Appendix — California v. Civil Aeronautics Board

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Text

Supreme Court, U. S.~

Z FILED

i} SEP 19 1978

-_——

—

'* ri coe

ies ee

In the Supreme Court saa

OF THE

Gnited States

Octoser TERM, 1978

noe. €8-417

— 8-447

Tue PEeoPLe oF THE STaTE oF CALIFORNIA and THE

Pusuic UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

and Tue NaTionaL ASSOCIATION OF

Reecutatory Utitity CoMMISSIONERS,

Petitioners,

vs.

Crviz AERonavuTics Boarp,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

to the United States Court of Appeals for the

District of Columbia Circuit

PETITIONERS’ JOINT APPENDICES

In the Supreme Court

OF THE

Gnited States

Octroper Term, 1978

Tur Prop.y or THE STATE OF CALIFORNIA and THE

Pusuic Utititres COMMISSION OF THE STATE OF CALIFORNIA

and Tue NationaL ASSOCIATION OF

Reouiatrory Uritiry COMMISSIONERS,

Petitioners,

Vs.

Civin Agronavutics Boarp,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

to the United States Court of Appeals for the

District of Columbia Circuit

PETITIONERS’ JOINT APPENDICES

TABLE OF CONTENTS

Appendix A

ey of the Court of Appeals for the District of Colum-

DE rrr et re etre a iis 59 aay kb tak

Appendix B

Decision of the Court of on for the District of Colum-

ns SI whys bp ows eins Oak wh cme as \ Ltn on os

Appendix C

CAB Opinion and Order 76-7-23 issued July 7, 1976 |

Appendix D

CAB Opinion and Order 76-10-138 issued October 29, 1976

Appendix E

CAB Order of ee 72-9-90 issued ro 25,

1972

Appendix F

Initial Decision of Administrative Law Judge served April

23, 1974 skce Adon Ree REISE %. SUR ORSE > GENCE GG. ft 2

Appendix G

CAB Order 75-3-2 issued March 3, 1975 ........

Appendix H

CAB Order pinata k Partial oy 77-1-137 issued 0050

eee

Appendix I

4g Order rpg Partial se.de 77-4-22 issued lsh 5,

Appendix J

Federal Aviation Act of 1958, as amended, 49 U.S.C. Sec-

- dons 1301( 10), 1301(21), 1301(23), 1302, 1371, 1373, 1374

Appendix K

Interstate Commerce Act, 49 U.S.C. Sections 1, 3(1)

Page

109

113

115

131

APPENDIX A

Judgment of the Court of Appeals

for the District of Columbia Circuit

United States Court of Appeals

For the District of Columbia Circuit

No. 76-2117 September Term, 1977

The People of the State of California

and the Public Utilities Commission of

the State of California, Petitioners

Vv.

Civil Aeronautics Board, Respondent

Western Airlines, Inc.

Texas International Airlines, Inc.

Ralph Nader and the Aviation Consumer

Action Project

United Air Lines, Inc.

Hughes Air Corporation, d/b/a

Hughes Airwest, Intervenors

76-2123

National Association of Regulatory

Utility Commissioners, Petitioner

Civil Aeronautics Board, Respondent

Texas International Airlines, Inc.

Western Airlines, Inc.

Ralph Nader and the Aviation Consumer

Action Project

United Air Lines, Inc.

Trans World Airlines, Inc.

Hughes Air Corporation, d/b/a

Hughes Airwest, Intervenors

76-2155

Texas Aeronautics Commission, Petitioner

Civil Aeronautics Board, Respondent

Texas International Airlines, Inc.

Western Airlines, Inc.

Ralph Nader and the Aviation Consumer

Action Project

Trans World Airlines, Inc.

United Air Lines, Inc.

Hughes Air Corporation, d/b/a

Hughes Airwest, Intervenors

}

[Filed June 20, 1978]

Petition for Review of An Order

of the Civil Aeronautics Board

Before: Wricut, Chief Judge, Bazeton and WILKEy,

Circuit Judges

JUDGMENT

These causes came on to be heard on a petition for

review of an order of the Civil Aeronautics Board and

were argued by counsel. On consideration of the foregoing,

it is

ORDERED AND ADJUDGED by this Court, that the

order of the Civil Aeronautics Board under review herein

is hereby affirmed, in accordance with the opinion of this

Court filed herein this date.

Per Curiam

For the Court

/s/ GEORGE A. FISHER

Georce A. FIsHEeR

Clerk

Date: June 20, 1978

Opinion for the Court filed by Circuit Judge Wilkey

alll

4 | 5

APPENDIX B No. 76-2123

Decision of the Court of Appeals NaTionaL ASSOCIATION OF REGULATORY

for the District of Columbia Circuit : Urtinity CoMMISSIONERS, PETITIONER

Notice: This opinion is subject to formal revision before epeation in oe v.

Federal Reporter or U.S.App. or . Users are ——— nad ng a & -

Clerk of any formal errors in order that corrections may oer Civi, Arronavutics BoarD, RESPONDENT

bound volumes go to press.

Texas INTERNATIONAL AIRLINES, INC.

WesTERN AIRLINES, INC.

RautpH NADER AND THE

AviaTIon ConsuMER ACTION PROJECT

Unitep Ar Livzs, Inc.

Trans Worip Arrixes, Inc.

No. 76-2117 ; Hucues Arr Corporation, d/b/a

Hucues AIRWEST, INTERVENORS

United States Court of Appeals

For the District of Columbia Circuit

Ore NE Le RATES ONE

THE PEOPLE OF THE STATE OF CALIFORNIA

AND THE PuBLic UTILITIES COMMISSION OF

THE STATE OF CALIFORNIA, PETITIONERS

bi No. 76-2155

Crviz AERONAUTICS BoaRD, RESPONDENT Texas AERONAUTICS COMMISSION, PETITIONER

WESTERN AIRLINES, INc.

Texas INTERNATIONAL AIRLINES, INc. Crvi. AERONAUTICS BoaRD, RESPONDENT

RatPH NaDes AND THE Texas INTERNATIONAL AIRLINES, INC.

Aviation ConsuMER Action Progect Westren Artes, Inc.

Unirtep Arr Lings, Inc. : Ratpu Naver AND THE

Hucues Arm Corporation, d/b/a Aviation ConsuMER AcTION PROJECT

Hvucues AIRWEST, IN'‘TERVENORS | Pinus Wa Arties, Inc.

Unitep Ar Livgs, Inc.

Hueues Arr Conporation, d/b/a

: Hvucues AIRWEST, INTERVENORS

Bills of costs must be filed within 14 days after entry of judgment. The court

looks with disfavor upon motions to file bills of costs out of time.

ERR netrenntmnneeneen

Petition for Review of Orders of the

Civil Aeronautics Board

Argued 17 February 1978

Decided 20 June 1978

Rufus.G. Thayer, Jr. with whom J. Calvin Simpson

was on the brief, for petitioner in No. 76-2117. Also

Richard D. Gravelle entered an appearance for petitioner

in No. 76-2117.

William R. Nusbaum with whom Paul Rodgers was on

the brief, for petitioner in No. 76-2123.

John L. Hill, Attorney General of Texas and Dawid

Hughes, Assistant Attorney General were on the brief,

for petitioner in No. 76-2155,

Alan R. Demby, Attorney, Civil Aeronautics Board with

whom James C. Schultz, General Counsel and Jerome

Nelson, Deputy General Counsel, Civil Aeronautics Board,

Glen M. Bendixsen, Associate General Counsel and Robert

L. Tooney, Attorney, Department of Justice were on the

brief, for respondents.

Reuben B. Robertson, III with whom Alan B. Morrison

was on the brief, for intervenor, Ralph Nader and the

Aviation Consumer Action Project.

Michael A. Katz, Arnold T. Aikens and Peter D. Con-

nally were on the brief, for intervenor United Air Lines.

Richard A. Fitzgerald, David L. Vaughan and John

W. Simpson were on the brief, for intervenor, Hughes

Airwest.

Ralph B. Jordan and Dennis A. Barlow and Robert E.

Moock were on the brief, for Amicus Curiae, City of Kern

and City of Visalia.

Also Emory N. Ellis, Jr. entered an appearance for inter-

venors, Western Air Lines and Texas International Air-

lines, Inc.

Also Edmund E. Harvey entered an appearance for inter-

venor, Trans World Airlines, Inc., in No. 76-2123 only.

Also Robert B. Nicholson and James F. Ponsoldt, Attor-

ney, Department of Justice entered appearances in Nos.

76-2123 and 76-2155.

Before: Wricut, Chief Judge, Bazeton and WILKey,

Circut Judges

Opinion for the Court filed by Circuit Judge Wiikey.

Wiikey, Circuit Judge: Presented for our review is an

order of the Civil Aeronautics Board (Board) in which

lawful fares were set for the transportation, by air car-

riers operating under Board certification, of interstate and

intrastate passengers in the intra-California and intra-

Texas markets. Dual economic regulation by federal and

state agencies have produced a conflict. In a broader sense,

our review concerns the authority granted the Board by

statute and delegated to it by the Congress under the Com-

merce Clause, Article I, Section 8, Clause 3, of the United

States Constitution.

I. Backerounp

The Public Utilities Commission of the State of Cali-

fornia (CPUC) and the Texas Aeronautics Commission

(TAC) are state regulatory agencies which license intra-

state air carriers. In California intrastate fares are set by

PUC regulation, but in Texas competitive forces operate

to establish the fare structure without state regulation at

the present time. In both of these states fares have been

in effect for intrastate air transportation which are lower

than those set by the Board for interstate transportation.

Under the authority granted it by the Federal Aviation

Act? the Board authorizes air carriers and regulates the

fares they charge for air transportation in interstate car-

riage, as defined in §§ 1301(10) and (21)(a) of the Federal

Aviation Act.? Interstate transportation includes carriage

between two or more points within a state when it is part

of a longer journey commencing from or destined to an-

other state. It is obvious that air carriers transporting

interstate traffic between points in a single state also carry

interstate traffic. :

The term “interstate carrier,” as used in this opinion,

refers to a carrier holding a certificate of public con-

venience and necessity issued by the Board authorizing it

to engage in interstate air transportation.

Recognizing that fare differences existed between inter-

state and intrastate passage in the California and Texas

markets, the Board instituted a formal investigation* on

25 September 1972 to determine whether unjust discrimi-

nation resulted from the fares charged by interstate car-

riers in violation of the Federal Aviation Act providing:

No air carrier or foreign air carrier shall make, give,

or cause any undue or unreasonable preference or

advantage to any particular person, port, locality,

or description of traffic in air transportation in any

149 U.S.C. § 1301 et seq.

*49 U.S.C. § 1301(10):

Air transportation means interstate, overseas, or foreign air

transportation or the transportation of mail by aircraft.

49 U.S.C. § 1301(21):

Interstate air transportation . . . mean the carriage by aircraft

of persons or property as a common carrier for compensation or

hire .. . in commerce between, respectively—(a) a place in any

State of the United States ... and a place in any other State of

the United States... .

*Docket 24779, Interstate and Intrastate Fares in California and

Texas Markets.

Oe ee

respect whatsoever or subject any particular person,

port, locality, or description of traffic in air transpor-

tation to any unjust discrimination or any undue or

unreasonable prejudice or disadvantage in any respect

whatsoever.*

The Initial Decision of the ALJ found that there were

discriminatory differences between the interstate and intra-

state fares but viewed the discrimination as justified be-

cause of the need of the interstate carriers to compete

with intrastate carriers in the local markets. The need to

compete was caused by the revenue losses the interstate

carriers would suffer otherwise. The conclusion reached

in the Initial Decision was that the discrimination was

not unjust.

The Board reversed the Initial Decision in determining

that there were no significant differences in costs incurred

and services rendered, that passengers were intermingled,

and that knowledgeable interstate passengers, through

“double ticketing,” were paying the lower intrastate fares

for travel which was actually interstate. In the opinion of

the Board these factors amounted to unjust discrimination,

because all passengers were not treated equally.

The Board concluded that only by eliminating the fare

differentials could a remedy be achieved. It reasoned

that while two levels of fares remained in effect, no

proper safeguard could be found, as the intent of the

passenger had to be revealed to the carrier to determine

which level was authorized. The availability of lower

fares would obviously create a reason for interstate pas-

sengers not to reveal their travel plans. Accordingly,

the Board ordered interstate carriers to charge fares at

rate levels which have been established for operations

throughout their domestic systems generally, such fares

*49 U.S.C. § 1374(b).

to be “constructed in accordance with the Board’s prior

decisions in the Domestic Passenger-Fare Investigation,

Dockets 21866, et al.,° except that such fares may be

lowered to the extent necessary to meet the competition

from intrastate carriers.”

In taking this action the Board relied upon the Su-

preme Court’s Shreveport decision’ interpreting the then-

existing Section 3 of the Interstate Commerce Act as

conferring power on the Interstate Commerce Commission

to regulate intrastate rates in order to eliminate unjust

discrimination against interstate movements, 49 U.S.C.

§ 1374(b) of the Federal Aviation Act having been pat-

terned after Section 3 of the Interstate Commerce Act.

The question before this court is whether the Board’s

order was in excess of its statutory authority, unsup-

ported by substantial evidence, or arbitrary and ca-

pricious.* :

II. Awatysis or Issves

A. Unjust Discrimination

We must initially determine whether there was sub-

stantial evidence for a finding of unjust discrimination

because of a dual fare level between interstate and intra-

state passengers traveling on interstate carriers.°

It is clear from the record that all passengers received

the same services, which were provided at the same costs,

and that interstate and intrastate passengers were inter-

*In this proceeding, which considered all aspects of interstate

fares in the forty-eight contiguous states, the Board adopted prin-

ciples by which interstate fares are established.

