News | December 08, 2023

FAA Issues Final Policy on Air Carrier Incentive Programs

On December 7, 2023, the FAA issued its final Policy on Air Carrier Incentive Programs (the “Policy”).  The Final Policy constitutes the FAA’s most comprehensive policy statement regarding Air Carrier Incentive Programs (“ACIPs”), superseding the Air Carrier Incentive Program Guidebook that the FAA issued in 2010.  Airport sponsors should consult the Final Policy when preparing new ACIPs or addressing ACIP issues.  

By their nature, ACIPs provide more favorable economic treatment to air carriers providing “new service” at an airport than those providing “existing service.”  The Policy is intended to provide guidance to airport sponsors on those circumstances where the FAA will consider an ASIP to comply with an airport sponsor’s obligation to avoid unjust discrimination among aeronautical users of an airport, the unlawful diversion of airport revenue, and other obligations. 

Relative to prior policy and the version of the Policy initially proposed by the FAA, the new Policy provides airport sponsors with some increased flexibility in implementing ACIPs:

  • The FAA defines “new service” eligible for incentives as including “a significant increase in capacity” on existing service to a given destination.  The Policy does not define “significant increase,” explicitly leaving that determination to each airport sponsor’s discretion.  This approach allows airport sponsors to continue to incentivize increased frequencies or upgauging, provided the overall result is a “significant increase” in capacity, but may not be the only incentive offered by an airport sponsor.
     
  • The Policy permits sponsors to incentivize seasonal service (defined as nonstop service offered for less than seven months per calendar year) for up to three years.  Incentives available for year-round service to new destinations remain limited to two years, or one year if the incentive is made available only to new entrant carriers.
     
  • Budget-constrained airport sponsors may limit an incentive to only the “first carrier to establish service” to a given market, provided that the airport sponsor provides at least 30 days’ public notice about any such limitations.
     
  • The FAA continues to prohibit the use of airport revenue for airline subsidies, such as a minimum revenue guarantee; however, the Policy allows an airport sponsor to provide limited technical assistance and advice to another entity administering such subsidy programs that are funded with non-airport revenue.  Non-airport funds may not be comingled with airport revenue and airport staff’s role must be strictly advisory in nature.
     
  • To the extent an incentive program includes marketing support, airport sponsors may now pay marketing expenses directly to the provider or reimburse a carrier for such marketing expenses, after receiving sufficient documentation of the expenses.  This is a reversal of the FAA’s historical requirement that airport sponsors only contract directly with marketing providers, which all commenters generally opposed.
     
  • Airport sponsors may offer per-passenger or per seat-mile incentives, provided such incentives would not result in the improper subsidy of an air carrier (i.e., the incentives cannot exceed the amount of fees that would otherwise be incurred by the carrier).

Despite this added flexibility, the Policy also imposes new procedural requirements and constraints on the permissible scope and implementation of ACIPs:

  • The FAA “expects” (but does not specifically require) an airport sponsor to provide effective notice about the availability of an ACIP, such as by posting on its website, at least 30 days before entering into an agreement with a carrier.  Sponsors should also provide periodic information about the nature of all air service incentivized by the airport sponsor. 
     
  • Despite the request of several airport sponsors, the Policy affirms that costs which are normally charged to carriers by a third party (e.g., ground handling and fuel charges) cannot be waived as part of an ACIP, even if the sponsor itself provides those services.
     
  • The Policy prohibits an ACIP from “directly or indirectly” impacting rates for non-participating carriers, explaining, “[a]n acceptable ACIP will not result in an increase in the sponsor charges to non-participating carriers, i.e., on the charges that carriers would have paid in the absence of the incentivized service.” 
     
  • The terms of an ACIP “should be” set forth “in a standalone document,” rather than embedded in an airline use and lease or similar type of operating agreement.
     
  • While the FAA need not approve an ACIP, the Policy commits the FAA to reviewing an ACIP for compliance with an airport sponsor’s federal obligations “[a]t the request of an airport sponsor or of an air carrier potentially affected by an ACIP.”

The Policy is effective immediately.  However, existing incentive agreements and those signed prior to February 5, 2024 (i.e., within 60 days of the Policy’s publication) do not need to comply with the Policy, so long as the airport sponsor’s underlying ACIP (1) was adopted prior to December 7, 2023, and (2) complies with prior FAA guidance, including the 2010 Air Carrier Incentive Program Guidebook.  All other new or revised ACIPs must comply with the Policy.

Airport sponsors considering new ACIPs or revisions to existing ASIPs should carefully review the Policy.  If you have questions about the Policy, please contact Steven Osit (sosit@kaplankirsch.com), Nicholas Clabbers (nclabbers@kaplankirsch.com), Sarah Wilbanks (swilbanks@kaplankirsch.com), or any other Firm attorney with whom you regularly work.