## Facts

- The City of Los Angeles owns and operates Los Angeles International Airport (LAX) and sets landing fees charged to airlines.
- Until 1993, the City used a “residual” method that applied expected surplus from non-aeronautical activities (e.g., parking and concessions) to offset aeronautical costs, lowering landing fees.
- In 1993, the City changed methodologies by (1) eliminating the non-aeronautical surplus offset and (2) adding “opportunity costs” to aeronautical expenses, based on the asserted fair market rental value of airfield land if leased for other uses.
- Airlines challenged the increased fees before the Department of Transportation (DOT) as unreasonable under federal airport-fee and grant-assurance statutes.
- DOT initially invalidated the fees based on a categorical statutory view that opportunity costs could not be included.
- A prior court decision rejected DOT’s categorical statutory bar and remanded for DOT to address opportunity cost as a policy question under the statutory reasonableness standard.
- On remand, DOT again rejected the City’s fees, concluding as a matter of policy that recovering the City’s claimed opportunity costs through landing fees was unreasonable.
- The City petitioned for review of DOT’s remand decision.

## Issues

1. Whether DOT permissibly determined that it was unreasonable for the City to calculate LAX landing fees using the fair market rental value of airfield land as an “opportunity cost.”
2. Whether DOT’s policy-based rejection of the opportunity-cost methodology survived arbitrary-and-capricious review under the Administrative Procedure Act.

## Decision

- The court denied the petition for review and upheld DOT’s determination.
- The court held DOT acted within its delegated authority to assess fee “reasonableness” and provided a rational explanation for disallowing the City’s opportunity-cost methodology.
- The court applied deferential review, emphasizing that Congress assigned DOT primary responsibility for developing and applying standards of airport-fee reasonableness.
- The court rejected the view that it should reweigh DOT’s economic judgments, limiting review to whether DOT considered relevant factors and reasonably explained its decision.

## Legal Principles

- Under federal airport-fee statutes and related grant-assurance requirements, DOT has discretion to determine whether airport fees imposed on air carriers are “reasonable.”
- Opportunity costs are not categorically prohibited by statute, but DOT may disallow an opportunity-cost approach as unreasonable as a matter of policy when adequately explained.
- DOT may consider legal and practical constraints on airport land use when assessing whether claimed “opportunity” alternatives are realistic and whether any net foregone benefit has been shown.
- Courts review DOT’s reasonableness determinations under a deferential arbitrary-and-capricious standard and will uphold rational, explained policy choices in technical economic domains.

## Conclusion

The D.C. Circuit upheld DOT’s policy determination that LAX landing fees could not be justified by adding a hypothesized fair-market rental “opportunity cost” for airfield land, and it denied the City’s petition for review under deferential administrative-law review.


City of Los Angeles v. U.S. Dep’t of Transp., 165 F.3d 972 (D.C. Cir. 1999)