM and the ancillary fees NPRM. As detailed in the RITA docket, the costs of complying with such a rule would be substantial. In order to capture gate checked (also called valet bags for reporting purposes, each and every gate would need to be equipped with bag ticketing equipment. The cost to one major carrier alone is estimated to exceed 10 million dollars. 4 In addition, consumers would be subject to additional flight delays because carriers could no longer rely on the efficient method of issuing paper tags at the gate to accommodate excess bags that are unable to fit on the aircraft in the later stages of the boarding process. 5 The same major investments would be needed to track gate-checked scooters and wheelchairs. Neither the ancillary fees NPRM, nor the current docket provides reasoned cost-benefit analysis to justify the proposed changes. These investments would be needed solely to respond to reporting requirements and have no business justification. The DOT should remember the success that DOT has achieved with the current A-14, MBR, and Complaints metrics as a barometer of airline operational performance and accountability to consumers. Widely reported in the media, these three figures are: 2 As directed by the Department (79 Fed. Reg. at 29984, these comments are also being filed in the ancillary fees NPRM. 3 Southwest Airlines and JetBlue Airlines did not join the ATA s comments. 4 See Comments of Delta, RITA docket. 5 Id. 2

1 followed closely at all airlines, 2 used in advertising campaigns by airlines, 3 measured to calculate both executive and frontline worker bonuses, and 4 trumpeted by top performing carriers. Thus, despite efforts to portray the revised methodology as a minor change, the Department should not be fooled. Moreover, it is doubtful that consumers are clamoring for this change. As DOT noted in its summary of the August 7, 2014 meeting, most consumers receive information about MBRs from media reports which frequently just list who the best and worst carriers are for MBR performance. If the Department cannot reject Southwest s current bid to change the methodology, at the very least, it should defer the proposal until a comprehensive study of the pros and cons of any such change, including the number of consumers who have commented on this narrow issue. I. THE CURRENT REPORTING STANDARD IS NOT BROKEN AND DOES NOT NEED TO BE FIXED. The Department considered a total bags checked metric in 1987, but rejected it in favor of the current enplaned passenger metric. Thus, the current standard has been in place, and widely-relied upon, for more than 25 years. Against that background, the rationale asserted by the Department in the ancillary fees NPRM for the proposed metric change was that the advent of checked bag fees resulted in fewer checked bags, which somehow made the existing standard inadequate, and that the proposed metric change would better inform passengers of their chances to retrieve their checked baggage in a timely manner. 6 As pointed out in the ATA/RAA comments, that conclusion, based on an underlying assumption that a decrease in the number of checked bags somehow made the existing standard problematic, was and is unsupported by the Department in both the ancillary fees NPRM and the current NPRM. 7 The Department simply has not demonstrated how a decrease in checked bags makes the current longstanding standard inadequate. It also has not explained if, or how, should that trend reverse, would the Department then return to current reporting metrics. 6 76 Fed. Reg. at 41728. 7 As noted by US Airways in its comments to the ancillary fees NPRM, another assumption made by the Department that a reduced number of checked bags resulted in a corresponding decline in mishandled bag rates was also not supported. 3

In contrast to the ancillary fees NPRM, in 1987 the Department did clearly articulate a basis for rejecting 8 the standard it now proposes to adopt, when it stated that a mishandled bags to checked bags ratio does not necessarily reveal the number of passengers who may be affected or what their experience is likely to be on a given carrier. 9 Retaining the passenger in its bag metric is the reasonable and established means to tie this metric to consumer well-being. Retaining the current metric is also consistent with other bases of reporting in the ATCR, such as denied boarding and consumer complaints. The Department has not articulated why its own criticism of a bags-to-bags ratio has somehow become less compelling. On the other hand, the A4A and carriers opposing the proposed standard change have demonstrated not only why the existing standard demonstrated is useful to consumers and properly emphasizes passenger inconvenience, but also why the proposed standard is not. 10 Having rejected a bags mishandled to bags checked standard in the past, it is incumbent on the Department to do more than simply offer a few conclusory sentences as to why it is now changing its position and concluding that what it once eschewed, it now embraces. Greater Boston Tel.Corp. v. FCC, 444 F 2d 841, 852 (D.C. Cir. 1970 (agency changing its course must supply a reasoned analysis for changing prior policies and standards. As discussed more fully below, it did not do so in the ancillary fees NPRM and has not done so in this NPRM. II. THE PROPOSED MISHANDLED BAGS REPORTING STANDARD IS BIASED AGAINST THE BUSINESS MODELS OF THE MAJORITY OF UNITED STATES CARRIERS. Southwest Airlines is the only carrier that filed comments in support of the proposed standard change. The reason is obvious Southwest Airlines is predominately a point-to-point carrier with fewer connecting passengers than the hub-and-spoke carriers such as American, Delta, and United. Since connecting itineraries require a bag to be handed more often than do point-to-point itineraries, the opportunity for mishandling is greater on hub-and-spoke carriers. The proposed standard change is biased against hub-and-spoke carriers (which carry the majority of domestic passengers and would 8 The Department itself had originally proposed a checked mishandled bags to a checked bags standard. 9 52 Fed Reg. 34069-70 (September 9, 1987. 10 See ancillary fees comments of ATA, pages 9-10, US Airways comments at 6-7 (copies attached. 4