*Board Opinion, Docket 24779, 8 July 1976.

‘Houston, East & West Texas Railway Company v. United States,

234 U.S. 342 (1914).

*5 U.S.C. § 706.

*49 U.S.C. § 1486(e).

mingled. It is also clear that some interstate passengers,

who have been termed “knowledgeable” because they

were aware of the dual fare structure, had made a

practice of purchasing separately the intrastate portion

of their passage. The effect is that intrastate passengers

and knowledgeable interstate passengers were traveling

within California and Texas at lower fares than all other

interstate passengers. On the basis of the record, there

was substantial evidence upon which the Board could find

unjust discrimination, and we uphold that finding.

B. Authority to Eliminate Unjust Discrimination

We move next to the question of whether the Board

exceeded its authority in establishing a single fare level

applicable to both interstate and intrastate passengers

traveling on interstate carriers.

Petitioners attack the Board decision by claiming that

the Board has usurped the power of a state to control air

commerce strictly within its borders and ousted the state

agencies from economic regulation of intrastate fares.

The argument runs that, in the absence of a specific

grant of authority to the Board, a state is free to regulate

commerce within its confines. The Board order has the

effect of regulating intrastate fares, a right reserved

to the state and one which the Federal Aviation Act does

not grant to the Board. On certain noncompetitive, or

monopoly, routes in California served only by interstate

carriers, the intrastate fares will be replaced with fares

at the interstate level. Predictions are made of an adverse

economic impact on the isolated communities served by

monopoly routes, in that the higher cost of air travel

will discourage passengers, effecting locality discrimina-

tion. With the termination of control by CPUC, the

California passenger will lose the right to participate in

determining the reasonableness of rates.

The Board asserts its authority to eliminate unjust

discrimination by setting a single fare level is grounded

in the Federal Aviation Act, supra, § 1374(b), and relies

upon the Supreme Court’s landmark decision in Shreve-

port Rate Case.”

In Shreveport interstate carriers were applying freight

rates established by a Texas state regulatory commission

which were at a lower rate for eastbound and _ intra-

state shipments than for westbound shipments from

Shreveport, Louisiana, into Texas. The then-existing See-

tion 3 of the Interstate Commerce Act" provided that

it was unlawful for a common carrier to vive we'ne

preference to a particular locality. The court held that

Congress possesses the power to regulate and_ protect

interstate commerce even though intrastate transactions

may be controlled thereby. It went on to say:

It is also clear that, in removing the injurious dis-

criminations against interstate traffic arising from

the relation of intrastate to interstate rates, Con-

gress is not bound to reduce the latter below what it

may deem to be a proper standard.... Congress is

entitled to maintain its own standard as to these

rates, and to forbid any discriminatory action by in-

"Note 7, supra.

"Interstate Commerce Act Sec. 3:

That it shall be unlawful for any common carrier subject to the

provisions of this act to make or give any undue or unreason-

able preference or advantage to any particular person, com-

pany, firm, corporation or locality, or any particular description

of traffic, in any respect whatsoever, or to subject any particular

person, company, firm, corporation, or locality, or any particular

description of traffic, to any undue or unreasonable prejudice or

disadvantage in any respect whatsoever.

terstate carriers which will obstruct the freedom of

movement of interstate traffic... . Having this power,

Congress could provide for its execution through the

aid of a subordinate body... .”

The Shreveport opinion concluded that although Section 1

provided that the Interstate Commerce Act did not

extend to intrastate transportation, when unjust disecrim-

ination arises from the relation of intrastate to interstate

rates, Congress is competent to deal with it.

The Shreveport Rate Case doctrine has been followed

consistently in the ensuing years; /llinois Central R.R.

Co. v. Public Utilities Commission, Wickard vy. Filburn,"

and courts have repeatedly held that Section 137(b) of

the Federal Aviation Act was modeled after the Interstate

Commerce Act, the latter being an appropriate guide for

construing the former, Transcontinental Bus System v.

CAB.” In addition, the legislative history of the Civil

Aeronautics Act of 1938 indicates that Congress, although

asked to do so, decided not to limit the application of the

Shreveport doctrine in air transportation as it had done

in highway transportation.

The provisions of the statutory schemes of the Inter-

state Commerce Act and Federal Aviation Act limit the

federal agencies to the regulation of interstate commerce

but when unjust discrimination results from an intra-

state rate structure, the federal power preempts that of

**Note 7, supra, at 355.

8245 U.S. 493 (1918).

4317 U.S. 111 (1942).

(1968). See also Commonwealth of Virginia v. CAB, 498 F.2d 129,

143 (4th Cir. 1974); Flying Tiger Line v. CAB, 121 U.S. App. D.C.

332, 350 F.2d 462 (1965).

the state.” The separation of interstate and intrastate

passengers on interstate carriers was not possible in any

practical manner.

The court upholds the Board’s authority to eliminate

unjust discrimination by setting a single fare level to

apply to both interstate and intrastate passengers on

interstate carriers.

C. The Remedy

Applying a single fare to all travelers, the Board

eliminated the cause of the unjust discrimination. The

petitioners contend that the application of the higher

interstate rather than the lower intrastate fare was

arbitrary, so we next examine the evidence and the

rationale on which it was based.

The rate level set is particularly .important. in the

monopoly markets of California, which, because they are

served only by interstate carriers, will have an increased

“American Public Gas Ass'n, et al. vy. Federal Energy Regulato

Comm., —— U.S. App. D.C. ——, —— F.2d ——, No. 75-2105,

10 May 1978, holding that § 4(b) of the Natural Gas Act, 15 U.S.C.

§ 717c(b), does not authorize the regulation of sales of natural gas

in intrastate commerce, is distinguishable. That provision, like

§ 1374(b) of the Federal Aviation Act, note 4, supra, is limited by

its terms to discriminatory practices in interstate commerce, How-

ever, a comparison of the legislative histories of the two statutes

shows that the committees of Congress considered and rejected a

limitation to the Federal Aviation Act which would have prohibited

the Commission from exercising power over interstate rates. (Hear-

ings before Subcommittee of the Committee on Interstate Com-

merce, U.S. Senate, 75th Cong., Ist Sess., 1937, on S. 2, pp. 519-20;

Hearings before Committee on Interstate and Foreign Taine,

House of Repr., 75th Cong., Ist Sess., H.R. 5234 & H.R. 4652, p.

405.) The intent of Congress during consideration of the Natural

Gas Act was clearly shown to be that of not disturbing the then

existing jurisdiction of the States. (House Rept. 709, 6586, 75th

Cong,., Ist Sess., pp. 1-2.)

fare level.'’ Presumably the competitive forces on the

other routes in California and on the Texas routes will

operate to maintain a lower fare level, in accordance with

the exception made in the Board’s order.”

Cost evidence was not made a part of the proceeding

before the Board, but the ALJ early in the proceeding

ruled that basic costs would be determined by the prin-

ciples established in the Domestic Passenger Fare In-

vestigation (DPFI). The DPFI principles set a rate-

cost ratio which all interstate carriers have been required

to apply nationwide. This was done in a very extensive

rate proceeding to accomplish the objectives of (1) per-

mitting the carrier to obtain a fair return on investment

and (2) insuring that the cost of uneconomic operations

are borne by the carrier and not by the passenger. The

resulting fares are neither unreasonably high nor uneco-

nomically low, and since the ratio is applied equally, no pas-

senger is subsidizing another passenger in another market.

Neither the Federal Aviation Act nor court decisions

require an individual rate inquiry in each investigative

proceeding. The Shreveport decision affirmed the power of

Congress, here delegated to the Board, to maintain its own

standard on rates.

"Recognition was made in the Initial Decision of the Adminis-

trative Law Judge of the existence of fare differentials in the intra-

state monopoly markets where no effective competition was present,

a differential which was caused either by a direct order from CPUC

or because after the Board had yng a carrier’s interstate tariff,

PB 39) of the intrastate fare had to be obtained from CPUC.

While the Board opinion does not mention consideration of the

monopoly market situation, this was developed in the Initial Deci-

sion, which was adopted by the Board subject to the sole exception

of inconsistency with a finding of unjust discrimination. In summa-

tion, the Board knew and considered the effects of charging higher

interstate fares on intrastate monopoly routes.

We were informed at oral argument that the lower intrastate

fare had been filed by all carriers on all competitive routes.

It was logical, therefore, for the Board to rely on the

DPFI principle for setting fares in these proceedings as

being fully within its authority.

Petitioners and the amicus curiae have labeled as locality

discrimination the application of interstate fares in the

monopoly markets which serve isolated parts of California.

The interstate fares to be charged in the monopoly markets

will correspond to the nationwide fare scheme, treating

all passengers equally. When consideration is given to the

nationwide equality in the fare structure, the argument

lacks force.*®

The Board’s order permitting interstate carriers, as an

exception to nationwide equality, to reduce fares on com-

petitive routes in Texas and California follows established

precedent, since competition has long been recognized as

a justification for reducing fares.”

CONCLUSION

We find that the Board’s decision was rational and based

upon substantial evidence. The Civil Aeronautics Board is

empowered by Congress to preempt state regulatory agen-

cies in interstate commerce and accordingly the decision

of the Board is

Affirmed.

**We note that Hughes Airwest receives a subsidy of approxi-

mately $9 million per year for serving the isolated communities of

California. Hughes Airwest brief, p. 37. Obviously if Hughes Air-

west is permitted to charge the higher interstate rate, the federal

subsidy will be lessened.

See, e.g., Barringer & Co. v. United States, 319 U.S. 1, 13

(1943); Texas & Pacific Ry. Co. v. United States, 289 U.S. 627,

636-37 (1933); United States vy. Chicago Heights Trucking Ce., 310

U.S. 344, 352-53 (1940); Board of Trade v. United States, 314 U.S.

534, 546 (1942).

APPENDIX C

CAB Opinion and Order 76-7-23 Issued July 7, 1976

United States of America

Civil Aeronautics Board

Washington, D.C.

Docket 24779

Interstate and Intrastate Fares

In California and Texas Markets

Decided: July 7, 1976

Found that:

Differences between intrastate fares and interstate fares

charged by the federally certificated carriers party to this

investigation in the intra-California and intra-Texas mar-

kets at issue herein are unjustly discriminatory.

The federally certificated carriers party to this investi-

gation shall eliminate the unjust discriminations found by

establishing the fares levels now or hereafter on file with

the Board pursuant to section 403 of the Federal Aviation

Act for interstate travel for the transportation of both

interstate and intrastate passengers moving in the intra-

California and intra-Texas markets at issue herein.

The lawful fares for the transportation of both inter-

state and intrastate passengers in intra-California and

intra-Texas markets for the future shall be those con-

structed in accordance with the Board’s prior decisions in

the Domestic Passenger-Fare Investigation, Dockets 21866

et al., except that such fares may be lowered to the extent

necessary to meet the competition from intrastate carriers.

APPEARANCES:

As listed in the initial decision, and, in addition:

Alexander J. Moody, for United Air Lines, Ine.

Henry M. deButts, for Western Air Lines, Inc.

OPINION

By THE Boarp:

This proeeeding was initiated by Order 72-9-90, which

instituted an investigation to determine whether the differ-

ences between interstate fares and intrastate fares charged

by federally certificated air carriers in intra-California and

certain intra-Texas markets’ are or will be unjustly dis-

criminatory, unduly preferential or prejudicial or other-

wise unlawful, in violation of subsection 404(b) of the Fed-

eral Aviation Act of 1958, as amended.’ The investigation

was also intended to determine whether any unlawfulness

resulted from the differences between, on the one hand,

interstate coach of standard-class fares in the above identi-

fied markets and, on the other hand, the interstate com-

muter or economy-class fares in those same markets.

After public hearings, Administrative Law Judge Wil-

liam H. Dapper issued an Initial Decision concluding that

while the differences between the interstate and intrastate

fares in these markets did not violate subsection 404(b) of

the Act, the differences between the interstate coach or

‘The specified markets were Dallas-Houston, Dallas-San Antonio,

and Houston-San Antonio.

*The subsection reads as follows:

“(b) No air carrier or foreign air carrier shall make, give, or

cause any undue or unreasonable preference or advantage to

any particular person, port, locality, or description of traffic in

air transportation in any respect whatsoever or subject any

particular person, port, locality, or description of traffic in air

transportation to any unjust discrimination or any undue or

unreasonable prejudice or disadvantage in any respect whatso-

ever.

standard-class fares and the interstate commuter or

economy-class fares were unjustly discriminatory. Judge

Dapper also concluded that neither of the above-described

fare differences were unduly preferential or prejudicial or

were otherwise unlawful under the Act. In Order 75-3-2,

the Board stayed Judge Dapper’s initial decision, took

review of it, and ordered further proceedings on the sole

issue of whether the differences between the interstate and

the intrastate fares charged by the federally certificated

carriers in these markets are unjustly discriminatory,

unduly preferential or prejudicial or otherwise unlawful.

