Pan Am. World Airways, Inc. v. C. A. B., 217

• Decision Date: 22 May 1975
• Docket Number: No. 217,D,217
• Citation: 517 F.2d 734
• Parties: PAN AMERICAN WORLD AIRWAYS, INC., and Trans World Airlines, Inc., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent. ocket 74-1646.
• Court: U.S. Court of Appeals — Second Circuit

Page 734

517 F.2d 734

PAN AMERICAN WORLD AIRWAYS, INC., and Trans World Airlines Inc., Petitioners, v. CIVIL AERONAUTICS BOARD, Respondent.

No. 217, Docket 74-1646.

United States Court of Appeals Second Circuit.

Argued March 19, 1975.

Decided May 22, 1975.

Harold L. Warner, Jr., New York City, with whom Carl S. Rowe, New York City, Jerry W. Ryan, and Edmund E. Harvey, Washington, D. C., were on the brief, for petitioners.

Glen M. Bendixsen, Associate Gen. Counsel, Litigation and Research, C. A. B., with whom Thomas V. Heye, Gen. Counsel, C. A. B., O. D. Ozment, Deputy Gen. Counsel, C. A. B., Asst. Atty. Gen. Thomas E. Kauper, Alan R. Demby, Atty., C. A. B., and Carl D. Lawson, Atty., Dept. of Justice, were on the brief, for respondent.

Robert M. Lichtman, Washington, D. C., with whom Robert E. Nagel, Washington, D. C., was on the brief, for National Air Carriers Association, Inc., Capitol International Airways, Inc., Overseas National Airways, Inc., Saturn Airways, Inc., Trans International Airways, Inc., and World Airways, Inc., intervenors.

Before SMITH and TIMBERS, Circuit Judges, and WEINSTEIN, District Judge. ^*

WEINSTEIN, District Judge:

Exercising its rule-making power, the Civil Aeronautics Board (C.A.B. or Board) has authorized supplemental air carriers to operate foreign originating travel group charters. Reg. SPR-74, 39 Fed.Reg. 10886 (1974). Rules of the foreign country must conform to the detailed standards contained in the Board's regulation and there must be a bilateral international agreement authorizing the operation.

Petitioners contend that the standards do not adequately distinguish between individually ticketed services and "charter trips" and that the Board, therefore, has exceeded its statutory authority under the Federal Aviation Act (Act). Fed.Av.Act §§ 101(36), 401(d)(3), and 402(b), 49 U.S.C. §§ 1301(36), 1371(d)(3), 1372(b).

The Civil Aeronautics Board has developed various abbreviations for the terms it uses. By necessity this opinion adopts these symbols set out in the following brief glossary:

I. Background

Congress amended the Act in 1962 empowering the Board, upon a finding of public convenience and necessity, to certificate air carriers to engage solely in "supplemental air transportation." 49 U.S.C. § 1371(d)(3). This form of transportation is characterized as "charter trips." 49 U.S.C. § 1301(36). See Pub.L.No.87-528, July 10, 1962, 76 Stat. 143, amending the Fed.Av.Act of 1958, 72 Stat. 731, as amended, 49 U.S.C. § 1301 et seq.

The term "charter" is not defined by the Act. It is thus subject to the Board's construction which must maintain the basic distinction between group travel by charter and individually ticketed travel of the sort normally associated with scheduled point-to-point service. See, e. g., American Airlines, Inc. v. C.A.B., 121 U.S.App.D.C. 120, 348 F.2d 349, 354 (1965); American Airlines, Inc. v. C.A.B., 125 U.S.App.D.C. 6, 365 F.2d 939, 943-45 (1966); Pan American World Airways, Inc. v. C.A.B., 380 F.2d 770, 779 (2d Cir. 1967), aff'd by an equally divided Court sub nom. World Airways, Inc. v. Pan American World Airways, Inc., 391 U.S. 461, 88 S.Ct. 1715, 20 L.Ed.2d 748, reh. denied, 393 U.S. 956, 89 S.Ct. 370, 21 L.Ed.2d 369 (1968); Trans International Airlines, Inc. v. C.A.B., 139 U.S.App.D.C. 174, 432 F.2d 607, 609 (1970); Saturn Airways, Inc. v. C.A.B., 157 U.S.App.D.C. 281, 483 F.2d 1284, 1287 (1973). As the court put it in American Airlines Inc. v. C.A.B., 123 U.S.App.D.C. 120, 348 F.2d 349, 354 (1965), "(T)he Board should be free to evolve a definition in relation to such variable factors as changing needs and changing aircraft . . . ."

