Commercial Aviation
Issues Regarding Federal Assistance for Enhancing Air Service to Small Communities Gao ID: GAO-03-540T March 11, 2003Small communities have long faced challenges in obtaining or retaining the commercial air service they desire. These challenges are increasing as many U.S. airlines try to stem unprecedented financial losses through numerous cost-cutting measures, including reducing or eliminating service in some markets, often small communities. Congress will be considering whether to reauthorize its federal assistance programs for small communities. GAO was asked to describe the kinds of efforts that states and local communities have taken to enhance air service at small communities; federal programs for enhancing air service to small communities; and issues regarding the type and extent of federal assistance to enhance air service to small communities.
Small communities have taken a variety of steps to try to obtain or improve air service, such as marketing to increase passengers' demand for local service or offering financial incentives to airlines to attract new or enhanced service. At communities GAO studied in depth, financial incentives were most effective in attracting new service. However, the additional service often ceased when incentives ended. The two key federal programs to help small communities with air service face increasing budgetary pressures and questions about their effectiveness. Demand for these programs is heavy and may increase as airlines reduce service to communities. The Essential Air Service program subsidizes carriers that provide air service to eligible small communities. However, program costs have tripled since 1995, and fewer passengers use the subsidized local service. Most choose to drive to their destination or to fly to and from another nearby airport with more service or lower fares. The Small Community Air Service Development Pilot Program, in its first year of operation, provided $20 million in grants to help small communities enhance service. Most programs funded appear similar to those undertaken by communities and may not result in sustainable service enhancements. Questions about the efficacy of these programs highlight issues regarding the type and extent of federal assistance for small community air service. Reauthorization provides an opportunity for the Congress to clarify the federal strategy for assisting small communities with air service.
GAO-03-540T, Commercial Aviation: Issues Regarding Federal Assistance for Enhancing Air Service to Small Communities
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Testimony:
Before the Subcommittee on Aviation, Committee on Commerce, Science and
Transportation, U.S. Senate:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 9:30 a.m. EST:
Tuesday, March 11, 2003:
Commercial Aviation:
Issues Regarding Federal Assistance for Enhancing Air Service to Small
Communities:
Statement of JayEtta Z. Hecker
Director, Physical Infrastructure Issues:
Commercial Aviation:
GAO-03-540T:
GAO Highlights:
Highlights of GAO-03-540T, testimony before the Aviation Subcommittee,
Senate Committee on Commerce, Science and Transportation
Why GAO Did This Study:
Small communities have long faced challenges in obtaining or retaining
the commercial air service they desire. These challenges are
increasing as many U.S. airlines try to stem unprecedented financial
losses through numerous cost-cutting measures, including reducing or
eliminating service in some markets, often small communities.
Congress will be considering whether to reauthorize its federal
assistance programs for small communities. GAO was asked to describe
the kinds of efforts that states and local communities have taken to
enhance air service at small communities; federal programs for
enhancing air service to small communities; and issues regarding the
type and extent of federal assistance to enhance air service to small
communities.
What GAO Found:
Small communities have taken a variety of steps to try to obtain or
improve air service, such as marketing to increase passengers‘
demand for local service or offering financial incentives to airlines
to attract new or enhanced service. At communities GAO studied in
depth, financial incentives were most effective in attracting new
service. However, the additional service often ceased when
incentives ended.
The two key federal programs to help small communities with air
service face increasing budgetary pressures and questions about their
effectiveness. Demand for these programs is heavy and may increase
as airlines reduce service to communities. The Essential Air Service
program subsidizes carriers that provide air service to eligible
small communities. However, program costs have tripled since 1995,
and fewer passengers use the subsidized local service. Most choose
to drive to their destination or to fly to and from another nearby
airport with more service or lower fares. The Small Community Air
Service Development Pilot Program, in its first year of operation,
provided $20 million in grants to help small communities enhance
service. Most programs funded appear similar to those undertaken
by communities and may not result in sustainable service
enhancements.
Questions about the efficacy of these programs highlight issues
regarding the type and extent of federal assistance for small
community air service. Reauthorization provides an opportunity for
the Congress to clarify the federal strategy for assisting small
communities with air service.
www.gao.gov/cgi-bin/getrpt?GAO-03-540T
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact JayEtta Z. Hecker at (202) 512-2834
or heckerj@gao.gov.
