Commercial Aviation
Initial Small Community Air Service Development Projects Have Achieved Mixed Results Gao ID: GAO-06-21 November 30, 2005Over the last decade significant changes have occurred in the airline industry. Many legacy carriers are facing challenging financial conditions and low cost carriers are attracting passengers away from some small community airports. These changes, and others, have challenged small communities to attract adequate commercial air service. To help small communities improve air service, Congress established the Small Community Air Service Development Program in 2000. This study reports on (1) how the Department of Transportation (DOT) has implemented the program; and (2) what goals and strategies have been used and what results have been obtained by the grants provided under the program.
The Small Community Air Service Development Program grants are awarded at the discretion of the Secretary of Transportation. GAO found that DOT considered the statutory eligibility criteria and priority factors as well as other factors in evaluating proposals and in making awards. The number of grant applications has declined since 2002. DOT officials see this as a consequence of the large number of ongoing grants and the impact of 2003 legislative changes. In surveying airport directors we found that grantee airports generally responded positively to DOT's process for awarding grants, about two-thirds were satisfied with the clarity of the selection criteria, while about one-third of directors at airports not receiving grants were satisfied with the clarity. DOT oversight is based on reviews of grantee reports and reimbursement requests, and DOT has terminated some projects and reallocated the unexpended funds to others. Individual grant projects had goals including adding flights, airlines and destinations, lowering fares, obtaining better planning data, increasing enplanements, and curbing the loss of passengers to other airports. Grantees used a number of strategies to achieve their goals, including subsidies and revenue guarantees to the airlines, marketing to the public and to the airlines, hiring personnel and consultants, and establishing travel banks. Results for the 23 projects completed by September 30, 2005 were mixed: about half of the airports reported air service improvements that were self-sustaining after the grant was over. Some projects were not successful due to factors beyond the project, such as an airline decision to reduce flights at a hub. However, it is too soon to assess the overall effectiveness of the program, because most funded projects are not complete--127 of the 157 awarded grants are ongoing. DOT designates one airport each year as an Air Service Development Zone. The communities selected in 2002, 2003, and 2004 expressed similar concerns about the usefulness of this designation. None of the communities could cite any effect the Air Service Development Zone had for them. Instead, communities expressed confusion as to what DOT's designation was supposed to provide.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-21, Commercial Aviation: Initial Small Community Air Service Development Projects Have Achieved Mixed Results
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Report to Congressional Addressees:
November 2005:
Commercial Aviation:
Initial Small Community Air Service Development Projects Have Achieved
Mixed Results:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-21]
GAO Highlights:
Highlights of GAO-06-21, a report to congressional addressees:
Why GAO Did This Study:
Over the last decade significant changes have occurred in the airline
industry. Many legacy carriers are facing challenging financial
conditions and low cost carriers are attracting passengers away from
some small community airports. These changes, and others, have
challenged small communities to attract adequate commercial air
service.
To help small communities improve air service, Congress established the
Small Community Air Service Development Program in 2000. This study
reports on (1) how the Department of Transportation (DOT) has
implemented the program; and (2) what goals and strategies have been
used and what results have been obtained by the grants provided under
the program.
What GAO Found:
The Small Community Air Service Development Program grants are awarded
at the discretion of the Secretary of Transportation. GAO found that
DOT considered the statutory eligibility criteria and priority factors
as well as other factors in evaluating proposals and in making awards.
The number of grant applications has declined since 2002. DOT officials
see this as a consequence of the large number of ongoing grants and the
impact of 2003 legislative changes. In surveying airport directors we
found that grantee airports generally responded positively to DOT‘s
process for awarding grants, about two-thirds were satisfied with the
clarity of the selection criteria, while about one-third of directors
at airports not receiving grants were satisfied with the clarity. DOT
oversight is based on reviews of grantee reports and reimbursement
requests, and DOT has terminated some projects and reallocated the
unexpended funds to others.
Individual grant projects had goals including adding flights, airlines
and destinations, lowering fares, obtaining better planning data,
increasing enplanements, and curbing the loss of passengers to other
airports. Grantees used a number of strategies to achieve their goals,
including subsidies and revenue guarantees to the airlines, marketing
to the public and to the airlines, hiring personnel and consultants,
and establishing travel banks. Results for the 23 projects completed by
September 30, 2005 were mixed: about half of the airports reported air
service improvements that were self-sustaining after the grant was
over. Some projects were not successful due to factors beyond the
project, such as an airline decision to reduce flights at a hub.
However, it is too soon to assess the overall effectiveness of the
program, because most funded projects are not complete”127 of the 157
awarded grants are ongoing. DOT designates one airport each year as an
Air Service Development Zone. The communities selected in 2002, 2003,
and 2004 expressed similar concerns about the usefulness of this
designation. None of the communities could cite any effect the Air
Service Development Zone had for them. Instead, communities expressed
confusion as to what DOT‘s designation was supposed to provide.
Small Community Air Service Development Program Awards:
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO recommends that DOT evaluate the Small Community Air Service
Development Program in advance of the program‘s reauthorization in
2008. Also, to improve the effectiveness of the Air Service Development
Zones, GAO is recommending that DOT clarify what support and services
it will provide to the designated communities.
DOT, in commenting on a draft of this report, said it generally agreed
with the report and would consider the recommendations as they go
forward with the program.
www.gao.gov/cgi-bin/getrpt?GAO-06-21.
www.gao.gov/cgi-bin/getrpt?GAO-06-101SP.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gerald Dillingham, (202)
512-2834, dillinghamg@gao.gov.
[End of section]
Contents:
Letter:
Results In Brief:
Background:
DOT's Implementation of the Small Community Air Service Development
Program Includes Awarding Grants by Using Legislatively Established
Priority and Other Factors and Providing Grant Oversight:
Variety of Goals and Strategies to Improve Air Service are Used, but
the Results to Date of Completed Projects are Mixed:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Factors Affecting Air Service to Small Communities:
Appendix III: DOT Additional Selection Factors:
Appendix IV: Status of Grants Awarded, 2002 through 2005:
Appendix V: Summary of 10 Completed Small Community Air Service
Development Program Grants:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Fiscal Year 2004 Grant Applications Meeting Priority Factors
and Award Results:
Table 2: Reimbursed to Grantees, as of September 30, 2005:
Table 3: Airport Directors Assessments of Grant Progress:
Table 4: Airport Directors' Views on Success of Grant Projects:
Table 5: Charleston, WV Passenger Enplanement Report for October 2002
through October 2004, and Overall Yearly Totals for 2002-2004:
Table 6: Quarterly Passenger Totals between Daytona Beach and Newark:
Table 7: American Connection's Quarterly Enplanement Numbers Fort Smith
to St. Louis:
Table 8: Quarterly Enplanements for Fort Smith, Arkansas 2002-2004:
Table 9: Horizon Air's Hailey to Los Angeles Passenger Totals with
Revenue Guarantee:
Table 10: Quarterly Enplaned Passengers for Lynchburg, Virginia for
2002-2004:
Table 11: Scottsbluff Total Enplanements June 2004-April 2005:
Table 12: Rio Grande Airways Total Passengers (Arrivals and Departures)
from Taos from 2002 Grant Application to 2004 Termination of Service:
Figures:
Figure 1: Great Lakes Aviation Twin Engine 19-Seat Turboprop
Figure 2: Change in Scheduled Departures at Nonhub, Small Hub, Medium
Hub and Large Hub Airports since July 2000
Figure 3: Small Community Air Service Development Program Grants, 2002-
2005
Figure 4: Small Community Air Service Development Program Grant
Applications, Awards, Completions, and Terminations, 2002 through 2005
Figure 5: Project Goals as Identified by Airport Directors for Grants
Awarded 2002 through 2004
Figure 6: Example of a Billboard Advertisement Resulting from a Grant
Project
Figure 7: Strategies Included in Grant Projects
Figure 8: Horizon Airlines Turboprop Serving Hailey, ID
Figure 9: Westward Airways Pilatus PC-12 Aircraft:
Abbreviations:
DOT: Department of Transportation:
FAA: Federal Aviation Administration:
Letter November 30, 2005:
Congressional addressees:
Over the last decade significant changes have occurred in the airline
industry that have impacted service to small communities. Today many of
the legacy carriers are facing challenging financial
conditions.[Footnote 1] Competition from low-cost carriers has
contributed to passengers driving long distances to obtain low fares
rather than use their small community airport. Since 2000, there has
been a decrease in the use of small turboprop aircraft that serve small
community airports, with many operators opting for larger regional jets
holding 50 or more passengers. These changes, and others, have
challenged small communities to attract adequate commercial air service
at reasonable prices.
By establishing the Small Community Air Service Development Pilot
Program in 2000, Congress created a new source of funds to help small,
underserved airports improve their air service. The Congress has
appropriated $20 million annually since 2002 for the Department of
Transportation (DOT) to award up to 40 grants each year to communities
that have demonstrated insufficient air carrier service or unreasonably
high air fares. We reviewed (1) DOT's implementation of the Small
Community Air Service Development Program and (2) the strategies
communities receiving grants have used and the results obtained by the
grants provided under the program. In addition, this report provides
information on factors affecting air service to small communities,
which is included in appendix II.
To determine how DOT has implemented the Small Community Air Service
Development Program, we reviewed legislation authorizing and funding
the program as well as related orders and guidelines. We interviewed
DOT officials about their grant selection process and criteria. We
reviewed grant award information and examined how DOT used its grant
criteria to select grantees. We also reviewed program controls,
receipts, quarterly reports, and the final reports that grantees
submitted. We obtained and reviewed budget and finance data from DOT's
Office of the Secretary as well as reimbursement data from the Federal
Aviation Administration (FAA), which reimburses the grantees.To
determine what strategies have been used and what results have been
obtained, we reviewed the grant applications and agreements for all 157
grants awarded through September 1, 2005. In addition, we reviewed the
grants awarded, classified the types of strategies carried out within
the grants, and summarized the types of activities funded. We also
visited each of the 10 grantees that had completed their grants by
December 31, 2004, and interviewed airlines and aviation consultants
associated with these completed grants. We also contacted 13 additional
grantees who completed their projects between January 1 and September
30, 2005. Further, we conducted two Web-based surveys. We used self-
administered electronic questionnaires posted to the World Wide Web to
survey the 146 airport directors involved in the 122 grants DOT awarded
from 2002 through 2004, as well as 116 airport directors representing
airports that applied for, but did not receive a grant during that
period. We received response rates of 83 percent and 72 percent,
respectively. To view our surveys and airport directors' responses, go
to www.gao.gov/cgi-bin/getrpt?GAO-06-101SP. We performed our work from
September 2004 through October 2005 in accordance with generally
accepted government auditing standards. Appendix I provides more
details on our scope and methodology.
Results In Brief:
DOT considers numerous factors affecting the quality and feasibility of
proposed projects before making Small Community Air Service Development
grant awards. The law establishing the Small Community Air Service
Development Program allows DOT considerable flexibility in implementing
the program and selecting projects to be funded. We found that DOT
considered the statutory eligibility criteria and priority factors in
selecting grant projects. In addition, DOT considers other relevant
factors in making decisions on projects, and the final selection is at
the discretion of the Secretary of Transportation. As of September 30,
2005, there have been 157 grant awards made in the 4 years of the
program. The number of applications has declined each year. In 2002,
the first year of the program, DOT received 179 applications for
grants, and by 2005 the number of applications had declined to 84. DOT
officials said that this decline was in part a natural consequence of
the large number airports implementing projects at the time, and the
effect of legislative changes made in 2003 that limited a community to
one grant award for the same project. I In our survey of airport
directors, we found that grantee airports generally responded
positively when asked about DOT's process for awarding grants. Two-
thirds of grantee airports were satisfied with the clarity of selection
criteria, while only about one-third of the nongrantee airports
responding to the survey were satisfied. For program oversight, DOT
relies on responding to grantee inquiries or requests, reviewing
documents associated with reimbursable expenses, and reviewing
quarterly and final reports that the grantees are required to prepare.
DOT oversight has identified cases where grant funds have not been used
and it has subsequently reallocated about $4.5 million to other
applicants. Finally, as of September 30, 2005, 23 grants were
completed--20 from 2002, 2 from 2003, and 1 from 2004.[Footnote 2] DOT
officials said that, particularly for the first year of the grant
program, projects were slow to complete, in part, due to the airlines'
retrenchment after the September 11 attacks.
Grantees have identified a variety of goals for their projects and
employed many strategies to improve air service and the results of the
completed projects to date have been mixed: some have succeeded in
meeting the program's goal of improving air service, for example, by
adding carriers or destinations, and some have not. Grantee project
goals have included adding flights, airlines and destinations, lowering
fares, upgrading the aircraft serving the community, obtaining better
data for planning and marketing air service, increasing enplanements,
and curbing the loss of passengers to other airports. To achieve these
goals, grantees have used a number of strategies, including subsidies
and revenue guarantees to the airlines, marketing, hiring personnel and
consultants, and establishing travel banks in which a community
guarantees to buy a certain number of tickets. In addition, grantees
have subsidized the start-up of an airline, taken over ground station
operations to reduce costs for an airline, and subsidized a bus company
to transport passengers from their airport to a hub airport.
Incorporating marketing as part of the project was the most common
strategy used by airports. Some airline officials also said that
marketing efforts were important to the success of projects. Airline
officials told us that projects that provide direct benefits to an
airline, such as revenue guarantees and financial subsidies, have the
greatest chance of success. These officials noted that these types of
projects allow the airline to test the real market for air service in a
community without enduring the typical financial losses that occur when
new air service is introduced. The outcomes of the grants may be
affected by broader industry factors that are independent of the grant
itself, such as a decision on the part of an airline to reduce the
number of flights at a hub. Our review of the 23 projects completed by
September 30, 2005, found that although 19 reported service or fare
improvements during the life of the grant, only about half reported
that the improvements were self-sustaining after the grant was
complete. A more detailed review of the 10 grants completed by January
1, 2005, also showed a mixed record of meeting the program's goals,
ranging from improved service that exceeded projected passenger loads,
to a complete loss of air service to the airport. However, we were not
able to determine the overall effectiveness of the program in achieving
the act's goal of improving air service to small communities because a
large majority of funded projects are still under way (127 of the 157
projects were ongoing as of September 30, 2005) and it will take more
time to determine if any air service improvements achieved with the
grants are sustainable after projects are complete. Finally, as part of
meeting its requirements under the act, DOT has designated one airport
each year as an Air Service Development Zone. Each of the three Air
Service Development Zone communities that DOT selected through 2004
expressed similar concerns about the usefulness of this designation.
None cited any effect or change that the designation had made and
expressed confusion as to what the designation was supposed to achieve.
All stated that anything that had happened at the airport would have
happened without the designation.
We are recommending that in preparation for reauthorization of the
program in 2008, DOT evaluate completed projects funded by the Small
Community Air Service Development Program to determine the
effectiveness of this program in improving air service to small
communities. We are also recommending that DOT clarify what the support
and services it will provide to communities that are designated as Air
Service Development Zones. In commenting on a draft of this report,
Department of Transportation officials said it generally concurred with
the report and agreed to consider the recommendations as they go
forward with the program.