Acting pursuant to this authority, the Board has recognized various types of charters. There are "single entry" charters in which an aircraft is engaged by one person for the transportation of others who pay nothing. There are charters in which a group charters an aircraft for its own use, each participant sharing equally in the cost. Groups having some prior "affinity" or interest may travel together or "spontaneous" groups of persons without a prior community of interest may band together specifically for the purpose of travel. Even split charter rules, permitting the chartering of one-half of an aircraft to each of two unrelated groups, have been recognized. American Airlines, Inc. v. C.A.B., 123 U.S.App.D.C. 120, 348 F.2d 349 (1965).

The Board has also provided for inclusive tour charters (ITC). These flights are chartered by an independent tour operator who markets a travel package consisting of air transportation, accommodations, and other ground arrangements to members of the general public. The tour is offered at a single package price and the tour operator bears the commercial risk of unsold seats. 14 C.F.R. Part 378 (1974). As noted in some detail in Part III B infra, the Board's ITC authorization was ultimately upheld by Congress.

Charter service is inherently less expensive to individuals than conventional service because the capacity of an aircraft is used and the cost can be spread among more passengers than in scheduled service, where planes usually fly with less than full planeloads and the costs are borne by fewer passengers. Over the years, the most widely used type of charter has been that of "affinity" groups. The Board's regulations contain numerous technical restrictions designed to insure that the participants are drawn from a bona fide club or organization existing for purposes other than travel, since in this type of charter such affinity is the tool utilized by the Board to maintain the distinction between group travel and individually-ticketed service. See 14 C.F.R. § 207.40 (1974).

Affinity charters have "proven to be discriminatory in application and difficult in enforcement." Saturn Airways, Inc. v. C.A.B., 157 U.S.App.D.C. 281, 483 F.2d 1284, 1292 (1973). They tend to discriminate against members of the public who do not belong to qualified organizations with a membership large enough to successfully mount a charter program. Additionally, wide abuses of the affinity rules developed over the years; spurious organizations were formed, composed of individuals, otherwise unrelated to one another, who were brought together essentially at the time of flight, solely to pretend to conform to the rules under which low cost transportation was made available. See C.A.B. v. Carefree Travel, Inc., 513 F.2d 375 (2d Cir. 1975). The charter rules lacked common acceptance among passengers because it was not clear to them why the test for eligibility for low cost transportation was membership in a group which had nothing to do with transportation. See Keyes, The Transatlantic Charter Policy of the United States, 39 J. Air L. & Com. 215, 239 (1973); Diederich, Protection of Consumer Interests Under the Federal Aviation Act, 40 J. Air L. & Com. 1, 13 (1974); Lichtman, Regularization of the Legal Status of International Air Charter Services, 38 J. Air L. & Com. 441, 450 (1972).

To meet affinity charter problems, the Board established travel group charters (TGC), a service based upon eligibility requirements other than organization membership. It is designed to provide a more appropriate means of maintaining the distinction between charter and individual service. Reg. SPDR-22, 36 Fed.Reg. 2514, 2515 (1971).

TGC rules were adopted by the Board in 1972. 14 C.F.R. Part 372a (1974). The essence of a TGC is that a group of forty or more persons may contract with an air carrier to hire all or part of an aircraft for round-trip transportation for a trip lasting at least seven days in North America or at least ten days elsewhere in the world. Under the rules, the cost of the trip is borne by the charter participants on a pro rata basis. TGCs are arranged by a "charter organizer," defined as one engaged in the formation of the group, who acts as the group's agent with respect to the contract with the air carrier and who is regulated as an "indirect air carrier." Contained in the regulations governing the formation of travel groups and the transportation involved are detailed provisions designed to maintain a distinction between group and individually-ticketed travel. See 14 C.F.R. § 372a.10-.18 (1974).

Several scheduled carriers, including the present petitioners, vigorously opposed the promulgation of the TGC rules, and appealed the Board's decision. Saturn Airways, Inc. v. C.A.B., 157 U.S.App.D.C. 281, 483 F.2d 1284 (1973). Many of the arguments made in the present proceeding were also addressed to the Saturn court. The carriers contended that the rules did not adequately differentiate between scheduled and charter service, that TGCs would directly compete with, rather than supplement, scheduled service, and that the Board had improperly abolished "prior affinity" as a charter requirement. Each of these arguments was rejected. Id. at 1291-93. The court concluded that the TGC rules "maintain the necessary distinction between group and individually ticketed travel, and that they are the result of painstaking and reasoned analysis by the Board." Id. at 1292. It recognized that "organization membership" is not necessary to insure the distinction between individually ticketed and charter services, and "is not a sine qua non for legality." Id. at 1293.

Concern about traditional affinity rules which had motivated the Board to adopt the TGC regulations had been shared by the regulatory authorities of many foreign governments. A few had been considering adoption of "nonaffinity" rules differing from the Board's TGC rules. During the pendency of proceedings culminating in the adoption of the TGC rules, several United States and foreign air carrier participants had argued for the adoption of special rules with respect to foreign originating TGCs, permitting charters to be operated in conformance with the originating country's rules governing TGCs (or their counterparts, however designated), so...