Mr. Chairman and Members of the Subcommittee:
Thank you for inviting us to testify today on the issue of air service
at small communities. These communities have long faced challenges in
obtaining or retaining the commercial air service they desire. These
challenges are increasing as many U.S. airlines try to stem
unprecedented financial losses through numerous cost-cutting measures,
including reducing or eliminating service in some markets. Small
communities feel such losses disproportionately because they may have
service from only one or two airlines. For them, reductions can mean no
air service at all.
Over the past several years, we have issued a number of products
examining air service provided to small communities. These reports have
examined the use of regional jets, changes in the amount and type of
service that small communities receive, options to enhance the long-
term viability of the federal Essential Air Service (EAS) program, and
efforts to improve air service at small communities.[Footnote 1] In
light of continuing concerns about small community air service and
upcoming opportunities for the Congress to reauthorize federal
assistance programs for small communities, we would like to summarize
some key elements of our recent work. Today, my testimony addresses
three topics: (1) the kinds of efforts that states and local
communities have taken to enhance air service at small communities; (2)
federal programs for enhancing air service to small communities; and
(3) issues regarding the type and extent of federal assistance to
enhance air service to small communities.
In summary:
* In recent years, states and local communities have undertaken a
variety of efforts to enhance their air service. Our analysis of these
efforts at nearly 100 small communities found that they comprise three
main types: studies to evaluate potential markets, marketing efforts to
increase consumer demand, and financial incentives to encourage
airlines to either start or enhance air service. Financial incentives
tended to offer the most promise for attracting new or additional air
service. However, once the incentives ended, the additional service
often ended as well. Longer-term sustainability of these air service
improvements appears to depend on the community‘s size and its ability
to demonstrate a commitment to that air service, either by providing a
profitable passenger base or through direct financial assistance.
* The two key federal programs for helping small communities with air
service face increasing budgetary pressures and questions about their
effectiveness.
* The EAS program, authorized under the Airline Deregulation Act of
1978, guarantees that small communities served before deregulation
continue to receive a certain level of scheduled air service. Its costs
have more than tripled since fiscal year 1995, and indications are that
without changes to the program, the demand for EAS subsidies will soon
exceed its $113 million appropriation. At the same time, aggregate
passenger levels at EAS-subsidized airports continue to fall. Often
less than 10 percent of a community‘s potential passengers use the
subsidized local service; the rest choose to drive to their destination
or drive to a larger airport that offers lower fares or more frequent
service to more destinations. In 2000, the median number of passengers
on each EAS-subsidized flight was just three.
* The Small Community Air Service Development Pilot Program (’Pilot
Program“), authorized as part of the Wendell H. Ford Aviation
Investment and Reform Act for the 21st Century (AIR-21), P.L. 106-181,
provides grants to communities to enhance local air service. In fiscal
year 2002, 180 communities (or consortia of communities) requested over
$142.5 million in air service development grants--more than seven times
the $20 million appropriated. The program funded some innovative
approaches, such as Mobile, Alabama‘s, program to provide ground
handling services to an airline, but the majority of the grants funded
the same types of projects noted earlier--studies, marketing
activities, and financial incentives. If these communities experience
the same results as the other state and local efforts we identified,
their efforts are unlikely to attract new or enhanced service, or if
they do, the service will last only as long as these funds are
available. However, it is too early to evaluate the long-term
effectiveness of these efforts.
* Questions about the efficacy of the two federal programs highlight
issues regarding the type and extent of federal assistance for small
community air service. The EAS program appears to be meeting its
statutory objectives of ensuring air service to eligible communities,
yet the program has not provided an effective transportation solution
to most travelers to or from those communities. The Pilot Program also
appears to have met its statutory objective of assisting communities in
developing projects to enhance their access to the national air
transportation system. Yet whether any of the projects funded will
prove to be effective at developing sustainable air service is
uncertain. Reauthorization provides an opportunity for the Congress to
clarify the federal strategy for assisting small communities with
commercial air service.