Background:
In 1978, the Congress deregulated the airline industry, phasing out the
federal government's control over domestic fares and routes served and
allowing market forces to determine the price, quantity, and quality of
service. Most legacy carriers, free to determine their own routes,
developed "hub-and-spoke" networks.[Footnote 3] These carriers provide
nonstop service to many spoke cities from their hubs. The airports in
the small spoke communities include the smallest airports in the
nation's commercial air system. Depending on the size of those markets
(i.e., the number of passengers flying nonstop between the hub and the
spoke community), the legacy airlines may operate their own large jets
or use regional affiliate carriers to provide service, usually with
regional jet or turboprop aircraft. (See fig. 1 for an example of a
turboprop aircraft.) However, low-cost carriers, such as Southwest
Airlines and JetBlue Airways, use a different model, flying point-to-
point generally to and from secondary airports in or near major
metropolitan areas, such as Ontario International near Los Angeles and
Chicago Midway.
Figure 1: Great Lakes Aviation Twin Engine 19-Seat Turboprop:
[See PDF for image]
[End of figure]
The nation's commercial airports are categorized into four main groups
based on the annual number of passenger enplanements--large hubs,
medium hubs, small hubs, and nonhubs.[Footnote 4] The 30 large hubs and
37 medium hub airports together enplaned the vast majority--89 percent-
-of the almost 703 million U.S. passengers in 2004, the most recent
data available. In contrast, the 69 small hubs enplaned about 8
percent, and the 374 nonhub airports enplaned only 3 percent of U.S.
passengers.
Air service to nonhub airports has generally declined in recent years,
as measured by the number of departure flights. As shown in figure 2,
nonhubs have had an overall decrease in departures since July 2000.
While all airports showed a decrease in service from July 2001 to July
2003, scheduled departures at small, medium, and large hub airports
have increased since 2003. By July 2005, scheduled departures at small,
medium, and large hub airports largely rebounded, with departures from
large and small hubs exceeding the July 2000 number. However, the
decline of service at nonhub airports continued, with 17 percent fewer
departure flights serving these airports in July 2005 compared with
July 2000. While small hubs and nonhubs are eligible to apply for Small
Community Air Service Development grants, the nonhub airports have been
the main beneficiaries of the program. As of fiscal year 2005, only 6
percent of the airports receiving grants have been small hubs.
Figure 2: Change in Scheduled Departures at Nonhub, Small Hub, Medium
Hub and Large Hub Airports since July 2000:
[See PDF for image]
Note: The comparison baseline is the number of scheduled departures for
July 2000.
[End of figure]
This decline in air service to small communities is particularly
prevalent at small community airports that are near larger airports.
Passengers sometimes drive or take other modes of transportation to
neighboring larger airports to take advantage of more frequent flights
and lower fares, a phenomenon called leakage. Appendix II provides more
information on the factors that have influenced the reduction of
passenger traffic and air service at the nation's small community
airports.
We have previously reported on the decline of air service to small
communities noting the challenges these communities face in obtaining
or retaining commercial passenger air service.[Footnote 5] These
challenges include the lack of demand, inability to operate profitable
air service, and competition from neighboring larger hub airports.
Also, according to an aviation consultant, these factors, plus network
carrier financial difficulties and changes in aircraft usage, have
negatively affected nonhubs.
Two programs have been established to help address air service to small
communities--the Essential Air Service program and the Small Community
Air Service Development Pilot Program. The Congress established the
Essential Air Service program as part of the Airline Deregulation Act
of 1978. In general, the program guarantees that communities that
received air service prior to deregulation will continue to receive air
service.[Footnote 6] If an air carrier could not continue service to a
community without incurring a loss, DOT (and before its sunset, the
Civil Aeronautics Board) could then use Essential Air Service program
funds to award a subsidy to that carrier or another carrier willing to
provide service. These subsidies are intended to cover the difference
between a carrier's projected revenues and expenses, and include a 5
percent profit margin. Our prior work on the Essential Air Service
program found, in part, that financial incentives may offer the best
opportunity for communities to attract the new or additional service
but that it may be difficult to bring about service that can be
sustained after the incentives end.
More recently, the Congress authorized the Small Community Air Service
Development Pilot Program as part of the Wendell H. Ford Aviation
Investment and Reform Act for the 21ST Century, P.L. 106-181 (AIR-21),
to help small communities enhance their air service. AIR-21 authorized
the program for fiscal years 2002 and 2003. The Vision 100-Century of
Aviation Reauthorization Act, P.L. 108-176 (Vision 100), reauthorized
the program for an additional 5 years, through fiscal year 2008, and
eliminated the "pilot" status of the program. While Vision 100
increased the annual authorization amount to $35 million, the Congress
has appropriated $20 million for the program each year from 2002
through 2005, for a total of $80 million.[Footnote 7] No funds were
appropriated for the first year of the program, 2001.
Under this program, DOT is authorized to award grants to up to 40
communities served by small hub or nonhub airports (as classified in
1997) that have demonstrated air service deficiencies or higher-than-
average airfares. The Office of Aviation Analysis in DOT's Office of
the Secretary is responsible for administering the program. The grants
may be made to a single community or to a consortium of communities,
although no more than four grants each year may be in the same state.
Consortiums are considered one applicant for the purpose of this
program.[Footnote 8] Some relatively large airports qualify for this
program. For example, Buffalo Niagara International Airport in Buffalo,
NY, and Norfolk International Airport in Norfolk, VA, are eligible for
the program, enplaning over 2.2 million and over 1.8 million passengers
in 2004, respectively. In contrast, small nonhub airports such as the
airports in Kake, AK, with about 2,500 enplanements, or Owensboro, KY,
with about 2,800 enplanements, are also eligible. The program is
available in the 50 states, District of Columbia, Puerto Rico, and U.S.
territories and possessions.
The statute also directs DOT to designate one of the grant recipients
each year as an Air Service Development Zone and work closely with the
designated community on ways to attract business to the areas
surrounding the airport and to develop land use options for the area.
There are no additional funds associated with this designation, and no
special benefit or preference is to be given to communities seeking
this designation in receiving a grant under the program. Communities
apply for this designation through the regular grant application
process.
DOT has not issued separate regulations for the Small Community Air
Service Development Program. Instead, DOT issues an order every year
that requests applications and provides guidance for the proper format
and content of the applications. The authorizing legislation provides
that if funds are used to subsidize air service, the subsidy cannot
last more than 3 years. However, the time needed to obtain the service
is not included in the subsidy time limit. While the legislation does
not limit the period for expenditure of funds on non-subsidy projects,
DOT's fiscal year 2005 order indicates that in general, grant funds
should be expended within 3 years of the award.
As shown in figure 3, DOT's awards have been geographically spread
covering all states except Delaware, Hawaii, Maryland, New Jersey, and
Rhode Island. To date, no communities in Delaware or Rhode Island have
applied for a grant. Appendix IV contains information on all grants
awarded as of September 30, 2005.
Figure 3: Small Community Air Service Development Program Grants, 2002
-2005:
[See PDF for image]
Note: The graphic represents all grants awarded under the program,
including terminated grants.
[End of figure]
DOT's Implementation of the Small Community Air Service Development
Program Includes Awarding Grants by Using Legislatively Established
Priority and Other Factors and Providing Grant Oversight:
In the first 4 years of the Small Community Air Service Development
Program, DOT awarded a total of 157 grants.[Footnote 9] In 2002, the
first year the program was funded, DOT received 179 grant applications,
but this number has been declining and was at a low of 84 applications
by 2005. DOT officials believe this decline is natural as the program
matures; many airports are currently implementing grants and others now
understand DOT's expectation of local matching funds. DOT evaluates the
applications according to legislatively established priority factors
and other criteria. DOT first considers five priority factors specified
in the laws and then considers numerous other factors in a second tier
review of the projects. Certain legislative factors, such as whether a
local community can demonstrate support by contributing some local
matching funds, or DOT factors such as whether an airport has received
a grant in the past, were major considerations in award decisions. In
our survey of airport directors, we found that airports that received
grants generally were positive about DOT's process for awarding grants.
However, only about one-third of the airports we surveyed that applied
for but did not receive a grant expressed satisfaction over the clarity
of selection criteria. DOT's oversight of projects relies largely on
reviews of reimbursement documents and required grantee quarterly
reports; it does not perform on-site monitoring visits. DOT monitoring
has been sufficient to identify cases where grant funds have not been
utilized and reallocated the funds to other applicants. As of September
30, 2005, 23 of the grants awarded were completed--20 for 2002, 2 for
2003, and 1 for 2004. About $12.5 million, or 62 percent of the $20
million total funds for 2002 had been expended by grantees as of
September 30, 2005. DOT officials said that the newness of the program
in 2002, and the need to negotiate agreements with airlines, help
explain why many early grants are still ongoing.
DOT Has Awarded 157 Grants Since 2002, but Grant Applications are
Declining:
To be considered for a Small Community Air Service Development Program
grant, airport communities prepare a grant proposal in response to a
notice in the Federal Register. The applications should discuss, among
other things, the need for additional or improved air service, the
available fares at the airport, and how the grant will help communities
address these situations. From 2002 through 2005, DOT has awarded 157
grants. In the first year of the program, demand was the highest, with
179 applications requesting a total of about $142.5 million in federal
funding. However, from 2002 through 2005 the program has experienced
about a 50 percent decline in the number of applications. (See fig. 4
for details on the number of applications, awards, and completed and
terminated grants each year.)
Figure 4: Small Community Air Service Development Program Grant
Applications, Awards, Completions, and Terminations, 2002 through 2005:
[See PDF for image]
Note: In 2004, DOT awarded six grants with prior year funds that were
reallocated from four grants that were originally awarded in 2002 and
2003 but were later terminated.
[End of figure]
According to officials at DOT's Office of Aviation Analysis, the
downward trend in the number of applications was a natural consequence
of the implementation of the program. First, many eligible airport
communities have already received a grant and are still implementing
their projects--as of September 30, 2005, 127 of the 157 grants were
ongoing. Current grantees are not likely to reapply soon because many
of the projects that were funded take time to implement, with some
taking over 3 years to complete. Second, Office of Aviation Analysis
officials told us that the airport community has learned that DOT
expects that a local cash match should be part of the proposal and that
communities must honor their committed local contribution for the
proposed projects. The officials told us that some applicants did not
fully appreciate this expectation during the pilot phase of the
program. Finally, according to DOT officials, legislative changes in
2003 prohibited communities or consortiums from receiving more than one
grant for the same project and established the timely use of funds as a
priority factor for DOT to consider in awarding grants.
Based on our survey, for airports that had applied for but never
received a grant at the time of the survey, 58 of 81 airport directors,
or about 72 percent, said that they would reapply. The remaining 23
airport directors indicated that they would not, or were unsure whether
they would apply. These airport directors cited two primary reasons for
not applying--the cost and effort of applying, or a belief that DOT
would not fund their desired project.
Finally, some eligible airports have never applied for a grant. To
understand why, we contacted airport directors from a group of 20
randomly selected airports that had never applied under the program but
were eligible to do so. Although this does not constitute a
generalizable sample, it provides some useful information on the
reasons why some communities did not apply. Among the more common
reasons cited by the directors for not applying were that they did not
know about the program, or they felt that the cost and effort of
applying were too burdensome. Among the other reasons given by more
than one airport director were the airport already had sufficient air
service, officials thought the airport was not eligible, their grant
application would not be competitive, or DOT would not fund the kind of
project the airport would like to do.
In our survey of 2002 though 2004 grantees and discussions with
officials of the 10 completed projects, we found that the grantees were
generally satisfied with the application process and paperwork
requirements. Of the 121 grantee airport directors responding, 103 were
satisfied or very satisfied with the application process. In addition,
in our discussions with the directors of the 10 community airports that
had completed grant projects, most were satisfied with the application
process, although three expressed concern about the limited amount of
time they had to complete their applications after the 2002
announcement. In our survey of grantees, this issue did not appear to
be significant, especially in years subsequent to 2002. DOT has made
minor modifications in the application process as it has gained
experience with the program, such as allowing 90 days instead of 60
days to complete the application, and has continued to allow for
flexibility in application format, according to Office of Aviation
Analysis officials.
DOT Evaluates Grant Applications According to Legislatively Established
Priority Factors and DOT Criteria:
The Small Community Air Service Development Program is a discretionary
program that allows DOT considerable flexibility in selecting projects
for financial assistance, within the basic eligibility criteria. To be
eligible, the airport cannot be larger than a small hub airport based
on 1997 FAA boarding data and must have insufficient air service or
unreasonably high air fares. In addition to the basic eligibility
criteria, DOT must give priority to projects according to five factors
established in the law. These factors constitute DOT's Office of
Aviation Analysis' first tier of project evaluation. DOT must give
priority consideration to communities that (1) have air fares higher
than average for all communities, (2) provide a portion of the cost of
the project from local sources other than airport revenues, (3) have or
will establish a public-private partnership to facilitate air carrier
service to the public, (4) will provide material benefits to a broad
segment of the public that has limited access to the national air
transportation system, and (5) will use the assistance in a timely
manner. Although a local community match from nonairport revenues
enhances a community's chance of receiving a grant, it is not required
under the act. However, DOT has funded only two projects that did not
contain a local cash match.
In addition to the priority factors, DOT has, as part of a second tier
evaluation, other "service-related" and "project-related" factors that
it takes into consideration in evaluating competing proposals. (See
app. III for a list of the factors used in DOT selections.) DOT uses
this second tier evaluation to ensure that a project has a strong
justification, and the factors themselves have changed and evolved over
time, according to DOT officials. For example, as part of this second
tier evaluation, DOT looked at 15 air service factors to identify
whether a carrier served the airport and reviewed the airport's
existing service frequencies, destinations, aircraft size, and
passenger boardings. It also examined air service in the broader
geographic area, including the applicant community's proximity to
larger airports and the quality of the roads providing access to those
airports. DOT also considered 26 project-related factors, which include
such items as whether the area's demographics will support the project
or whether the project actually addressed the community's air service
problem. Some project-related factors can make it less likely to be
selected, including whether (1) the proposal simply shifted costs from
the local to the federal level, (2) the air service was in proximity to
other service that would detract from the proposal, and (3) the
proposal potentially worked at cross purposes with another grant if the
airport is located close to a past grant recipient.
DOT has developed review procedures that detail how it processes the
applications that it receives and how it applies this two-tier
evaluation of projects. DOT moved to a more structured process when the
Congress, in December 2003, changed the status of the program, dropping
the pilot designation of the program. For 2004, DOT developed more
formal documentation of its assessment of how well projects met the
statutory eligibility criteria and priority factors for each grant
application.
The DOT application evaluation reports we reviewed have shown how DOT
incorporates the priority factors in its 2004 deliberations and how
those results then translate into the projects it recommends to the
Secretary of Transportation. Generally, applications that meet fewer of
the priority considerations are less likely to be selected for grant
assistance. However, priority factors are not the sole criteria in the
final selection. As shown in table 1, applications that met four or
five of the priority factors were not guaranteed selection. Twelve of
the 35 applications that met four out of five of the priority
considerations did not make the final award list, and one proposal that
met all five was not selected. In contrast 13 applications that met
three priority considerations were funded.
