Monday, October 29, 2007
NATA Members Suspend Empty-Leg Marketing
The FAA stated that even if the initial customer’s flight is purely an on-demand charter, the act of telling other third-parties about that flight could constitute holding out a schedule to those additional customers, according to NATA. That the first customer was on-demand does not influence an FAA finding that the additional customers were sold a scheduled flight. The FAA’s position is that whenever the three elements establishing a schedule are present, a schedule is indeed being offered. The FAA has stated it is irrelevant “how” the schedule is presented to the customer – verbally, Internet, or advertisements. Clearly even the FAA is confused about this because it has approved DayJet’s operation.
Aircraft operators, including owners, can mitigate the cost of ownership by making the aircraft available to others through management firms and a host of new companies have arisen to market not only aircraft but empty legs and this interpretation threatens that business as well as the ability to reduce ownership and management costs.
The issue stems from the implementation of the so-called commuter rule, imposed in 1997. Although the rule was primarily aimed at regional airlines, it also introduced a new 14 CFR 119 (Part 119), reclassifying the certification and operations specifications requirements for air carriers. The most significant change focused on scheduled commuter operators previously operating under Part 135, transitioning them to Part 121, in a bid for a single level of safety. As part of this transition, the FAA restricted the ability of Part 135 on-demand operators to conduct even occasional scheduled operations.
The commuter rule, otherwise known as the single-level-of-safety rule, changed the regional industry dramatically since it increased the cost of doing business and resulted in the wholesale abandonment of hundreds of points that had previously enjoyed not only scheduled service but profitable scheduled service. Had it not been for that rule, however, the growth of the air taxi industry would likely not be what it is today.
Ironically, in addressing what can be done about the dearth of small community air service, the Government Accountability Office supported controlling escalating operating costs by better matching capacity with community use by increasing use of smaller aircraft; i.e., aircraft with less than 10 seats, which would, of course, represent a return to the old commuter rule. DOT concurred since its analysis revealed that most EAS aircraft fly largely empty. In an incredible display of crosswise logic, DOT suggested using smaller aircraft, despite the fact it acknowledged the Commuter Safety Initiative was the primary cause of the increase in operating expenses for small commuter carriers.
Current regulations, explained NATA, define a scheduled operation as one where the operator holds out to the public, in advance, the departure location, departure time and arrival location. In an interpretation issued in 2006, the FAA expanded upon what conditions might lead to a determination that an on-demand operator has conducted an operation meeting the three elements of a schedule. The problem arises when an operator prescribes when an aircraft should leave. “The shorter the departure window..., the more it looks as though this is a scheduled operation,” said Joseph Conte, manager of the Operations Law Branch in the FAA’s Office of the Chief Counsel, at the forum.
Therefore, if an operator sets only two of those three elements, it is likely that the FAA will not deem the flight to be a scheduled operation. If any one of the three elements is of the customer’s choosing, then the flight can be viewed as an on-demand operation. Conte confirmed this during an informal discussion with NATA members during its Air Charter Summit. He said if only two elements are held out and the third is at the customer’s discretion a schedule does not exist. However, he cautioned that the third element must genuinely be determined by the customer. When pressed on the issue of “departure time” windows, Conte indicated his belief that the agency would not likely deem a five-day departure window as establishing a departure-time element, but that a 48-hour window (or less) would likely be deemed to be establishing a departure time.
“During his presentation, Conte noted that when an on-demand operator offers the use of an ‘idle aircraft’ that includes a relatively brief departure window and if the operator states the location where the aircraft must arrive, the FAA will consider the operator to have ‘held out’ and operated on a scheduled basis,” reported NATA. “Importantly, beginning with the introduction of Part 119, all scheduled operations using turbojet-powered aircraft (or using any piston or turboprop airplane with more than nine passenger seats) must be conducted under Part 121.”
As a result of the information presented during the Air Charter Summit, NATA has heard from many operators concerned about the legal status of their empty-leg flight offerings. The association drafted guidelines to help operators better understand the current regulatory environment.
The move comes as on-line charter booking services, which could be called computer reservations systems (CRSs) in the airline industry, began booming in recent years. The FAA’s interpretation clouds a company’s ability to legally offer these services.