favor the point-to-point business model of Southwest. 11 This would make it more difficult not less for the majority of consumers to gauge performance of one competing network versus another. The current metric fairly balances the complexities of the current business models of network and point-to-point carriers. Network carriers have invested in new systems, processes, and personnel and have demonstrated dramatic improved performance over recent years. For the reasons noted above, even the most casual consumer of air transportation knows that there is a slight increase in the chance of a mishandled bag on a connecting versus nonstop itinerary. There is no reason to change the current metric to bias one business model over another. Southwest s desire to have the Department adopt a standard that is tailored to its business model, and biased against the business model of its principal competitors, is understandable. In recent years, Southwest has had persistent and well-publicized challenges in handling bags. 12 In 2014, among the five largest carriers, Southwest has consistently ranked last or next to last in the ATCR MBR report. Actual Ranking (Big 5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 1 US AIRWAYS DELTA DELTA DELTA DELTA DELTA DELTA 2 AMERICAN US AIRWAYS AMERICAN UNITED UNITED UNITED UNITED 3 DELTA AMERICAN US AIRWAYS US AIRWAYS US AIRWAYS US AIRWAYS AMERICAN 4 UNITED SOUTHWEST UNITED AMERICAN AMERICAN SOUTHWEST US AIRWAYS 5 SOUTHWEST UNITED SOUTHWEST SOUTHWEST SOUTHWEST AMERICAN SOUTHWEST 11 To be clear, the network carriers are not shirking from the need to provide outstanding bag delivery for customers. Indeed, all the carriers have invested in new technologies, people and other resources to ensure timely bag delivery as often as possible. Delta s recent lost bag ratio is proof of that success. 12 Why Southwest Airlines big baggage problems could persist, Chicago Business Journal, January 8, 2014. 5

The proposed change in reporting standard would, overnight, solve Southwest s bag handling image problem Southwest would, as if by magic, become the second highest ranked carrier, or at least no worse than middle of the pack. 13 Theoretic Ranking (Big 5 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 1 US AIRWAYS DELTA DELTA DELTA DELTA DELTA DELTA 2 AMERICAN SOUTHWEST SOUTHWEST UNITED SOUTHWEST SOUTHWEST SOUTHWEST 3 DELTA US AIRWAYS AMERICAN SOUTHWEST UNITED UNITED UNITED 4 UNITED AMERICAN US AIRWAYS US AIRWAYS US AIRWAYS US AIRWAYS AMERICAN 5 SOUTHWEST UNITED UNITED AMERICAN AMERICAN AMERICAN US AIRWAYS The charts above demonstrate conclusively that any change to the standard would be unfair and deceptive to consumers as they would mask the poor performance of Southwest. The carrier should not be rewarded for its well-known operational challenges. Southwest argues that the proposed standard change is justified because not all enplaned passengers check bags. 14 That is nothing more than a truism, and has been the case since the current standard was put in place. The Department itself recognized the value of the enplaned passengers of the current standard when it noted that: Figures on total enplaned passengers in the domestic system and the total number of reports filed on mishandled bags are normally kept and easily derived. A percentage derived from these two figures is useful to consumers as a general indicator of their chances of experiencing baggage handling problems on a particular carrier. 15 Southwest posits that carriers that charge bags fees may have an artificially low MBR ratio due to the relatively low number of checked bag and high number of enplaned passengers. 16 Neither Southwest nor the Department have offered any data to elucidate the degree to which hub and spoke carriers are checking fewer bags, or to demonstrate that such degree was then (or, more importantly, is 13 Based on assumptions regarding historic rates of the number of checked bags per passenger for the five top carriers, in particular that Southwest s current rate is close to that of American Airlines in 2008, and that the current rate among the other four carriers is close to American s current rate. 14 Southwest Airlines ancillary fees NPRM at page 5. 15 52 Fed Reg. at 34069-70. 16 Southwest Airlines ancillary fees NPRM comments at page 5 6