We found that further proceedings were not necessary on

the issue of whether the differences between the interstate

coach (or standard) class fares and the interstate com-

muter (or economy) class fares created unjust discrimina-

tions, since our determinations on these fares had been

enunciated in our decisions in the Domestic Passenger-

Fare Investigation, Phase 9, (Fare Structure), Docket

21866-9, embodied in Orders 74-3-82 and 74-12-109. Thus,

we adopted the Initial Decision to the extent it is not incon-

sistent with our Phase 9 decisions and found that compli-

ance with those decisions would adequately implement our

findings, rather than requiring the cancellation of one or

the other of the two fares, as Judge Dapper had ordered.

Following the issuance of Order 75-3-2, briefs and reply

briefs were filed,’ oral argument from 12 parties was heard

’Briefs were filed by the Bureau of Economics (the Bureau), the

People of the State of California and the Public Utilities Commis-

sion of the State of California (California PUC), Continental Air

Lines, Inc. (Continental), Hughes Air Corp., d/b/a Hughes Air-

west (Airwest), Ralph Nader and the Aviation Consumer Action

Project (collectively ACAP), the National Association of Regula-

tory Utility Commissioners (NARUC) and United Air Lines, Inc.

(United). Braniff Airways, Inc. (Braniff), Western Air Lines, Inc.

(Western), Texas International Airlines, Inc. (T1), Trans World

Airlines, Inc. (TWA) and the Texas Aeronautics Commission relied

on their briefs to Judge Dapper as briefs to the Board. Reply briefs

by the Board‘ and the case stands submitted for decision.

The Bureau and ACAP oppose the Initial Decision on the

issue under review. The federally certificated carriers, the

California PUC, and NARUC all support the Judge’s

determination that the differences between the federally

certificated carriers interstate and intrastate rates between

the same pairs of intrastate points, and their use in the

manner disclosed by the record, are not unjustly discrim-

inatory. Two of the carriers reiterate their views to the

Board, previously rejected by the Judge, that the Board

should effect a more pervasive control of the intrastate

rates of the federal carriers or of the rates of the intra-

state carriers.

Upon careful consideration of the entire record, the pre-

sentations of the parties and the Initial Decision, the Board

has concluded and finds that the differences between the

interstate and intrastate rates of the federally certificated

carriers, and their use as disclosed by the record, are

unjustly discriminatory in contravention of section 404(b)

of the Act. We shall remedy this breach of the statutory

mandate by ordering the carriers to establish a single fare

applicable to all passengers for each city-pair market. We

shall provide that the single fare shall be established on the

same basis as the carriers’ other interstate fares, except

that the fare may be lowered to the extent necessary to

meet the competition of intrastate carriers. In reaching

were filed by the Bureau, Airwest, NARUC, United, ACAP and the

California PUC. Western’s motion to waive the 50-page limitation

for its brief, and the Texas Aeronautics Commission’s motion to

allow receipt of its brief out of time, both of which are unopposed,

will be granted.

*Beaumont-Port Arthur originally contended that the intrastate

and interstate rates over the Texas segments in question were

unduly prejudicial to it and unduly advantageous to Honston and

San Antonio if justified, and, if not, were burdensome to interstate

commerce. However, they did not participate in the proceedings

on review.

ee ae roe

this result we have departed from the conclusion reached

by the Judge. Nevertheless, except to the extent that his

findings and conclusions are inconsistent with the findings

and conclusions expressed herein, we adopt as our own the

findings and conclusions of the Judge as set forth in the

Initial Decision, a copy of which is attached hereto as an

appendix.

As limited by Order 75-3-2, this proceeding on review

concerns only the lawfulness of the difference in the two

sets of fares—one intended for interstate traffic and the

other for intrastate traffic—assessed in the California and

Texas markets at issue by the air carriers certificated

by the Board. These two levels of fares are in effect

(particularly in California) because the carriers (1) must

establish lower fares to meet the competition of the intra-

state carriers, and (2) are subjected to both State and

Federal regulation in the same city-pair markets. The

record reveals that travelers moving between points

within California are charged significantly higher fares

in many markets if their tickets indicate that the intra-

state flight is part of an overall journey which includes

travel across State lines. The same situation has existed

(and apparently now exists, albeit to a lesser degree) in

Texas.* Those passengers whose tickets do not show prior

‘California PUC contends that it has not compelled interstate

carriers to meet the competition of intrastate carriers for intrastate

passengers (PUC Br., p. 2; PUC Rep. Br. p. 8; Tr. 144). However,

Airwest points out that in 400 airport pair markets listed by it, 360

showed interstate-intrastate fare differentials, only three of which

were voluntary. Much of the problem arises from regulatory lag.

(Airwest Br., pp. 12-15).

*At the time this investigation was instituted, fare differentials

existed in all three of the identified Texas markets. Order 72-9-90,

mimeo., at p. 5. Subsequently the federally certificated carriers with-

drew their intrastate fares. Initial Decision at pp. 19-20. More

recently, however, intrastate differentials have been reinstated by

at least one federally certificated carrier operating in the San

Antonio-Houston market. See note 14, infra, and accompanying

or subsequent interstate air transportation, on the other

hand, are charged lower fares. The differences between

the two levels of fares are quite significant: at the time

of the hearing in this proceeding, the intrastate fare for

travel between Los Angeles and San Francisco was 21.7

percent lower than the comparable interstate fare in the

same market.” At the present time, differences remain

substantial, as the following three examples demonstrate :*

Burbank-San Los Angeles; San Antonio-

Francisco San Diego Houston

Intrastate $25.50 $12.25 $15.00

Interstate $30.00 $23.00 $31.00

Passengers moving in interstate commerce making local

trips within these two States fall within two categories.

The first category consists of stopover passengers, 1.e.,

those passengers making brief stops at one or more

points en route, such as a passenger traveling from

Seattle, Washington, to Los Angeles, California, who

might wish to spend a period in San Francisco before

continuing to his destination. The second category in-

cludes through connecting passengers whose fares are

either through fares (for those making on-line connec-

tions) or joint fares (for passengers making interline

connections). Fares for the second category of passen-

gers—both on-line and interline—will usually be lower

text. In any event, the issue of the lawfulness of such differentials

in the intra-Texas markets is not moot, since the federally certifi-

cated carriers operating in the intra-Texas markets can reestablish

them at will.

‘Initial Decision, at pp. 20-21 and Exhibit BE-D-101, cited

therein, showing differences ranging as high as 40 to 50 percent

in some markets.

‘Official Airline Guide, June 1, 1976. Fares are for one-way travel,

tax included, economy class.

than fares computed by combining the local interstate

fares charged by the Board-certificated carriers trans-

porting them to and from the transfer point, although

the possibility may exist that they might be higher than

a combination of fares utilizing the local intrastate fare

for the intrastate fare for the intrastate portion of the

trip and the interstate fare for the balance.°

For purposes of our decision in this case it is only

necessary to concern ourselves with stopover passengers,

and whether the dual fare structure is unjustly dis-

eriminatory as applied to them. Certainly, there are no

significantly different costs or service benefits associated

with the two levels of fares. Passengers paying the higher

interstate fares are intermingled with passengers paying

the lower intrastate fares on the same flights and receive

the same basic services and amenities.” The justification

for the differences rather lies in the historic definition of

interstate commerce, which distinguishes an _ entirely

intrastate journey from a trip, also physically intrastate,

which is actually a portion of a longer journey involving

*Not only is this possibility somewhat remote (depending upon

the length of the trip and the interstate competition) but the

through passenger, in order to take advantage of any possible sav-

ing, would be forced to purchase two tickets, one on each side of

the connecting point, and transfer his baggage himself at the con-

necting point.

°This has been conceded by most of the carrier parties from the

outset. See Information Responses BI-I-1; AA-IR-8; CO-I-2; DL-60-

IR: NAL-IR-7; RW-I-2; TXIA-IR-3; UA-IR-6 and WA-IR-13. While

interstate stopover passengers utilizing the lower intrastate fare

would have to retrieve and recheck their baggage, and might have to

purchase their tickets in two separate transactions (which they

probably would wish to do for overnight stopovers in any event),

neither of these differences involve cost savings which are of suf-

ficient significance to justify the fare differentials. Carriers do not

generally allow discounts to passengers who have no baggage to

check, nor charge more if a passenger utilized two tickets rather

than one ticket with separate coupons.

one or more movements across State lines.** Thus, for

example, if a businessman living and working in Houston,

Texas, decides while in Houston to meet first with a

evstomer in Dallas and then with another eustomer in

Chicago before returning to his home in Houston, he

should in theory pay the interstate fare for the first leg

Oi wis Journey, the trip between Houston and Dallas. If,

on the other hand, he decides to travel on to Chicago

only after he arrives in Dallas, he is moving in intra-

state commerce on the first leg of his journey and should

pay the intrastate fare for that same Houston-Dallas

trip. The distinction lies in the intent of the traveler,

determined before the commencement of the journey.

While the theoretical distinction between intrastate and

interstate commerce presents no conceptual difficulties,

the application of the distinction has proved to be accom-

panied by grave deficiencies in view of the actnal work-

ings of the market place. The carriers have no way of

knowing a passenger’s underlying intent insofar as the

passenger reveals it during the ticketing process, and it

is obvious from the record here that a great many inter-

state passengers are not disclosing the entirety of their

travel plans. Hence they are paying the lower intrastate

fares for travel which is in fact interstate.** Some car-

“The traditional test, adopted from Sprout v. South Bend, 277

U.S. 163, 168 (1928) by the Board in Eastern Air Lines, Inc.

Enforcement Proceeding, 40 C.A.B. 745, 747 (1964) is that “...the

destination which was intended by the passenger when he begins

the journey and which was known to the carrier and for which he

purchased a ticket determines the character of the trip.” As Balti-

more & O.S.W. R.R. v. Settle, 260 U.S. 166, 171 (1922) makes clear,

however, the movement is interstate, given the requisite intent,

whether or not that intent is communicated to the carrier or is

reflected in the itinerary stated on the ticket.

**For example, counsel for Braniff admitted at oral argument that

“many, many passengers are now using double ticketing. . .,” (Tr.

at 6), and counsel for Continental and Airwest made similar state-

ments (Tr. at 10, 26). United conceded in its testimony that “some

riers have indicated that they will even sell a separate

ticket at the intrastate fare level for the intrastate leg

of a journey to a passenger purchasing other interstate

air transportation, if the passenger so demands.” Another

carrier simply charged all local passengers the lower

intrastate fare during the period in which it published

such a fare.’* It is thus apparent that the more knowl-

edgeable interstate passengers moving in these markets

are routinely paying the lower intrastate fares, leaving

only those interstate travelers who are unaware of the

lower fares (or that they can be obtained simply by

pressuring the carrier or by making the reservation for

the intrastate leg of the journey separately) to pay the

higher fares.** There is, of course, no way to determine

the precise proportion of the interstate travelers who are

using the intrastate fares.** But it is clear, and we find,

that the number is substantial rather than de minimis.

We believe that the availability and use of the two differ-

ing fare levels under these circumstances clearly creates

unjust discriminations within the meaning of subsection

passengers” utilize double ticketing to avoid paying the higher fare.

UA-DT-1, p. 2. What is perhaps more significant is that no party

has argued that the practice does not exist. Those whose legal argu-

ments require that factual premise simply ignore the situation.

Additionally, the information responses of other carriers suggest

that the carriers realize that the passenger tickets often may not

reflect complete itineraries. See, e.g., -IR-4; NAL-IR-9, p. 1;

UA-DT-I, p. 2.

“See Exhibits CO-I-2, p. 3, CO-I-4, pp. 1-2; CO-I-7, p. 3; and

DL-80-IR, p. 1.

95). comments by counsel for TI at oral argument. (Tr. at 32,

It is hardly rising that this is so, since the intrastate fares

are published in the Official Airline Guide, and travel agents as

nd as frequent travelers would be aware of them in making travel

%*The carriers traffic reports reflect ticketed itineraries, not actual

itineraries.

404(b) of the Act. Unjust discriminations within the mean-

ing of that subsection occur whenever a carrier affords

different treatment to like traffic for like and contempora-

neous service under substantially similar circumstances

and conditions.’ We do not differ completely with Judge

Dapper’s conclusions that the fare differences are substan-

tial, the traffic is “like,” and the services offered are “like

and contemporaneous.” However, since interstate travelers

are paying both levels of fares, the question here is not

whether unjust discrimination would exist if those paying

the higher fares indeed had different origins or destina-

tions (and hence were given “unlike” service) from those

paying the lower fares. It has proven to be impossible to

restrict the lower fare to those in fact intending to travel

and traveling only within one State, and both the lower

and the higher fares are being paid by passengers receiv-

ing the same service in interstate commerce."*

The Initial Decision concludes that while discrimination

has been established, unjust discrimination within the mean-

ing of section 404(b) has not, hecause the circumstances

and conditions surrounding the use of the differing fares

are not substantially similar; the competition of the intra-

state carriers in the local markets and the dual regulatory

“Transcontinental Bus System, Inc. v. Civil Aeronautics Board,

383 F.2d 466, 481 (5th Cir., 1967), cert. denied, 390 U.S. 920

(1968); Domestic Passenger-Fare Investigation, Phase 5—Discount

Fares, Order 72-12-18, at p. 60; Summer Excursion Fares, 11 C.A.B.

218, 222-23 (1950).

_, We thus do not find it necessary to decide whether the different

_— status’ of the two classes of travelers (interstate stopover

and solely intrastate, or through and local) would render the ser-

vices they receive “unlike” and hence not unjustly discriminatory.

