Domestic Baggage Liability

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 254

[Docket No. OST-1996-1340, formerly Docket 41690]

RIN 2105-AC07

Domestic Baggage Liability

AGENCY: Office of the Secretary, DOT.

ACTION: Supplemental Notice of Proposed Rulemaking (SNPRM).

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SUMMARY: The Department is proposing to amend its rule governing the

amount to which certain U.S. air carriers may limit their liability to

passengers for lost, damaged, and delayed baggage in interstate and

overseas air transportation. This action continues the proceeding

initiated by a petition from Public Citizen and Aviation Consumer

Action Project to increase the minimum domestic baggage liability

limit. This SNPRM reports and evaluates aggregate baggage data

submitted by certain air carriers in response to the Department's 1994

NPRM and responds to comments received from various parties subsequent

to the issuance of the NPRM. DOT now requests comment on raising the

minimum liability limit to $2,500 with a mechanism that would provide

for periodic updates every two years.

DATES: Comments are requested by August 27, 1999; late-filed comments

will be considered only to the extent practicable.

ADDRESSES: Address comments to the Dockets Management System, U.S.

Department of Transportation, 400 Seventh Street, SW., PL-401,

Washington, D.C. 20590-0001. Comments should identify the docket number

and two copies should be submitted. Persons wishing to receive

confirmation of receipt of their written comments should include a

self-addressed, stamped postcard. The Dockets Management System is

located on the Plaza level of the Nassif Building at the Department of

Transportation at the above address. Public dockets may be reviewed

there between the hours of 9:30 a.m. and 5:00 p.m., Monday through

Friday, except Federal holidays. Comments also may be reviewed on-line

at the DOT Dockets Management System web site, http://dms.dot.gov/.

FOR FURTHER INFORMATION CONTACT: Joanne Petrie, Office of Regulation

and Enforcement, Office of General Counsel, U.S. Department of

Transportation, 400 Seventh Street SW., Washington, DC 20590, (202)

366-9306.

SUPPLEMENTARY INFORMATION:

Background

Lost, damaged and delayed baggage ranks as one of the top sources

of aviation consumer complaints filed with the Department of

Transportation and is a major source of consumer dissatisfaction. In

the Air Travel Consumer Report published by the Department, major U.S.

air carriers reported the following number of domestic mishandled-

baggage reports per year:

------------------------------------------------------------------------

Number of

mishandled

Year baggage

reports

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1993.................................................... 2,282,903

1994.................................................... 2,321,524

1995.................................................... 2,227,599

[[Page 34593]]

1996.................................................... 2,460,487

1997.................................................... 2,278,841

1998.................................................... 2,484,841

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14 CFR Part 254 sets forth the minimum level for permissible

limitations of air carrier liability for loss, damage or delay in the

carriage of passenger baggage in domestic air transportation. The rule

applies to both charter and scheduled service. It provides, ``[i]n any

flight segment using large aircraft [any aircraft designed to have a

maximum passenger capacity of more than 60 seats], or on any flight

segment that is included on the same ticket as another flight segment

that uses large aircraft, an air carrier shall not limit its liability

for provable direct or consequential damages resulting from the

disappearance of, damage to, or delay in delivery of a passenger's

personal property, including baggage, in its custody to an amount less

than $1,250 for each passenger.''

In addition, Part 254 requires a carrier to provide certain types

of notice to passengers. It provides, ``[i]n any flight segment using

large aircraft, or on any flight segment that is included on the same

ticket as another flight segment that uses large aircraft, an air

carrier shall provide to passengers, by conspicuous written material

included on or with its ticket, either: (a) notice of any monetary

limitation on its baggage liability to passengers; or (b) the following

notice: ``Federal rules require any limit on an airline's baggage

liability to be at least $1,250 per passenger.''

The amount of the minimum liability limit was last amended by a

final rule (ER-1374, 49 FR 5065, February 10, 1984), issued by the

Civil Aeronautics Board (CAB) before its ``sunset,'' in 1984. The

$1,250 figure was calculated based upon the percentage increase in the

``Consumer Price Index for all Urban Consumers'' (CPI-U) between the

date of the previous amendment in May 1977 and September 1983. When

setting the limit, the CAB attempted to balance the amount necessary to

cover the value of passengers' baggage while still allowing the air

carriers to protect themselves from extraordinary claims.

Petition for Rulemaking

On December 21, 1993, Public Citizen and Aviation Consumer Action

Project (ACAP) petitioned the Department to raise the minimum limit to

$1,850, which was calculated by factoring in the increase in the CPI-U

from the previous amendment of September 1983 and compensating for

inflation changes until the implementation of the final rule (estimated

to be one year from the date of the petition). In support of the

formula, ACAP conducted a study that concluded that the CPI-U increase

was a good proxy for the price increases for specific consumer goods

cited in the study. ACAP stated that, if the rulemaking process

proceeded past one year or if the inflation rate changed unexpectedly

during this time, the Department should recalculate a new figure using

the same methodology.