Background:
The nation‘s small community airports, while large in number, serve
only a small portion of the nation‘s air travelers and face issues very
different from those of larger airports. Airports that are served by
commercial airlines in the United States are categorized into four main
groups based on the annual number of passenger enplanements--large
hubs, medium hubs, small hubs and nonhubs. In 2001, the 31 large hub
airports and 36 medium hub airports (representing about 13 percent of
commercial service airports) enplaned the vast majority--89 percent--of
the more than 660 million U.S. passengers. In contrast, those normally
defined as small community airports[Footnote 2] --the 69 small hub
airports and 400 nonhub airports--enplaned about 8 percent and 3
percent of U.S. passengers, respectively. There are significant
differences in both the relative size and type of service among these
communities, as shown in Figure 1.
Figure 1: Differences Among Categories of Commercial Service Airports
in 2001:
[See PDF for image]
[End of figure]
Officials from small communities served by small hub and nonhub
airports reported that limited air service is a long-standing problem.
This problem has been exacerbated by the economic downturn and events
of September 11. Fundamental economic principles help explain the
situation small communities face. Essentially, these communities have a
smaller population base from which to draw passengers, which in turn
means they have limited potential to generate a profit for the
airlines. Relatively limited passenger demand, coupled with the fact
that air service is an inherently expensive service to provide, make it
difficult for many such communities to attract and keep air service.
The recent economic downturn and events of September 11 dealt a severe
financial blow to many major airlines, and the results of these losses
can be felt in even the smallest communities. United Airlines and US
Airways are in bankruptcy proceedings, and one Wall Street analyst is
projecting industry losses of $6.5 billion for 2003, the third straight
year of multi-billion dollar losses. While major airlines often do not
serve small communities directly, many have agreements with smaller
regional airlines to provide air service to small communities. This
provides feeder traffic into the larger network. Consequently,
financial problems for major airlines and their resulting cost-cutting
efforts may ultimately affect the air service a small community
receives.
Complicating the financial situation for both major and regional
airlines is the growing presence of low-fare airlines, such as
Southwest Airlines. Low-fare airlines‘ business model of serving major
markets, not small communities, has helped these airlines better
weather the economic downturn. Airport officials have reported that
these airlines‘ low fares attract passengers from a large geographic
area, and many small airports face significant ’leakage“ of potential
local passengers to airports served by low-fare airlines. In a March
2002 report,[Footnote 3] we found that almost half of the nonhub
airports studied were within 100 miles of a major airline hub or an
airport served by a low-fare airline, as illustrated in Figure 2.
Further, over half of the 207 small community airport officials we
surveyed said they believed local residents drove to another airport
for airline service to a great or very great extent. Eighty-one percent
of them attributed the leakage to the availability of lower fares from
a major airline at the alternative airport.
Figure 2: Proximity of Small Community Airports to Other Airports
Either Served by a Low-fare Airline or Serving as a Major Airline‘s
Hub:
[See PDF for image]
Note: The figure shows a selected sample of 202 small communities
served by nonhub airports in the continental United States. For more
information, see GAO-02-432.
[End of figure]
Local, state, and federal governments all play roles in developing and
maintaining air service for small communities. Air service is a local
issue because commercial airports in the United States are publicly-
owned facilities, serving both local and regional economies. Many state
and local governments provide funding and other assistance to help
communities develop or maintain local air service. The federal
government has assisted in developing air service both through the EAS
program, which subsidizes air service to eligible communities and the
Pilot Program, which provided grants to foster effective approaches to
improving air service to small communities.[Footnote 4] The assumption
underlying these efforts is that connecting small communities to the
national air transportation system is both fundamental for local
economic vitality and is in the national interest.
The Administration‘s budget proposal for fiscal year 2004 substantially
reduces funding for small community air service. The budget would
reduce EAS funding from $113 million in 2003 to $50 million in 2004 and
would change the program‘s structure by altering eligibility criteria
and requiring nonfederal matching funds. The 2004 budget proposal does
not include funds for the Pilot Program.