Table 1: Fiscal Year 2004 Grant Applications Meeting Priority Factors
and Award Results:
Priority factors met: 1 of 5;
Number of applications meeting factors: 5;
Number receiving awards: 0.
Priority factors met: 2 of 5;
Number of applications meeting factors: 14;
Number receiving awards: 0.
Priority factors met: 3 of 5;
Number of applications meeting factors: 37;
Number receiving awards: 13.
Priority factors met: 4 of 5;
Number of applications meeting factors: 35;
Number receiving awards: 23.
Priority factors met: 5 of 5;
Number of applications meeting factors: 5;
Number receiving awards: 4.
Priority factors met: Disqualified;
Number of applications meeting factors: 12;
Number receiving awards: 0.
Priority factors met: Total;
Number of applications meeting factors: 108;
Number receiving awards: 40.
Source: GAO analysis of DOT data.
Note: A fiscal year 2004 application may have been disqualified because
it was incomplete, the airport community received a grant for the same
project in prior years, the project concept was no longer feasible, or
the service was obtained without a grant.
[End of table]
Projects that meet priority factors may not be funded for a number of
reasons. According to a DOT official, a project may meet the priority
factors yet not have any realistic possibility of implementation or
success. DOT may also choose to award a grant to a community that has
never received one before awarding a second grant to another community.
DOT's review of the priority factors involves determining a yes or no
response for each factor. DOT does not use a weighting or point system
or other scoring system to numerically rate the projects. However, DOT
officials told us that they are aware that, although in some cases a
proposal may technically meet the factor, it may do so very weakly. For
example, a project satisfies a priority factor if it will use
nonairport revenues as part of its local contribution, no matter how
small that nonairport contribution may be. On the other hand, a large
non-airport contribution can be viewed as a strong indicator of
community support. The final decisions on which projects are selected
are thus a result of the consideration of both the priority factors and
other factors that affect the quality of the proposal and its perceived
chances of success.
Once Office of Aviation Analysis staff have reviewed and analyzed the
individual projects, the Assistant Secretary for Aviation and
International Affairs reviews the staff assessments and finalizes a
list of recommended projects for the Secretary of Transportation.
According to Office of Aviation Analysis staff, through fiscal year
2004, the Secretary had agreed with the recommended list. In fiscal
year 2005, subsequent to the meeting with the Secretary to review
recommended awards, DOT made changes in the recommended grants.
According to Office of Aviation Analysis staff, this was done to
achieve a better balance of participating communities and a better
balance in the distribution of funds.
Our survey of grantee airports showed that a large majority of the
directors at these airports were satisfied with DOT's selection
criteria and process for the program, while fewer nongrantee airport
directors thought the selection criteria were clear. Eighty of 121
grantees responding--or 66 percent--were either satisfied or very
satisfied with the clarity of the selection criteria, while only 26 of
82 nongrantee airport directors--or 32 percent--were either satisfied
or very satisfied with the clarity of the selection criteria. A
possible explanation for this is that while DOT has flexibility in
making awards and considers many criteria in addition to the five
priority factors, the ultimate selection decision is discretionary. A
few of the fiscal year 2002 airport grantees we visited observed that
although they were pleased they were chosen, they were not sure how
grantees are selected and what criteria were used.
DOT Oversees Projects Largely by Reviewing Reimbursement Documents and
Reports from Grantees:
DOT's Office of Aviation Analysis staff are responsible for oversight
of the grants and serve as contact points with grantees. For the 2005
program cycle, six staff were assigned part-time to the program, an
increase from four part-time staff during the program's first 3 years.
DOT uses a document review approach to oversight in which it requires
grantees to submit quarterly reports that are used to assess a
project's progress and timeliness. The agency also requires that
grantees submit a final report on the project, which is used as the
basis for its overall evaluation of the project and holds back 10
percent of the grant funds until the receipt of a final report. DOT
operates the program on a reimbursable basis--grantees must first
expend funds from their own resources for project activities and then
request reimbursement from DOT for allowable expenses. To ensure that
government reimbursements are proper and allowable, DOT reviews expense
receipts, invoices, and other evidence of expenditures grantees submit
for reimbursement and, if satisfactory, will authorize FAA to make
payment.[Footnote 10] DOT and FAA maintain and monitor reimbursement
information on their financial databases. Office of Aviation Analysis
officials told us that they use this approach because performing on-
site visits is impractical given the small number of DOT staff who
administer the over 100 active grantees currently in the program. They
also noted that there is no provision for administrative expenses in
the appropriation, thus DOT does not have funds available for site
visits.
DOT monitoring has been sufficient to identify cases where grant
recipients have been both successful and unsuccessful in implementing
their grants. In those cases where sponsors have difficulty
implementing their projects and are unable to utilize their grant
awards, the grants are terminated and funds reverted back to DOT for
reallocation to other applicants. From 2002 through 2004, DOT
reallocated about $4.5 million to other projects.
The manner in which DOT administers oversight of grantee reimbursements
and provides assistance generated a favorable response from grantees.
Our survey found that grantees had high levels of satisfaction with the
way DOT monitored the grants and provided assistance to grantees.
Specifically, 108 of 121, or 89 percent, of grantee airport directors
who responded to our survey said that they were satisfied or very
satisfied with DOT's assistance. Likewise, 96 of 121, or 79 percent, of
responding airport directors were satisfied or very satisfied with
DOT's monitoring or oversight activities.
In general, grantees did not see the amount of paperwork required by
DOT's quarterly reporting mandate as burdensome, with 86 of 121--71
percent--of survey respondents being satisfied or very satisfied with
this quarterly reporting requirement. A lower number, 58 of 119--or
about half of airport respondents--said they were satisfied or very
satisfied with the paperwork DOT required for reimbursement and only 5
respondents were dissatisfied or very dissatisfied. However, one
airport consultant noted that for very small airports with very few
full-time staff, the reimbursement requirements can be more difficult
to complete.
Grantees Have Been Slow to Implement Some Projects:
The Vision 100--Century of Aviation Reauthorization Act added a
provision that DOT grant assistance will be used in a timely fashion as
an additional priority consideration for selection to participate in
the program as of 2004. The only limitation the authorizing legislation
places on the timely expenditure of funds is that air service subsidies
cannot last more than 3 years. DOT's 2004 and 2005 grant announcements
set an expectation that the funds should be used within 3 years.
Although this criterion was not part of the 2002 grant process, it does
provide a benchmark for performance, and 2002 grants are at the 3-year
point. As of September 30, 2005, 16 of 40 fiscal year 2002 grants were
still active, 20 were completed, and 4 had been terminated by DOT.
About 62 percent of the $20 million total 2002 program grant allocation
had been reimbursed to 2002 grantees. In addition, 58 grants are
scheduled to expire in fiscal year 2006. Table 2 shows the amounts DOT
reimbursed each year through September 30, 2005. (See app. IV for more
detailed information about the status of specific grants.)
Table 2: Reimbursed to Grantees, as of September 30, 2005:
Dollars in millions.
Year of reimbursement: 2002;
FY 2002 grants amount and (percent): $0 (0.0);
Total reimbursed amount: $0.
Year of reimbursement: 2003;
FY 2002 grants amount and (percent): 5.5 (27.3);
FY 2003 grants amount and (percent): $.01 (.05);
Total reimbursed amount: $5.5.
Year of reimbursement: 2004;
FY 2002 grants amount and (percent): 4.9 (24.7);
FY 2003 grants amount and (percent): 2.2 (10.9);
FY 2004 grants amount and (percent): $0 (0.0);
Total reimbursed amount: $7.1.
Year of reimbursement: 2005;
FY 2002 grants amount and (percent): 2.1 (10.5);
FY 2003 grants amount and (percent): 4.1 (20.5);
FY 2004 grants amount and (percent): 2.2 (11.1);
Total reimbursed amount: $8.4.
Total;
FY 2002 grants amount and (percent): $12.5 (62.4);
FY 2003 grants amount and (percent): $6.3 (31.5);
FY 2004 grants amount and (percent): $2.2 (11.1);
Total reimbursed amount: $21.0.
Source: GAO analysis of DOT data.
Notes: (1) The percentages shown were determined by comparing the
amount of reimbursements made in that year with total awards for that
grant year. (2) Calendar Year 2005 reimbursement are through September
30, 2005. (3) DOT recovered about $2.6 million unused from fiscal year
2002 grants and about $1.9 million unused from fiscal year 2003 grants
and transferred these funds to other grants. It also transferred $5
million in fiscal year 2005 funds to the Essential Air Service program.
[End of table]
Office of Aviation Analysis officials told us that the 2002 grants are
not an indication of what has happened with the grants awarded in
following years. According to the officials, a number of factors
contributed to the 2002 projects being delayed. First year grants were
not awarded until late fall of 2002. In addition, the airlines were at
that time still recovering following September 11, which made it
difficult for communities to attract new service. Many projects
included revenue guarantees, which can take some time to finalize.
Finally, communities may wait to ask for reimbursements after several
months of expenditures, which slows the payout of federal funds. The
reimbursement data indicate that the 2003 grants also experienced low
reimbursements the first year. Only about 11 percent of the 2003 grant
funds were reimbursed by the end of calendar 2004.
Finally, it should be noted that when a project includes a revenue
guarantee, the slow expenditure of funds does not always indicate a
problem. Revenue guarantees are only paid out if the airline fails to
meet a revenue target. If it meets the target, no funds are drawn down,
which may actually be an indication of project success. For example,
the $500,000 grant award to Rhinelander, WI, included almost $492,000
for a revenue guarantee. However, upon project completion, Rhinelander
had used about $254,000 for the revenue guarantee. According to the
airport director, the new route initiated under the grant generated
more revenue for the airline during the grant period than had been
expected. Therefore, the airport did not have to reimburse the airline
as much as it had anticipated.
As part of our survey of grantees, we asked whether their projects were
proceeding on schedule, and, if not, why they were proceeding more
slowly than expected. About 40 percent--42 of 106--of the grantee
airport directors reported that their projects are behind schedule,
including 11 of 26 airport directors surveyed who were involved in
implementing grants awarded in 2002. (See table 3.) Most of these
respondents, 23 of the 42, cited difficulties in entering and
finalizing agreements with the airlines as the main reason for the
delay. Grantees we surveyed also cited other reasons for delays,
including issues with airport personnel and among the grant consortium,
operational changes at Chicago O'Hare airport, and the need to
coordinate the grant with the Essential Air Service program.[Footnote
11]
Table 3: Airport Directors Assessments of Grant Progress:
Year grant awarded: 2002;
Ahead of schedule: 0;
On schedule: 9;
Behind schedule: 11;
No basis to judge/No response: 6;
Total responses: 26.
Year grant awarded: 2003;
Ahead of schedule: 1;
On schedule: 13;
Behind schedule: 19;
No basis to judge/No response: 7;
Total responses: 40.
Year grant awarded: 2004;
Ahead of schedule: 3;
On schedule: 22;
Behind schedule: 12;
No basis to judge/No response: 3;
Total responses: 40.
Year grant awarded: Total;
Ahead of schedule: 4;
On schedule: 44;
Behind schedule: 42;
No basis to judge/No response: 16;
Total responses: 106.
Source: GAO analysis of survey results of airport managers involved in
grants.
Note: Because not all airport directors responded to our survey, the
number of respondents is smaller than the number of grants awarded.
[End of table]
On a case-by-case basis, DOT has approved a number of grant amendments,
including extending the grant expiration date, to projects that have
been slow to be implemented. As of July 26, 2005, DOT had amended a
total of 47 grants, including 27 of the 2002 grants. For example,
Binghamton, NY, wanted to obtain enhanced service to Washington, D.C.,
via United Express and Detroit, MI, via Northwest Airlink by providing
the airlines with revenue guarantees. According to officials from the
Office of Aviation Analysis, there was some delay because of
difficulties in negotiating with the airlines. DOT agreed to extend the
grant expiration date, allowing Binghamton extra time to work out
agreements with United and Northwest. However, during these extended
negotiations, the airlines told Binghamton that they would agree to
provide the enhanced service only if the community offered subsidies
rather than revenue guarantees. As a result, DOT also allowed
Binghamton to amend its grant to provide the airlines with subsidies
rather than revenue guarantees to better accommodate the airlines'
requirements. Another example is the grant agreement amendment DOT
provided Lamar, CO. Lamar did not have any commercial service prior to
its grant award. The purpose of the grant was to obtain service from
Rio Grande Airlines to access scheduled service to Denver International
Airport. Lamar was not successful in obtaining service from Rio Grande
Airlines and instead obtained service to Denver's Front Range Airport
from Lamar Flying Service, a charter carrier. The Office of Aviation
Analysis agreed to amend Lamar's grant to allow Lamar Flying Service
the time to expand its base of operations and establish dependable air
transportation. Lamar subsequently provided four scheduled trips a week
to Denver International Airport and has since been able to upgrade its
aircraft.
Variety of Goals and Strategies to Improve Air Service are Used, but
the Results to Date of Completed Projects are Mixed:
The Small Community Air Service Development Program allows communities
to set a variety of goals for projects, and individual projects have
been directed at adding flights, airlines, and destinations; lowering
fares; changing the aircraft serving the community; completing a study
for planning and marketing air service; increasing enplanements; and
curbing the leakage of passengers to other airports. To achieve these
goals, grant sponsors have used a number of strategies, commonly
including subsidies and revenue guarantees to the airlines, marketing
to the public and to the airlines, hiring personnel and consultants,
and establishing travel banks in which a community guarantees to buy a
certain number of tickets. In addition, communities have employed a
number of other strategies, including buying an aircraft, subsidizing
the start-up of an airline, and taking over ground station operations
to reduce the costs for an airline. The outcomes of the grants may be
affected by broader industry factors that are independent of the grant
itself, such as larger strategic decisions on the part of the airlines.
Our evaluation of completed projects indicates mixed results, but only
23 of 157 projects were completed as of September 30, 2005.[Footnote
12] While officials at 19 of the 23 airports reported improvements to
air service or fares during the life of the grant, only about half said
that the improvements appeared to be self-sustaining. With 127 of the
157 grants still ongoing, it is too soon to determine which specific
types of strategies work best or assess the overall effectiveness of
the grant program to improve air service to small communities.
Most Common Project Goals Were Related to Increasing Service and
Enplanements:
According to our survey of 146 airport directors that received funds
from the 122 grants DOT awarded from 2002 through 2004, the most common
goals associated with Small Community Air Service Development Program
grants were generally related to increasing service and enplanements
(see fig. 5). Recapturing passenger traffic--that is, stopping leakage
to other airports--was also a frequent objective that increased in
importance each year of the program. In contrast, conducting a study of
the local market or changing the type of aircraft serving the community
were relatively infrequent goals. By 2004, relatively few airports
cited these goals for their grants. Finally, although addressing high
fares is an explicit goal of the program, lowering fares was cited as
an objective by 62 airport directors of the 146 airport directors over
the 3-year span.
