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: Final Rule.

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SUMMARY: The Department is amending its rule governing the minimum

amount to which U.S. carriers may limit their liability to passengers

for lost, damaged, or delayed baggage in domestic air transportation.

We are raising the minimum liability limit from $1250 to $2500. Also,

to keep the minimum liability limit current, the Department will review

the Consumer Price Index for All Urban Consumers every two years and

adjust the minimum limit if necessary. Doubling the current minimum

limit to $2500 reflects judgments by the Department and some in

Congress about fairness and the current value of some consumer baggage

claims. The Department's intent in adopting the higher minimum limit is

to offer consumers a more reasonable level of protection while

continuing to allow airlines to limit their exposure to extraordinary

claims.

DATES: This rule will become effective on January 18, 2000.

FOR FURTHER INFORMATION CONTACT: Joanne Petrie, Office of Regulation

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

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

366-9315.

SUPPLEMENTARY INFORMATION:

Background

Part 254 of Title 14 of the Code of Federal Regulations (Part 254)

puts a floor under the amount to which an air carrier may limit its

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 $1250 for each

passenger.'' 14 CFR 254.4 (1999).

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 $1250 per passenger.'' 14 CFR 254.5 (1999).

The minimum liability limit was last amended by a final rule,

issued by the Civil Aeronautics Board (CAB) before its ``sunset,'' in

1984. ER-1374, 49 FR 5065, February 10, 1984. The $1250 figure was

based on the 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 minimum limit, the CAB

attempted to determine the amount necessary to cover the value of

passengers' baggage while still allowing air carriers to protect

themselves from extraordinary claims.

Regulatory History of the Current Proposal

In 1993, Public Citizen and the Aviation Consumer Action Project

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

to $1850. In response to the petition, the Department issued a notice

of proposed rulemaking (NPRM), requesting comment on three proposals.

59 FR 49868, September 30, 1994.

The first proposal would have raised the minimum liability limit to

$1850. To assess the economic effects of this figure on the industry,

the Department requested that air carriers submit annual data on 1993

domestic baggage claims. The second proposal would have raised the

minimum liability limit to $1850 with a mechanism that provided for

periodic future increases based on the CPI-U. The third proposal would

have raised the minimum liability limit to $2000. Comments and baggage

data were due on November 29,

1994.

In November 1994, the Air Transport Association (ATA) asked for an

extension of the November 29, 1994, deadline. In response, the

Department declined to alter the deadline for submission of baggage

data, but agreed to publish the baggage data in the docket in aggregate

form and to extend the comment period for 30 days after such

publication. 59 FR 60926, November 29, 1994. The Department received

several comments, which are accessible, along with the aggregate

baggage data and other rulemaking documents, at the Department's Docket

Management System website (http://dms.dot.gov) in Docket No. OST-1996-

1340. In 1998, ACAP filed an updated petition requesting that the

Department raise the minimum liability limit, recalculated with the

then-current CPI-U index, to $2,100.

On June 28, 1999, the Department issued a supplemental notice of

proposed rulemaking (SNPRM) that proposed to double the minimum

liability limit to $2,500 with an adjustment mechanism using the CPI-U.

The Department based the proposed amount of the minimum limit on the

Administration's legislative proposal, titled the ``Airline Passenger

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

Congress considered in H.R. 780. The Department selected the CPI-U as

the basis for future increases because it is the best available measure

of the current-dollar replacement cost to a consumer for replacing

lost, damaged, or delayed items in checked baggage.

In order to keep the minimum liability limit current, the

Department proposed that it would review the CPI-U every two

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

Department would increase the minimum liability limit (rounded to the

nearest $100 for simplicity), if necessary, based on the July CPI-U of

the second year following the previous amendment. Under this process,

the Department would announce the increase by publishing a final rule

in the Federal Register in early fall of the second year. Because this

would merely reflect a mathematical computation of the minimum

liability limit using the CPI-U, the Department would not need to

first publish a proposed rule. The new minimum liability limit and the

revised notice requirement would be effective on the following January

1.

Comments Received on the SNPRM

As part of the airline industry's Airline Customer Service

Commitment, released on June 17, 1999, the Air Transport Association

(ATA) petitioned the Department to increase the minimum liability

limit. ATA represents the airlines that carry roughly 95 percent of the

nation's air travelers. In comments that ATA filed separately

[[Page 70574]]

from its petition, it supports the increase in the minimum liability

limit to $2500. ATA's opinion is, however, that the CPI-U does not

reflect accurately the effect of inflation on contents of baggage and

should, therefore, not be used to adjust the minimum liability limit.

Since ``most of the contents of baggage are apparel,'' ATA asserts that

the apparel component of the Consumer Price Index (CPI) is a more

sensible index to use to adjust the minimum liability limit. To address

concerns that air travelers also often pack relatively more expensive

electronic equipment in their checked baggage, ATA points out that the

video and audio component of the CPI is more stable than that for

apparel. Using the apparel component of the CPI would not, therefore,

disadvantage travelers with respect to non-apparel items in their

checked baggage. Atlantic Southeast Airlines (ASA) also opposes using

the CPI-U to adjust the minimum liability limit. ASA asserts that

passenger baggage generally contains clothing and personal hygiene

products, whose rate of inflation tends to be lower than for many items

included in the aggregate CPI-U.