Additionally, since both favored and disadvantaged passengers are

moving in air transportation subject to our jurisdiction, we need

not reach the question, discussed in the Pan American Ferry Flight

Case, 18 C.A.B. 214 (1953), whether unjust discriminations can be

created by providing special privileges outside the scope of air

transportation.

policies arising from the local authorities, particularly the

California PUC, render the circumstances under which the

differing fares are used dissimilar, and justify the dis-

criminations established between interstate and intrastate

passengers in local markets. It is at this point that we

depart from the judgment expressed in the Initial Decision.

In most cases when carriers are faced with intense price

competition for a significant class of traffic it is generally

not unlawful to meet that competition by reducing rates

only for that class of traffic.*-This is what the federally

certificated carriers have done to compete for intrastate

traffic in these markets. The difficulty here, however, is

that the carriers do not limit the fare reduction to traffic

that is truly intrastate in nature. Rather, because the car-

riers are unable or unwilling to distinguish all interstate

passengers moving over the intrastate segments, some are

charged the high interstate fares for the intrastate seg-

ment while others are charged the lower intrastate fares.

The most significant factor in the determination as to

whether the interstate traveler pays the higher or lower

fare is the extent of his knowledge with respect to the

existence of the dual fare structure and the spread therein.”

To the extent that the traveler is fully informed he is

The use of specific commodity rates is illustrative of this prac-

tice.

2°No party has argued that “less knowledgeable” and “more

knowledgeable” passengers constitute groups justifiably receiving

different treatment. Those carriers seeking to preserve the status

quo, primarily stress, apart from jurisdictional arguments, the rev-

enue loss, amounting to about $10 million per year in these markets

(BE-D-104, p. 1) which would result from elimination of the differ-

entials. Any business corporation engaging in price discrimination

obviously believes that revenues are thereby maximized. But the

very purpose of subsection 404(b) is to prohibit unjust discrimina-

tions despite the fact that “the carrier may benefit therefrom.” Tour

Basing Fares, 14 C.A.B. 257, 258-59 (1951).

likely to be charged the lower fare while without such

information he is likely to be charged the higher fare.

This practice violates the very essence of the prohibition

against unjust discrimination, which is intended to insure

that all passengers are treated equally, and that limited

groups of persons do not receive a more favorable price

than others purchasing the same service. T'ranscontinental

Bus System, Inc. v. Civil Aeronautics Board, 383 F.2d 466

(5 Cir., 1967), cert. denied, 390 U.S. 920 (1968) ; Trailways

of New England, Inc. v. Civil Aeronautics Board, 412 F.2d

(1st Cir., 1969). While Transcontinental Bus and Trailways

both involved instances in which the carriers had specifi-

cally designated the favored class of persons in their tariffs,

the rule against unjust discrimination applies equally

where the proscribed discrimination arises from the effect

of carriers’ practices. This has been the established inter-

pretation of the prohibitions against unjust discrimination

and other forms of favoritism under the Interstate Com-

merce Act (New Haven and H.R.R. v. Interstate Commerce

Commission, 200 U.S. 361, 398 (1906) ; Union Pacific R.R. v.

United States, 313 U.S. 450, 462 (1941)), whose provisions

were the source of the language used in our statute.”

Nor can directives issued by State agencies operate to

compel the maintenance of rate discriminations, even

though such directives purport to affect only intrastate

traffic. In Houston and Texas Ry. v. United States, 234

U.S. 342 (1915), well-known as the Shreveport case, the

Supreme Court interpreted the then-existing section 3 of

the Interstate Commerce Act” as conferring ample power

* Military-Tender Investigation, 28 C.A.B. 902, 919-920 (1959).

**Act to Regulate Commerce, § 3, 24 Stat. 380. As it then existed,

section 3 was markedly similar to the present subsection 404(b)

of our Act: “Section 3. That it shall be unlawful for any common

carrier subject to the provisions of this act to make or give any

undue or unreasonable preference or advantage to any particular

on the Interstate Commerce Commission to require inter-

state carriers subject to its jurisdiction to establish and

maintain levels of intrastate rates found necessary to

eliminate unjust discrimination against interstate move-

ments. The Shreveport doctrine is, of course, now well-

established in the law.** Moreover, the Supreme Court long

ago recognized the applicability of the Shreveport principle

to a situation much like this one. In Wisconsin Railroad

Commission v. Chicago, B. & O. R.R., 257 U.S. 563 (1922)

(the Wisconsin Passenger Fares Case) the Court upheid

an order of the Interstate Commerce Commission entered

under section 13(4) of the Interstate Commerce Act direct-

ing rail carriers to increase their intrastate passenger fares

to higher levels which had been established for interstate

travelers generally. There, as here, both categories of pas-

sengers were being transported on the same equipment and

were in all other respects being given the same services. 257

U.S. at 565. There, again as in this case, some interstate

travelers utilized the lower intrastate fares through the

expedient of purchasing separate tickets at points within

the State. 257 U.S. at 566.

person, company, firm, corporation, or locality, or any particular

description of traffic, in any respect whatsoever, or to subject any

particular person, company, firm, corporation, or locality, or any

particular description of traffic, to any undue or unreasonable preju-

dice or disadvantage in any respect whatsoever.”

Section 3, of course, does not specifically refer to “discrimination.”

That was dealt with in section 2. Section 404(b) of our Act deals

with preference, prejudice, and discrimination. The historical basis

for competition becoming a justification for preference, prejudice,

or discrimination is traced with lucidity in Transcontinental Bus

System, Inc. v. C.A.B., 383 F.2d 466, 482-483 (5th Cir., 1967), cert.

denied, 390 U.S. 920 (1968).

**See, e.g., Wickard v. Filburn, 317 U.S. 111, 123 (1942) and

cases cited therein. Contrary to assertions made here, the Transpor-

tation Act of 1920 did not abrogate the Shreveport doctrine, but

rather added to the Commission’s existing power (over unjust dis-

crimination caused by relationships between specific intrastate and

interstate rates) the power to regulate all of a carrier’s intrastate

rates if those rates were so low as to create a burden on the carrier’s

overall operations.

The Commission’s decision under review was based on

a completely different principle than that relevant to this

proceeding, of course, since the concern there was with the

undue burden on interstate commerce arising from purely

intrastate operations, which the Commission had recently

been empowered to remedy by the expansion of its author-

ity embodied in section 416 of the Transportation Act of

1920, 41 Stat. 484, adding section 13(4) to the Interstate

Commerce Act. What is significant for the purpose of this

proceeding, however, is the specific recognition of the Court

in the Wisconsin Passenger Fares case that to the extent

that unjust discriminations against interstate commerce

were created by specific interstate-intrastate fare relation-

ships, the Commission’s order was properly grounded on

the principles previously established in the Shreveport

decision alone. 257 U.S. at 579-80. Since all the federally

certificated carriers’ flights at issue here are open to both

interstate and intrastate passengers,* and hence unjust

discriminations exist as to each of the carriers’ operations,

the Shreveport doctrine, as interpreted in Wisconsin Rail-

road Commission ease, compels the result we have reached

in this case. This case involved no “purely intrastate” seg-

ments, which reflects the fact that the national air trans-

portation system is predominantly interstate in nature.”

*‘Judge Dapper found that, overall, almost 50% of the federally

certificated carriers’ intra-California —— paid the interstate

fare. The percentage varies widely from market to market, of course,

but at least 10% of the passengers in even the smaller California

markets are interstate passengers. See Information Response RW-

I-7. Of course, not all of these passengers are interstate stopover

passengers. Although the data are less reliable, it appears that 40%

to 60% of the intra-Texas travelers carried by the federally certifi-

cated carriers in which fare differentials existed paid the interstate

fare in 1972. See Information Responses BI-I-5, TXIA-IR 2. See

also note 31, infra.

By = oer eye 8% of the 1974 domestic passengers reported by

the federally certificated carriers had origins and destinations at

points within one State. Domestic Origin-Destination Survey, 4th

QTR. 1974, Vol. VII-4-1, Table 6 (5.52% of the top 1000 city-pairs,

which themselves included 70.59% of total renutel traffic).

SO ES ET EET YL ASOD.

Ret ene are cae ee mL

Having concluded that the practice of charging differing

levels of fares in the markets under consideration creates

unjust discriminations against interstate passengers, we

must next address the question of what order should be

addressed to the federally certificated carriers to eliminate

these unjust discriminations. After carefully reviewing the

facts of record, the contentions of the parties, and the scope

of the proceeding we have concluded that these discrimina-

tions can be corrected only by eliminating the fare differ-

entials themselves. No party has suggested, and we have

not upon our own consideration been able to devise, any

safeguard which will suffice to prevent the utilization of

the lower intrastate fares by knowledgeable interstate pas-

sengers, so long as the two levels of fares remain in effect.*°

The “continuing intent” of the passenger as to whether an

interstate journey has been undertaken is a subjective fac-

tor which can be known with certainty only by the passenger

himself. And the widespread knowledge of the availability

of the lower fares in these markets will continue to give

the knowledgeable passengers ample reason not to reveal

the full extent of their travel plans. Thus our order to be

entered in this proceeding will require the carriers to

establish the same fares for the transportation of passen-

gers moving in intrastate commerce as those which they

*6Continental, while initially urging that the dual fare structure

here is not unjustly discriminatory, did propose, as a solution to

the discrimination giving rise to this case while preserving com-

tition been the interstate and intrastate carriers, that the public

e given an “informed choice.” This would be accomplished by

requiring the ticketing carrier to inform stopover passengers and

through connecting passengers of the lower intrastate fare and

ermitting them to choose between it and the higher interstate

are with through ticketing and baggage handling (Continental,

Br. pp. 10-13). The difficulty with this solution is that it knowingly

leads to the treatment of interstate trips as intrastate trips, contrary

to fact. Continental modified its presentation and opted for the

Bureau's position at oral argument (Tr. 14), which is similar to the

position we have adopted.

charge for the transportation of passengers moving in

interstate commerce between the same points in the same

class of service, in accordance with their tariffs filed pur-

suant to section 403 of the Act.’

It has been argued that we lack the power to compel fed-

erally certificated carriers to charge fares for intrastate

transportation at levels other than those authorized by the

appropriate State authorities.** This argument, however,

was also rejected in Shreveport itself. There,in responding

to the contention that the Interstate Commerce Commis-

sion lacked the power to enter an order which “relieved the

appellants [rail carriers] from further obligation to

observe ... intrastate rates ...,” 234 U.S. at 359, the Court

said that:

“It is unnecessary to repeat what has frequently

been said by this court with respect to the complete

and paramount character of the power confided to

Congress to regulate commerce among the several

States. It is the essence of this power that, where it

exists, it dominates.

Whenever the interstate and intrastate transactions

of carriers are so related that the government of one

involves the control over the other, it is Congress, and

not the State, that is entitled to prescribe the final and

dominant rule .. .” 234 U.S. at 350-52.

The Court then concluded that Congress, in enacting sec-

tion 3 of the Act to Regulate Commerce, had intended that

all unjust discriminations affecting interstate commerce

should be corrected by the Commission, notwithstanding

749 U.S.C. § 1373.

**See, e.g., Brief of United, at pp. 6-9. The argument is inapposite

in that it refers to “purely” intrastate fares, whereas here we are

concerned with fares which are cal!ed “intrastate” but are in fact

being used both in interstate and intrastate commerce.

any “requirements of the local authorities which are

assumed to be binding on the carriers.” 234 U.S. at 359. See

also the Board’s earlier discussion of the Wisconsin Pas-

senger Fares case.

The Board’s decision here is no assertion of an authority

under the Act to control the intrastate rates of federally

certificated carricrs, or intrastate carriers, as such. We are

cognizant of the many cases cited to us to the contrary.”

But our determination here does not seek to control such

intrastate fares but simply carries out the mandate of the

Act to eliminate unjust discrimination in air transporta- »

tion. This we are empowered to do. And in doing so we do

not deprive the local authorities, such as the California

PUC and the Texas Aeronautics Commission, of the right

to exercise such powers as they have within the scope of

the established constitutional scheme governing Federal-

State relationships in this area.

Our decision that the fares for the transportation of

intrastate passengers should not differ from those estab-

lished for interstate passengers does not, of course, in and

of itself determine what the lawful levels of the interstate

fares should be for the future. On this latter subject, we

conclude that in the absence of competitive factors affect-

ing particular markets, the levels of the federally certifi-

cated carriers’ rates should not differ from those estab-

lished for operations throughout their domestic systems

*°Tllustrative are People v. Western Air Lines, Inc., 268 P.2d 723

(1954), appeal dismissed for lack of a substantial Federal question

in Western Air Lines, Inc. v. People State of California, 348 U.S.

859 (1954), and Texas International Airlines v. C.A.B., 473 F.2d

1150 (D.C. Cir., 1972). See also Order 72-9-90, instituting the inves-

tigation in this case.

generally.” The costs of rendering service in particular

markets or in general are not at issue in this proceeding.

Moreover, the interstate fares now in effect are those

which have arisen from lengthy proceedings in which we

thoroughly examined the structure of such fares. There is

no reason advanced for covering the same ground again

in the present circumstances. As indicated earlier, how-

ever, we recognize the competitive pressures resulting from

the presence of intrastate carriers in many of the markets

at issue in this proceeding, and it would be unreasonable

to expect the federally certificated carriers to compete

effectively with the intrastate carriers for intrastate traffic

if they were required to charge their interstate formula

fares. Moreover, the record demonstrates that support

which the federally certificated carriers derive from this

traffic benefits the carriers, and, as well, both the intrastate

and interstate passengers moving in these markets.”