Figure 5: Project Goals as Identified by Airport Directors for Grants
Awarded 2002 through 2004:
[See PDF for image]
Note: Some airport directors identified more than one goal. In
addition, because some grants cover multiple airports through a
consortium, the number of airport directors responding may be greater
than the number of grants DOT awarded in that year.
[End of figure]
Grant Projects Use Many Different Strategies to Meet Their Goals:
Grantees engaged in a number of strategies to meet their goals,
including various financial incentives, marketing, studies, and other
approaches. For example, a number of different financial incentives
have been funded under the program, including:
* Start-up subsidies--these provide assistance for an airline to begin
operations or pay for an aircraft.
* Revenue guarantees--the community and air carrier agree on a revenue
target and the community pays the carrier only if revenues from the
service do not meet the target.
* Travel banks--businesses or individuals deposit or promise future
travel funds to a carrier providing new or expanded service. A business
entity may handle an account containing the travel funds, and
contributing entities then draw down on this account.
* Airport station operations--the airport may assume the ground station
operations for one or a number of carriers serving the airport. Ground
personnel such as baggage handlers and ticket agents become airport
employees and may be shared among the airlines. Airlines pay for these
services, but their cost can be lower than if provided by the airline
itself.
Marketing support generally took a variety of forms, including mass
media such as television, radio, magazine and newspaper advertising,
outdoor advertising such as billboards and banners, direct mail,
internet advertising including using the airport web site, airport
special events such as open houses, frequent flyer promotions, travel
agent incentives, and other approaches. Figure 6 shows an example of
the use of outdoor advertising in one of the marketing projects funded
by the grants.
Figure 6: Example of a Billboard Advertisement Resulting from a Grant
Project:
[See PDF for image]
[End of figure]
The Small Community Air Service Development Program also has funded
studies and various other approaches. For example, in 2002, DOT awarded
the Aleutians East Borough in Alaska a $240,000 grant to study the air
service market for some rural airports in the lower Alaskan peninsula
and the eastern Aleutian Islands. DOT also subsequently awarded the
Aleutians East Borough $70,000 in 2003 to expand the study. Finally,
other approaches have included developing alternative ground services
such as bus service to nearby hubs and funding personnel such as
airport economic development staff positions or consultants.
We reviewed the grant applications and agreements for all 157 grants
awarded from 2002 through 2005. Projects commonly include more than one
strategy, such as combining a revenue guarantee with marketing for the
air service provided under the grant. Over time, a few trends can be
seen in the strategies used by communities. First, while marketing
activities have always been heavily used as a strategy, by 2004
marketing had virtually become a universal strategy. All 46 grants--the
initial 40 DOT awarded plus the 6 additional grants awarded with
reallocated prior year grant funds--included marketing as a component.
Second, the number of projects using direct subsidies and travel banks
declined by 2004 and remained low in 2005, while the number of projects
using revenue guarantees increased after 2002. Revenue guarantees have
been the most common form of financial assistance each year of the
program. Figure 7 provides a summary of the types of strategies
communities have used under the program.
Figure 7: Strategies Included in Grant Projects:
[See PDF for image]
Note: DOT awarded 40 grants in 2002, 36 grants in 2003, 46 grants in
2004 (including 6 grants awarded using funds reallocated from prior
declined, terminated, or completed projects) and 35 grants in 2005.
[End of figure]
Because marketing was such a heavily used strategy, we contacted all 23
airports that had completed their grants by September 30, 2005, to
determine what types of marketing they actually did. We found that 22
of the 23 completed grants had included some kind of marketing
component to encourage greater use of the airport or the airlines that
fly there; the lone exception was a grant which funded a study only.
All 22 grantees used newspaper advertising, 21 used radio advertising,
and 21 used the Internet--for example, the airport Web site. Television
and outdoor advertising were also common strategies, 17 grantees used
television and 18 used outdoor advertising.[Footnote 13] After these
strategies, the most common forms of marketing were airport special
events (14 projects), magazine ads (12 projects), and direct mail (11
projects). Other types of marketing, such as frequent flyer promotions,
travel agent incentives, or trade show booths, were also used in a few
cases.
Participating Airlines Generally Favored Revenue Guarantees:
Officials from airlines participating in the Small Community Air
Service Development Program said revenue guarantees or other forms of
financial subsidies were generally their preferred type of strategy,
but they also considered other types of strategies proposed by
communities under the program. We contacted each of the airlines
associated with the 10 projects completed by January 1, 2005, including
Continental Airlines, Delta Air Lines, Horizon Airlines, Rio Grande
Air, TransStates Airlines, US Airways, and Westward Airways. Although
their comments do not constitute a comprehensive analysis of industry
views of the grant program, they provide a useful perspective on how
participating airlines view the program. Several airline officials
noted that reducing financial risk has become a key factor for airline
and airport officials and consultants we interviewed also made this
observation. Finally, airline officials said they perform their own due
diligence doing market analyses of the airports, the competitive
situation, and route finances regardless of what a local study says.
Airlines face challenges when initiating air service to a community.
Start-up costs can be significant and include repositioning equipment,
renting space, and hiring and training personnel. Also, even if a
viable air travel market exists in a community, entering a new market
involves changing passengers' existing travel patterns and loyalties,
which may take time. Airline officials noted that given the current
financial condition of the industry, airlines cannot afford to take a
year of losses to build a customer base in a market, as they had in the
past. For this reason, airline officials stated that they often could
not enter smaller markets without some kind of revenue guarantee, such
as that provided by a Small Community Air Service Development Program
grant, or other financial support from the community.
Airline officials emphasized that for a project to be of interest to
them, the market must be potentially self-sustaining without subsidy or
revenue guarantee in the longer term. The grant will eventually end and
airlines do not wish to start over in another market, with the
accompanying costs and risks. Airline officials also emphasized the
importance of local funding to provide marketing for the new service;
for some airlines, this was a crucial factor in selecting the
community. A related observation by airline officials was that the
level of local support and commitment to air service was a key factor
in their decision to work with a local community. The Small Community
Air Service Development Program has this component of local commitment,
which some airline officials saw as important. In addition, some
airline officials said that the overall project (grant and local match)
must be sufficiently large to gain their interest. Finally, most
airline officials were unfavorably disposed toward travel banks citing
the difficulty in administering them and their poor track record of
success. However, one airline official said they had been involved with
successful travel banks and was open to the prospect of trying that
strategy again.
All airline officials we talked to had positive views of the Small
Community Air Service Development Program. Several officials stated
that the program was superior to the Essential Air Service program
because it addressed markets that were potentially self-sustaining but
were underserved. However, in one case, airline officials said they
were concerned about communities using the program to attract low-cost
carriers to compete with existing service they were already providing
to the community. Office of Aviation Analysis officials noted that
higher than average fares is a statutory criterion for priority
consideration in the selection of grantees, so introducing a low-cost
carrier into a community is an acceptable strategy for a community
under the program.
Completed Grants Indicated Mixed Results:
We contacted officials of the 23 Small Community Air Service
Development Program grant projects that were complete by September 30,
2005, and compared them against the program's goals of improved air
service and found that there were mixed results. In general, we found
that the airport officials reported almost all the completed projects
had some positive effect on air service during the life of the grant,
but in some cases the improvements did not remain after the initial
grant period, or that the improvements were not self-sustaining. For
most completed grants, 19 of the 23, airport officials reported some
kind of improvement in service, either in terms of an added carrier,
destination, flights, or change in the type of aircraft. Of the 23, 8
reported adding a new carrier, 13 a new destination, and 13 an increase
in the number of flights. In addition, 13 reported that some fares had
lowered at the airport during the grant. These service and fare
improvements may explain the positive effect on enplanements the
airport officials reported--19 grantees reported enplanements rose
during the course of the grant. However, the improvements seen during
the grant did not always continue afterwards. Fourteen of the 23
grantees reported that the improvements were still in place as of
October 1, 2005. Further, there is the question of whether the service
or fare improvement is self-sustaining and will continue without
additional funding. About half the grantees with completed grants--11
of the 23 grantees--reported that the improvements they experienced as
a result of the program were self-sustaining thus far. It should be
noted that these outcomes are preliminary. Thirteen of these grants
were completed in 2005, and determining whether a particular project is
successful may depend on the timeframe used. For example, Westward
Airways was able to initially provide service to Scottsbluff, NE, under
the grant, but later went out of business.
We also visited 10 airports that had completed grants by January 1,
2005, in order to gain a more detailed understanding of the outcomes of
their projects (app. V contains discussion of each of these). Of these,
five projects--Charleston, WV; Daytona Beach, FL; Hailey, ID;
Lynchburg, VA; and Mobile, AL, were generally successful in achieving
their goals and had made self-sustaining improvements to air service at
the time of our review.
* Charleston was able to add a new air carrier (Continental) and
destination (Houston). However, Continental subsequently reduced the
number of daily flights from two to one. Charleston officials said this
was a result of a larger strategic allocation of equipment by
Continental, and the airline later restored this second flight to
Charleston.
* Daytona Beach's objective was to add service to Newark, NJ, which has
remained in place after the grant was completed. After the grant was
completed, Continental extended its agreement with the airport. DOT
officials said that Continental has also expanded its service at the
community to additional destinations.
* Hailey successfully added air service to Los Angeles via Horizon
Airlines (see fig. 8). Although the service continues, it does not
operate all year long due to the seasonal nature of demand to this
resort community. After the grant expired, a local resort funded the
revenue guarantee to Horizon, indicating that the service was initially
not self-sustaining. However, Horizon now offers the service without a
grant guarantee. In addition, the grant helped convince Horizon to add
another flight to a new destination, Oakland, CA.
* Lynchburg, VA, was able to upgrade service to Atlanta from 30-seat
turboprops to 50-seat regional jets through a revenue guarantee. The
new jet service resulted in higher load factors on the larger regional
jets than on the smaller turboprops due to increased demand. This
service also has continued after the completion of the grant. DOT
officials said that the community has also succeeded in negotiating,
with its carrier, relative fare parity with the carrier's operations
with a nearby airport.
* Mobile, AL, established an innovative program to assume the ground
operations, including baggage handling and staffing ticket counters for
US Airways, which was about to abandon service to the airport,
according to an airline official. US Airways has maintained its
operations in Mobile, and the airport has expanded this program, with
American Airlines joining the ground operations service.
Figure 8: Horizon Airlines Turboprop Serving Hailey, ID:
[See PDF for image]
[End of figure]
The four projects that did not result in self-sustaining improvements
in air service were Fort Smith, AR; Reading, PA; Scottsbluff, NE; and
Taos, NM.
* Ft. Smith provides an example of how larger events in the aviation
industry can affect the outcome of the grant. Ft. Smith obtained the
air service it sought under the grant, however, American Airlines'
strategic decision to reduce the number of flights at its St. Louis hub
resulted in Ft. Smith losing the service.
* In the case of Reading, PA, the grant may have had a negative effect
on air service. The grant established a bus service from Reading
Airport to the Philadelphia airport, with the goal of demonstrating
that air travel demand existed in Reading and service could be added to
the airport. However, the bus service provided competition to the
existing air carrier at Reading, which subsequently withdrew its
service. The bus service ultimately failed (although a private operator
has re-established bus service without subsidy), and Reading was left
for a time without any scheduled air service.
* Scottsbluff, NE, was initially successful in resuming an intrastate
air service between Scottsbluff, North Platte, Lincoln, and Omaha via
start-up air carrier Westward Airways. This service did not reach the
expected level of enplanements and Westward Airways, which was able to
begin operations with the help of the grant, ceased operations in July
2005.
* Taos, NM, was not able to achieve sufficient enplanements to make its
air service self-sufficient, and Rio Grande Air, the small carrier that
provided the service to Taos, went bankrupt.[Footnote 14]
Finally, it is too early to determine whether the $95,000 grant to
Somerset, KY, may be considered a success. The purpose of the grant was
to conduct a study, which has been successfully completed. However, the
ultimate goal of the program and the grant is to improve or attract air
service. Because the community received a second grant in 2005, it will
be possible in the future to determine the ultimate outcome of the
initial and subsequent grants. Until the results of Somerset's efforts
to attract service are known, it is too soon to evaluate this grant.
Some of the 10 grantees we visited identified additional positive and
negative indirect effects not anticipated at the time of the grant. For
example, one airport cited increased community involvement as a
positive outgrowth of the grant--it helped forge ties between the
airport and business community that were not there before. In addition,
the study performed with grant funding fostered better community
understanding of the local airline market. In a few instances, services
begun under the grant stimulated other air service not part of the
grant such as attracting other new service or improved service by a
competing carrier. Conversely, some airport officials were concerned
that grants to nearby competing airports could dilute effects of the
grant at their airports. An airport official and an industry consultant
also expressed concern that the program was no longer producing
innovative ideas. Instead, some airports were copying approaches that
had been funded in the past as a way to improve their chances of
receiving a grant.
Because a large majority of Small Community Air Service Development
Project grants are not complete (127 of the 157 grants were ongoing as
of September 30, 2005), it is too soon to determine which strategies
have performed the best or assess the overall effectiveness of this
program to improve air service to small communities. However, in
addition to the preliminary results from the projects we studied,
comments from DOT officials, airport directors, and airline officials
provide some indications of what strategies that had positive results.
Airline officials saw projects that provide direct financial benefits
to the airline, such as revenue guarantees, as having the greatest
chance of success. These officials noted that these types of projects
allow the airline to test the real market for air service in a
community without enduring the typical financial losses that occur when
new air service is introduced. Airline officials also said that
marketing efforts were important for success. DOT and some airline
officials doubted the effectiveness of travel banks, in part because of
the difficulty with administering the program. Finally, one strategy
that airport and airline officials found innovative was for airports to
take over the airlines' ground station operations, such as ticketing
and baggage handling. Only two airports have used this strategy under
the program, so it is too early to tell if this model will be more
widely adopted.
Most Airport Directors Indicated That Their Grant Projects Were
Effective or That It Was Too Soon to Tell:
Most grantee airport directors we surveyed indicated that their
projects were at least partially successful or that it is too early to
make an assessment. As shown in table 4, 60 of 120 airport directors
that responded said that their grant was effective or very effective in
increasing passenger traffic. About 46 percent (54 of 118) of airport
directors said that their grant was effective or very effective in
improving service quality. However, in both instances, almost as many
airport directors said that they had no basis to judge effectiveness or
that the question was not applicable. In addition, 38 of 118 airport
directors answered that their grant had been effective or very
effective in reducing high fares. A majority, 63 airport directors,
said that this issue was not applicable or they had no basis to judge.
Table 4: Airport Directors' Views on Success of Grant Projects:
Increasing passenger traffic;
Very effective or effective: 60;
As effective as ineffective: 7;
Very effective or ineffective: 1;
NA or No basis to judge: 52;
Total responses: 120.
Improving air service quality;
Very effective or effective: 54;
As effective as ineffective: 11;
Very effective or ineffective: 2;
NA or No basis to judge: 51;
Total responses: 118.
Resolving fare issues;
Very effective or effective: 38;
As effective as ineffective: 9;
Very effective or ineffective: 8;
NA or No basis to judge: 63;
Total responses: 118.