Trans World Airlines, Inc. (TWA) supports the proposed $2500

minimum liability limit, but believes the Department should reconsider

its proposal to adjust the minimum limit every two years. Because the

inflation rate has been, in recent years, very low, TWA suggests that

the Department revise the minimum limit, if necessary, every five years

instead.

The Regional Airline Association (RAA), which is not a party to the

Airline Customer Service Commitment, does not support the Department's

proposal to increase the minimum liability limit to $2500. The RAA

questions whether the DOT's minimum liability limits have ever

accurately reflected the value of the contents of passengers' baggage.

Further, the RAA, like the ATA, argues that the CPI-U is the wrong

measure of inflation to use to adjust the minimum liability limit since

it includes more than apparel, which the RAA asserts is the primary

component of passengers' baggage.

Sky Trek International Airlines (Sky Trek) is opposed to the

Department's proposal to amend its domestic baggage liability rule. Sky

Trek states, ``[T]he airlines themselves should determine the extent to

which baggage liability should affect their product's marketability.''

Further, Sky Trek argues that, contrary to the Department's assertion,

domestic carriers have actively improved their baggage handling

systems. Sky Trek bases this argument on the Department's statistics

that indicate a steady number of mishandled baggage complaints in the

face of dramatic increases in enplanements from 1993 through 1998.

Also, Sky Trek believes that most mishandled baggage is the result

of employee misconduct. Sky Trek suggests, therefore, that the

Department permit a portion of Passenger Facility Charges (PFCs) to be

used to enhance security in those airport areas where baggage is most

at-risk of loss or damage. Further, Sky Trek suggested that an airline

task force, not the Department, should establish industry guidelines

for resolving damaged baggage claims.

The Luggage and Leather Goods Manufacturers of America, Inc.

(LLGMA) supports both the proposed increase in the minimum liability

limit and the biannual update mechanism. LLGMA represents over 300

producers, distributors, and retailers of travel goods, including

luggage. LLGMA's comments express a concern, however, that these

measures will contribute further to the passing back of repair or

replacement costs to its members by air carriers. LLGMA accused the

airlines of failing to improve their baggage handling systems and

causing most of the damage to passengers' baggage.

LLGMA made the following recommendations to prevent the airlines

from evading responsibility for their actions that result in damaged

baggage. First, LLGMA urges the Department to monitor airline claims

departments closely to determine whether airlines are accepting

responsibility for bags that their baggage handling systems damage.

Second, LLGMA recommends that the Department report in its monthly Air

Travel Consumer Report (ATCR) the number of mishandled baggage

complaints that involve damage. LLGMA also requests that the ATCR

include information on the resolution of these complaints. LLGMA

asserts that these measures will encourage the airlines to improve

their baggage handling systems and provide LLGMA with information it

needs to determine the frequency of damaged baggage and whether

airlines are resolving the damaged baggage complaints.

Several airline passengers, such as Rita Altamore, wrote to support

the increase in the minimum liability limit as long overdue. Emmett

Scully suggests that the proposed figure of $2500 is too low. Several

of these passengers note that stricter enforcement of carry-on baggage

limitations forces them to check more of their belongings. Joan Junger

comments that some elderly passengers or passengers with disabilities

must place all their belongings in checked baggage since they may be

unable to carry carry-on baggage. Further, Walter and Christa Barke and

an anonymous commenter urge airlines to prevent loss and damage to

baggage by doing things such as securing baggage areas and requiring

persons to show baggage claim checks before leaving secured areas.

Finally, ATA further suggests that the Department redraft the

notice requirement in 14 CFR 254.5 to state that the Department has

established the minimum liability limit at $2500, that the amount is

subject to periodic revision, and that passengers should consult their

travel agents or airlines for further information. ATA asserts that

this kind of notice would disclose clearly and directly to passengers

the minimum liability limit without requiring repeated revisions to

ticket stock and related documents. Alternatively, TWA suggests that

the Department permit airlines to deplete existing ticket stock when

the minimum liability limit changes, since the old stock would disclose

a lower than actual minimum liability limit, which would not result in

any harm to consumers.

DOT's Response to the Comments

The Department's proposal to double the current minimum liability

limit to $2500 reflects the Department's judgment about fairness and

the current value of some baggage claims. Some members of Congress also

considered $2500 to be an appropriate minimum limit. H.R. 780, 106th

Cong. Sec. 101(a) (1999). Further, ATA, in its Airline Customer Service

Commitment, vowed to support this increase in the minimum liability

limit. Also, the Department applauds both American Airlines and Midwest

Express Airlines for voluntarily raising their minimum liability limits

in advance of this rule.