The NPRM

On September 30, 1994, in response to ACAP's petition, the

Department issued an NPRM, requesting comment on three proposals (59 FR

49868). First, based on a 46.4 percent increase in the CPI-U calculated

from September 1983 until April 1994, the Department proposed to raise

the limit to ACAP's proposal of $1,850. The Department stated that this

calculated figure should compensate passengers based on the present

value of money and constructively influence air carriers to remedy the

causes of baggage problems. To assess the economic effects of this

figure on the industry, air carriers were requested to submit annual

data on 1993 domestic baggage claims, specifically: (1) The total

number of domestic baggage claims (defined in the NPRM) for

reimbursement and the total amount claimed (i.e., the amount that the

claimants requested); (2) the total amount paid by the carrier in

settling those claims; and (3) the number and total dollar amount of

claims that exceeded $1,250, and the number and total dollar amount

that exceeded $1,850.

As additional alternatives, the Department proposed: (1) To raise

the minimum limit to $1,850 with a mechanism that automatically

provides for periodic future increases, or (2) to raise the minimum

liability limit to $2,000. The first alternative proposal would have

provided for an automatic increase of the minimum liability limit every

other year based on changes in the CPI-U. DOT asked commenters on the

first alternative proposal to address the administrative burden on the

airline industry of a periodic update, evaluate current technology, and

state their opinions concerning the best method of notice for each rate

change. Commenters on the second alternative proposal were asked to

focus on the benefits of a fixed minimum liability limit in terms of

advance planning and administrative costs. Finally, the Department

asked for comment on several proposed time frames for the

implementation of the final rule and future automatic adjustments,

taking into account ticket stock procurement procedures in the

industry. The Department suggested that the new minimum dollar limit go

into effect 30 days after issuance of the final rule, but that the

revised notice requirement be implemented 60 days after the final rule

is issued. In conjunction with these proposals, the Department asked

the public and the industry to consider and address several options,

such as electronic tickets, a ticket addendum, and ticket stickers. If

the automatic adjustment proposal were selected, the Department

requested comment on whether a 30-day effective date would be

sufficient for future adjustments. Comments and baggage data were due

on November 29, 1994.

Request for Extension of Comment Period

On November 10, 1994, the Air Transport Association (ATA) asked for

an extension of the November 29, 1994 deadline. ATA requested that the

baggage data be published in aggregate form and asked for the comment

period to be extended to 60 days after the Department publishes the

aggregate baggage data in the docket. ATA cited a critical need for

sufficient time for the public to analyze and comment on the baggage

data, as well as the need for the Department to fulfill its procedural

responsibilities and make a decision based on the most complete

information. In response, the Department partially granted ATA's

request. The Department stated in a document issued in the Federal

Register (59 FR 60926, November 29, 1994) that carrier data would be

due November 29, 1994 and the aggregated information would be published

in the docket, followed by a 30-day comment period.

Comments Received

Comments were received from American Trans Air, Atlantic Southeast

Airlines, North American Airlines, Michael Kees, and ACAP. The three

air carriers agreed that the minimum liability limit should not exceed

$2,000. North American believed that the limit should not be adjusted

at all, because the excess liability is covered through excess value

insurance offered by airlines for a fee, homeowners insurance, or

supplemental baggage coverage provided by some credit cards. If the

minimum level is raised, North American claimed carriers would be

forced to devote more financial resources to paying and scrutinizing

claims, resulting in higher fares. North American believed that

carriers

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themselves should set the minimum level based on market forces and

consumer choice. Additionally, North American stated that if the level

were raised, the level should not exceed $1,600. It argued that that

the all-item index of the CPI-U no longer realistically reflects

changes in individual indices, such as apparel. (The Department

interprets this comment as saying that the all-item CPI-U index is

disproportionately influenced by particular items other than items that

passengers would normally pack in their baggage when flying

domestically, such as food and gas.) North American proposed that the

methodology utilize the lower apparel index, rather than the higher

CPI-U all-item index. North American objected to the automatic

adjustment proposal, claiming that the rate for baggage mishaps only

increased slightly from the last rate amendment and that the NAFTA and

GATT agreements might affect future apparel index ratings.

American Trans Air favored a fixed liability limit of $2,000 and 90

days advance notice before implementation of a final rule.

