Charter Brokers & Phantom Fleets
DOT Issues Policy Statement Defining Role Of Charter Brokers
By Kent Jackson, Jackson & Wade
Who or what is a "charter broker"? For several years, there has been an increasing number of players in the market selling the charter services of others. The Department of Transportation issued policy guidance on "the role of air charter brokers in arranging air transportation" on October 8, 2004.
As described by the DOT, two separate arrangements commonly occur: (1) the air charter broker collects all of the money paid by the charter customer pursuant to the broker's contract with the customer, and (2) the air charter broker then turns over a portion of this money to the direct air carrier pursuant to the broker's separate contract with the carrier.
In such instances, the air charter broker is not acting as an agent for the operating carrier or for the charter customer. Instead, the air charter broker is acting for itself in both contracts, and, in the eyes of the customer and the DOT, is engaged in air transportation as an "indirect air carrier" without the DOT-required authority.
The DOT has also investigated instances where the air charter broker owns an aircraft that is listed on the operations specification of a Part 135 charter operator, but the charter broker sells flights to the public as if the charter broker were in fact a legitimate Part 135 operator in its own right.
However, in issuing this policy guidance, the DOT was careful to state that "we recognize that air charter brokers can provide important public benefits in connection with air transportation, particularly when, akin to public charter operators, they assume the economic risk of such service and are also involved in purchasing and funding the operation of aircraft by certificated carriers."
The reference to "public charter operators" means companies that typically sell charter flights bundled with hotel, cruise or other travel packages. These "public charter operators" do not have aircraft or 121 or 135 certificates themselves. They are authorized by the DOT pursuant to FAR Part 380 to sell these travel packages by complying with strict bond and trust requirements that protect both the customers and the direct air carriers that actually operate the flights.
The DOT goes on to say that "[W]e note that this notice does not preclude brokers from seeking from the Department exemption authority that could permit them to offer services directly to the public in their own right, subject to their implementation of necessary consumer safeguards."
The new charter broker guidance then explains why it is unlawful for an air charter broker to act like an air carrier when it has no authority to do so. These operations violate the economic licensing requirements that the DOT oversees, and the "unfair and deceptive practices" statutory and regulatory provisions that the DOT enforces. As the DOT points out in the new guidance, under FAR 399, the DOT will regard it to be an unfair and deceptive practice or unfair method of competition for a ticket agent, among other things, to create the false impression that it is an air carrier, to advertise in certain ways that confuse the traveling public with respect to a ticket agent's status, and to enter into a contract for air transportation with a customer without first obtaining a binding commitment with an air carrier to perform the promised air transportation.
More specifically, the DOT has now stated that "at a minimum, air charter brokers without economic authority ... should take care not to hold out as 'airlines,' 'air carriers,' ''operators,' 'airways,' or in any other way likely to create the false impression that they are direct air carriers in their own right." The DOT also stated that air charter brokers should not use phrases such as "our fleet," or "our charters," "our charter service" "our jet operators" or "we operate a fleet of. . ."
The DOT also reiterated the fact that FAR Part 125 operations may not be held out to the public by charter brokers. The DOT could presumably seek enforcement action against both the charter broker and the Part 125 operator in such circumstances. The DOT also cautioned against the use of internet "bid boards" by Part 125 carriers. The DOT specifically warned that it may seek enforcement where a Part 125 carrier bid on or contracted with more than three customers through these "bid boards."
The most clear and helpful guidance that the DOT has provided to the industry through this pronouncement on air charter brokers is the prohibited phrases such as "we operate a fleet of. . ." It is difficult for legitimate operators to compete against phantom "fleets."
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