Local and State Air Service Improvement Efforts Fall Into
Three Main Categories, but Financial Assistance Has Proven Most
Effective:
Our recent review of nearly 100 small community air service improvement
efforts undertaken by states, local governments, or airports[Footnote
5] showed that communities attempted three main categories of efforts
(see Table 1):
* studies, like those used by communities in Texas and New Mexico, to
determine the potential demand for new or enhanced air service;
* marketing, like Paducah, Kentucky‘s, ’Buy Local, Fly Local“
advertising campaign, used to educate the public about the air service
available or Olympia, Washington‘s, presentations to airlines to inform
them about the potential for new or expanded service opportunities;
and:
* financial incentives, such as the ’travel bank“ program implemented
by Eugene, Oregon, in which local businesses pledged future travel
funds to encourage an airline to provide new or additional service.
Table 1: Types of Air Service Development Efforts Undertaken by 98
Communities With Small Hub or Nonhub Airports:
Type of effort: Studies; Nonhub airports: (81 airports): Number: 60;
Nonhub airports: Percent of total: 74%; [Empty]; Small hub airports:
(17 airports): Number: 15; Small hub airports: Percent of total: 88%;
[Empty]; Combined total: (98 airports): Number: 75; Combined total:
Percent of total: 77%.
Type of effort: Marketing; Nonhub airports: (81 airports): Number: 60;
Nonhub airports: Percent of total: 74%; [Empty]; Small hub airports:
(17 airports): Number: 16; Small hub airports: Percent of total: 94%;
[Empty]; Combined total: (98 airports): Number: 76; Combined total:
Percent of total: 78%.
Type of effort: Financial incentives; Nonhub airports: (81 airports):
Number: 33; Nonhub airports: Percent of total: 41%; [Empty]; Small hub
airports: (17 airports): Number: 11; Small hub airports: Percent of
total: 65%; [Empty]; Combined total: (98 airports): Number: 44;
Combined total: Percent of total: 45%.
Type of effort: Other; Nonhub airports: (81 airports): Number: 15;
Nonhub airports: Percent of total: 19%; [Empty]; Small hub airports:
(17 airports): Number: 0; Small hub airports: Percent of total: 0%;
[Empty]; Combined total: (98 airports): Number: 15; Combined total:
Percent of total: 15%.
Source: GAO analysis.
Notes: Columns will not add to total number of airports shown because
some airports undertook multiple efforts.
[End of table]
Studies by themselves have no direct effect on the demand for or supply
of air service, but they can help communities determine if there is
adequate potential passenger demand to support new or improved air
service. Marketing can have a more direct effect on demand for air
service if it convinces passengers to use the local air service rather
than driving or flying from another airport. While the specific effect
is difficult to ascertain, an airport official from Shenandoah Valley,
Virginia, pointed out that his airport‘s annual enplanements more than
doubled--from 8,000 to 20,000--after a marketing and public relations
campaign. Marketing the airport to airlines may also have a direct
effect on the supply of air service if the efforts succeed in
attracting new airlines or more service from existing airlines.
Financial incentives most directly affected the level of air service
provided in the communities we studied. Financial incentives mitigate
some of the airline‘s risk by providing some assurance about the
financial viability of the service. The incentives take a number of
different forms, as shown in Table 2. Some programs provided subsidies
to airlines willing to supply service. Some provided revenue
guarantees, under which the community and airline established revenue
targets and the airline received payments only if actual revenues did
not meet targets.
Table 2: Major Types of Financial Incentive Programs:
Type of financial incentive: Reduced airport fees; Description: Airport
reduces fees charged to carriers--landing fees, lease rates, or fuel
flowage fees in exchange for air service. (This is often only one
element of an air service improvement program.); Prevalence among
nonhub airports studied (total = 81): Number: 10; Prevalence among
nonhub airports studied (total = 81): Percent of total: 12%; [Empty];
Prevalence among small hub airports studied (total = 17): Number: 7;
Prevalence among small hub airports studied (total = 17): Percent of
total: 41%.
Type of financial incentive: Subsidies; Description: Financial
assistance to a carrier assists with start-up, operating or other
costs. Carrier may receive a set amount per period or reimbursement for
expenses incurred, sometimes up to a cap.; Prevalence among nonhub
airports studied (total = 81): Number: 10; Prevalence among nonhub
airports studied (total = 81): Percent of total: 12%; [Empty];
Prevalence among small hub airports studied (total = 17): Number: 1;
Prevalence among small hub airports studied (total = 17): Percent of
total: 6%.