Although the CPI-U includes many goods and services that are not

associated with passengers' baggage, the apparel component of the CPI-U

also does not accurately reflect the wide variety of items passengers

pack in their luggage. The Department believes the CPI-U is the proper

index to use for its proposed biannual updates of the minimum liability

limit. The CPI-U reflects spending patterns for approximately 80

percent of the U.S. population. The CPI-U is the best measure for

adjusting payments to consumers when the intent is to allow consumers

to purchase the same items in current dollars. Since no single index or

component of an index covers all items in passengers' baggage, the

aggregate CPI-U is the best available measure of the cost to passengers

of

[[Page 70575]]

replacing their belongings when an airline loses, damages, or delays

their baggage.

The Department recognizes that airlines often order ticket stock

and related documents that contain the baggage liability notice that

Part 254 requires in bulk to receive discounted rates. Under this rule,

the Department will review the minimum liability limit every two years.

Since the Department will always round the minimum liability limit to

the nearest hundred-dollar amount, however, the minimum limit will

likely not change every two years. If, as TWA suggests, the inflation

rate continues to remain steady, uncertainty involving the amount of

the minimum liability limit will not be as burdensome as ATA and TWA

represent. The Department continues to believe that notice to consumers

of the minimum liability limit, as 14 CFR 254.5 requires, should

contain the current minimum liability limit.

For a reasonable time, however, the Department will not enforce the

notice requirement in Sec. 254.5 while airlines deplete their current

ticket stock that contains the old minimum liability limit. During this

time, the Department encourages airlines to use inserts or other means

to notify passengers of the new $2500 minimum liability limit.

As a final matter, the Department wishes to call attention to a

change in the formula used to adjust the minimum liability limit from

the formula published in the SNPRM. The formula in this final rule is

merely a technical correction to reflect the Department's description

of the adjustment mechanism in the preambles of the SNPRM and this

final rule.

Regulatory Analyses and Notices

E.O. 12866 and DOT Regulatory Policies and Procedures

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. Interested parties can access the

regulatory evaluation that examines the projected costs and impacts of

the proposal in the docket (OST-1996-1340). Since this final rule is

the same as the proposed rule and since we have received no comments

providing information that warrants changing any of the analysis, the

Department has decided to adopt the draft regulatory evaluation as

final.

Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.)

requires a review of rules to assess their impact on small entities.

The Department certifies that this rule will not have a significant

economic impact on a substantial number of small entities. The

Department received no comments in response to the SNPRM on potential

impacts on small entities. By its express terms, the rule applies only

to flight segments that use large aircraft, or on any flight segment

that is included on the same ticket as another flight segment 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 also do not believe this rule would have significant

economic impact because most claim payments are currently well below

the existing $1250 minimum liability limit. Claimants still need to

demonstrate the extent of their actual losses and are not automatically

entitled to compensation at the higher level.

Federalism Implications

The Department believes that a federalism assessment is unnecessary

since this rule does not have sufficient federalism implications under

Executive Order 13132.

Compliance with the Unfunded Mandates Reform Act of 1995

Pursuant to the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-

4), each federal agency ``shall, unless otherwise prohibited by law,

assess the effects of Federal Regulatory actions on State, local, and

tribal governments, and the private sector (other than to the extent

that such regulations incorporate requirements specifically set forth

in law).'' Sec. 201. Section 202 of the Unfunded Mandates Reform Act

further requires that ``before promulgating any general notice of

proposed rulemaking that is likely to result in promulgation of any

rule that includes any Federal mandate that may result in the

expenditure by State, local, and tribal governments, in the aggregate,

or by the private sector, of $100,000,000 or more (adjusted annually

for inflation) in any 1 year, and before promulgating any final rule

for which a general notice of proposed rulemaking was published, the

agency shall prepare a written statement'' detailing the effect on

state, local, and tribal government and the private sector. Since this

rule does not result in an unfunded mandate, the Department did not

prepare a statement.

List of Subject in 14 CFR Part 254

Air carriers, Consumer protection, Reporting and recordkeeping

requirements.

For reasons set forth in the preamble, the Department amends 14 CFR

Part 254 as follows:

PART 254--DOMESTIC BAGGAGE LIABILITY

1. The authority citation for part 254 is 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'' is removed and the

phrase ``and intrastate'' is added in its place.

Sec. 254.2 [Amended]

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

phrase ``or intrastate'' is added in its place.

4. Section 254.4 is 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 $2500 for each passenger.

Sec. 254.5 [Amended]

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

``$2500.''

6. Section 254.6 is added to read as follows:

Sec. 254.6 Periodic Adjustments

The Department of Transportation will review the minimum limit of

liability prescribed in this part every two years. The Department will

use the Consumer Price Index for All Urban Consumers as of July of each

review year to calculate the revised minimum liability amount. The

Department will use the following formula:

$2500 x (a/b) rounded to the nearest $100 where:

a = July CPI-U of year of current adjustment

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

[[Page 70576]]

Issued in Washington, DC under authority delegated by 49 CFR

1.56a(h)2 on December 13, 1999.

Robert Goldner,

Acting Deputy Assistant Secretary for Aviation and International

Affairs.

[FR Doc. 99-32782 Filed 12-16-99; 8:45 am]

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