Because of the detrimental financial effects that would fol-

*°It has been argued that the absence of cost evidence in this

proceeding precludes the issuance of an order pursuant to section

1002(d) correcting the unjust discrimination here found. We dis-

agree. Early in the course of this proceeding, the judge ruled that

basic costs were to be determined for this case in the then-pending

Domestic Passenger-Fare Investigation (Prehearing Conference

Report, at p. 3; Supplemental Prehearing Conference Report and

Ruling on Motion, at pp. 3-4) and we agree with this determination.

Orders in unjust discrimination cases have in many instances

required cancellation of tariffs containing “discount” fares upon a

finding of unjust discrimination without a separate reexamination

of the costs underlying the “normal” fare thus effectively reinstated.

See, e.g., Domestic Passenger-Fare Investigation—Phase 5 (Dis-

count Fares), Order 72-12-18; Tour Basing Fares, 14 C.A.B. 257,

262 (1951). Having determined not to establish rates based on the

separately established costs for each of these markets (or upon

average intrastate costs), requiring a “replay” of the entirety of the

Domestic Passenger-Fare Investigation in this proceeding to obtain

new nationwide cost figures would serve no useful purpose.

“TWA, for example, stated that all flights now serving intra-

California markets continue on to points in other States and/or

foreign countries. TW-D-10. United also noted that intrastate travel-

ers provide economic support for flights designed to serve interstate

markets as well as intra-California markets. U-DT-1, p. 7. Over 60%

SORTER

low from the federally certificated carriers’ inability to

participate in this traffic, it is clearly in the public interest

to allow them to maintain competitive fares so as to con-

tinue their participation. If they wish to do so, however,

they must charge lower fares to all of their passengers,

intrastate and intersiate alike, to avoid the discrimination

proscribed herein.”

In the interest of orderly implementation of our deci-

sion herein, we will defer the effectiveness thereof for a

period of 90 days. This will permit carriers who wish to

lower their fares to meet intrastate competition to file

appropriate tariffs. Since the competitive impact of the

intrastate carriers’ operations may depend on _ such

matters as whether the intrastate carriers operate be-

tween the same airports, the frequency of operation, the

equipment utilized, and the like, we expect the carriers

who file such tariffs to address all relevant questions in

their accompanying justification. We will also require

of Western’s flights in intra-California markets proceed to points

in other States and/or foreign countries (WA-R-5), and the carrier

claims that losing the ability to compete for intra-California passen-

gers impairs its ability to operate interstate and international ser-

vices. WA-R-TI, p. 1. All of National’s intra-California flights extend

to other States, since its authority is subject to a long-haul restric-

tion, NAL-IR-1l, p. 1. Losing the ability to carry local passengers

in these markets would thus result in a much greater reduction in

traffic than in seats available, which would in turn increase unit

costs. The carriers in the intra-California markets estimated that

requiring all fares to be established at the interstate levels would

result in an annual revenue loss of $28 million in 1974 (BE-D-104,

p. 1), which would not be offset by a corresponding decrease in

expenses. On the other hand, the loss resulting from the dilution of

fares by use of intrastate fares for the interstate passengers moving

in intra-California markets would amount to approximately $10 mil-

lion in 1974 ( BE-D-104, p. 1).

*2In instances where they choose to lower their fares to meet

competition, however, we reject the Bureau’s proposal to limit the

scope of our order herein to the local fares charged to st er

passengers and to allow the normal interstate fares established pur-

suant to Phase 9 of the DPFI to be used for fare construction pur-

ama (as in the case of joint fares based on the sum of the local

ares pursuant to the Board’s decision in Phase 4 of the DPFI). The

Bureau’s proposal would have the effect of leaving “a paper” fare

such tariff filings to be made on sixty days’ notice. It

should be pointed out that the situation with which this

investigation has been concerned has been in effect for

over twenty-five years. There have heen no serious com-

plaints (other than that giving rise to this investigation)

from either the industry, the public, or other regulatery

authorities, and the Board itself has been silent. Under

the circumstances, and in light of the provisions of Sec-

tion 102 of the Act and our authority under Section 1002,

we shall make our determination herein with respect to

the departure from Section 404(b) prospective in opera-

tion.

On the basis of the foregoing facts and considerations,

the Board finds and concludes that the difference between

the intrastate fares and the interstate fares charged by

federally certificated air carriers in the intra-California

and the intra-Texas markets at issue in this.case are

unjustly discriminatory within the meaning of Section

404(b) of the Act, and should be eliminated as provided

herein.

An appropriate order shall be entered.

ROBSON, Chairman, O’MELIA, Vice Chairman, MIN-

ETTI and WEST, Members, concurred in the above

opinion. JOHNSON, Member, did not participate.

for fare construction purposes only. The maximum joint fares pre-

scribed in our orders in Phase 4 (Order 74-12-108, as modified by

Orders 75-6-60 and 75-8-126) utilize the actual segment local fares,

not a hypothetical fare. While the Bureau's proposal would require

the modification of the Phase 4 order, the Jesicability or necessity

for doing so has not been demonstrated on this record. Our reserva-

tion of jurisdiction in Order 74-12-108 gives us ample power to

modify our Phase 4 decision whenever n . Moreover, we

would note the —— that using a hypothetical interstate

formula fare for fare construction purposes in markets where the

carriers lower their fares to meet intrastate competition could result

in joint fares which exceed the sum of the local fares actually

charged. In such cases, a knowledgeable interline passenger could

buy two tickets instead of a single joint-fare ticket, thus creating the

same kind of discrimination against the unknowledgeable passenger

that we found to be unjust in this proceeding.

United States of ..merica

Civil Aeronautics Board

Washington, D. C.

Adopted by the Civil Aeronautics Board

at its office in Washington, D.C.

on the 7th day of July, 1976

Interstate and Intrastate Fares in

California and Texas Markets

Docket 24779

ORDER

A full public hearing having been held in Docket 24779,

and the Board, having issued its opinion containing its find-

ings and conclusions, which is attached hereto and made a

part hereof,

IT IS ORDERED THAT:

1. The federally certificated air carrier parties to this

proceeding, within ninety (90) days following the adop-

tion of this order, shall establish and make effective a

single level of fares for the transportation of both intra-

state and interstate passengers in the intra-California

and intra-Texas markets at issue, such fares to be con-

structed in accordance with Order 74-12-109: Provided,

however, That said carriers may reduce such fares to

meet the competition from intrastate carriers upon

proper justification ;

2. Order 74-12-109 be and it hereby is waived to the

extent necessary for implementation of the proviso of

paragraph 1 of this order;

3. The carrier parties filing tariffs pursuant to the

proviso of paragraph 1 of this order shall do so on not

less than 60 days’ notice;

4. The Board retains jurisdiction to amend, modify,

or revoke, with or without hearing, upon petition, or

upon its own motion, paragraphs 1 through 3 of this

order; and

5. In all other respects the investigation instituted in

Docket 24779 be, and it hereby is, terminated.

By the Civil Aeronautics Board:

PHYLLIS T. KAYLOR

Acting Secretary

(SEAL)

APPENDIX D

CAB Opinion and Order 76-10-138

Issued October 29, 1976

Order 1243

United States of America

Civil Aeronautics Board

Washington, D. C.

Adopted by the Civil Aeronautics Board

at its office in Washington, D.C.

on the 29th day of October, 1976

Interstate and Intrastate Fares in

California and Texas Markets

Docket 24779

ORDER ON RECONSIDERATION

By Order 76-7-23, decided July 7, 1976, the Board found

that the differences between intrastate fares and inter-

state fares charged by the federally certificated carrier

parties to this investigation in the intra-California and

intra-Texas markets at issue were unjustly discrimina-

tory. The Board ordered the elimination of such discrim-

ination by requiring the establishment of a single level

of fares applicable to both interstate and intrastate pas-

sengers moving in the markets at issue. The order

required that new tariffs be filed on 60 days’ notice

within 90 days of adoption of the order. The new tariffs

were to be constructed in accordance with Order 74-12-

109, subject, however, to the proviso that the carriers

could reduce such fares upon proper justification to meet

the competition from intrastate carriers.

The time for filing petitions for reconsideration was

extended to August 11, 1976, and by Order 76-8-15, August

3, 1976, the effectiveness of Order 76-7-23 was stayed until

further order of the Board.

Timely petitions for reconsideration were filed by the

Bureau of Economics,’ Western Air Lines, Inc., Texas

International Airlines, Inc., the National Association of

Regulatory Utility Commissioners (NARUC), the People

of the State of California and the California Public

Utilities Commission (PUC),? Trans World Airlines, Inc.,

and Braniff Airways, Inc. Answers to these petitions

were filed by United Air Lines, Ine. (supporting the

Bureau), The Texas Aeronautics Commission (support-

ing NARUC and PUC and opposing Braniff), and

Hughes Airwest (supporting the Bureau in part and

opposing NARUC and the PUC in part).

Upon consideration of the petitions and the’ answers

thereto, we find no basis either in law or policy for alter-

ing the basie conclusions or results reached in our orig-

inal opinion. Except to the extent that the ensuing dis-

cussion of some of the issues raised may serve to clarify

the Board’s position and thereby grant relief that has

been requested, we shall deny the petitions for recon-

sideration. We shall also terminate the stay of the effec

tiveness of Order 76-7-23 and provide that the new single

level of fares mandated by paragraph 1 of that order be

implemented within 90 days from the date of adoption

of this order on reconsideration.

*The Bureau filed a correction to its petition.

*NARUC, PUC, and the People of California filed a sin i-

tion. They also petitioned the Board to file a aches ethene oF 08

to their petition, which they lodged with the Board in two parts,

on August 23 and September 17, 1976. Their petition is granted and

both of their exhibits have been considered. Thereafter, Hughes

Airwest filed a motion for leave to file an unauthorized document,

namely, a reply to the second part of the supplemental exhibit of

PUC and NARUC. That motion is granted.

The Bureau seeks reconsideration of our decision as it

relates to joint fares. Pursuant to our decision in Phase 4

of the Domestic Passenger Fare Investigation, the maxi-

mum lawful joint fare is based on the sum of the seg-

ment local fares over certain specified routings, minus a

“terminal charge” for each interline connection.’ Insofar

as our decision would permit the carriers to lower their

fares in the markets at issue to meet the competition of

intrastate carriers, it could result in a reduction in joint

fares which are based on those local fares. In its brief

to the Board, the Bureau suggested that the effect of the

Board order should be limited to the fares charged to

stopover passengers and, in a footnote, proposed that in

eases where the carriers lowered their local fares to meet

intrastate competition, the interstate formula fares should

continue to be used for constructing maximum joint

fares. The Bureau also suggested that if, after the imple-

mentation of our decision a stopover fare (7.e., the sum

of the actual local fares) would undercut such a joint

fare, the maximum joint fare should be lowered to the

level of the stopover fare. We rejected this proposal

since it would result in the filing of hypothetical “paper”

fares for purposes of constructing the maximum joint

fares. We further noted that the Bureau’s proposal would

require an amendment of our Phase 4 order, and found

that no party had demonstrated on this record the neces-

sity or desirability for an amendment to the Phase 4

order.*

The Bureau bases its petition on a claim that our

decision would require reductions in joint fares resulting

in significant and unwarranted dilution of carrier reve-

*See Orders 74-3-80 and 74-12-108.

‘As the Bureau points out in its petition, we were incorrect in also

suggesting that the Bureau’s proposal could result in stopover fares

which undercut through fares.

nues amounting to an estimated $11 million annually. The

Bureau also notes that “paper” fares used only for con-

struction purposes are not novel to airline tariffs.

Braniff, United, and Airwest support the Bureau’s peti-

tion. In addition to the revenue dilution cited by the

Bureau, United claims that in instances where the intra-

state fare is less than the “terminal charge,” our decision

could require joint fares to undercut one of the segment

local fares. While both United and Airwest generally

support the Bureau’s specific proposal, Airwest also sug-

gests that in instances where a local fare is less than the

terminal charge, the joint fare should be set at the sum

of the local fares.

We remain unpersuaded that the requested amendments

to the Phase 4 order are necessary or desirable. Our Phase 4

order implements our conclusion in that proceeding that

joint fares should bear the specified relationships to the

local fares charged by the carriers. As a general rule,

therefore, if the carriers increase their basic fares, the

joint fares will also rise; likewise, reductions in local fares

will trigger reductions in the maximum joint fares. The

Bureau is requesting that we carve out an exception to

this general rule by allowing joint fares to remain the

same in the face of a reduction in local fares, on the basis

that such action is needed to avoid substantial and unwar-

ranted revenue dilution. However, since the carriers have

not yet filed fare reductions to meet intrastate competitors,

we believe it is premature to assess the revenue impact

of those fare reductions on joint fares. Moreover, the

Bureau’s estimate of revenue impact is deficient in a num-

ber of respects. First, its estimate of the volume of inter-

line traffic moving on these segments is unsupported. In

addition its analysis implicitly assumes that the maximum

joint fares are based on “as flown” routings over the intra-

state segments shown in its analysis and that the carriers’

present joint fares are at the maximum level allowed by

Phase 4. In fact, the maximum joint fare is not based on

“as flown” routings (except for extremely thin markets

or highly circuitous routings) but instead are based on

the routing producing the lowest joint fare (generally, the

most direct routing). Thus, the Bureau analysis does not

demonstrate whether any of the maximum joint fares will

in fact be altered by possible local-fare reductions in these

intrastate segments. Furthermore, a large number of joint

fares filed by the carriers—particularly in markets where

there is a significant amount of traffic—are not filed at the

maximum permissible level, but instead are filed at the

single-carrier fare level. Thus, even if our action herein

were to reduce the maximum joint fare it does not follow

that the fares actually charged by the carriers would be

affected. Accordingly, we cannot rely on the revenue impact

estimated by the Bureau; indeed, it appears likely that the

Bureau’s analysis greatly overstates the revenue impact.