These CRS services provide the same technological advances they did for regionals during the 1990s as they eased bookings and heightened a company's visibility. However, CRSs sped up consolidation as well as the evolution to mainline/regional partnerships which nearly spelled the end of the independent regional airline industry. Indeed, carriers, such as Express Jet, which also offers charter services, continue to have trouble tapping into global distribution systems, something, the company cited as one of the main reasons for the slow start to its point-to-point route network.
In the last few years, several new companies launched charter booking services. CharterMatrix.com is trying to bring the convenience of air charters to the general population by selling empty legs at a discount since the original customer has already paid for the empty legs required of his or her travel. The company expected the trend – little known to the average passenger – to grow owing to the advent of the very light jets.
CharterMatrix.com allows travelers to search on interactive maps, "just pointing and clicking their way to a charter flight." The passenger clicks on the departure state for a list of empty legs departing the state. The site also offers region-to-region searches and other tools to help locate air charter companies or private jets. It has also set up an auction concept for those not finding a flight through which a passenger can submit his or her travel needs and charter companies can bid for them.
Owner Terry Cooper, a Gulfstream pilot, expects the market to grow by 100 to 200 percent annually once the VLJs come on line in force. "My company allows customers, charter companies and charter brokers to communicate," said Cooper. "I'm like Travelocity. CharterMatrix is the means of getting a trip into the hands of people who want it."
Connet-A-Jet.com, Inc., which recently received the largest quantity of charter booking requests within a 24-hour time frame, in the history of its organization, units all existing worldwide charter operators in the United States to operate under one efficient, real-time, online booking system. Customers are able to book charter on every private aircraft in flight. Its biggest boost came recently, when it gained a contract for consulting services to Virgin Charter, a new online marketplace.
When can an on-demand charter really be a scheduled flight?
In 1997, a new set of FAA regulations took effect that dramatically changed the regulatory environment for all air carriers, with Part 119 impacting the air charter industry. Under today’s rules, an on-demand operator may conduct scheduled flights in an airplane under these limited conditions:
• The airplane used must be piston- or turboprop-powered;
• The airplane used must have a maximum seating capacity of nine passenger seats or fewer;
• The airplane used must have a maximum payload of 7,500 pounds or less; and
• The operator is limited to conducting fewer than five round trips per week between any two points.
Therefore, whenever a turbojet-powered airplane is to be used in an operation that meets the definition of a scheduled operation, that flight may not be conducted under Part 135 under any circumstances. Scheduled flights in turbojet-powered airplanes must be conducted under Part 121 regulations.
The restrictions outlined are articulated in the definition of “on-demand operation,” while the three elements of a schedule are found within the “scheduled operation” definition. Both definitions can be found at §119.3.
On-demand operation means any operation for compensation or hire that is one of the
• Passenger-carrying operations conducted as a public charter under part 380 of this title or any operations in which the departure time, departure location, and arrival location are specifically negotiated with the customer or the customer's representative that are any of the following types of operations:
--Common carriage operations conducted with airplanes, including turbojet-powered airplanes, having a passenger-seat configuration of 30 seats or fewer, excluding each crewmember seat, and a payload capacity of 7,500 pounds or less, except that operations using a specific airplane that is also used in domestic or flag operations and that is so listed in the operations specifications as required by § 119.49(a)(4) for those operations are considered supplemental operations;
--Non-common or private carriage operations conducted with airplanes having a configuration of less than 20 seats, excluding each crewmember seat, and a payload capacity of less than 6,000 pounds; or
--Any rotorcraft operation.
• Scheduled passenger-carrying operations conducted with one of the following types of aircraft with a frequency of operations of less than five round trips per week on at least one route between two or more points according to the published flight schedules:
--Airplanes, other than turbojet powered airplanes, having a maximum passenger-seat configuration of 9 seats or less, excluding each crewmember seat, and a maximum payload capacity of 7,500 pounds or less; or
• All-cargo operations conducted with airplanes having a payload capacity of 7,500 pounds or less, or with rotorcraft.