Source: GAO survey of grantee airport directors.
[End of table]
Some of the airport directors responding to our survey also said that
they thought the funds used for marketing had been effective. For
example, one airport director said that the small airport he directs
does not have a marketing budget and that the grant funds provided for
marketing were more than the airport's total annual operating budget.
The marketing funds therefore, brought public awareness the airport
would not otherwise have been able to obtain. Another airport director
said that he believed the marketing program conducted as part of the
airport's grant resulted in an 11 percent annual increase in
enplanements.
Usefulness of Air Service Development Zone Designation Is Not Clear:
AIR-21 requires that each year DOT designate an Air Service Development
Zone as part of the Small Community Air Service Development Program.
The act specifies that DOT shall work with the community or consortium
on means to attract business to the area surrounding the airport, to
develop land use options for the area, and provide data working with
the Department of Commerce and other agencies. DOT sees this
designation as providing an opportunity for the selected community to
work with its grant award to stimulate economic development, increase
use of the airport's facilities, and create a productive relationship
between the community and the federal government to achieve these
goals. DOT has designated one airport each year of the program as an
Air Service Development Zone--Augusta, GA (2002); Dothan, AL (2003);
Waterloo, IA (2004); and Hibbing, MN (2005). Airports may apply for the
designation by indicating their interest and providing supporting
information on their grant applications. Airport officials said there
are no special reporting requirements nor any additional funding for
airports designated Air Service Development Zones.
Airport and local officials at the three locations designated in 2002
through 2004 said they did not know the criteria for being selected as
an Air Service Development Zone or they were unclear on why their
airports were selected. Upon selection, all three airports met with DOT
staff to further clarify what the program entails. Officials from one
airport said that DOT suggested the airport come up with ideas for how
to use the designation, which could serve as a model for other
communities. Another airport official told us that DOT offered to
introduce the airport to other federal agencies as part of the
designation. However another official said that other federal agencies,
including FAA, do not "recognize" the designation as providing any
special status for the airport. DOT officials said all of the
requirements of other agencies, including DOT agencies, still apply to
the airport and community. According to one local official, this makes
the designation ineffective in fostering economic development.
All three communities told us that the Air Service Development Zone
designation has neither positive nor negative effects on the airport,
because it has done nothing to either help or hurt them. The officials
from all three airports noted that receiving the designation initially
provided some positive local publicity for the airport, but that was
the only effect they could name. Community and airport officials told
us that any actual economic development that has been created at or
near the airport would have occurred without the Air Service
Development Zone designation.
Conclusions:
Our review of completed Small Community Air Service Development Program
grants to date found that they had a mixed record of meeting program
goals. The projects we reviewed included both instances where grantees
were able to develop self-sustained air service and cases where this
was not achieved. However, given that relatively few Small Community
Air Service Development Program projects have been completed thus far
(23 completed grants of the 157 awarded grants, or about 15 percent, as
of September 30, 2005), it was too early for us to assess the overall
effectiveness of the grants in improving air service to small
communities. Examining the effectiveness of this program when more
projects are complete would allow the evaluation of whether additional
or improved air service was not only obtained but whether it continues
after the grant support has expired. This may be particularly important
since our work on the limited number of completed projects found that
only about half of the grantees reported that the improvements were
self-sustaining after the grant was complete. In addition, our prior
work on the Essential Air Service program found that once incentives
are removed, additional air service may be difficult to maintain. Over
the next year, an additional 58 projects are scheduled to expire and
examining the results from completed grants at that time may provide a
clearer picture of the value of this program. Any improved service
achieved from this program could then be weighed against the cost to
achieve those gains. This information will be important as the Congress
considers the reauthorization of this program in 2008.
We also found that the Air Service Development Zone concept has had no
identifiable effect at any of the three locations designated from 2002
through 2004. The officials at the 3 designated airports remained
unclear about what they were supposed to do once designated a
development zone. DOT sees this designation as providing an opportunity
for the selected community to work with its grant award to stimulate
economic development, increase use of the airport's facilities, and
create a productive relationship between the community and the federal
government to achieve these goals. DOT officials said they are
available to help the designees, if they are asked. However, DOT has
not developed guidance or a conceptual model for what an Air Service
Development Zone should be or what it should accomplish. Without this
guidance, DOT advice or direction is limited and the designees may or
may not pursue any air service development zone activities.
Recommendations for Executive Action:
To ensure the effectiveness of the Small Community Air Service
Development Program, we are making the following two recommendations to
the Secretary of Transportation:
* The Secretary should conduct an evaluation of the Small Community Air
Service Development Program in advance of the program's reauthorization
in 2008. Such an evaluation should occur after additional grant
projects are complete and include a determination of the extent to
which the program is meeting its intended purpose of improving air
service to small communities.
* The Secretary should clarify what support and services it will
provide to communities that are designated as Air Service Development
Zones.
Agency Comments and Our Evaluation:
We provided copies of a draft of this report to the Department of
Transportation for its review and comment. We received oral comments
from DOT officials including the Associate Director, Office of Aviation
Analysis. The officials told us that, in general, they concurred with
the report's findings and agreed to consider the recommendations as
they go forward with the program. DOT also provided clarifying and
technical comments, which we incorporated into this report as
appropriate.
We are sending copies of this report to appropriate congressional
committees and the Secretary of Transportation. We will make copies
available to others on request. In addition, the report will be
available at no charge on the GAO Web site at [Hyperlink,
http://www.gao.gov].
If you or your staff have any questions regarding the contents of this
report, please contact me at (202) 512-2834 or [Hyperlink,
dillinghamg@gao.gov]. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Individuals who made major contributions to this report are
listed in appendix VI.
Signed by:
Gerald L. Dillingham:
Director, Physical Infrastructure Issues:
List of Congressional Addressees:
The Honorable Thad Cochran:
Chairman:
The Honorable Robert C. Byrd:
Ranking Minority Member:
Committee on Appropriations:
United States Senate:
The Honorable Jerry Lewis:
Chairman:
The Honorable David Obey:
Ranking Minority Member:
Committee on Appropriations:
House of Representatives:
The Honorable Peter A. DeFazio:
House of Representatives:
[End of section]
Appendixes:
Appendix I Objectives, Scope, and Methodology:
To determine how the Department of Transportation (DOT) has implemented
the Small Community Air Service Development Grant Program, we obtained
and reviewed legislation authorizing and funding the program as well as
related orders and guidelines. We interviewed DOT officials regarding
their grant review and selection process as well as the procedures they
use to oversee and monitor grant implementation. We reviewed grant
proposals and award information and information about how DOT used
grant criteria to review grant applications and award grants. We
reviewed program controls to understand DOT's program oversight and
monitoring. We also reviewed quarterly reports and final reports
grantees submitted. We obtained and reviewed DOT financial data from
the Office of the Secretary and from the Federal Aviation
Administration. Based on our understanding of the data through
discussions with knowledgeable agency officials, as well as checks for
obvious errors in accuracy and completeness, we determined that the
data were sufficiently reliable for our purposes.
To determine what strategies have been used and what results have been
obtained, we reviewed the grant applications and agreements for all 157
grants awarded from 2002 through 2005. We classified the types of
strategies carried out within the program and summarized the types of
activities funded.
In addition, we conducted site visits at each of the 10 grantees that
had completed their projects as of December 31, 2004. This included
Charleston, WV; Daytona Beach, FL; Fort Smith, AR; Hailey, ID;
Lynchburg, VA; Mobile, AL; Reading, PA; Scottsbluff, NE; Somerset, KY;
and Taos, NM. We interviewed airlines associated with these completed
grants to obtain information on air service trends at small community
airports and the Small Community Air Service Development Program.
Airlines interviewed include American Eagle Airlines, Continental
Airlines, Delta Air Lines, TransStates Airlines, US Airways, Horizon
Airlines, Rio Grande Air, and Westward Airways. We contacted 13
additional airports that completed their grants by September 30, 2005,
to obtain basic information on the outcome of their grant. We also
interviewed selected aviation consultants that had prepared grant
applications to obtain information on air service trends at small
community airports and the Small Community Air Service Development
Program. Aviation consultants interviewed include Wilbur Smith
Associates, Vesta Rae and Associates, and Intervistas.
In addition, we conducted two Web-based surveys. We sent surveys to the
146 airport directors involved in the 122 grants awarded by DOT from
2002 through 2004. We sent a different survey to the 116 airport
directors who applied for but did not receive a grant. For both
surveys, we sent the survey to the airport directors or managers who
were knowledgeable about the grant that was received or, in the case of
the nongrantees, were knowledgeable about the grant proposal. To
determine the airports that were included in the grant award, we
reviewed the grant applications, information on the grants from DOT,
and information from the grantees. To determine the airport directors
who applied for but did not receive a grant, we reviewed the grant
proposal documents from the DOT docket and information on the
applications from DOT. We did not include airports smaller than a
nonhub airport (as defined in 1997) in the nongrantee survey because
they did not have scheduled commercial service.
Each survey asked a combination of questions that allowed for open-
ended and closed-ended responses. The survey to airports that received
the grant included questions about (1) the intended goals of the
project, (2) project elements, (3) assessments of DOT's implementation
of the grant program, (4) results obtained under the project, and (5)
recent trends that have affected air service at the airport. The survey
to airports that did not receive the grant included questions about (1)
the intended goals of the project, (2) project elements, (3)
assessments of DOT's implementation of the grant program, and (4)
recent trends that have affected air service at the airport.
For both surveys, a GAO survey specialist designed the questionnaires
in conjunction with other GAO staff knowledgeable about the grant
program. In addition, we pretested the grantee questionnaire with three
communities that had received fiscal year 2002 grants. We also had two
aviation experts review the grantee questionnaire and provide comments.
We pretested the nongrantee questionnaire with three other communities
that had applied for, but did not receive, grants for each of the
fiscal year 2002 through 2004 periods. During the pretests for each
questionnaire, we asked whether the questions were understandable and
if the information was feasible to collect. We refined each of the
questionnaires as appropriate.
Both surveys were conducted using self-administered electronic
questionnaires posted to the World Wide Web. For the grantee survey, we
sent email notifications to 146 airport managers and directors
beginning on March 2, 2005. We then sent each potential respondent a
unique password and username on March 8, 2005, by email to ensure that
only members of the target population could participate in the survey.
To encourage respondents to complete the questionnaire, we sent an
email message to prompt each nonrespondent each week after the initial
email message for approximately 3 weeks. We closed the survey on April
18, 2005. Because of the location and nature of the two grants awarded
to the Aleutians East Borough islands in Alaska, we did not send
surveys to each airport included in the grants. Instead, we asked that
the legal sponsor of the grants complete a single survey for each of
the two grants awarded. For those questions in the survey that
specifically pertain to the airports involved in the grants, we asked
that the sponsor respond for any of the airports in that grant for that
specific grant year. We received 121 completed surveys, a response rate
of 83 percent. To view our survey and airport directors' responses, go
to www.gao.gov/cgi-bin/getrpt?GAO-06-101SP.
The nongrantee surveys were also conducted using self-administered
electronic questionnaires posted to the World Wide Web. For this
survey, we sent email notifications to 116 airport managers and
directors beginning on April 12, 2005. We then sent each potential
respondent a unique password and username on April 14, 2005, by email
to ensure that only members of the target population could participate
in the survey. To encourage respondents to complete the questionnaire,
we sent an email message to prompt each nonrespondent each week after
the initial email message for approximately 3 weeks. We closed the
survey on May 18, 2005. There was an application from two airports in
Hawaii. Because both airports had the same airport director, we sent
him only one survey. We received 83 completed surveys, a response rate
of 72 percent. We removed two airport directors from the respondent
list because their airports were included in a proposal submitted by a
representative of the state DOT without the airports' knowledge.
Therefore, the airport directors did not have sufficient information to
complete the survey. To view our survey and airport directors'
responses, go to www.gao.gov/cgi-bin/getrpt?GAO-06-101SP.
Because these were not sample surveys, there are no sampling errors.
However, the practical difficulties of conducting any survey may
introduce errors, commonly referred to as nonsampling errors. For
example, difficulties in how a particular question is interpreted, in
the sources of information that are available to respondents, or in how
the data are entered into a database or were analyzed, can introduce
unwanted variability into the survey results. We took steps in the
development of the questionnaires, data collection, and the data
analysis to minimize these nonsampling errors. For example, social
science survey specialists designed the questionnaires in collaboration
with GAO staff with subject matter expertise. Then, as mentioned
earlier, the draft questionnaire was pretested with appropriate
officials to ensure that the questions were relevant, clearly stated,
and easy to comprehend. When the data were analyzed, a second,
independent analyst checked all computer programs. Since these were Web-
based surveys, respondents entered their answers directly into the
electronic questionnaires. This eliminated the need to have the data
keyed into a database thus removing an additional source of error.
We also called a random sample of 20 small hub and nonhub airport
directors or managers as categorized in 1997. We selected our sample
from a total of 206 small and nonhub airports we determined had never
applied for a grant. We called the 20 airport directors to ask them why
they had not applied. The sample was stratified by FAA region and
airport size. While we did not attempt to project these results to all
airports that did not apply for grants, the sample provided some useful
observations on the types of reasons airports had for not applying.
To determine how passenger traffic and air service have changed at the
nation's small community airports, we conducted a literature review of
aviation trends, focusing on studies that describe overall trends at
small community airports (small hubs and nonhubs) in terms of the
number of scheduled flights and destinations, available seats on
scheduled flights, and scheduled flights by aircraft type. We narrowed
our criteria to analyses contained in published studies and reports in
the past 5 years. We reviewed each of the studies meeting our criteria
and determined that the studies were methodologically sound.
As an additional assessment of the reliability of the studies'
findings, we considered the reliability of the underlying data that
were used in the studies and reports. Where noted in the study, we
considered the steps that the study authors took to determine if the
data used in their analyses were sufficiently reliable for their
purposes. For example, much of the published data are from DOT's Office
of the Inspector General who periodically reports to the Congress on
small community air service. The Inspector General's reports on
aviation trends relied on data from various sources. The data that we
cited primarily came from the Federal Aviation Administration's Flight
Schedule Data System, which derives from the Official Airline Guide
Schedules Database. While the Inspector General did not systematically
audit or validate the databases they used in their report, they
conducted trend analyses and sporadic checks of the data to assess
reasonableness and comprehensiveness. When their judgmental sampling
identified anomalies or apparent limitations in the data, they
discussed these irregularities with managers responsible for
maintaining the data.
Additionally, we made use of BACK Aviation Solutions, a private
contractor that uses the Official Airline Guide Schedules Database and
the Federal Aviation Administration Aerospace Forecasts, which is based
on the Department of Transportation's Bureau of Transportation
Statistics data on passenger traffic and fleet type. We recently issued
a report and assessed the reliability of BACK's and DOT's
data.[Footnote 15] Based on (1) reviews of documentation from BACK
Aviation Solutions and DOT about their data and the systems that
produced them and (2) interviews with knowledgeable agency and company
officials, we found the information to be sufficiently reliable for
these types of analyses. On the basis of our review of the
methodologies cited in the studies, together with the authors'
statements concerning steps they took to assess the reliability of the
underlying data along with our previous data reliability assessments of
BACK Aviation Solutions and DOT databases, we concluded that the
studies' analyses were sufficiently reliable for our purposes.