now sufficient enough of a tipping point to undermine the efficacy of the current reporting methodology. In the ancillary fees NPRM, the Department, relying on an underlying GAO report, asserted that the advent of checked bag fees had resulted in a 40 to 50 per cent decline in the number of checked bags. Comments pointed out, however, that the GAO reference was based on just two conversations with airline executives, and that such limited information was hardly an adequate basis to change a decade s old reporting methodology. 17 Even assuming the Department s unsupported statement of a 40 to 50 per cent decrease in checked bags was true when made in 2011, and that Southwest s 2011 suggestion of an artificially low MBR ratio for carriers that charge checked bag fees was also correct, that data would be more than three years old now. No change of the magnitude proposed by Southwest should be premised on stale data that was unsupported. As noted above, the current reporting standard is already advantageous to point-to-point carriers like Southwest because hub-and-spoke connecting itineraries involve at least twice as many opportunities for a bag to be mishandled than do point-to-point itineraries. Additionally, hub-and-spoke carriers with extensive regional carrier codeshare operations face another disadvantage in the current metric. In the context of a mishandled bag on an itinerary where a passenger connects to or from a regional carrier to a mainline carrier, a single MBR and a single enplanement would be filed by the carrier reporting the MBR. However, in the context of a mishandled bag arising from a Southwest itinerary with two segments, Southwest would file a single MBR, but report two enplanements. Thus, even though both scenarios involve a connecting passenger with a mishandled bag, the optics of the mishandled bag looks half as bad for Southwest since it reports two enplanements. Similarly, in the context of a hub-and-spoke carrier filing a MBR associated with an interline itinerary where a bag was transferred between two hub-and-spoke carriers, the reporting carrier would report one MBR and only one enplanement. Southwest (which does not generally interline will get credit for two enplanements in the scenario of it mishandling a bag on a two segment, wholly Southwest itinerary. Additionally, in an interline context, the second segment carrier usually receives the passenger report and then has to report the MBR, even if the first segment carrier never transferred the bag to it. Interline baggage transfers tend to misconnect much more often than online transfers. The 17 See Virgin America comments, page 12; American Aviation Institute comments, page 6. 7

ATCR itself implicitly acknowledges the inherent difference in business models, admitting that, The reports of mishandled baggage do not distinguish between carriers that interline and those that do not. Thus a carrier that has interline partners has not only a mathematic enplanement disadvantage, but it may also have to report MBRs for bags that it never handled, in an operational context where bags are mishandled at a higher rate. Thus, because of its point-to-point business model, Southwest is already favored in the current reporting standard as compared to hub-and-spoke carriers. Nonetheless, Southwest seeks additional structural favor in the reporting metric, in the hopes a bags-to-bags standard will mask its bag handling performance issues. Southwest has the least complex network of any large domestic carrier, with no codesharing, no interlining, no regional carriers, and a point-to-point network that decreases the number of times a passenger s checked bag gets touched. Yet, despite this, Southwest is again asking the Department to change the bag reporting methodology away from a model that has successfully served both consumers and the Department for over a generation to a model that only serves Southwest, and that would uniquely impose direct costs on its competitors both in development and in ongoing data collection. Since the introduction of bag fees more than five years ago, carriers have competed fiercely over the matter. Southwest has let all know that Bags Fly Free on Southwest, while other carriers may allow a free first bag and other carriers provide no free bag allowance but have a broad array of methods for passengers to avoid bag fees including class of service purchased, status, credit card usage. The Department must remember that its proposal to change a decades old reporting methodology is not an academic exercise, but is rather one that would, if adopted, put the Department s full weight and prestige in support of one business model over that of those carriers who fly most of the domestic U.S. passengers, obscuring differences among those carriers in order to favor the Southwest model. The Department s first mandate to promote aviation competition is at work in this area. Many carriers charge for bags, Southwest does not. Ultimately what Southwest is asking the Department to do is save it from its own decision. Southwest does not charge for bags so it carries more bags, which is a decision that Southwest fully made. If Southwest has attracted additional passengers as a result of its bag policy, then Southwest should use some of that additional revenue and upgrade its baggage delivery infrastructure, not ask the Department to fix its problems and deceive consumers. The current rulemaking is complex enough, and carriers will likely have many changes to implement depending on the NPRM s final outcome. The Department should not be distracted by 8

Southwest s efforts to cover up its otherwise poor baggage handling by making a math change to improve its baggage statistics. Consumers certainly do not win under this model. In fact, they will lose and badly, as the time needed to collect bag statistics at the point of enplanement threaten to degrade on-time performance. The Department should reject Southwest s protestations and encourage Southwest to make the necessary investments to improve its baggage handling. III. CONCLUSION. The current MBR reporting standard has worked well for decades. The proposed changes championed by Southwest would unfairly bias one competing business model against another, impose substantial and unjustifiable costs, and increase the potential for operational delays and inconvenience to customers. For all of these reasons, the Department should retain the mishandled baggage rule in its existing form. Respectfully Submitted, Alexander Van der Bellen Managing Director Government Affairs & Associate General Counsel Delta Air Lines, Inc. Howard Kass Vice President Legal and Government Affairs Alec Bramlett Managing Director Legal and Government Affairs Steve Morrissey Vice President, Regulatory and Policy Thomas Newton Bolling Vice President and Deputy General Counsel Abby L. Bried Associate General Counsel-Regulatory, Alliances & International James F. Conneely Counsel-Regulatory United Airlines, Inc. 9