Scheduled operation means any common carriage, passenger-carrying operation for compensation or hire conducted by an air carrier or commercial operator for which the certificate holder or its representative offers in advance the departure location, departure time, and arrival location. It does not include any passenger-carrying operation that is conducted as a public charter operation under part 380 of this title.
So how can an operator offer empty leg flights without running afoul of the regulations?
The FAA interpretation asserts that any time the three elements (departure location, departure time and arrival location) are “held out” for a passenger-carrying operation, it is a scheduled operation.
Therefore, if an operator sets only two of those three elements, it is likely that the FAA will not deem the flight to have been a scheduled operation. If any one of the three elements is of the customer’s choosing, then the flight can be viewed as an on-demand operation. However, no specific information on the exact meaning of departure location and arrival location has been given, and there does not appear to be any prior interpretations or guidance on the precise meaning of the terms, leaving the FAA with additional opportunity for interpretation.
NATA cautions operators attempting to avoid being deemed to offer a schedule by using vagueness in defining locations, unless the precise departure and/or arrival airports are truly subject to customer demand. For example, offering a flight from Southern California to the New York area when in fact the customer will be required to meet the aircraft at Carlsbad (CRQ)f or a flight that will land at Teterboro (TEB) is not likely to pass FAA review. However, if the offer was genuine, in that the customer could specify any Southern California airport and any airport in the greater New York area for arrival, the FAA could very easily approve, particularly the greater the window of opportunity for departure time.
Operators should ask themselves, how would the customer who booked an empty-leg flight answer these questions if they were posed by an FAA inspector after flight completion?
Did you choose your departure airport, departure time and/or arrival airport?
Did you believe you had any flexibility in determining these factors?
Ultimately, in any potential investigation the FAA is likely to review the totality of the circumstances in deciding whether a schedule was held out to the public.
Q & A
1. If I only offer two elements of a schedule on a Web site and then verbally communicate the third element, I haven’t published a schedule so aren’t I still legally operating the flight under Part 135 on-demand rules?
Example: Web site offers a GV as available for a flight from VNY to HPN, but no departure time/window is noted. A customer contacts the operator (directly or via a broker) and is told that the flight is indeed available for the quoted price but only if it departs VNY within the next 24 hours.
Based upon information in FAA legal interpretations and comments offered by the FAA, this type of operation could be determined to be a scheduled operation. The three elements that define a schedule are all present (departure location – VNY, arrival location – HPN, departure time – within 24 hours). That only two were “published” and the third element (time) was a verbal statement is irrelevant. Note that the regulations do not require a schedule to actually be “published” in order for one to exist. Even though an exact departure time was not specified, the passenger is limited and must leave within the specified 24-hour window. The FAA has indicated that the narrower the departure window is, the more likely it is that the operator will be deemed to be holding out a scheduled flight in situations similar to the example.
2. What if I have an airplane, based at TEB, that is at VNY (the result of a one-way booking) and I offer the aircraft via a broker to any customer willing to depart VNY within the next 24 hours on an eastbound flight?
It is likely that you have not met the “arrival location” element necessary for establishing a schedule. Based upon FAA information, you have likely established the other elements – departure location and departure time. In order to avoid the third element, arrival location, the customer must truly be able take the aircraft to any eastbound location (Denver, Chicago, Little Rock, Nashville, Richmond, Baltimore, etc.) of their choosing, so long as the operator and aircraft can legally go to that destination (i.e. the runway is long enough for the airplane to land safely).
3. The empty-legs are really just a posting of my future Part 91 flights unless and until someone books the flight. Therefore, isn’t it true that I have not “held out” a scheduled flight?
You may certainly argue that the flights posted are only listing of future Part 91 flights. However, the concern is over what ultimately happens with regard to a specific flight and the level of control over any of the three elements that the customer was actually able to exercise. These evaluations can be done post-flight. The most important regulatory determination is whether a “scheduled operation” (as defined in §119.3) occurred. So, while you may argue that the empty-leg posting did not, per se, violate FAA regulations (particularly if the flight is never booked by a customer), the FAA could still evaluate any flight operation after-the-fact to determine the conditions of the flight and which party determined each of the three elements that comprise a schedule.