We performed our work from September 2004 through October 2005 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Factors Affecting Air Service to Small Communities:
Air service to nonhub airports has generally declined in recent years,
as measured by the number of departure flights. Nonhubs have had an
overall decrease in departures since July 2000. While all airports
showed a decrease in service from July 2001 to July 2003 scheduled
departures at small, medium, and large hub airports have increased
since 2003. By July 2005, scheduled departures at small, medium, and
large hub airports largely rebounded, with departures from large and
small hubs exceeding the July 2000 number. However, the decline of
service at nonhub airports continued, with 17 percent fewer departure
flights serving these airports in July 2005 compared with July 2000.
Many factors may help explain why some small communities face
relatively limited air service.[Footnote 16] First, many network
carriers have cut service to small communities while carriers face
financial difficulties and restructure their operations. Regional
carriers now operate at small communities where network carriers have
withdrawn. Second, regional carriers are phasing out turboprops in
favor of regional jets, which has had a negative effect on small
communities that have not generated the passenger levels needed to
support regional jet service. Third, the "Commuter Rule" that FAA
enacted in 1997 might have also had an effect. This rule was intended
to bring small commuter aircraft operated under the same safety
standards as larger aircraft.[Footnote 17] This change created
challenges for small communities because it is more difficult to
economically operate smaller aircraft such as 19-seat turboprops under
the new safety requirements. In addition, the Aviation and
Transportation Security Act instituted the same security requirements
for the screening of passengers for smaller airports as it did for
larger airports, creating a "hassle factor" for passengers.[Footnote
18] Fourth, low cost carriers have emerged in the deregulated
environment, but these airlines have generally avoided small
communities, leading to the phenomenon of "leakage"--that is,
passengers choosing to drive to a larger airport instead of the small
community airport. According to industry consultants, low cost carriers
are now looking at medium-sized markets to expand, which could result
in further reduction of air service at small community airports.
Network Carrier Restructuring and Downsizing Negatively Affect Service
to Small Communities:
The financial condition of network carriers has negatively affected
service to small communities, especially those served by
nonhubs.[Footnote 19] We have reported that in response to the economic
downturn begun in early 2001 and the events of September 11, 2001, many
network carriers have been undertaking major restructuring and
downsizing of their operations.[Footnote 20] A regional airline
association official noted that as part of restructuring, network
carriers have transferred routes to regional carriers or reduced air
service to certain communities.[Footnote 21] According to an industry
association, network carriers have also discontinued some service at
major hubs, which can, in turn, reduce service to small communities.
Flights to small communities have been cut because they are often
considered to be less profitable than other routes.
Aircraft Changes at Small Communities Pose Challenges:
According to aviation consultants, turboprops have been the primary
source of airline service to small communities, and in particular
nonhubs, because turboprops have been the most economically viable for
small communities. However, turboprop use is declining. According to
one aviation consultancy, from 1995 to 2005, the number of nonstop
routes served by turboprops declined 54 percent. According to the FAA
Aerospace Forecast Fiscal Years 2005-2016, the trend is for further
decline.[Footnote 22] By 2016, FAA expects that 10-40 seat turboprop
aircraft will represent 13.3 percent of the fleet, down from 22.8
percent in 2004.
According to FAA, the primary reason for the decline in turboprops has
been the rise of the use of regional jets at small community airports.
According to the DOT Office of the Inspector General, the number of
regional jet flights at nonhubs has increased 199 percent from July
2000 to July 2005.[Footnote 23] In comparison, flights by other types
of aircraft have declined--by 29 percent for large jets, 39 percent for
turboprops, and 17 percent for piston aircraft. The increased use of
regional jets at small communities is in line with national trends at
larger airports. The FAA Aerospace Forecast Fiscal Years 2005-2016
states that jet departures by regional air carriers accounted for 65.8
percent of industry departures in 2004 compared with just 0.2 percent
in 1991.
According to an aviation consultant, increased use of regional jets,
which tend to have 50 seats or more, makes it more difficult for small
communities to fill the aircraft. Thus, according to an aviation
consultant, regional jets have not been a direct substitution for
turboprops on routes; rather, regional jets may fly to denser passenger
markets where they can profitably operate. Another trend that might
negatively affect service to small communities is that some airlines
have been procuring more 70 and 90 seat aircraft. According to the FAA
Aerospace Forecast Fiscal Years 2005-2016, because the larger aircraft
allow for longer flight lengths, new markets may be tapped for point-to-
point service that will by-pass congested hub airports. We have
reported in the past that small communities may have particular
difficulty attracting regional jet service because their passenger
demand could not support it.[Footnote 24]
In addition, an aviation consultant and industry airline association
official both stated that scope clauses in labor agreements between
regional and network carriers can constrain regional airlines in the
aircraft size, routes, and airports served.[Footnote 25] For example,
the aviation consultant said clause requirements that jets be used on
certain routes have led to the retirement of turboprops even where
turboprop service had been profitable.
The "Commuter Rule" Has Contributed to Loss of Air Service to Some
Small Communities:
In 1997, the FAA enacted the "Commuter Rule" that called for "one level
of safety" among all commercial aircraft and placed stringent safety
standards on regional carriers. The intent was to bring aircraft that
have 10 to 30 seats and operate scheduled service under the same safety
standards as network carriers that operate with larger aircraft. The
additional costs required to meet the increased safety standards made
some smaller aircraft uneconomical to operate. According to industry
association officials and an aviation consultant, the safety upgrades
have contributed to eliminating the 19-seat plane because of the
increased operating costs. According to the FAA Aerospace Forecast
Fiscal Years 2005-2016, in 1998, 1 year after the implementation of the
Commuter Rule, the number of city pairs serviced by the regional or
commuter carriers fell to its lowest level of the decade. Although the
trend reversed in 1999 as more regional jets entered the fleet, the
number of short-haul markets under 200 miles continued to decline.
Furthermore, between 2001 and 2004, 456 city pairs in the 0-199 mile
range and 248 in the 200-499 mile range lost nonstop regional or
commuter service. Taking into account city pairs that gained service,
the overall result was a net loss of 184 city pairs in the 0-199 mile
range and 90 in the 200-499 mile range. FAA told us that part of this
decline may be due to the Commuter Rule.[Footnote 26]
Small community airports are required to meet the same security
standards as larger airports, which can be costly for small community
airports and create a "hassle factor" for passengers. According to an
aviation consultant, with the rise in increased security measures at
airports, many in the traveling public have opted to drive or take
trains or buses to travel in the post 9/11 era. Consumers believe that
with the increased time it takes to pass through security, they would
be better off using another method of transportation to go to their
final destination.
Increase in Low Cost Carrier Service May Also Contribute to Reduced
Service at Small Community Airports:
Low-cost carriers such as Southwest and JetBlue, provide point-to-point
service in dense population markets with limited access to low fares,
and in recent years this model has been relatively successful.
According to the FAA Aerospace Forecast Fiscal Years 2005-2016, since
2000, network carriers have reduced their domestic capacity by 14.3
percent, while low cost carriers have increased capacity by 40.5
percent.
Low-cost carriers generally avoid nonhub airports where demand for
their point-to-point service is insufficient to make it economically
feasible to serve with their fleets of larger aircraft. According to
the Department of Transportation Office of the Inspector General, low-
cost carriers scheduled service to only 5 of the more than 500 nonhub
airports in July 2005, representing approximately 2 percent of the
total available passenger seats at these airports. An aviation
consultant stated that only the six large network carriers pay
attention to small community air service.
Low-cost carriers provide a challenge to small communities. Neighboring
larger airports that have low cost carrier service are attracting
passengers from smaller airports, a phenomenon called leakage. We have
reported this as a critical factor determining a community's demand for
air service.[Footnote 27] During interviews with aviation consultants
and during an industry conference, this issue was noted as one of the
most significant challenges to bringing and maintaining air service at
small community airports.
According to aviation consultants, some low-cost carriers may begin
flying from medium density airports. Such a strategy might increase the
impact of leakage, as more small community passengers become closer to
airports where low cost service is provided. Some potential small
community airport passengers may elect to drive to airports served by a
low cost carrier to access lower fares. Service at the smallest
community airports might thus be further reduced.
[End of section]
Appendix III: DOT Additional Selection Factors:
Service-related Factors:
1. How many carriers are serving the community?
2. How many destinations are served?
3. What is the frequency of flights?
4. What size aircraft service the community?
5. Has the level of service been increasing or decreasing over the past
3 years?
6. Have enplanements been increasing or decreasing over the past 3
years?
7. Is the Metropolitan Statistical Area population increasing or
decreasing?
8. Is the per-capita income increasing or decreasing?
9. Are the number of businesses in the area increasing or decreasing?
10. What is the proximity to larger air service centers?
11. What is the quality of road access to other air service centers?
12. Does the community lack service in identified top Origin &
Destination markets?
13. Is the proposal designed to provide:
* First air service,;
* Second carrier service,;
* New destinations,;
* Larger aircraft, or;
* More frequencies?
14. If this is an air service project, has the community selected a
carrier that is willing and committed to serve?
15. If this is an air service project, does the community have a
targeted carrier that would serve?
1. Do demographic indicators and the business environment support the
project?
2. Does the community have a demonstrated track record of implementing
air service development projects?
3. Does the project address the stated problem?
4. Does the community have a firm plan for promoting the service?
5. Does the community have a definitive plan for monitoring, modifying,
and terminating the project if necessary?
6. Does the community have a plan for continued support of the project
if self-sufficiency or completion is not attained after the grant
expires?
7. If mainly a marketing proposal, does the community have a firm
implementation plan in place?
8. Is the applicant a participating consortium?
9. Is the project innovative?
10. Does the project have unique geographical traits or other
considerations?
11. Is the amount of funding requested reasonable compared with the
total amount of funding available?
12. Is the local contribution reasonable compared with the amount
requested?
13. Can the project be completed during the funding period requested?
14. Is the applicant a small hub now?
15. Is the applicant a large nonhub now?
16. Is the applicant a small nonhub now?
17. Is the applicant currently subsidized through the Essential Air
Service program?
18. Is the project for marketing only?
19. Is the project a study only?
20. Does the project involve intermodal services?
21. Is the project primarily a carrier incentive?
22. Is the project primarily air fare focused?
23. Does the project involve a low-fare service provider?
24. Does the proposal shift costs from the local or state level to the
federal level?
25. Does the proposal show that proximity to other service would
detract from it?
26. Is the applicant close to a past grant recipient?
[End of table]
[End of section]
Appendix IV: Status of Grants Awarded, 2002 through 2005:
2002 Grant Year.
1;
Location: Abilene, TX;
Grant amount: $85,010;
Reimbursed as of September 30, 2005: $85,010;
Status as of September 30, 2005: Completed.
2;
Location: Akron/Canton, OH[A];
Grant amount: $950,000;
Reimbursed as of September 30, 2005: $731,588;
Status as of September 30, 2005: Completed.
3;
Location: Aleutians East Borough, AK;
Grant amount: $240,000;
Reimbursed as of September 30, 2005: $191,134;
Status as of September 30, 2005: Ongoing.
4;
Location: Asheville, NC;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $500,000;
Status as of September 30, 2005: Completed.
5;
Location: Augusta, GA[A];
Grant amount: $759,004;
Reimbursed as of September 30, 2005: $112,743;
Status as of September 30, 2005: Terminated.
6;
Location: Baker City, OR[A];
Grant amount: $300,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Terminated.
7;
Location: Beaumont/Port Arthur, TX;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $163,512;
Status as of September 30, 2005: Ongoing.
8;
Location: Bellingham, WA;
Grant amount: $301,500;
Reimbursed as of September 30, 2005: $153,997;
Status as of September 30, 2005: Ongoing.
9;
Location: Binghamton, NY;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $500,000;
Status as of September 30, 2005: Completed.
10;
Location: Bismarck, ND;
Grant amount: $1,557,500;
Reimbursed as of September 30, 2005: $166,000;
Status as of September 30, 2005: Ongoing.
11;
Location: Brainerd, St. Cloud, MN;
Grant amount: $1,000,000;
Reimbursed as of September 30, 2005: $250,602;
Status as of September 30, 2005: Ongoing.
12;
Location: Bristol/Kingsport/Johnson City, TN;
Grant amount: $615,000;
Reimbursed as of September 30, 2005: $224,513;
Status as of September 30, 2005: Ongoing.
13;
Location: Cape Girardeau, MO;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
14;
Location: Casper, Gillette, WY[A];
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $120,722;
Status as of September 30, 2005: Terminated.
15;
Location: Charleston, WV[A];
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $499,443;
Status as of September 30, 2005: Completed.
16;
Location: Chico, CA;
Grant amount: $44,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
17;
Location: Daytona Beach, FL[A];
Grant amount: $743,333;
Reimbursed as of September 30, 2005: $737,834;
Status as of September 30, 2005: Completed.
18;
Location: Fort Smith, AR;
Grant amount: $108,520;
Reimbursed as of September 30, 2005: $105,704;
Status as of September 30, 2005: Completed.
19;
Location: Fort Wayne, IN;
Grant amount: $398,000;
Reimbursed as of September 30, 2005: $398,000;
Status as of September 30, 2005: Completed.
20;
Location: Hailey, ID;
Grant amount: $600,000;
Reimbursed as of September 30, 2005: $600,000;
Status as of September 30, 2005: Completed.
21;
Location: Lake Charles, LA;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $119,545;
Status as of September 30, 2005: Completed.
22;
Location: Lake Havasu City, AZ;
Grant amount: $403,478;
Reimbursed as of September 30, 2005: $316,412;
Status as of September 30, 2005: Ongoing.
23;
Location: Lamar, CO;
Grant amount: $250,000;
Reimbursed as of September 30, 2005: $182,342;
Status as of September 30, 2005: Ongoing.
24;
Location: Lynchburg, VA;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $499,997;
Status as of September 30, 2005: Completed.
25;
Location: Manhattan, KS;
Grant amount: $388,350;
Reimbursed as of September 30, 2005: $154,406;
Status as of September 30, 2005: Ongoing.
26;
Location: Marion, IL;
Grant amount: $212,694;
Reimbursed as of September 30, 2005: $189,236;
Status as of September 30, 2005: Ongoing.
27;
Location: Mason City, IA[A];
Grant amount: $600,000;
Reimbursed as of September 30, 2005: $16,359;
Status as of September 30, 2005: Terminated.
28;
Location: Meridian, MS;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $500,000;
Status as of September 30, 2005: Completed.
29;
Location: Moab, UT;
Grant amount: $250,000;
Reimbursed as of September 30, 2005: $212,246;
Status as of September 30, 2005: Ongoing.
30;
Location: Mobile, AL;
Grant amount: $456,137;
Reimbursed as of September 30, 2005: $456,099;
Status as of September 30, 2005: Completed.
31;
Location: Paducah, KY;
Grant amount: $304,000;
Reimbursed as of September 30, 2005: $150,144;
Status as of September 30, 2005: Ongoing.