The only concrete example cited by the parties is the

case of a joint fare from Knoxville to San Diego via Los

Angeles. United contends that since the Los Angeles-San

Diego fare ($11.34) is less than the current terminal charge

($15.74), our action would require a San Diego-Knoxville

fare which would undercut the Los Angeles-Knoxville fare

by $4.40. However, our Phase 4 order explicitly provides

that in situations where the maximum joint fare is less

than the fare to or from an intermediate point, the maxi-

mum fare shall be the fare to the higher-rated intermediate

point.’ We further point out that the carriers’ current joint

fare from Knoxville to San Diego is published to meet

a local (single-carrier) fare in that market. That fare

is $150.93, which is also the same fare charged between

Knoxville and Los Angeles. Therefore, our decision would

*See Order 74-12-108, ordering paragraph 1.

have no impact on the San Diego-Knoxville fare what-

soever.®

Furthermore, as we pointed out earlier, the carriers

would have to file a dual level of fares in each of these

markets; a local fare which it actually charges its cus-

tomers, and a hypothetical fare which presumably it would

only use for purposes of constructing maximum joint fares.

While the Bureau is correct in stating that such hypo-

thetical fares are used elsewhere in the carrier’s tariffs,

no one disputes that this exacerbates the problem of tariff

complexity.

As we indicated in our prior opinion, the Board is will-

ing to consider amendments to our Phase 4 order whenever

necessary, and indeed, the Board has amended that order

twice since the termination of that proceeding.’ However,

we continue to believe that requested modifications which

would have an effect on the level of fares must be sup-

ported by a detailed showing of the impact of the requested

changes.* The information so far provided is based either

on hypothetical examples or on erroneous interpretations

of our Phase 4 order. If the carriers wish to pursue this

modification in a petition to amend Order 74-12-108, we

will expect them to show each routing to be affected, the

number of passengers using each routing, the existing fare

and the basis upon which that fare is constructed, the fare

which would result from the proposed modification and

the basis of constructing that fare, as well as any fare

structure problems caused by the existing fare.

*It may be noted that for the 12 months ended March 31, 1975,

our O&D survey (Table 12) shows only two passengers using a

Knoxville-Los Angeles-San Diego interline connection.

"See Orders 75-6-60 and 75-8-126.

“See Order 75-8-126, pp. 5-6.

The issues raised by Western’s petition require only brief

discussion. No persuasive argument or evidence is advanced

to sustain the contention that the record does not support

the Board’s finding of unjust discrimination. The discrimi-

nation is manifest and neither competition nor the dual

regulatory structure serve as justification when both may

be satisfied and the discrimination eliminated through the

establishment of a single level of fares. Further, contrary

to Western’s contention, the Board did consider the dual

regulatory structure, and Western’s fears with respect to

its effects (including those situations where intrastate fares

may be higher than the interstate fares), are premature

and speculative.’ While it is true that the Board’s action

may create discrimination as between intra-California or

intra-Texas markets, such discriminations will only occur

where they are justified by competition, an appropriate

justification in the eyes of both the Board and the courts.

The continued recognition of such a justification in no way

constitutes a transfer of Federal authority to the States

as Western speculates may be the case.

Texas International Airlines (TXI) seeks clarification

of the Board’s order with respect to the length of the notice

that interstate carriers will be required to provide to estab-

lish lower rates to meet intrastate competition. It also

seeks the issuance of a policy statement by the Board

assuring the availability to interstate carriers of “short

notice” filing authority to meet intrastate competition, the

reasonableness of the “short notice” to be determined on

the basis of the prevailing notice requirements in the

respective States. The 60 days’ notice requirement in para-

graph 3 of the Board’s order is applicable only to lowered

interstate rates established pursuant to paragraph 1 of the

*Obviously, however, if an intrastate carrier’s fare is higher than

the normal interstate fare, there is no competitive necessity for

the interstate carrier to charge the higher fare. Cf. 14 C.F.R.

§ 221.165(d)(1)(iv) (a).

order. Because of the large number of changes that might

result from the Board’s order it was felt that a longer than

usual period of notice should be required in the interest of

an orderly transition. Once the initial changes are made,

the usual 30 days’ notice requirement will prevail. Of

course, a 30 days’ notice requirement will prevent TXI

from meeting intrastate competition if that competition

could change rates without limitation as to notice, which

seems to be the case in Texas. Under such circumstances

we would look with favor on requests for’“short notice”

filing authority. And we would view the notice require-

ments of the particular State involved as carrying great

weight in our determination. However, at this early stage

the Board is not prepared to arrive at a definitive view

and reflect it in a published statement of policy.

The petition for reconsideration filed by NARUC, the

people of the State of California, and the California PUC,

and supported by the Texas Aeronautics Commission, pre-

sents no new argument not previously considered by the

Board nor any compelling reason for changing our deci-

sion. The untoward results (from the point of view of the

petitioners) flowing from our decision seem to be wholly

speculative in nature,”° and no workable method for elim-

inating the discrimination we have found has been

offered.”

°The supplemental exhibits presented by California PUC indicate

the intrastate and interstate fares for the interstate carriers, as well

as the fares for local carriers, and the differences involved. However,

it is a matter of speculation as to the interstate carrier fare levels

that will be established in various intrastate markets.

“Contrary to NARUC, Hughes Airwest argues that the Board can

eliminate unjust discrimination in air transportation by action out-

side of such transportation. In support thereof it urges, rather

persuasively we think, that neither the Civil Aeronautics Act of 1938

nor its presently effective successor prohibits such a course, while

the Motor Carrier Act of 1935 (§ 316(e), 49 U.S.C. 316(e)) unon

which the Civil Aeronautics Act was meticulously modeled in other

respects, contains such a specific prohibition.

TWA’s petition for reconsideration asks the Board to

reconsider its decision and to permit the charging of differ-

ent fares for intrastate and interstate passengers. TWA

argues that the Board did not address the situation where

there are no intrastate carriers offering fares below the

interstate level, but where a State agency refuses to permit

the federally certificated carriers to offer intrastate trans-

portation at the interstate fares. TWA’s expressed concern

is with a situation which, it claims, now exists in Pennsyl-

vania. However, the factual situation with respect to intra-

Pennsylvania markets is not within the scope of this pro-

ceeding and it is not appropriate for us to attempt to

decide it.

In addition to joining in the Bureau’s petition for recon-

sideration, Braniff also asks the Board to supplement its

determination that the departure from section 404(b) found

in this case was prospective in operation, with explicit

statements that it has not found that the fares charged by

the interstate carriers over the past 25 years have been

unreasonable or unjustly discriminatory, and that in fact

the carriers have not been unjustly enriched. Our opinion

speaks for itself. No finding of unreasonableness has been

made. The finding of unjust discrimination was explicitly

made prospective in operation. That determination and the

accompanying discussion make it clear, as Braniff asserts,

that there is no finding of unjust discrimination in the past

or that the carriers have been unjustly enriched.

Braniff also contends that the Board’s decision relies on

an unexpected theory not focused on in the proceedings,

and that the matter should, therefore, be reopened for fur-

ther proceedings. In this aspect its petition was opposed

by the Texas Aeronautics Commission. The Braniff con-

tention is tantamount to a belief that the parties are

entitled to the Board’s views before the hearings are con-

cluded. The issues set forth in the order of investigation

(Order 72-9-90) as expounded by the administrative law

judge (1.D., 48), encompass the Board’s determination

here. Having decided the case on the basis that it did, there

was no need for the Board to pass on other broader issues

encompassed by the order of investigation but no longer

necessary to a disposition of the case.

Hughes Airwest suggests that the Board specifically

state, relying on the Shreveport doctrine, that the inter-

state carriers do not have to comply with State-mandated

intrastate rates. We are not inclined to issue such a broad

ukase in this delicate area of State-federal relationships.

As Hughes Airwest suggests however, the Board does

stand ready to confer with appropriate State authorities,

should they so desire, as to how to secure court rulings on

disputed questions without unduly prejudicing the posi-

tions of carriers finding themselves unable to comply with

the conflicting orders of State and federal authorities.

ACCORDINGLY, IT IS ORDERED THAT:

1. The petitions for reconsideration of Order 76-7-23,

except to the extent granted herein, be and they hereby are

denied ;

2. The stay of the effectiveness of Order 76-7-23, be and

it hereby is dissolved; and

3. The provisions of paragraph 1 of Order 76-7-23 shall

be implemented within ninety-five (95) days following the

adoption of this order on reconsideration.

By the Civil Aeronautics Board:

PHYLLIS T. KAYLOR

Secretary

(SEAL)

APPENDIX E

CAB Order of Investigation 72-9-90

Issued September 25, 1972

United States of America

Civil Aeronautics Board

Washington, D.C.

Adopted by the Civil Aeronautics Board

at its office in Washington, D.C.

on the 25th day of September, 1972

Interstate and Intrastate Fares in

California and Texas Markets

Docket 24779

ORDER OF INVESTIGATION

By complaint filed September 28, 1971, Ralph Nader

and Aviation Consumer Action Project (ACAP) ask the

Board to suspend and investigate the jet coach and jet

commuter fares of United Air Lines, Inc. (United),

applying between Los Angeles and San Francisco, Cali-

fornia. The complainants allege that the difference be-

tween United’s jet coach and jet commuter fares which

are available to interstate and intrastate passengers and

the differences between the interstate and intrastate fares

in the Los Angeles-San Francisco market are unjustly

discriminatory. Complainant Nader alleges specifically

that he, while on an interstate journey, was required to

pay a higher charge for air transportation than was

required of intrastate passengers on the same flight

between San Francisco and Los Angeles. Complainant

ACAP joins Mr. Nader on behalf of those interstate

passengers who were or are discriminated against by the

higher interstate fares. The complainants also request

that other appropriate action be taken by the Board to

initiate civil and criminal proceedings for the purpose of

penalizing United for practices which violate the Federal

Aviation Act of 1958 (Act).

By answer filed October 13, 1971, United contends that

(a) the jet coach and jet commuter fares filed with the

Board are not subject to suspension, (b) the intrastate

fares of United are beyond the Board’s jurisdiction, (c)

even if the Board had jurisdiction over the intrastate fares

of United, competition from wholly intrastate air carriers

and characteristics of the Los Angeles-San Francisco mar-

ket justify different fares for intrastate and interstate pas-

sengers, (d) ACAP has no standing to file an enforcement

complaint because it has not shown that it is a “person” as

defined in section 101(27) of the Act, and (e) the complaint

requesting enforcement action was procedurally defective.

United’s fares in the Los Angeles-San Francisco market

are as follows:

Interstate® Intrastate®®

Jet Coach (Y Class) ........... $32.41 $30.56

Jet Commuter (K Class) ...... $20.37 $15.28

*Airline Tariff Publishers, Inc., Tariff C.A.B. No. 136 (August

1972)

°°Per complaint—Tariff not filed with Civil Aeronautics Board.

There are three preliminary matters which we shall dis-

pose of first. With regard to the request for suspension of

the interstate fares, the complaint was not timely filed.

The fares complained against had been in effect since May

16, 1971, and the Board does not have the authority to sus-

pend effective fares in interstate air transportation. Fur-

ther, the complainant’s allegation that United is violating

the Act because United’s tariffs covering intrastate fares

are not filed at the Board is untenable. United is not

required to file its intrastate tariffs with the Board because

transportation thereunder is not “air transportation” as

defined in the Act. (See sections 403(a), 101(10), and

101(21).) The complainants’ request that the Board initi-

ate proceedings against United for violations of sections

404(b) and 411 of the Act will also be denied. The facts

alleged do not warrant the initiation of an enforcement

proceeding for purposes of imposing civil or criminal pen-

alties upon United. Our disposition of the request for

enforcement action makes further consideration of United’s

contention regarding ACAP’s standing unnecessary.

As to United’s contention that the Board lacks jurisdic-

tion over its intrastate fares, we would only remark that

the complaint raises significant legal and factual questions

with respect to the relationship between interstate and

intrastate fares that need to be resolved. The principal

issue before us is whether the difference between those

fares results in unjust discrimination against interstate

passengers and, if so, what order should be made to cor-

rect the situation.

Fares applicable between Los Angeles and San Fran-

cisco, on the one hand, and points outside the state of Cali-

fornia, on the other, apply in many instances not only to

direct service between the points involved but also to serv-

ices operated via the other California point, provided no

stopover’ is made at the other point.’ Thus, the “interstate”

1Carrier tariffs define “stopover” as a deliberate interruption of

a journey by the passenger, _— to in advance by the carrier, at

a point between the place of departure and the place of destination.

*Los Angeles, San Francisco, and other California points are

common-fared by the interstate carriers with respect to many points

in the eastern United States.

fares applicable between Los Angeles and San Francisco

are used to construct a through fare when a stopover is

made at either point enroute to the other .

It may be true that, with respect to cost of service to the

carrier, a stopover passenger is little different from two

local passengers’® and that a higher fare may be justified

for stopover than for through passengers. On the other

hand, there would seem to be no difference, from either the

passengers’ or the carriers’ viewpoint, between a local Los

Angeles-San Francisco passenger (“intrastate”) and a

stopover passenger (“interstate”) who receive the same

service between the same points. At this stage, we are not

inclined to accept, without further exploration in an evi-

dentiary hearing, United’s argument that the fare differen-

tial is justified by competition from intrastate carriers.

