FAA Releases Final Policy on Air Carrier Incentive Programs
On December 7, the Federal Aviation Administration's (FAA) released a final policy statement that provides guidance to airports on how to determine if its Air Carrier Incentive Program (ACIP) complies with federal grant obligations, which apply to any airport that receives financial assistance through the Airport Improvement Program (AIP).
FAA's final policy governing ACIPs adopted many of the changes originally proposed earlier in the year that AAAE supported, including the ability for airports to incentivize seasonal service or allow airport staff to advise non-airport entities on administering ACIPs. Based on opposition from AAAE and the airport community, FAA made two notable changes to its original proposal that include restoring the ability for airports to (1) incentivize a carrier to increase the frequency of flights to a specific airport destination under some conditions, and (2) provide marketing funds directly to carriers with appropriate documentation. Unfortunately, despite industry opposition, FAA maintained the ACIP transparency provisions in the final policy, which requires airport sponsors to publicly disclose the existence of an ACIP.
As of today, the policy statement supersedes the 'Air Carrier Incentive Program Guidebook' ('ACIP Guidebook'), which was published in 2010 to provide guidance on these incentive programs. However, any carrier incentives for which contracts are signed on or prior to February 5, 2024 (within the next 60 days), do not need to comply with FAA's new policy.
You can view FAA's final policy, which was published in the Federal Register today, here.
Background. Airports and communities use air carrier incentives in order to attract new air service, both for new entrant carriers to begin service at an airport or to incumbent carriers at an airport to add new routes. If an airport receives AIP funding, the airport must comply with a series of grant assurances. Each airport is responsible for ensuring that its ACIP is consistent with these grant obligations, which govern the extent to which an airport sponsor can provide incentives to an air carrier in return for new air service at the
airport.
In 2010, FAA published the ACIP Guidebook, which provides detailed guidance on the use of incentives for air carriers to begin serving an airport or service on a new route from the airport. Since publication of the ACIP Guidebook, FAA has reported that the number of ACIPs have significantly increased, with more than 250 U.S. commercial service airports having implemented such programs.
FAA's Proposed Policy Statement. In February, FAA published and requested comments on a draft update to the policies governing ACIPs that reflects the experience the agency has gained with these incentive programs. AAAE supported several proposed changes that would provide more flexibility for airport sponsors to design an ACIP that is most suitable for their own unique circumstances. However, we also relayed our members' concerns regarding other changes, such as removing the ability for airports to incentivize a carrier to increase the frequency of flights to a specific destination and improve capacity. FAA received 20 comments, including 15 from airport sponsors. For additional information on AAAE's response to FAA, please view our April 4 comments and April 5 Regulatory Alert.
Summary of FAA's Final Policy on ACIPs. Airports are highly encouraged to review the final policy statement, which makes many changes to the 2010 Guidebook. However, we have summarized some of the key provisions and changes in the final policy statement below.
• 'New Service' Definition: FAA's policy allows airports to incentivize 'a significant increase in capacity on preexisting service to a specific airport destination.' However, if an airport includes such incentives in its ACIP, FAA provides that the incentives (a) are limited to one year, (b) may not discriminate based on whether the frequency addition is from a carrier that already serves the route, (c) cannot be the only type of incentive in the ACIP, and (d) should only apply to increased frequencies that result in a significant net increase in seat capacity to the specific airport destination. FAA's original proposal would have revised the definition of 'new service' to preclude airports from incentivizing the 'increased frequency of flights to a specific destination,' a practice that was permitted in the ACIP Guidebook. Based on opposition from AAAE and the airport community, FAA's final policy modified its proposal to allow these types of incentives under some conditions.
• 'Seasonal Service' Definition: FAA's policy adds a new definition for 'seasonal service'-defined as '[n]onstop service that is offered for less than 7 months of the calendar year'-and permits airports to provide incentives for seasonal service for 3 seasons, up to 3 years from the start of the service. We generally supported this change.
• Incentives for New Cargo Service: FAA's policy clarifies that an ACIP may be offered for 'new cargo service,' separate from any ACIP offered for new passenger service. We supported the change, and FAA did not make any changes from its original proposal.
• ACIP Transparency: FAA's policy requires airport sponsors to provide notification of the existence of an ACIP and its terms and conditions at least 30 days in advance of signing an incentive agreement with a carrier. This includes publicly disclosing incentives offered; the program eligibility criteria; identification of the targeted or desired new service; and for incentives awarded, a periodic listing of all carriers benefiting from the ACIP, the incentives received, and identification of the incentivized service. FAA adopted this requirement despite opposition from AAAE and airports. However, FAA did note that airports are not expected to provide advance public notice of a specific incentive agreement with a carrier as long as the agreement is consistent with the previously publicized ACIP.
• Payments for Marketing New Service: FAA's policy allows marketing funds to flow directly to either (a) the marketing provider or (b) a carrier but only after the carrier has paid the marketing provider and submitted an invoice to the airport with supporting documentation. FAA's original proposal would have precluded airport sponsors from providing marketing funds directly to a carrier. Based on opposition from AAAE and the airport community, FAA reversed its position and allowed marketing funds to flow to a carrier under the conditions stated.
• Sponsor Assistance to Non-Sponsor ACIPs: FAA's policy allows airport staff to provide their expertise to help non-airport entities administer ACIPs because non-airport entities typically lack the industry knowledge needed to make informed decisions about what new service should be incentivized. We supported this change and argued that FAA should also allow airport staff to participate in decision-making processes or handle non-airport funds in some circumstances. Unfortunately, FAA rejected our recommendation, and its policy does not permit airport staff to participate in decision-making processes or handle non-airport funds.
• Upgauging Practices: FAA's policy allows incentives for upgauging to the extent that they 'significantly increase capacity on a preexisting route.' However, if an airport includes such incentives in its ACIP, FAA provides that the incentives (a) are limited to one year, (b) cannot be the only type of incentive in the ACIP, and (c) should only apply to increased frequencies that result in a significant net increase in seat capacity to the specific airport destination. We supported FAA continuing to allow airport sponsors to incentivize upgauging practices, although with fewer limitations than what FAA included in the final policy.
• Limited Budget for ACIP: FAA's policy allows airport sponsors of any size to limit incentives to one carrier in cases where the sponsor has a limited budget, provided that information regarding the ACIP, including the limited availability, is disclosed at least 30 days prior to signing a contract with a carrier. We generally supported this change, and FAA adopted its original proposal with only minor modifications.
What's Next: Effective Date of New Policy. Any carrier incentives for which contracts are signed on or prior to February 5, 2024, do not need to comply with FAA's new policy, although they must comply with the 2010 Guidebook. However, any new ACIP, or modification to an existing incentive program, that an airport develops beginning today must comply with FAA's new policy statement governing ACIPs. The agency emphasized that carrier incentives that were initiated prior to the issuance date of the policy-and through February 5, 2024-would be permitted to continue as implemented until they expire.