Type of financial incentive: Revenue guarantees; Description: Community
and carrier officials set revenue targets and communities pay carriers
only if revenue from operations does not meet agreed-upon target.
Payments are often capped.; Prevalence among nonhub airports studied
(total = 81): Number: 9; Prevalence among nonhub airports studied
(total = 81): Percent of total: 11%; [Empty]; Prevalence among small
hub airports studied (total = 17): Number: 3; Prevalence among small
hub airports studied (total = 17): Percent of total: 18%.
Type of financial incentive: Travel bank; Description: Businesses or
individuals pledge future travel funds to a carrier providing new or
expanded air service. Travel funds are deposited in an account,
administered by a business entity (such as the Chamber of Commerce) and
pledging businesses draw against these funds (often using credit card
supplied for this purpose) to purchase tickets.; Prevalence among
nonhub airports studied (total = 81): Number: 4; Prevalence among
nonhub airports studied (total = 81): Percent of total: 5%; [Empty];
Prevalence among small hub airports studied (total = 17): Number: 3;
Prevalence among small hub airports studied (total = 17): Percent of
total: 18%.
Type of financial incentive: Other; Description: [Empty]; Prevalence
among nonhub airports studied (total = 81): Number: 6; Prevalence among
nonhub airports studied (total = 81): Percent of total: 7%; [Empty];
Prevalence among small hub airports studied (total = 17): Number: 3;
Prevalence among small hub airports studied (total = 17): Percent of
total: 18%.
Source: GAO analysis.
[End of table]
Financial incentives can attract new or enhanced air service to a
community, but incentives do not guarantee that the service will be
sustained when the incentives end. We studied the efforts of 12
communities in detail, all but one of which used a financial incentive
program. Of these, five had completed their program but only Eugene,
Oregon, was able to sustain the new service after the incentive program
ended. At the other four--all nonhub airports smaller than Eugene--the
airline ceased service when the incentives ended.
However, while a community‘s size is important, it is largely beyond a
community‘s control. We identified two other factors, more directly
within a community‘s control, that were also important for success. The
first, the presence of a catalyst for change, was particularly
important in getting the program started. The catalyst was normally
state, community, or airport officials who recognized the air service
deficiencies and began a program for change. More important to the
long-term sustainability, however, was a community consensus that air
service is a priority. This second factor involves recognizing that
enhanced air service is likely to come at a price and developing a way
in which the community agrees to participate. At many of the
communities we studied, there was not a clear demonstration of
community commitment to air service.
Two Federal Programs Which Aid Small Communities Face Budgetary
Pressures and Questions About Their Effectiveness:
The two major federal efforts to help small communities attract or
retain air service are the EAS program and the Pilot Program. The
Congress established EAS as part of the Airline Deregulation Act of
1978, due to concern that air service to some small communities would
suffer in a deregulated environment. The act guaranteed that
communities served by airlines before deregulation would continue to
receive a certain level of scheduled air service. If an airline cannot
provide service to an eligible community without incurring a loss, then
the Department of Transportation (DOT) can use EAS funds to award that
airline, or another airline willing to provide service, a subsidy.
Funding for EAS was $113 million for fiscal years 2002 and 2003. The
other major program, the Pilot Program, was authorized as part of the
Wendell H. Ford Aviation Investment and Reform Act for the 21st Century
(AIR-21). The Pilot Program‘s mission is to assist communities in
developing projects to enhance their access to the national air
transportation system. The Pilot Program differs from EAS because
communities, not airlines, receive the funds and the communities
develop the program that they believe will best address their air
service needs. The Congress appropriated $20 million in both fiscal
years 2002 and 2003 for this effort.
EAS Costs Are Increasing but Passenger Usage Is Not:
The EAS program costs have increased dramatically since 1995, but the
actual number of passengers using EAS-subsidized air service has
dropped. Total program funding increased from $37 million in 1995 to
$113 million in 2002 (2002 constant dollars). Further, during this
period of time, the subsidy per community nearly doubled, from almost
$424,000 to over $828,000. However, the total passenger enplanements at
EAS-subsidized communities decreased about 20 percent (between 1995 and
2000) falling from 592,000 to 477,000. As a result, the per passenger
subsidy (for continental U.S. communities) increased from $79 to an
estimated $229 in 2002, a nearly 200-percent increase. Table 3 provides
more information.