ASA stated that the Department's claim that a low liability limit

will simply prompt the air carriers to pay damages rather than fix

their baggage system is a ``disservice'' to the industry. It argued

that because baggage claims result in profit erosion and customer

dissatisfaction, air carriers have operational incentives to improve

baggage service and do not need monetary incentives from liability

limitations. For example, ASA noted that airlines are purchasing and

using enhanced baggage tracing systems. ASA believed that a comparison

should be made to the passenger bus and rail industries, which have

kept their liability limits relatively low in comparison to the air

carrier industry. ASA also believed that an $1,850 minimum limit is not

necessary because of supplemental insurance offered to the passenger by

credit card companies, air carriers and homeowner policies for a modest

premium. ASA objected to the proposal for regular future increases,

stating that the periodic-increase provision is not applied to other

transportation modes and is costly and burdensome, especially to

smaller carriers that cannot invest as heavily in cost-saving

technology. Finally, ASA suggested that an increase in the liability

limit would place air carriers at risk for an increasing number of

fraudulent baggage claims.

Mr. Michael Kees, a passenger affected by baggage problems,

believed that the limit should be raised to $2,500. Alternatively, he

also proposed adding an unlimited-compensation provision, enabling

passengers to replace lost items at current costs. Mr. Kees believed it

is unfair to compel passengers who want additional insurance to utilize

their homeowners policy. According to this commenter, a passenger

should not have to pay a deductible and file a claim with the

passenger's insurance policy because of the actions of an air carrier.

The Department also received confidential 1993 baggage data from

American Airlines, American Trans Air, Atlantic Southeast Airlines,

Delta Air Lines, Northwest Airlines, Southwest Airlines, United

Airlines, USAir (now US Airways), and Trans World Airlines. Although

the carriers' individual data are confidential, the aggregated industry

data are not. The air carriers were asked to send data responding to:

(1) The total number of domestic baggage claims for reimbursement and

the total amount claimed; (2) the total amount paid by the carrier in

settling those claims; and (3) the number and total dollar amount of

such claims that exceeded $1,250, and the number and total dollar

amount that exceeded $1,850. The Department offered the opportunity to

air carriers through their industry groups to submit updated material

on June 12, 1998. No updates were provided. As a result, the Department

will proceed with reporting baggage data submitted in 1993. Because

some air carriers did not submit data for certain categories, the

Department can only report limited information. In 1993, the submitting

air carriers reported 819,480 baggage claims for reimbursement.

Reimbursement claims that exceeded $1,250 constituted 3.2% of the

aggregate baggage claim total and reimbursement claims that exceeded

$1,850 constituted 1.4% of this total, according to the carriers.

Second ACAP Petition

ACAP submitted an updated petition on May 1, 1998, requesting that

the Department raise the minimum domestic baggage liability level to

$2,100. ACAP calculated a $2,005.47 limit using the CPI-U index, with

an additional $94.53 that provides an incentive for the airlines to

provide improved baggage facilities and services.

The Current Proposal

After reviewing the comments and baggage data, the Department now

proposes to increase the minimum domestic baggage liability limit to

$2,500. This figure is based on the Administration's ``Airline

Passenger Fair Treatment Initiative,'' as well as the minimum liability

limitation being considered by Congress in H.R 780. This figure was

based on doubling the current $1,250 regulatory minimum liability

limitation and reflects both the Administration's and a Congressional

judgment about fairness and the current value of some claims.

Future increases would be based on any increase to the Consumer

Price Index for all Urban Consumers from the time the final rule in

this proceeding is issued. The Department believes the CPI-U is a

proper measuring tool for price changes. The CPI-U is an index of price

change, reflecting spending patterns for approximately 80% of the total

U.S. population. The index encompasses expenditures reported by persons

living in urban areas, including professional employees, the self-

employed, the poor, the unemployed, retired persons, urban wage

earners, and clerical workers. The CPI-U is considered by many to be

the best measure for adjusting payments to consumers when the payer's

intent is to allow the consumer to purchase the same items in current

dollars. The index includes all goods for consumption by urban

households and reflects sales tax. The apparel index, which was

advocated by North American, does not accurately represent the wide

variety of items passengers pack in their luggage. Because of the

impossibility of identifying an individual index covering all items in

a traveler's checked baggage, the aggregate CPI-U index is the best

indicator.

In order to keep the liability limitation current, the Department

would review the Consumer Price Index for All Urban Consumers every two

years following the issuance of a final rule in this proceeding. The

minimum baggage liability limitation would be increased, if necessary,

based on the July CPI-U rounded to the nearest $100 for simplicity.

Under this process, the Department would publish a final rule in the

Federal Register in early fall of the second year following the

previous amendment. Because this would be a mathematical computation of

the CPI-U on the liability limit in accordance with this proposed rule,

the Department would not need to publish a proposed rule first. The

liability limitation and the revised notice requirement would be

effective on the following January 1. We are proposing January 1 for

simplicity and to tie in with publication cycle of Title 14 of the Code

of Federal Regulations. Consequently, if this rule is issued in 1999,

the first adjustment would be calculated in 2001 and would go into

effect on January 1, 2002.