Since the time the complaint was filed, we have found

that the same type of differentials between interstate and

intrastate fares exist in numerous intra-California mar-

kets, and the differentials apply to first-class and standard-

class as well as to coach and commuter (or economy) class

fares. For example, the following fares are listed for vari-

ous interstate carriers in the Official Airline Guide for

August 1972:

Fare Inter- Intra-

Market Class state state

Los Angeles-Ontario K 9.26 8.36

Los Angeles-Sacramento F 44.44 33.00

kK 23.15 16.67

Los Angeles-San Diego F 20.37 15.00

F 20.37 11.75

Y 16.67 9.00

Y 16.67 8.00

kK 14.81 7Al

Los Angeles-San Francisco... F 41.67 32.00

F 41.67 24.07

Y 32.41 30.56

K 20.37 15.00

K 20.37 15.28

S 37.96 30.56

Los Angeles-San Jose F 41.67 32.41

Y 32.41 30.56

K 20.37 15.74

Oakland-San Francisco F 14.81 9.00

Y 11.11 9.00

Oakland-San Jose __. F 14.81 13.89

Y 11.11 10.19

Ontario-Sacramento _. K 23.15 19.00

Ontario-San Francisco F 41.67 35.00

Y 32.41 30.56

K 21.30 16.67

Ontario-San Jose Y 32.41 30.56

Sacramento-San Francisco F 19.44 13.00

Y 15.74 11.00

S 17.59 15.74

Fare Inter- Intra-

Market Class state state

Burbank-San Francisco | F $41.67 $38.89

Y 32.41 30.56

K 20.37 15.74

Burbank-San Jose F 41.67 32.41

¥ 32.41 26.00

Kk 20.37 15.74

Fresno-San Francisco F 26.85 18.00

Y 20.37 15.00

S 20.37 19.44

Los Angeles-Oakland K 20.37 15.28

*See Order 72-4-42, dated April 10, 1972.

The questions raised bv the California fare situation are

not easy ones, and we believe they can best be resolved on

the basis of facts adduced in the hearing which we are

ordering herein. We are naming as parties to the proceed-

ing all the interstate carriers providing interstate and

intrastate service in these markets.‘ Since a situation simi-

lar to the intra-California one also exists in the following

‘American, Continental, Delta, Hughes Airwest, National, Trans

World, United, and Western.

intra-Texas markets, and the same principles are involved,

we will include in the investigation fares in these markets 2°

Fare Inter- Intra-

Market Class state. state

Dallas-Houston |. F $32.41 $25.93

Y 25.00 24.07

K 24.07

Dallas-San Antonio F 34.26 25.93

Y 25.93 25.00

K 25.00

Houston-San Antonio F 28.70 25.93

Y 22.22 18.52

K 19.44 22.22

We will expect the parties to address not only the specific

issues adverted to herein but also the broader issue of the

effect of such intrastate transportation generally on the

interstate fare structure.

In addition, the differences between the interstate coach

(or standard) and commuter (or economy) fares offered

by the carriers in the intra-California markets also raise

questions of discrimination, and we have decided to investi-

gate the relation between these fares. Following are exam-

ples in addition to those previously listed:

Y-Class K-Class

Market Fare Fare

Los Angeles-Oakland..........__ $32.41 $20.37

Los Angeles-Sacramento ....... 34.26 23.15

Los Angeles-San Francisco ....._ _37.96(S) 20.37

Ontario-San Jose ............. 32.41 20.37

United has cited few, if any, real differences between coach

and commuter services between Los Angeles and San Fran-

cisco.” According to the applicable tariffs on seating con-

Additional parties will be Braniff and Texas International.

‘United points out in its answer that coach service is currently

provided only on multistop flights, wheheas commuter service is

nonstop.

figurations, coach and commuter passengers may be seated

in like accommodations; and the availability of family-fare

discounts to coach passengers but not to commuter passen-

gers would seem to make little difference because the com-

muter fare provides a greater discount from the coach

fare than the 25% family fare discount available on coach

service. On the other hand, it may be that the cost of oper-

ating commuter service is less than the cost of operating

coach service. Any differences in the costs of commuter

service should therefore be fully explored in this investi-

gation. We do not, however, intend to relitigate here the

industry average costs of coach service nor the fare struc-

ture formula which are now under investigation in Docket

21866.

Upon consideration of all relevant matters, the Board

has determined that the relationships between intrastate

and interstate fares in intra-California and intra-Texas

markets, and between interstate coach and commuter fares

in intra-California markets may be unjustly discriminatory,

or unduly preferential, or unduly prejudicial, or otherwise

unlawful, and should be investigated.

Accordingly, pursuant to the Federal Aviation Act of

1958, as amended, and particularly sections 204(a), 403,

404, and 1002 thereof,

IT IS ORDERED THAT:

1. An investigation is instituted to determine whether

the differences between intrastate fares and interstate fares

charged by the carriers listed in paragraph 4 hereof be-

tween intra-California markets and between Dallas and

Houston, Dallas and San Antonio, and Houston and San

Antonio, and the differences between interstate coach (or

standard) class and commuter (or economy) class fares in

intra-California markets, including subsequent revisions

and reissues thereof, and classifications, rules, regulations,

and practices affecting such fares, or the value of service

thereunder, are or will be unjustly discriminatory, unduly

preferential, unduly prejudicial, or otherwise unlawful,

and, if found to be unlawful, to determine and prescribe

the lawful fares and classifications, rules, regulations, and

practices ;

2. Except to the extent granted herein, the complaint in

Docket 23859 is hereby dismissed ;

3. The proceeding ordered herein be assigned for hear-

ing before an Administrative Law Judge of the Board at

a time and place hereafter to be designated; and

4. Copies of this order shall be served upon American

Airlines, Ine., Braniff Airways, Inc., Continental Air Lines,

Ine., Delta Air Lines, Ine., Hughes Airwest, National

Airlines, Inec., Texas International Airlines, Inc., Trans

World Airlines, Inc., United Air Lines, Inc., Western Air

Lines, Ine., Ralph Nader, and Aviation Consumer Action

Project, which are hereby made parties to this proceeding,

and upon the California Public Utilities Commission and

the Texas Aeronautics Commission.

This order will be published in the Federal Register.

By the Civil Aeronautics Board:

PHYLLIS T. KAYLOR.

Acting Secretary

(SEAL)

APPENDIX F

Initial Decision of Administrative Law Judge

Served April 23, 1974

United States of America

Civil Aeronautics Board

Washington, D.C.

Interstate and Intrastate Fares

In California and Texas Markets

Docket 24779

INITIAL DECISION OF ADMINISTRATIVE

LAW JUDGE

WILLIAM H. DAPPER

Served: April 23, 1974

Upon:

Reuben B. Robertson III, Box 19367, Washington, D.C.

20036, for Ralph Nader and Aviation Consumer Action

Project.

A. Joaquin Yordan, 633 Third Avenue, New York, New

York 10017, for American Airlines, Inc.

This initial decision is rendered pursuant to the authority dele-

gated to Administrative Law Judges under Rule 27 of the Rules of

Practice in Economic Proceedings. It becomes effective as the final

order of the Board 30 days after service thereof unless a petition for

discretionary review is filed within 21 days after service thereof in

accordance with Rule 28 or the Board issues an order within said

30-day period to review upon its own initiative. If a petition for

discretionary review is timely filed or action to review is taken by

the Board upon its own initiative, the effectiveness of this initial

decision is stayed until further order of the Board.

B. Howell Hill, Arnold & Porter, 1229-19th Street, N. W.,

Washington, D.C. 20036, for Braniff Airways, Inc.

James T. Lloyd, 1225-19th Street, N. W., Washington,

D.C. 20036, for Continental Air Lines, Inc. ~

Anthony McKinnon, Delta Air Lines, Inc., Atlanta Air-

port, Atlanta, Georgia 30320, for Delta Air Lines, Inc.

Richard A. Fitzgerald, Hughes Airwest, San Francisco

International Airport, San Francisco, California 94128, for

Hughes Airwest. ;

Andrew T. A. Macdonald, 1666 K Street, N. W., Wash-

ington, D.C. 20006, for National Airlines, Inc.

Emory N. Ellis, Jr., 1140 Connecticut Ave., N. W., Wash-

ington, D.C. 20036, for Texas International Airlines, Inc.

George N. Kenyon, Jr., 605 Third Avenue, New York,

New York 10016, for Trans World Airlines, Inc..

Richard A. Hyde, Box 66100, Chicago, Illinois 60666, for

United Air Lines, Inc.

Ernest T. Kaufmann, 6060 Avion Drive, Los Angeles,

California 90009, for Western Air Lines, Inc.

Theodore I. Seamon, 700 Woodward Building, Washing-

ton, D.C. 20005, for Wien Consolidated Airlines, Ine.

V. Alice Campbell, P.O. Box 3150, Beaumont, Texas

77704, for Beaumont Port Arthur Parties (Beaumont Cham-

ber of Commerce, the Port Arthur Chamber of Commerce,

the Commissioner’s Court of Jefferson County, Texas).

Scott K. Carter, California State Building, San Fran-

cisco, Calif. 94102, for People of the State of California and

The Public Utilities Commission of the State of California.

J. Kerwin Rooney, 66 Jack London Square, Oakland,

California 94607, for Port of Oakland.

Rex H. White, Jr., P.O. Box 12548, Capitol Station,

Austin, Texas 78711, for Texas Aeronautics Commission.

Paul Rodgers, 1102 ICC Building, P.O. Box 684, Wash-

ington, D.C. 20044, for National Association of Regulatory

Utility Commissioners.

Lawrence R. Myers, Civil Aeronautics Board, 1825 Con-

necticut Ave., N. W., Washington, D.C. 20428, for the Bu-

reau of Economics.

United States of America

Civil Aeronautics Board

Washington, D.C.

Interstate and Intrastate Fares in

California and Texas Markets

Docket 24779

The differences between the intrastate fares and the in-

terstate fares charged by the carriers certificated by the

Board between intra-California markets and between Dallas

and Houston, Dallas and San Antonio, and Houston and

San Antonio, are not unjustly discriminatory, unduly pref-

erential, unduly prejudicial or otherwise unlawful.

The differences between the interstate coach (or stan-

dard) class fares and the interstate commuter (or economy)

class fares offered by the interstate carriers which are par-

ties to this investigation, for transportation between points

in California result in unjust discrimination against pas-

sengers charged the local fare with the higher class of serv-

ice in a given market and; accordingly, the interstate car-

riers are ordered to remove the differences in the published

local fares by cancelling one of the two designated classes

of fares in each of the markets for which a published dif-

ferential exists and refraining from publishing two differ-

ent local fares for the same or similar transportation serv-

ices in such markets.

Appearances:

A, Joaquin Yordan, for American Airlines, Inc.

B. Howell Hill, for Braniff Airways, Inc.

James T. Lloyd, for Continental Air Lines, Inc.

Anthony McKinnon, for Delta Air Lines, Inc.

John W. Simpson and Richard H. Fitzgerald for Hughes

Airwest.

Andrew T. A. Macdonald, for National Airlines, Inc.

Emory N. Ellis, Jr., for Texas International Airlines, Inc.

Robert P. Silverberg, for Trans World Airlines, Inc.

Richard A. Hyde, for United Air Lines, Inc.

Ernest T. Kaufmann, Howard L. Culver and G. P.

O’Grady, for Western Air Lines, Inc.

Theodore I. Seamon, for Wien Air Alaska Airlines, Inc.

Reuben B. Robertson III, for Aviation Consumer Action

Project and Ralph Nader.

V. Alice Campbell, for Beaumont Port Arthur Parties.

Scott K. Carter, for the State of California and the Pub-

lic Utilities Commission of the State of California.

Sumner J. Katz, for the National Association of Regu-

latory Utility Commissioners.

Rex ft. White, Jr., for the Texas Aeronautics Commis-

sion.

Lawrence R. Myers, for the Bureau of Economics.

TABLE OF CONTENTS

PRELIMINARY STATEMENT .......

ISSUES

DESCRIPTION OF THE MARKETS INVOLVED AND

THE REGULATORY BODIES CONCERNED ..........

DESCRIPTION OF THE FARES IN QUESTION

POSITIONS OF THE PARTIES....................

Air Carrier Parties ap OTD ee ares

Ralph Nader and ACAP Nee

Beaumont-Port Arthur Parties |...

California Public Utilities Commission

NARUC .... }

Texas Aeronautics Commission rertony aet

Bureau of Economics | Rk a yA AEE EE WD

FINDINGS AND CONCLUSIONS - PAIS SS SME Reis TN he

THE LAWFULNESS OF THE INTERSTATE/INTRA-

STATE FARE DIFFERENTIAL ............

NIAQAkonv pe

1. Unjust Discrimination | Pe tah earn, ee

2. Undue Preference and Undue Prejudice OS ae en

THE LAWFULNESS OF THE INTERSTATE COACH/

INTERSTATE COMMUTER FARE DIFFERENTIAL .