Table 3: EAS Service Changes as of July 1, 2002 (Continental United
States):
Service elements: Number of subsidized communities; 1995: 75; 1999: 68;
2002 (est.): 79; Percent change: 5.3%.
Service elements: Median daily passengers enplaned per community; 1995:
11; 1999: 8; 2002 (est.): 10; Percent change: -9.1%.
Service elements: Average subsidy per community; 1995: $423,803; 1999:
$668,448; 2002 (est.): $828,474; Percent change: 95.5%.
Service elements: Average subsidy per passenger; 1995: $79; 1999: $133;
2002 (est.): $229; Percent change: 189.9%.
Source: GAO analysis of DOT and FAA data.
Note: Passenger estimates for 2002 are based on passenger enplanements
for 2000.
Note: Subsidy figures are in 2002 constant dollars.
[End of table]
Two key factors will likely continue to increase EAS program costs in
the future. First, more communities may require subsidized
service.[Footnote 6] As of February 2003, the EAS program served 125
communities, up from the 114 served only 7 months earlier. Of these, 88
are in the continental United States and 37 are in Alaska, Hawaii, and
Puerto Rico. According to DOT officials, more small communities will
likely lose unsubsidized commercial service in the future--especially
those served by one airline. Some of these communities could be
eligible to receive an EAS subsidy. In October 2001, there were 98
small communities being served by one carrier. Of the 98, 25 have
smaller populations and lower levels of employment than the typical
EAS-subsidized community, 21 have lower levels of income per capita,
and 35 have lower levels of manufacturing earnings. Second, EAS-
subsidized communities tend to generate limited passenger revenue
because surrounding populations are small and the few travelers
generated in each community tend to drive to their destinations or fly
from other, larger airports for lower airfares and improved service
options.[Footnote 7] EAS community airports may serve less than 10
percent of the local passenger traffic; over half of the subsidized
communities in the continental U.S. are within 125 miles of a larger
airport. This low demand and ’passenger leakage“ to other airports
depress the revenue carriers can make from EAS routes, making the
program less attractive to airlines and increasing subsidy costs.
There are clear questions about the EAS program‘s effectiveness. In a
recent report on the EAS program, we outlined a number of options that
the Congress could consider to enhance the long-term viability of the
program.[Footnote 8] For example, one option was to target subsidized
service to more remote communities with fewer other transportation
options. Another option was to restructure or replace subsidies to
airlines with local grants. This could enable communities to better
match their transportation needs with locally available options. Some
of the options discussed in our report were incorporated in the
Administration‘s fiscal year 2004 budget proposal.
Demand Is Heavy for Pilot Program Funds but It Is Too Early to Assess
Program Effectiveness:
In its first year of operation, small communities demonstrated an
extraordinary demand for air service development funds. DOT received
180 applications requesting over $142.5 million--more than seven times
the funds available--from communities in 47 states. By December 2002,
DOT had awarded nearly $20 million in grants to 40 small communities
(or consortia of communities). The grants ranged in amount from $44,000
to over $1.5 million. Some of the grants are being used for such
innovative ideas as the following:
* Mobile, Alabama, a small hub, received a grant of $457,000 to
continue providing ground handling service for one of its airlines.
While this is a common practice in Europe, a Mobile official told us
that he is only aware of one other airport in the United States that
provides these services for an airline.
* Baker City, Oregon, received a grant of $300,000 to invest in an air
taxi franchise. Baker City has a small population and is in a fairly
remote part of Oregon that does not have scheduled airline service. The
community decided to pursue an alternative to scheduled service and
purchased an air taxi franchise from SkyTaxi, a company that provides
on-demand air service.
* Casper, Wyoming, received a grant of $500,000 to purchase and lease
back an aircraft to an airline to ensure that the airline serves the
community. It is fairly unusual for a community to approach air service
development by purchasing an aircraft to help defray some of the
airline‘s costs and mitigate some of the airline‘s risk in providing
the service.
