New Rules for Charter Brokers Mean New Responsibilities

Air charter brokers are finally getting their own recognition in new rules that took effect February 14. The new rules free them from being lumped by the U.S. Department of Transportation (DOT) into the category of ticket agent and allow them to serve as a new class of indirect air carriers and as a “bona fide agent” of a charter customer or a Part 135 operator. But with that recognition in the new Part 295 regulation comes more responsibility in how they conduct their business—whether or not they want it.

“There are new opportunities but there are also responsibilities,” said Dayton Lehman, CEO of Capitol Business Solutions a retired DOT official. “And by that, I mean there are new responsibilities that come with the opportunity to be an indirect air carrier, but if you just want to continue business as you always have and be the agent of a customer you also have new responsibilities, regardless.”

Lehman was among a group of panelists discussing the effect of Part 295 on January 30 at the 2019 NBAA Schedulers & Dispatchers Conference in San Antonio, Texas. Joining Lehman was Sentient Jet senior vice president of operations Adam Hohulin and  Jason Maddux, a partner of the law firm Garofalo Goerlich Hainbach. Gary Garofalo, senior counsel at Garofalo Goerlich, was the moderator. 

At the session, panelists focused on what they consider to be the new regulation’s most important elements to brokers; as well as pitfalls.

Maddux noted that the new rules don’t require charter brokers to register themselves, unlike other indirect air carriers such as freight forwarders. A broker registry was something that groups such as the National Air Transportation Association advocated for in drafting the new regulation, which began in 2007. The regulation also doesn’t require any kind of financial security on the part of the broker, Maddux added.

One of Part 295’s opportunities, Lehman said, is allowing brokers to have their branding on aircraft they charter, as long as that branding doesn’t mislead consumers into thinking the broker is the operator of the airplane. “It codifies the policy that permits you to have your logo on the aircraft as well as your name on the aircraft as long as the direct air carrier’s name is also prominently and clearly on the aircraft,” said Lehman, who retired as the DOT’s principal deputy assistant general counsel for aviation enforcement and proceedings.

But there’s also a fine line for brokers to walk in terms of misrepresenting themselves to consumers. Lehman recounted a DOT notice from 2007 known informally as “the napkin rule” in which a broker had his own branded napkins on a charter aircraft. “That could be problematic,” he said. “The most egregious case I recall was a situation where a broker gave business cards to the flight crew and had the flight crew hand them out. So it really made it appear it was [the broker’s] flight.”

Lehman also cautioned that when it comes to advertising, brokers must make clear they aren’t the operator of charter flights. “It applies to any solicitation materials you put out, whether it’s an email, website, radio, TV ads, anything like that. My suggestion is, since DOT has these three things specified, that you use their language to avoid any kind of problem.”

‘Right To Know’

A weighty part of the new regulation are disclosures to the customer, or “charterer” as they are referred to. The regulation requires the broker to disclose to the customer the name of the charter operator—and any associated doing-business-as (DBA) names—before signing a contract. “The genesis of that requirement is really, for more than 20 years, the DOT has considered it to be an unfair, deceptive practice for a customer not to know who’s going to carry them,” Lehman said. 

He said he can see why some brokers would want to push back on that for fear of losing a charter booking. “I think one of the common concerns that brokers have is, ‘Wait a second. If I tell them before they sign the contract who the carrier is going to be, they’re just going to go directly to the carrier,’” Lehman said. “And that may happen. But to be honest with you, from the government’s point of view, the customer’s right to know trumps that concern by brokers.”

Brokers also are responsible for notifying customers up front about the capacity in which they’re acting, either as an agent of the customer or as an indirect air carrier, as well as whether they have liability insurance. “Those of you that have membership programs, I think that’s the kind of information that can be given up front to your members in a contract, so you don’t have to give it every time they want to take a new flight,” Lehman said.

There are also disclosures the brokers are obligated to provide customers upon request, the most notable of which is the relationship of the broker to the charter operator. “I think it’s important to note that DOT doesn’t require you, the rule doesn’t require you, to give details. You don’t have to tell them what kind of deal you’re getting for what kind of relationship you have. I think maybe some language like 'it’s a preferred carrier' might suffice.”

It goes without saying that brokers are also required to inform the customer of the total cost of the charter. “I find this somewhat humorous, because I think that would be something that somebody would want to know without having to ask for it,” Lehman said. That would include any potential fees, such as for landing at the receiving airport or deicing. “This is probably one of those areas where…you’re not going to know that that fee is,” he said. “But the customer, I think, should always be told in advance what might be charged even if you don’t know the exact cost. And if you do have an estimate, tell them. If you don’t, then you don’t.”

In all cases, Lehman recommended brokers obtain and keep written confirmation of disclosures they provide to customers. “Whether it’s checking a box on a website or something else that they received 'XYZ' information, I think it would behoove all of you to look at having something in place,” he said.

Disclosures and Refunds

Lehman noted that the regulation also calls for “reasonable time” disclosures, such as in the instance of fees. For example, if the broker learns after a charter contract is signed the exact amount of the deicing fee, or something else arises that would affect the flight, he or she is obligated to tell the customer in a reasonable amount of time. “If you learn about it a week in advance [of the trip] and you tell them about it 24 hours ahead of time, DOT’s going to say that’s not reasonable, that you should have told them earlier,” he said.

And that instance—as well as failing to comply with any of the disclosure requirements—could very well trigger the customer’s right to a full refund. “This is the point where I always tell folks they should pay attention,” Lehman said. 

He said failing to comply with Part 295’s disclosure requirements could lead to a cease-and-desist order or civil penalties: up to $33,333 per violation, per day for companies or $3,333 per violation, per day for an individual or small business. “Now, if a charter costs a couple hundred thousand dollars can you just ignore the refund and say, ‘I’ll just pay the fine?’” Lehman said. “I think that’s not wise, because what DOT is going to say is you’re continuing to be in violation of the rule on a continuing basis until you make the refund. So that adds up pretty quickly to a significant amount of [more] money than what that [refund] cost is going to be.”

At jet card provider Sentient Jet and its sister companies Skyjet and PrivateFly, Hohulin said they are taking seriously the disclosure requirements of Part 295. “We’re taking the stance here in our companies that more is better, full transparency to our clients,” he said. That includes charter quotes, contracts, and final itineraries. 

The disclosures get a little more challenging with the jet card and membership clients, “where you’re contracting up front, the contract is signed before the client actually puts a deposit down,” Hohulin said. In those instances, he said, the companies are adding their mandatory disclosures in an appendix to their terms and conditions. “We’re actually going to label it appendix 295,” he said. 

“That way, at the end of the day when they sign that contract up front, they understand what our requirements are to them, and what we’re going to do for them,” Hohulin said. “And then we’re going to change all of our paperwork to put the information in there as well, because obviously in the up front contract I can’t tell who the operator is. But I can tell them…I can provide them with the name [of the operator] and the DBA, and this is the point at which I’m going to do this in the transaction. So that’s the stance that we’re taking. Terms and conditions, this is how we’re going to handle it.”