PROPOSALS TO DISMANTLE THE DUAL REGULATION

EEE Ree co cenegh ann ea nter fie po ced) ws ws ka

ULTIMATE CONCLUSIONS

ORDER

101

INITIAL DECISION OF ADMINISTRATIVE

LAW JUDGE WILLIAM H. DAPPER

PRELIMINARY STATEMENT

This proceeding was instituted by Order 72-9-90, Sep-

tember 25, 1972, to determine whether the differences be-

tween the intrastate fares and the interstate fares charged

by the carriers certificated by the Board between intra-Cali-

fornia markets and in three intra-Texas markets are or

will be unjustly discriminatory, unduly preferential, or un-

duly prejudicial, and if found to be unlawful, to determine

and prescribe the lawful fares. The investigation also in-

cludes the issue of whether the differences between the

interstate coach (or standard) class and the commuter (or

economy) class fares charged by the carriers certificated

by the Board between intra-California markets are or will

be unjustly discriminatory, unduly preferential, unduly

prejudicial, or otherwise unlawful, and, if found to be un-

lawful, to determine and prescribe the lawful fares.

The genesis of this investigation was a complaint filed on

September 23, 1971, in Docket 23859, by Ralph Nader and

the Aviation Consumer Action Project (ACAP). The com-

plainants alleged that the differences between the jet coach

and jet commuter fares charged by United Air Lines,

Ine. (United) and which are available to interstate and

intrastate passengers, and the differences between the in-

terstate and intrastate fares in the Los Angeles-San |'ran-

cisco market are unjustly discriminatory. The complain-

ants sought suspension of United’s interstate fares; and

asked the Board to initiate civil and criminal proceedings

against United for failing to file its intrastate tariffs with

the Board, and for allegedly violating sections 404(b) and

411 of the Federal Aviation Act of 1958, as amended.

The Board acted on the complaint by Order 72-9-90, Sep-

tember 25, 1972 and concluded that it did not have the

authority to suspend effective fares in interstate air trans-

portation; that United is not required to file its intrastate

tariffs because transportation thereunder is not “air trans-

portation” as defined in the Act; and that proceedings

should not be initiated against United for violation of sec-

tions 404(b) and 411 of the Act because the facts alleged

by the complainants did not warrant the initiation of an

enforcement proceeding for the purpose of imposing civil

or criminal penalties on United. Although, for the most

part, the relief requested by the complainants was denied,

the instant investigation was nonetheless instituted after

the Board found that there were, in fact, differences in

the interstate and intrastate fares charged by various fed-

erally certificated carriers in numerous intra-California

markets, and in three intra-lexas markets. The Board

noted that the principal issue is whether the difference in

fares results in unjust discrimination against interstate

passengers and, if so, what order should be issuéd to cor-

rect the situation.

The air carrier parties to this proceeding are: American

Airlines, Inc. (American) ; Braniff Airways, Inc. (Braniff) ;

Continental Air Lines, Inc. (Continental) ; Delta Air Lines,

Ine. (Delta); Hughes Air Corp. (Hughes Airwest); Na-

tional Airlines, Inc. (National); Texas International Air-

lines, Inc. (TXIA); Trans World Airlines, Inc. (TWA);

United; Western Air Lines, Inc. (Western) ; and Wien Con-

solidated Airlines, Inc. (Wien).' The above listed air car-

riers (with the exception of Wien) charge or did charge

an interstate and an intrastate fare in one or more of the

markets in issue herein and hence were made parties to

this proceeding by the order of investigation.

‘Wien was granted leave to intervene by Order 73-5-88, May 17,

1973. Wien did not, however, submit any exhibits nor did it file an

opening or reply brief.

The People of the State of California and the Public

Utilities Commission of the State of California (Califor-

nia), the Texas Aeronautics Commission (Texas), and the

National Association of Regulatory Utility Commissioners

(NARUC) were granted leave to intervene by Order 73-5-

88, May 17, 1973. In addition, the cities of Dallas and Ft.

Worth, Texas; and the Beaumont Chamber of Commerce,

Port Arthur Chamber of Commerce, Commissioners Court

of Jefferson County, Texas (Beaumont-Port Arthur

Parties) were granted leave to intervene by Orders 73-6-56,

and 73-7-84, dated June 15, 1973 and July 17, 1973, respec-

tively.? The Board’s Bureau of Economics is also a party

to this proceeding.

The usual procedural steps have been completed, ard

the hearing has been held. Opening briefs to the Adminis-

trative Law Judge were filed on December 3, 1973,’ and

reply briefs were filed on January 2, 1974.‘

Based upon a consideration of tne record and the

arguments of the parties, it is concluded that the differ-

ences between the local fares charged to intrastate pas-

sengers and the local fares charged to interstate passen-

gers by the interstate carriers which are parties to this

investigation, between points in California and between

Dallas and Houston, Dallas and San Antonio, and Hous-

ton and San Antonio, are not unjustly discriminatory,

unduly preferential, unduly prejudicial or otherwise un-

lawful. On the other hand, it is concluded that the differ-

*The Dallas-Ft. Worth parties did not submit exhibits nor did they

file an opening or reply brief.

*Opening briefs were filed by Braniff, Continental, Hughes Air-

west, TXIA, TWA, United, Western, Ralph Nader and ACAP,

California, United, NARUC, Texas, and the Bureau of Economics.

‘Reply briefs were filed by Delt:, Hughes Airwest, TWA, United,

Western, the Beaumont-Port Arthur Parties, California, NARUC,

—_ -— the Bureau of Economics which filed a letter in lieu

rief.

ences between the local interstate coach (or standard)

and commuter (or economy) class fares charged by the

interstate carriers which are parties to this investiga-

tion for transportation between points in California re-

sult in unjust discrimination against passengers charged

the local fare for the higher class of service in a given

market.

ISSUES

The primary issues in this proceeding, as specified by

the Board in Order 72-9-90, dated September 25, 1972,

are whether the differences between intrastate fares and

interstate fares in intra-California markets and between

Dallas and Houston, Dallas and San Antonio, and Hous-

ton and San Antonio, and the differences between inter-

state coach (or standard) class or commuter (or econ-

omy) class fares in the intra-California markets, including

subsequent revisions and reissues thereof, and classifica-

tions, rules, regulations, and practices affecting such fares,

or the value of service thereunder, are or will be unjustly

discriminatory, unduly preferential, unduly prejudicial, or

otherwise unlawful, and, if found to be unlawful, to deter-

mine and prescribe the lawful fares and classifications,

rules, regulations, and practices.

In addition, the following subissues were identified as

among those to be considered in the investigation:

1, What is the Board’s jurisdiction with regard to the

interstate fares and classifications, rules, regulations,

and practices affecting such fares of the interstate air

carriers?

2. Are the present criteria used by the carriers for

determining whether a passenger is an interstate passen-

ger or an intrastate passenger for the purpose of com-

puting fares unjust or unreasonable, or unjustly dis-

criminatory, or unduly preferential or prejudicial? If so,

what are the lawful criteria?

(a) What advertising and promotion of intrastate

fares do the interstate carriers undertake to inform

interstate passengers of such fares? Should the inter-

state air carriers be required to inform interstate pas-

sengers of the differences between interstate and in-

trastate fares and the availability thereof?

3. What are the differences, if any, in costs applicable

to the transportation of interstate stopover passengers

compared to intrastate passengers in the applicable mar-

kets?

4. What are the differences, if any, in costs applicable

to the transportation of coach (or standard) class pas-

sengers compared to commuter (or economy) class pas-

sengers in the applicable markets?

5. If there are cost differences, are the (a) interstate/

intrastate and (b) commuter (or economy) /interstate

coach fare differentials reasonably related to these cost

differences?

6. Do the interstate fares and intrastate fares under

investigation result in charging different fares for like

and contemporaneous service in the transportation of

like traffic under substantially similar circumstances and

conditions ?

7. Are the differences between the intrastate fares and

the interstate fares justified by competition, promotional

considerations, value of service and/or other considera-

tions besides differences, if any, in costs?

8. Do the coach (standard) and commuter (economy)

fares under investigation result in charging different

fares for like and contemporaneous service in the trans-

portation of like traffic under substantially similar cir-

cumstances and conditions?

9. Are the differences between the coach (or standard)

class fares and the commuter (or economy) class fares

justified by promotional considerations, value of service,

and/or other considerations besides differences, if any,

in costs?

10. What is the effect, if any, of the intrastate fares

on the interstate fare structure?

11. What is the impact, if any, of the intrastate fares

on the system revenues of the interstate carriers and on

federal subsidy?

12. What is the impact, if any, of the intrastate fares

on: (a) the level of interstate fares in the same market;

(b) the level of interstate fares in other markets, includ-

ing the breaking of fares?

13. If the intrastate fares of the interstate carriers

are not reasonably related to differences in costs of

transporting mterstate and intrastate passengers, to

what extent, if any, do such fares impose a burden on

interstate passengers?

14. What is the effect, if any, of the commuter (or

economy) fares on the movement of traffic and on reve-

nues? What diversion, if any, from other classes of

service and types of fares results from the commuter

(or economy) fares?

15. If the differences between the intrastate and inter-

state fares are found unlawful, what corrective order

should be issued by the Board?

16. If the differences between the coach (or standard)

and commuter (or economy) class fares are found unlaw-

ful, what corrective order should be issued by the Board?

DESCRIPTION OF THE MARKETS INVOLVED

AND THE REGULATORY BODIES CONCERNED

The fare differentials under investigation herein are a

product of the system of dual regulation practiced by the

California Public Utilities Commission and the Civil Aero-

nautics Board insofar as the State of California is con-

cerned; and by the Texas Aeronautics Commission and the

Civil Aeronautics Board insofar as the State of Texas is

concerned.

It is appropriate at this point to briefly describe the jur-

isdiction asserted by these regulatory agencies insofar as

it is pertinent herein. The Civil Aeronautics Board, of

course, is the federal agency responsible for the economic

regulation of civil aviation. The Board is established by

and derives its authority from the Federal Aviation Act of

1958, as amended. Among other things, the interstate fares

of those federally certificated carriers engaging in inter-

state air transportation in the States of California and

Texas are subject to the jurisdiction of and the approval

of the Board.’

The State of California through the California Public

Utilities Commission exercises jurisdiction over the fares

of non-federally certificated carriers operating within the

borders of California (Pacific Southwest Airlines and Air

California, for example). In addition, the California PUC

exercises jurisdiction over the intrastate fares of federally

certificated carriers within the borders of California

(United and Western, for example).

‘One of the issues herein is whether the Board has and should

exercise jurisdiction over the intrastate fares of federally certificated

carriers,

In the State of Texas a somewhat different situation ob-

tains insofar as regulation of fares is concerned. In that

state, the Texas Aeronautics Commission exercises juris-

diction over the licensing of intrastate carriers; and South-

west Airlines, an intrastate operator of large equipment,

was licensed in recent years by the Texas Aeronautics Com-

mission. That Commission, however, apparently does not

regulate the fares charged by the intrastate carrier or the

intrastate fares charged by the federally certificated car-

riers. Thus in Texas, the intrastate carrier as well as the

interstate carriers have been free to lower or raise their

fares at will and have, in fact, done so on numerous occa-

sions.

The markets under consideration in this case are all mar-

kets in California and Texas’ having both interstate and

intrastate fares, end all California markets having both

coach and commuter interstate fares. The California mar-

kets are numerous. As the Bureau points out, Hughes Air-

west which serves 24 California stations has submitted a

list of over 400 markets approximately 360 of which show

an interstate-intrastate fare differential. United which

serves 24 California stations has submitted a list of 64 mar-

kets for which such fare differentials exist, and Western

which serves 8 stations has listed 25 such fare differential

markets. See e.g. Exhibits RW-I-1, UA-IR-1, and WA-

IR-17.’ On the other hand, American, Continental, Delta,

*The Texas markets are specifically identified in the order of

investigation. They are: Dallas-Houston; Dallas-San Antonio; and

Houston-San Antonio.

"The order of investigation (Order 72-9-90, September 25, 1972)

sets forth some 15 California markets and shows the interstate and

intrastate fares published in those markets in August 1972. Clearly,

however, these are not all of the California markets under investiga-

tion herein and, in fact, the markets listed in the Board’s order are

ar simply to be illustrative of the type of problem involved

erein.

National, and TWA provide service at only a few Califor-

nia stations.

The largest California market concerned is the Los An-

geles-San Francisco market. The Los Angeles-San Diego

market is the second largest followed by Los Angeies-Sac-

ramento, Fresno-San Francisco, and Los Angeles-Monterey.

For purposes of illustrating the nature and magnitude of

the problem involved herein, the Bureau has exhibited (Ex-

hibit BE-IR-100) a list of some 28 intra-California markets

which have significance because of their size, or the length

of the haul involved or because they are representative of

the total number of intra-California markets in some other

fashion. The first 15 markets shown on the Bureau’s exhibit

although not listed in order of size are, in fact, the top 15

California markets in terms of size, (based on 1972 service

segment data).

The intra-California markets are served by one or more

of the following interstate carriers: American, Continental,

Delta, Hughes Airwest, National, TWA, United, and West-

ern. The intra-California markets served by American, Con-

tinental, Delta, National, and TWA are not, however, sig-

nificant in terms of size and numbers compared with the

intra-California markets served by Hughes Airwest, West-

ern, and United."

United, Western, and TWA are the principal federally

certificated carriers providing service in the Los An-

geles-San Francisco market. With respect to the Los

Angeles-San Diego market, American, Western, United,

Delta, Hughes Airwest and National are the federally

certificated carriers offering service; Western is the

federally certificated carrier operating in the Los An-

geles-Sacramento market; United and Hughes Airwest

*All schedule information herein is taken from the Official Airline

Guide, March 1, 1974.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.