Regulatory Alert: FAA Releases Draft Policy on Air Carrier Incentive Programs

Federal Aviation Administration (FAA) on February 2 released a draft policy that would provide 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). The proposed policy statement, if finalized, would supersede the 'Air Carrier Incentive Program Guidebook' ('ACIP Guidebook'), which was published in 2010 to provide guidance to airports on these incentive programs.

Based on our initial review, FAA's proposed updates would provide airports with additional flexibility in certain areas, such as allowing airport staff to provide expertise to help non-airport entities administer ACIPs. However, the proposal would also include a few additional requirements, including the obligation for airports to publicly disclose information pertaining to air carrier incentives offered and awarded. Notably, FAA stated that it would not review each airport's ACIP unless requested by the airport to do so.

FAA is expected to publish the draft policy in the Federal Register on February 3 and has provided a 60-day window for airports and the public to provide feedback. The deadline to respond is expected to be Tuesday, April 4. Airports are encouraged to carefully review the proposal and notify AAAE of concerns or any other issues that we should consider including in our comments to FAA. Based on a meeting that AAAE participated in this week with FAA, the agency has stated that its goal is to finalize the policy by the end of September 2023.

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. 

Justification for FAA Policy Update. 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 begin 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. Over the past 13 years and as a justification for updating its ACIP policy, FAA noted that the agency has observed changes in the airline market; gained further experience with these programs; and engaged with airports and air carriers in discussions about potential gaps in existing policy on ACIPs.

Overview of Updates to ACIP Policy. The goal of the proposal is to update and outline FAA's policy on how airports can ensure that the use of air carrier incentives complies with its federal grant obligations. The proposed policy statement would supersede the ACIP Guidebook. In terms of updates, FAA's draft policy would make the following changes:

Guiding General Principles: Provides five general principles that FAA would consider when determining whether an ACIP complies with an airport's grant obligations. These principles include: (1) discrimination between carriers participating in an ACIP and non-participating carriers must be justified and time-limited; (2) a sponsor may not use airport revenues to subsidize air carriers; (3) a sponsor may not cross-charge non-participating carriers or other aeronautical users to subsidize ACIP carriers; (4) the terms of an ACIP should be made public; and (5) use of airport funds for an ACIP must not adversely affect airport operations or maintenance.

'New Service' Definition: Revises the definition of 'new service' as 'any nonstop service to an airport destination not currently served with nonstop service, or any service to an airport by a new entrant carrier.'

'Seasonal Service' Definition: Adds a new definition for 'seasonal service'-defined as 'nonstop service that is offered for less than 6 months of the calendar year.' FAA would permit airports to provide incentives for seasonal service for 3 seasons, up to 3 years from the start of the service.

Incentives for New Cargo Service: Clarifies that an ACIP may be offered for 'new cargo service,' separate from any ACIP offered for new passenger service.

ACIP Transparency: Requires airport sponsors to provide notification of the availability and implementation of ACIPs to incumbent and potential new entrant carriers. This includes publicly disclosing incentives offered; the program eligibility criteria; identification of the targeted or desired new service; and for incentives awarded, a period listing of all carriers benefiting from the ACIP, the incentives received, and identification of the incentivized service.

Airport Assistance to Non-Sponsor ACIPs: Allows airport staff to provide their expertise to help non-airport entities administer ACIPs because non-airport entities typically lack the industry knowledge that is needed to make informed decisions about what new service should be incentivized at different airports. However, airport staff could not participate in decision-making processes or handle non-airport funds.

Payments for Marketing New Service: Clarifies that marketing funds need to flow directly to the marketing provider to avoid impermissible subsidy to air carriers. This was previously a recommendation in the 2010 Guidebook; it would become a requirement if the draft policy were finalized.

Upgauging Practices: Allows airport sponsors to continue implementing an ACIP that induces increases in landed weight of air carrier aircraft, known as 'upgauging,' under certain conditions. However, FAA specifically requested comment on whether or not the proposed policy should be revised to exclude this practice.

Limited Budget for ACIP: Eliminates FAA's preference for use of an RFP to select a carrier for incentives because, according to the agency, other processes may be acceptable. For example, FAA would allow an airport sponsor implementing an ACIP limited to one carrier to publish information on the ACIP at least 30 days prior to entering into a carrier agreement for incentives.

Restart of Service: Permits airport sponsors to provide incentives for air service previously offered but cancelled as a result of the COVID-19 pandemic.

Effect of Proposal on Existing ACIPs. FAA noted that some ACIPs that are currently in effect may not be consistent with the proposed policy statement. The agency emphasized that carrier incentives that were initiated prior to the issuance date of the policy would be permitted to continue as implemented until they expire.

What's Next? FAA plans to publish the proposed policy in the Federal Register on February 3. AAAE will be engaging with members develop comments in response, which must be provided to the agency on or before Tuesday, April 4. During a meeting that AAAE participated in this week with FAA, the agency indicated its goal is to finalize the policy by the end of September 2023.