However, the majority of these grants funded the same types of projects
discussed earlier--studies of a community‘s potential market, marketing
activities to stimulate demand for service or to lure an airline, and
financial incentives such as subsidies to airlines for providing
service. If these communities experience the same results as the other
state and local efforts we identified, their efforts are unlikely to
attract new or enhanced service for the small communities using them,
or if they do, the service will only last as long as these funds are
available.
Since final grant agreements were signed in December 2002, it is too
early to determine how effective the various types of initiatives might
prove to be. Additionally, some of the funded projects contain multiple
components and some are scheduled to be implemented over several years.
Therefore, it might be some time before DOT is able to evaluate the
initial group of projects to determine which have been effective in
initiating or enhancing small community air service over the long-term.
Implications for Future Federal Efforts to Assist:
Small Communities:
As air service to small communities becomes increasingly limited and as
the national economy continues to struggle, questions about the
efficacy of those programs highlight issues regarding the type and
extent of federal assistance for small community air service.
The EAS program appears to be meeting its statutory objectives of
ensuring air service to eligible communities, yet the program clearly
has not provided an effective transportation solution for most
travelers to or from those communities. Subsidies paid directly to
carriers support limited air service, but not the quality of service
that passengers desire, and not at fares that attract local passenger
traffic. As a result, relatively few people who travel to or from some
of these communities use the federally-subsidized air service. Many
travelers‘ decisions to use alternatives--whether another larger
airport or simply the highway system--are economically and financially
rational.
Several factors--including increasing carrier costs, limited passenger
revenue, and increasing number of eligible communities requiring
subsidized service--are likely to affect future demands on the EAS
program. The number of communities that are eligible for EAS-subsidized
service is likely to increase in the near term, creating a subsidy
burden that could exceed current appropriations. Should the EAS program
be fully funded so that no eligible community loses its direct
connection to the national air transportation network? Should the EAS
program be fundamentally changed in an attempt to create a more
effective transportation option for travelers? In August 2002, we
identified various options to revise the program to enhance its long-
term viability, along with some of the associated potential effect.
The Pilot Program also appears to have met its statutory objective of
extending federal assistance to 40 nonhub and small hub communities to
assist communities in developing projects to enhance their access to
the national air transportation system. Yet whether any of the projects
funded will prove to be effective at developing sustainable air service
is uncertain. Relatively few communities offered innovative approaches
to developing or enhancing air service. Most of the initiatives that
received federal grants resembled other state or local efforts that we
had already identified. Evidence from those efforts indicated that some
communities could develop sustainable air service--but likely only
small hub communities that have a relatively large population and
economic base. Among smaller, nonhub communities, direct financial
assistance to carriers was most effective at attracting air service,
but only as long as the financing existed. If the Pilot Program is
extended, will it essentially become another subsidy program?
Reauthorization provides an opportunity for the Congress to clarify the
federal strategy for assisting small communities with commercial air
service. We believe that there may be a number of questions that need
to be addressed, including the following: What amount of assistance
would be needed to maintain the current federal commitment to both
small hub and nonhub airports? Would federal assistance be better
targeted at nonhub or small hub communities, but not both? Rather than
providing subsidies directly to carriers, should federal assistance be
directed to states or local communities to allow them to determine the
most effective local strategy? What role should state and local
governments play in helping small communities secure air service?
Mr. Chairman and members of the Subcommittee, this concludes my
statement. I would be pleased to answer any questions you or other
members of the Subcommittee might have.
Contact and Acknowledgment:
For further information on this testimony, please contact JayEtta
Hecker at (202) 512-2834. Individuals making key contributions to this
testimony included Janet Frisch, Steve Martin, Stan Stenersen, and
Pamela Vines.
[End of section]
Related GAO Products:
Commercial Aviation: Factors Affecting Efforts to Improve Air Service
at Small Community Airports. GAO-03-330. Washington, D.C.: January 17,
2003.
Commercial Aviation: Financial Condition and Industry Responses Affect
Competition. GAO-03-171T. Washington, D.C.: October 2, 2002.