32;
Location: Presque Isle, ME;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $450,119;
Status as of September 30, 2005: Ongoing.
33;
Location: Rapid City, SD (1);
Grant amount: $1,400,000;
Reimbursed as of September 30, 2005: $1,399,295;
Status as of September 30, 2005: Completed.
34;
Location: Reading, PA[A];
Grant amount: $470,000;
Reimbursed as of September 30, 2005: $363,662;
Status as of September 30, 2005: Completed.
35;
Location: Rhinelander, WI[A];
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $262,463;
Status as of September 30, 2005: Completed.
36;
Location: Santa Maria, CA[A];
Grant amount: $217,530;
Reimbursed as of September 30, 2005: $203,279;
Status as of September 30, 2005: Completed.
37;
Location: Scottsbluff, NE;
Grant amount: $950,000;
Reimbursed as of September 30, 2005: $950,000;
Status as of September 30, 2005: Completed.
38;
Location: Somerset, KY;
Grant amount: $95,000;
Reimbursed as of September 30, 2005: $85,335;
Status as of September 30, 2005: Completed.
39;
Location: Taos/Ruidoso, NM[A];
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $404,120;
Status as of September 30, 2005: Completed.
40;
Location: Telluride, CO;
Grant amount: $300,000;
Reimbursed as of September 30, 2005: $25,057;
Status as of September 30, 2005: Ongoing.
Total reimbursed: $12,480,920.
Amount reallocated in 2004: $1,529,901.
Amount DOT recovered in 2005: $2,588,358.
Total;
Grant amount: $19,999,056;
Reimbursed as of September 30, 2005: $16,599,179.
Source: GAO analysis of DOT data.
[A] DOT has recovered all or portions of the grant awarded to the
grantee.
[End of table]
2003 Grant Year:
1;
Location: Aguadilla, PR;
Grant amount: $626,700;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
2;
Location: Aleutians East Borough, AK;
Grant amount: $70,000;
Reimbursed as of September 30, 2005: $7,636;
Status as of September 30, 2005: Ongoing.
3;
Location: AZ Consortium, AZ;
Grant amount: $1,500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
4;
Location: Bakersfield, CA;
Grant amount: $982,513;
Reimbursed as of September 30, 2005: $706,151;
Status as of September 30, 2005: Ongoing.
5;
Location: Bangor, ME;
Grant amount: $310,000;
Reimbursed as of September 30, 2005: $62,086;
Status as of September 30, 2005: Ongoing.
6;
Location: Charleston, SC[A];
Grant amount: $1,000,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Terminated.
7;
Location: Cut Bank, MT;
Grant amount: $90,000;
Reimbursed as of September 30, 2005: $74,381;
Status as of September 30, 2005: Ongoing.
8;
Location: Dickinson, ND;
Grant amount: $750,000;
Reimbursed as of September 30, 2005: $660,504;
Status as of September 30, 2005: Ongoing.
9;
Location: Dothan, AL;
Grant amount: $200,000;
Reimbursed as of September 30, 2005: $59,110;
Status as of September 30, 2005: Ongoing.
10;
Location: Dubuque, IA;
Grant amount: $610,000;
Reimbursed as of September 30, 2005: $579,571;
Status as of September 30, 2005: Ongoing.
11;
Location: Duluth, MN;
Grant amount: $1,000,000;
Reimbursed as of September 30, 2005: $853,615;
Status as of September 30, 2005: Ongoing.
12;
Location: Elmira, NY;
Grant amount: $200,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
13;
Location: Erie, PA;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $381,689;
Status as of September 30, 2005: Ongoing.
14;
Location: Fresno, CA;
Grant amount: $1,000,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
15;
Location: Friday Harbor, WA;
Grant amount: $350,000;
Reimbursed as of September 30, 2005: $181,980;
Status as of September 30, 2005: Ongoing.
16;
Location: Gainesville, FL;
Grant amount: $660,000;
Reimbursed as of September 30, 2005: $17,750;
Status as of September 30, 2005: Ongoing.
17;
Location: Grand Island, NE;
Grant amount: $380,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
18;
Location: Greenville, MS[A];
Grant amount: $400,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Terminated.
19;
Location: Gunnison, CO;
Grant amount: $200,000;
Reimbursed as of September 30, 2005: $183,390;
Status as of September 30, 2005: Ongoing.
20;
Location: Joplin, MO;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
21;
Location: Knoxville, TN[A];
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Terminated.
22;
Location: Laredo, TX;
Grant amount: $400,000;
Reimbursed as of September 30, 2005: $129,350;
Status as of September 30, 2005: Ongoing.
23;
Location: Lewiston-Nez Perce, ID;
Grant amount: $675,000;
Reimbursed as of September 30, 2005: $114,460;
Status as of September 30, 2005: Ongoing.
24;
Location: Mountain Home (Baxter), AR;
Grant amount: $574,875;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
25;
Location: Muskegon, MI[A];
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $469,155;
Status as of September 30, 2005: Completed.
26;
Location: NC Consortium, NC;
Grant amount: $1,200,000;
Reimbursed as of September 30, 2005: $106,131;
Status as of September 30, 2005: Ongoing.
27;
Location: Owensboro, KY;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $388,044;
Status as of September 30, 2005: Ongoing.
28;
Location: Parkersburg, WV/Marietta, OH;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $84,733;
Status as of September 30, 2005: Ongoing.
29;
Location: Pierre, SD;
Grant amount: $150,000;
Reimbursed as of September 30, 2005: $41,978;
Status as of September 30, 2005: Ongoing.
30;
Location: Redmond, OR;
Grant amount: $515,000;
Reimbursed as of September 30, 2005: $34,461;
Status as of September 30, 2005: Ongoing.
31;
Location: Savannah, GA;
Grant amount: $523,495;
Reimbursed as of September 30, 2005: $386,525;
Status as of September 30, 2005: Ongoing.
32;
Location: Shreveport, LA;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
33;
Location: Staunton, VA;
Grant amount: $100,000;
Reimbursed as of September 30, 2005: $74,749;
Status as of September 30, 2005: Ongoing.
34;
Location: Taos Consortium, NM;
Grant amount: $1,400,000;
Reimbursed as of September 30, 2005: $557,398;
Status as of September 30, 2005: Ongoing.
35;
Location: Tupelo, MS;
Grant amount: $475,000;
Reimbursed as of September 30, 2005: $78,007;
Status as of September 30, 2005: Ongoing.
36;
Location: Victoria, TX;
Grant amount: $20,000;
Reimbursed as of September 30, 2005: $19,416;
Status as of September 30, 2005: Completed.
Total reimbursed: $6,252,273.
Amount reallocated in 2004: $400,000.
Amount DOT recovered in 2005: $1,930,845.
Total;
Grant amount: $19,862,583;
Reimbursed as of September 30, 2005: $8,583,118.
Source: GAO analysis of DOT data.
[A] DOT has recovered all or portions of the grant awarded to the
grantee.
[End of table]
2004 Grant Year.
1;
Location: Albany, GA;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
2;
Location: Alpena, MI;
Grant amount: $583,046;
Reimbursed as of September 30, 2005: $11,802;
Status as of September 30, 2005: Ongoing.
3;
Location: Beckley/Lewisburg, WV;
Grant amount: $300,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
4;
Location: Bloomington, IL;
Grant amount: $850,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
5;
Location: Butte, MT;
Grant amount: $360,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
6;
Location: Champaign-Urbana, IL;
Grant amount: $200,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
7;
Location: Charlottesville, VA;
Grant amount: $270,000;
Reimbursed as of September 30, 2005: $73,814;
Status as of September 30, 2005: Ongoing.
8;
Location: Chattanooga, TN;
Grant amount: $750,000;
Reimbursed as of September 30, 2005: $6,343;
Status as of September 30, 2005: Ongoing.
9;
Location: Clarksburg/Morgantown, WV (reallocation);
Grant amount: $372,286;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
10;
Location: Columbus, MS;
Grant amount: $260,000;
Reimbursed as of September 30, 2005: $81,738;
Status as of September 30, 2005: Ongoing.
11;
Location: Del Rio, TX;
Grant amount: $318,750;
Reimbursed as of September 30, 2005: $168,320;
Status as of September 30, 2005: Ongoing.
12;
Location: Dubois, PA;
Grant amount: $400,000;
Reimbursed as of September 30, 2005: $6,177;
Status as of September 30, 2005: Ongoing.
13;
Location: Eau Claire, WI;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
14;
Location: Elko, NV;
Grant amount: $222,000;
Reimbursed as of September 30, 2005: $222,000;
Status as of September 30, 2005: Completed.
15;
Location: Evansville/South Bend, IN;
Grant amount: $1,000,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
16;
Location: Farmington, NM;
Grant amount: $650,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
17;
Location: Hot Springs, AR (reallocation);
Grant amount: $195,000;
Reimbursed as of September 30, 2005: $14,515;
Status as of September 30, 2005: Ongoing.
18;
Location: Huntsville, AL;
Grant amount: $479,950;
Reimbursed as of September 30, 2005: $353,392;
Status as of September 30, 2005: Ongoing.
19; Location: Kalamazoo, MI;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
20;
Location: Lafayette, LA;
Grant amount: $240,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
21;
Location: Latrobe, PA;
Grant amount: $600,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
22;
Location: Lebanon, NH;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
23;
Location: Lincoln, NE;
Grant amount: $1,200,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
24;
Location: Logan City, UT;
Grant amount: $530,000;
Reimbursed as of September 30, 2005: $12,101;
Status as of September 30, 2005: Ongoing.
25;
Location: Marquette, MI;
Grant amount: $700,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
26;
Location: McCook/North Platte, NE;
Grant amount: $275,000;
Reimbursed as of September 30, 2005: $24,730;
Status as of September 30, 2005: Ongoing.
27;
Location: New Haven, CT;
Grant amount: $250,000;
Reimbursed as of September 30, 2005: $88,949;
Status as of September 30, 2005: Ongoing.
28;
Location: Pocatello, ID;
Grant amount: $75,000;
Reimbursed as of September 30, 2005: $16,297;
Status as of September 30, 2005: Ongoing.
29;
Location: Redding/Arcata, CA;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
30;
Location: Richmond, VA;
Grant amount: $950,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
31;
Location: Rutland, VT (reallocation);
Grant amount: $240,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
32;
Location: Salem, OR;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
33;
Location: Santa Rosa, CA;
Grant amount: $635,000;
Reimbursed as of September 30, 2005: $31,088;
Status as of September 30, 2005: Ongoing.
34;
Location: Sarasota, FL;
Grant amount: $1,500,000;
Reimbursed as of September 30, 2005: $900,000;
Status as of September 30, 2005: Ongoing.
35;
Location: Sioux City, IA;
Grant amount: $609,800;
Reimbursed as of September 30, 2005: $52,353;
Status as of September 30, 2005: Ongoing.
36;
Location: Sioux Falls, SD;
Grant amount: $350,000;
Reimbursed as of September 30, 2005: $52,686;
Status as of September 30, 2005: Ongoing.
37;
Location: Steamboat Springs, CO;
Grant amount: $500,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
38;
Location: Sumter, SC;
Grant amount: $50,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
39;
Location: Syracuse, NY (reallocation);
Grant amount: $480,000;
Reimbursed as of September 30, 2005: $15,946;
Status as of September 30, 2005: Ongoing.
40;
Location: Tyler, TX;
Grant amount: $90,000;
Reimbursed as of September 30, 2005: $6,592;
Status as of September 30, 2005: Ongoing.
41;
Location: Visalia, CA (reallocation);
Grant amount: $200,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
42;
Location: Walla Walla, WA;
Grant amount: $250,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
43;
Location: Waterloo, IA;
Grant amount: $550,000;
Reimbursed as of September 30, 2005: $31,834;
Status as of September 30, 2005: Ongoing.
44;
Location: Wilkes-Barre/Scranton, PA;
Grant amount: $625,000;
Reimbursed as of September 30, 2005: $55,757;
Status as of September 30, 2005: Ongoing.
45;
Location: Worcester, MA (reallocation);
Grant amount: $442,615;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
46;
Location: Youngstown, OH;
Grant amount: $250,000;
Reimbursed as of September 30, 2005: $0;
Status as of September 30, 2005: Ongoing.
Location: Total;
Grant amount: $21,803,447;
Reimbursed as of September 30, 2005: $2,226,435.
Source: GAO analysis of DOT data.
Note: Program funds from 2002 and 2003 were reallocated to six cities
in 2004.
[End of table]
2005 Grant Year.
1;
Location: Aberdeen, SD;
Grant amount: $450,000.
2;
Location: Alexandria, LA;
Grant amount: $500,000.
3;
Location: Bradford, PA;
Grant amount: $220,000.
4;
Location: CA Consortium, CA;
Grant amount: $245,020.
5;
Location: Cedar City, UT;
Grant amount: $155,000.
6;
Location: Durango, CO;
Grant amount: $750,000.
7;
Location: Fargo, ND;
Grant amount: $675,000.
8;
Location: Florence, SC;
Grant amount: $500,000.
9;
Location: Great Falls, MT;
Grant amount: $220,000.
10;
Location: Greenville, NC;
Grant amount: $450,000.
11;
Location: Gulfport/Biloxi, MS;
Grant amount: $750,000.
12;
Location: Hancock/Houghton, MI;
Grant amount: $516,000.
13;
Location: Hibbing, MN;
Grant amount: $485,000.
14;
Location: Huntington, WV;
Grant amount: $500,000.
15;
Location: Idaho Falls, ID;
Grant amount: $500,000.
16;
Location: Ithaca, NY;
Grant amount: $500,000.
17;
Location: Jacksonville, NC;
Grant amount: $500,000.
18;
Location: Killeen, TX;
Grant amount: $280,000.
19;
Location: Knox County, ME;
Grant amount: $555,000.
20;
Location: Lawton/Ft. Sill, OK;
Grant amount: $570,000.
21;
Location: Macon, GA;
Grant amount: $507,691.
22;
Location: Marathon, FL;
Grant amount: $750,000.
23;
Location: Marshall, MN;
Grant amount: $480,000.
24;
Location: Massena, NY;
Grant amount: $400,000.
25;
Location: Modesto, CA;
Grant amount: $550,000.
26;
Location: Monterey, CA;
Grant amount: $500,000.
27;
Location: Montgomery, AL;
Grant amount: $600,000.
28;
Location: Oregon/Washington Consortium, OR/WA;
Grant amount: $180,570.
29;
Location: Rockford, IL;
Grant amount: $1,000,000.
30;
Location: Ruidoso, NM;
Grant amount: $600,000.
31;
Location: Somerset, KY;
Grant amount: $950,000.
32;
Location: Stewart (Newburgh), NY;
Grant amount: $250,000.
33;
Location: Vernal, UT;
Grant amount: $40,000.
34;
Location: Williamsport, PA;
Grant amount: $500,000.
35;
Location: Wyoming Consortium, WY;
Grant amount: $800,000.
2005 Grant Year: Location: Total;
Grant amount: $17,429,281.
Source: GAO analysis of DOT data.
