DOT Issues Charter Broker Regulations
The NTSB called for regulation of air charter brokers after a charter flight crash in Montrose, Colo., in 2014. Fourteen years later, the DOT has published a new set of regulations entitled “Increasing Charter Air Transportation Options.” These new air charter broker regulations provide much needed clarity in the field.
These new rules have five goals:
- Provide clarity about the ability of air charter brokers to buy and sell charters as agents or in their own right.
- Require air charter brokers to make certain disclosures.
- Prohibit unfair or deceptive practices and unfair methods of competition by air charter brokers.
- Require Part 135 air carriers to make certain disclosures.
- Prohibit unfair or deceptive practices and unfair methods of competition by Part 135 air carriers.
- Air Charter Brokers “Selling in their Own Right”
Most air charter brokers offer their services as either an agent for the customer or as an agent for the air carrier. The complex rules governing “indirect air carriers” nudged these brokers towards the simplicity of the agent role. But the evolving marketplace make this a challenge. For example, if a broker never shops for charter until a customer requests a flight, then the broker is clearly an agent of the customer. But, if the broker is buying charter at wholesale prices in advance of a specific customer’s specific flight, then the broker begins to look like an indirect air carrier, who buys flights at wholesale prices and sells at retail. This is what the DOT means by “selling in their own right.”
However, these new rules are limited to “single entity charter” that is, charter of the whole aircraft. Seat-by-seat sales of charter by indirect air carriers (brokers) are still primarily governed by Part 380.
Allowing brokers to sell single entity charters “in their own right” is a major step forward for the industry. Arguably, some brokers were already doing this, but having clear rules should encourage more innovation and competition that will ultimately benefit both consumers and charter companies.
2. Charter Broker Disclosures
New Section 295.24 governs broker disclosures and it is long and detailed. The short version is: the broker must disclose before entering into a contract who is operating the flight, what role the broker plays (broker or selling in their own right) and any applicable insurance coverage. If asked, the broker must also disclose any relationship with the carrier that might have had a bearing on the selection of the carrier, total cost of the flight, including taxes and fees imposed by third parties and costs to be paid directly by the customer.
If the charter broker fails to disclose the required information within a reasonable time after such information becomes available to the air charter broker, then the broker must provide the customer with the opportunity to cancel the contract and receive a full refund. If any of the required disclosure information changes, the broker must provide information regarding any such changes to the customer within a reasonable time after such information becomes available to the air charter broker. If the broker fails to report changes to the customer in a reasonable time, then the broker must provide the customer with the opportunity to cancel the contract and receive a full refund.
3. Unfair or Deceptive Practices and Unfair Methods of Competition By Air Charter Brokers
New Section 295.22 states simply: “An air charter broker shall not engage in any unfair or deceptive practice or unfair method of competition.” New Section 295.23 imposes rules on advertising that primarily are designed to help customers distinguish between who is operating the flight and who is the broker. New Section 295.50 lists 11 specific types of misrepresentations and misleading practices that constitute unfair or deceptive practice or unfair method of competition.
4. Part 135 Air Carrier Disclosures
The DOT recognizes that charter operators often obtain substitute charter for their customers under a variety of circumstances. New Section 298.80 will require Part 135 air carriers to inform customers (except in “exigent circumstances”) if a different carrier will be operating the flight and what role the original carrier is playing in obtaining the substitute charter, i.e. as an agent or a principal (selling in its own right). If asked, the carrier must also disclose any relationship with the substitute carrier that might have had a bearing on the selection of the carrier, and total cost of the flight, including taxes and fees imposed by third parties and costs to be paid directly by the customer.
If the carrier fails to disclose the required information within a reasonable time after such information becomes available, then the carrier must provide the customer with the opportunity to cancel the contract and receive a full refund. If any of the required disclosure information changes, the carrier must provide information regarding any such changes to the customer within a reasonable time after such information becomes available. If the carrier fails to report changes to the customer in a reasonable time, then the carrier must provide the customer with the opportunity to cancel the contract and receive a full refund.
5. Unfair or Deceptive Practices and Unfair Methods of Competition By Part 135 Air Carriers
New Section 298.90 11 lists specific types of misrepresentations and misleading practices that constitute unfair or deceptive practice or unfair method of competition by Part 135 air carriers.
This is only a summary of the new regulations. The charter industry will need to read the rules in detail and incorporate changes to websites, quoting and invoicing programs. As a final note of affection from the DOT, the new regulations become effective on Valentine’s Day, 2019.
This article appeared in the December 2018 issue of Business & Commercial Aviation as a Point of Law article.