The Department believes that these biyearly adjustments are in the

public

[[Page 34595]]

interest because they will keep the liability limitation in line with

inflation. This is particularly important in light of decreasing

opportunities for passengers to carry luggage into the cabin. In

addition, this periodic update is consistent with a similar recent

statutory requirement, the Federal Civil Penalties Inflation Adjustment

Act of 1990 amended by the Debt Collection Improvement Act of 1996.

In September of 1983, when the $1,250 rule was issued, the CPI-U

was 100.7. The May 1999 CPI-U is 166.2. If the current limitation were

adjusted solely based on the change in the CPI-U during this period,

the minimum baggage liability limitation would be $2,063, and likely

higher before the final rule is issued. Although we are proposing to

raise the baseline to $2,500, we note that the two numbers are very

close.

The escalator provision we are proposing today would use the most

recent CPI-U figure that is available at the time the final rule is

issued as the baseline. For clarity, we would state exactly what that

number is. The formula for these biyearly increases would be as

follows:

1x (a-b)/(b) x ($2,500)

a= July CPI-U of year of new adjustment

b= the most current CPI-U figure when final rule is issued

[The numerical result would be rounded to the nearest $100.]

Regulatory Analyses and Notices

The Department has determined that this action is not a significant

regulatory action under Executive Order 12866 or under the Department's

Regulatory Policies and Procedures. A regulatory evaluation that

examines the projected costs and impacts of the proposal has been

placed in the docket.

The Department certifies that this rule, if adopted, would not have

a significant economic impact on a substantial number of small

entities. There were no comments on small entity impacts in response to

the NPRM. By its express terms, the rule only applies to flight

segments using large aircraft, or on any flight segment that is

included on the same ticket as another flight segments that uses large

aircraft. Few, if any, air carriers operating large aircraft would

qualify as small entities. The rule could apply to some air carriers

that might be considered small entities to the extent that they

interline or codeshare with large air carriers. Based on our analysis,

we do not believe this rule would have a significant economic impact

because most claim payments are currently well below $1,250. Aggrieved

passengers still need to document their loss and are not automatically

entitled to compensation at the higher level. Nevertheless, the

Department seeks comment on whether there are further unidentified

small entity impacts that should be considered. If comments provide

information that there are significant small-entity impacts, the

Department will prepare a regulatory flexibility analysis at the final

rule stage. The Department does not believe that there would be

sufficient federalism implications to warrant the preparation of a

federalism assessment. The proposal would not result in an unfunded

mandate.

List of Subjects in 14 CFR Part 254

Air carriers, Consumer protection, Reporting and recordkeeping

requirements.

For reasons set forth in the preamble, the Department proposes to

amend 14 CFR part 254, as follows:

PART 254--DOMESTIC BAGGAGE LIABILITY

1. The authority citation for part 254 would be revised to read as

follows:

Authority: 49 U.S.C. 40113, 41501, 41504, 41510, 41702, and

41707.

Sec. 254.1 [Amended]

2. In Sec. 254.1, the phrase ``and overseas'' would be removed and

the phrase ``and intrastate'' would be added in its place.

Sec. 254.2 [Amended]

3. In Sec. 254.2, the phrase ``or overseas'' would be removed and

the phrase ``or intrastate'' would be added in its place.

4. Section 254.4 would be revised to read as follows:

Sec. 254.4 Carrier liability.

On any flight segment using large aircraft, or on any flight

segment that is included on the same ticket as another flight segment

that uses large aircraft, an air carrier shall not limit its liability

for provable direct or consequential damages resulting from the

disappearance of, damage to, or delay in delivery of a passenger's

personal property, including baggage, in its custody to an amount less

than $2,500 for each passenger.

Sec. 254.5 [Amended]

5. In Sec. 254.5(b), the amount ``$1250'' would be revised to read

``$2,500''.

6. Section 254.6 would be added to read as follows

Sec. 254.6 Periodic adjustments.

The minimum limit of liability prescribed in this part will be

reviewed every two years by the Department of Transportation based on

changes in the Consumer Price Index for All Urban Consumers. The

Consumer Price Index for All Urban Consumers as of July will be used to

calculate the revised liability limit pursuant to the following

formula:

1x (a-b/b) x ($2,500) rounded to the nearest $100

Where:

a= July CPI-U of year of current adjustment.

b= The most current CPI-U figure when final rule is issued.

Issued in Washington, DC on June 17, 1999, under authority

delegated by 49 CFR 1.56a(h)2.

A. Bradley Mims,

Acting Assistant Secretary for Aviation and International Affairs.

[FR Doc. 99-15962 Filed 6-25-99; 8:45 am]

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