Options to Enhance the Long-term Viability of the Essential Air Service
Program. GAO-02-997R. Washington, D.C.: August 30, 2002.
Commercial Aviation: Air Service Trends at Small Communities Since
October 2000. GAO-02-432. Washington, D.C.: March 29, 2002.
’State of the U.S. Commercial Airlines Industry and Possible Issues for
Congressional Consideration“, Speech by Comptroller General of the
United States David Walker. The International Aviation Club of
Washington: November 28, 2001.
Financial Management: Assessment of the Airline Industry‘s Estimated
Losses Arising From the Events of September 11. GAO-02-133R.
Washington, D.C.: October 5, 2001.
Commercial Aviation: A Framework for Considering Federal Financial
Assistance. GAO-01-1163T. Washington, D.C.: September 20, 2001.
Aviation Competition: Restricting Airline Ticketing Rules Unlikely to
Help Consumers. GAO-01-832. Washington, D.C.: July 31, 2001.
Aviation Competition: Challenges in Enhancing Competition in Dominated
Markets. GAO-01-518T. Washington, D.C.: March 13, 2001.
Aviation Competition: Regional Jet Service Yet to Reach Many Small
Communities. GAO-01-344. Washington, D.C.: February 14, 2001.
Airline Competition: Issues Raised by Consolidation Proposals. GAO-01-
402T. Washington, D.C.: February 7, 2001.
Aviation Competition: Issues Related to the Proposed United Airlines-US
Airways Merger. GAO-01-212. Washington, D.C.: December 15, 2000.
Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs,
and Passenger Traffic. GAO/RCED-00-34. Washington, D.C.: April 14,
2000.
Aviation Competition: Effects on Consumers From Domestic Airline
Alliances Vary. GAO/RCED-99-37. Washington, D.C.: January 15, 1999.
Airline Deregulation: Changes in Airfares, Service Quality, and
Barriers to Entry. GAO/RCED-99-92. Washington, D.C.: March 4, 1999.
FOOTNOTES
[1] See list of related GAO products attached to this statement.
[2] The Wendell H. Ford Aviation Investment and Reform Act for the 21st
Century (AIR-21), P.L. 106-181, defines small communities as including
both nonhub and small hub community airports.
[3] U.S. General Accounting Office, Air Service Trends at Small
Communities Since October 2000, GAO-02-432 (Washington, D.C.: March,
29, 2002).
[4] Beyond these programs, the federal government has also played a key
role in providing funding critical to building and improving airport
infrastructure through its Airport Improvement Program. In fiscal year
2002 alone, this program provided $3.2 billion to airports, over $1
billion of which went to small hub and nonhub airports.
[5] To identify these airports, we reviewed all 180 applications for
the Pilot Program, which included information on previous efforts to
improve air service. We also spoke with airline industry officials and
transportation officials from each of the 50 states and reviewed other
available data. We then interviewed airport or community officials from
98 small communities that had undertaken some air service development
efforts. For more information, see U.S. General Accounting Office,
Commercial Aviation: Factors Affecting Efforts to Improve Air Service
at Small Community Airports, GAO-03-330 (Washington, D.C.: January 17,
2003).
[6] Increases in program costs may be restrained as some communities
lose their eligibility. They may lose their eligibility because the
combination of decreased passenger traffic and increased subsidy levels
means that some may exceed the statutory maximum of $200 per passenger
for communities within 210 miles of a medium or large hub airport.
However, DOT has not always dropped communities from the program
because they no longer meet eligibility requirements. We reported in
2000 that DOT considers extenuating circumstances that may have caused
a temporary decline in passenger traffic.
[7] It is important to note that EAS-subsidized airlines typically do
not set the airfares charged for the major markets for EAS travelers.
Instead, fares are set by the major network airlines with which EAS
airlines usually have contractual agreements. Depending upon the exact
agreement, the EAS airline usually sets fares for travel only in
’local“ markets (i.e., between the EAS community and the connecting
hub), while the major airline sets the fares for travel between the EAS
community and the key destinations beyond the connecting hub.
[8] U.S. General Accounting Office, Options to Enhance the Long-term
Viability of the Essential Air Service Program, GAO-02-997R
(Washington, D.C.: August 30, 2002).