[End of table]
[End of section]
Appendix V: Summary of 10 Completed Small Community Air Service
Development Program Grants:
This appendix provides information on the Small Community Air Service
Development Grants that were completed as of December 31, 2004. For
each grant, information is provided on the background of the
application, the project funded by the grant, and the results achieved
by the grant. The 10 completed grants are:
* Charleston, West Virginia:
* Daytona Beach, Florida:
* Fort Smith, Arkansas:
* Hailey, Idaho:
* Lynchburg, Virginia:
* Mobile, Alabama:
* Reading, Pennsylvania:
* Scottsbluff, Nebraska:
* Somerset, Kentucky:
* Taos, New Mexico:
Charleston, West Virginia:
At the time of the grant application, Charleston was served by five
major airlines that had scheduled flights to 10 destinations. The
application noted that despite this level of service, there was poor
service to communities in the southwestern United States, Mexico,
Central and South America. The application also noted that there were
large numbers of local public and private firms, as well as academic
entities that needed service to the Houston metro area.
In 2002, Charleston proposed that the grant would be used to obtain new
regional jet service between Charleston's Yeager Airport and Houston,
Texas' Intercontinental Airport. The application stated that this new
service from Continental Airlines would have benefits for Charleston
and West Virginia, including:
* serving a major origin and destination market for Charleston;
* enhancing connectivity for the region, saving consumers considerable
time when connecting from points throughout the Southwestern United
States;
* opening same-carrier service to the important industrial centers of
northern Mexico;
* giving West Virginia consumers an additional carrier choice; and:
* enabling businesses to save employee time by eliminating connecting
time for traveling to and from Houston.
Charleston desired two weekday nonstop round trips to Houston, plus two
round trips on the weekend using 37-seat or regional jets. Charleston
would require Continental to offer fares reasonably consistent with
those charged on a per mile basis on other routes of similar length and
with the same aircraft.
Project Funded by Grant:
On June 26, 2002, Charleston was awarded a $500,000 Small Community Air
Service Development Pilot grant to facilitate acquiring service to
Houston. The community provided an additional $100,000 local match.
Charleston allocated $500,000 as a revenue guarantee to reduce the risk
of losses for Continental in the early months of the new service. The
community also allocated $20,000 for expenses necessary to meet with
the new carrier and to provide basic advertising and marketing support
for the new service.
Grant Outcome:
On October 1, 2002, Continental started new nonstop service from
Charleston to Houston. Initially, the service provided two flights
daily, with the exception of Saturday when one daily departure was
provided. In January 2004, the service was reduced to one flight daily.
Airport officials told us the reduction in the number of flights was a
result of aircraft fleet utilization issues at Continental. However,
according to an airport official, Continental subsequently resumed the
second daily flight.
The community stated in their final project report to DOT that the
airport experienced an increase in enplanements and a reduction in
passenger leakage as a result of the Charleston to Houston service.
Additionally, as shown in table 5, the airport has experienced a 31.8
percent overall increase in enplanements in October 2004 versus October
2002 when the service first started. In 2004, the airport set a record
for enplanements with 291,300 and experienced a 15.6 percent increase
in overall enplanements versus 2002. An airport official told us
enplanement levels continue to rise as the airport continues to expand
its catchment area, and that service levels at the airport are
comparable to communities that are double the size of the
airport.[Footnote 28] In 2002, there were 11 carriers representing five
major airlines serving the airport, and in 2004 there were 12 carriers
serving the market.
Table 5: Charleston, WV Passenger Enplanement Report for October 2002
through October 2004, and Overall Yearly Totals for 2002-2004:
October;
2002: 22,366[A];
Percent change from 2001: 18.4%;
2003: 21,710;
Percent change from 2002: -2.93%;
2004: 29,474;
Percent change from 2003: 35.8%.
Totals;
2002: 251,942;
Percent change from 2001: 4.1%;
2003: 242,485;
Percent change from 2002: -3.85%;
2004: 291,300;
Percent change from 2003: 20.1%.
Source: Charleston, WV (Yeager Airport).
[A] Denotes when new Continental service went into effect.
[End of table]
One local official told us that the success of the new Charleston to
Houston service had a secondary effect in obtaining an additional
airline as well. In July 2004, Independence Air started serving the
Charleston market. The official told us that the success of the Houston
service, and the fact that Charleston had not experienced a drop in
enplanements, showed Independence Air that Charleston could continue to
handle additional service from another airline.
Daytona Beach, Florida:
At the time of the grant application, Delta Air Lines and Continental
Connection Carrier, Gulfstream were the only two carriers serving
Daytona Beach. Delta provided daily service to Atlanta, Georgia, and
Saturday service to Cincinnati, Ohio. Continental Connection provided
14 weekly nonstop flights to Tampa, Florida. However, the community in
its grant application told DOT that the airport could handle an
increase in scheduled commercial airline service, particularly to New
York. The airport stated that they had a market area of 1,383,000
people, that the community had 8.5 million visitors to the area in
2000, and that more than 325,000 of these visitors were from New York.
Additionally, the grant application told DOT that the New York area
provided the strongest pattern of in-migration to Volusia
County/Daytona Beach, among all states, excluding Florida. Thus, the
community in its grant application stated that it needed direct service
to the New York area. According to the grant application, Daytona Beach
used to have service to New York, but as of September 11, 2001, the
service was discontinued despite having an 81 percent average load
factor (percentage of occupied seats on flights) for the last 12 months
of service.
According to Daytona Beach's grant application, air service had
suffered in the community due to the large amount of traffic leakage to
nearby airports. Daytona estimated that 50 percent to 60 percent of
their leakage was to either Orlando (65 miles) or Jacksonville (90
miles). Community officials in the grant application said that this
high traffic leakage was a direct result of a lack of competitive air
service, inadequate seat inventory, and resulting fare differentials at
Daytona Beach International Airport. At the time of the grant
application, Orlando had approximately 354 daily departures and
Jacksonville had 220 daily departures. Daytona at the same time had an
average of 7 daily departures.
According to the grant application, higher fares flying out of Daytona
versus the nearby airports of Orlando and Jacksonville contributed to
this leakage. Daytona Beach officials told DOT that on average, their
airport's fares were 13 percent higher to the same cities than Orlando,
and 15 percent higher than Jacksonville when purchased 21 days in
advance. The community noted in the grant application that weaker load
factors and additional seats at Orlando and Jacksonville have led to
higher fares in Daytona. In order to increase this air service, Daytona
Beach stated in their grant application that it desired twice daily
regional jet service to New York area's Newark Airport. The new service
provided by Continental Airlines was scheduled to begin on December 14,
2002.
Project Funded by Grant:
On June 26, 2002, Daytona/Volusia County was awarded a $743,333 Small
Community Air Service Development Program grant. The local community
provided an additional $165,000 for a total project cost of $908,333.
The community allocated $743,333 to Continental Airlines for a revenue
guarantee for the initial 12-month ramp-up period. The community's goal
was to make this service self-sufficient in the second year.
Additionally, the community provided $165,000 for advertising and
marketing for Continental's new service. Components of the marketing
program included: newsprint advertising, newsletter advertising, Web
site promotions, media press releases, radio advertising, ribbon
cutting ceremonies, and magazine advertising in both Daytona Beach and
New York areas.
Grant Outcome:
On December 12, 2002, Continental Airlines began service between
Daytona Beach and Newark Airport. Continental operated two daily trips
utilizing 50 seat regional jets. The revenue guarantee between Daytona
Beach and Continental for service to Newark lasted 1 year until
December 11, 2003. Table 6 shows the quarterly passenger totals for
this service.
Table 6: Quarterly Passenger Totals between Daytona Beach and Newark:
Period: Passengers;
1st Quarter 2003: 12,545;
2nd Quarter 2003: 14,480;
3rd Quarter 2003: 13,663;
4th Quarter 2003: 10,491;
Totals: 54,247.
Period: Load Factor;
1st Quarter 2003: 73%;
2nd Quarter 2003: 81%;
3rd Quarter 2003: 78%;
4th Quarter 2003: 79%;
Totals: 78%.
[End of table]
Source: Daytona Beach International Airport.
Note: 4TH Quarter Totals Ended December 11, 2003, when the revenue
guarantee between Continental and Daytona Beach ended.
A local official told us that the project has been a success. The
Daytona Beach to Newark service continued to operate as of September
30, 2005. In addition, following the completion of the revenue
guarantee, Continental extended its agreement 2 years with the airport
to provide service between Daytona Beach and Newark. The agreement
expires in December 2005, but a local official expects the agreement to
be renewed with Continental to continue providing this service.
In addition, according to a community official, passenger traffic has
risen 30 percent at the airport in the last 2 years since the grant.
The airport now has service to Cleveland, Ohio, and seasonal commuter
service to Tampa, Florida. Also, Delta has increased its service to 12
flights per day and has brought in larger aircraft to serve those
flights. In their final report to DOT, one community official told DOT
that the service expansion would not have been possible without the DOT
grant. An airline official told us that the grant was successful
because even with the grant completed, Daytona Beach still has service
to the New York area.
Fort Smith, Arkansas:
At the time of the grant application, Fort Smith was served by eight
daily round-trips via American Eagle Airline to Dallas/Ft. Worth,
Texas, and three daily round-trips by Northwest Airlink to Memphis,
Tennessee. Airport officials noted in their grant application that they
had inadequate service to the North and East at the time of the grant
application. Furthermore, the grant application told DOT that business
travelers in the region noted that excessive backtracking was a reason
they did not use the Fort Smith airport for travel to markets in the
North and East.
According to an airport official, the airport suffers traffic leakage
to other airports. Fort Smith loses passengers primarily to Tulsa,
Oklahoma (118 miles), Oklahoma City, Oklahoma (183 miles), and to a
lesser extent, Little Rock, Arkansas (159 miles). A local official
estimated this leakage to be approximately 46,000 enplanements per
year.
To overcome this lack of service to the North and the East, Fort Smith
proposed to obtain service to St. Louis, Missouri, or Chicago,
Illinois. The community previously had service to St. Louis, but
problems in the service resulted in its cancellation in 1999. The
community believed that this lost service led business travelers in the
area to use alternate airports to provide service to markets in the
North and East. Thus, the community believed that initiation of service
to St. Louis or Chicago would help answer this untapped demand.
Additionally, the grant application stated that officials at Fort Smith
needed to overcome other challenges to improve the airport, including:
* the general lack of understanding of the airline industry within the
business community had created unrealistic expectations;
* business travelers were not fully considering the productivity losses
sustained due to the use of other airports;
* the terrorist attacks of September 11, 2001, and the weak economy,
had created uncertainty among potential travelers; and:
* a general community perception that local air service was limited and
available fares were high.
Project Funded by Grant:
The June 26, 2002, grant agreement provided Fort Smith $108,520 and the
local community provided $20,000. The application stated that the town
would (1) develop an aggressive marketing campaign to illustrate
advantages of flying from Fort Smith and associated productivity
savings, (2) conduct market research and prepare professional
presentations to prospective airlines and (3) utilize a public/private
partnership to demonstrate market demand and community support for new
service. Fort Smith allocated the grant funding in the following
manner:
* Business Traveler Campaign-$51,700:
* Leisure Traveler Campaign-$38,200:
* Brochures and Direct Mail-$8,620:
* Airline Presentations-$15,000:
* Special Events-$10,000:
* Promotional Materials-$5,000:
Grant Outcome:
On October 7, 2002, American Connection began providing three daily
round trips from Fort Smith to St. Louis. The service was initially
provided with Jetstream 41 turboprop aircraft. Table 7 provides
quarterly enplanements for this service. American Connection posted its
strongest monthly performance with 1,144 enplanements in June 2003.
Table 7: American Connection's Quarterly Enplanement Numbers Fort Smith
to St. Louis:
2002;
1st Quarter: [Empty];
2nd Quarter: [Empty];
4th Quarter: 2,641;
Totals: 2,641.
2003;
1st Quarter: 2,484;
2nd Quarter: 2,543;
3rd Quarter: 3,829;
4th Quarter: 1,310;
Totals: 10,166.
[End of table]
Source: Fort Smith Airport Commission.
Note: The American Connection service did not begin until the 4TH
quarter of 2002. The service ended 1 month into the 4TH quarter of
2003.
At the end of the third quarter in July 2003, American Airlines
announced its plans to downsize its St. Louis hub. Daily departures out
of St. Louis were reduced from 417 to 207 on November 1, 2003.
Additionally, 26 feeder cities, including Fort Smith, lost service to
St. Louis as of November 1. An airline official stated that had
American not downsized St. Louis, the service from Fort Smith to St.
Louis would have continued if passenger levels remained the same.
According to Fort Smith's quarterly reports to DOT, an indirect benefit
that Fort Smith has seen since the grant application is that American
Airlines and Northwest Airlink have transitioned from turboprop service
to a regional jet service. According to airport officials, passenger
loads are high and the airport continues to gain seats they lost from
the termination of the St. Louis service. Additionally, as shown in
table 8, the community has seen an overall increase in passenger
numbers from 2002 to 2004.
Table 8: Quarterly Enplanements for Fort Smith, Arkansas 2002-2004:
2002;
1st Quarter: 18,500;
2nd Quarter: 23,393;
3rd Quarter: 22,382;
4th Quarter: 23,669;
Totals: 87,944.
2003;
1st Quarter: 19,737;
2nd Quarter: 23,839;
3rd Quarter: 24,004;
4th Quarter: 22,913;
Totals: 90,493.
2004;
1st Quarter: 19,990;
2nd Quarter: 23,977;
3rd Quarter: 24,337;
4th Quarter: 24,624;
Totals: 92,928.
[End of table]
Source: Fort Smith Airport Commission.
Fort Smith officials stated that the money spent on marketing and
studies helped their cause despite losing service to St. Louis. An
official told us that the studies were helpful because they showed
prospective airlines that they could fly profitably from Fort Smith.
The official told us that due to the flight reductions at Chicago and
St. Louis, the studies are important because local officials are now
looking to acquire service to Detroit, Michigan via Northwest Airlines.
Airport officials told us that Detroit can serve as an alternative to
Chicago and St. Louis. A local official told us that Detroit will
provide Fort Smith travelers access to the northeastern part of the
country as well as Europe and Japan. Local officials told us that the
studies performed under the grant put the airport in a position to talk
with airlines about potential service to Detroit.
Hailey, Idaho:
At the time of grant application, Hailey's Friedman Memorial Airport
had scheduled commercial air service to Seattle/Tacoma, Washington, and
Salt Lake City, Utah. Seattle service was provided by de Havilland Dash
8 (37-seat) and Salt Lake service was provided by Embraer 120 (30 seat
aircraft). Hailey's application stated that it was a resort destination
community with an economy dependent on tourism. It stated that Los
Angeles, California, was the area's number one market. The purpose of
the grant request was to:
* provide air service improvements to stimulate air travel and reduce
travel expense between Sun Valley[Footnote 29] and Los Angeles;
* stimulate local economic activity by improving air service between
Sun Valley and Los Angeles;
* improve air access from the Sun Valley region to key destinations in
the western United States; and:
* improve air service to a rural region whose airport, Friedman
Memorial Field, is significantly restricted by high altitude and
mountainous terrain.
The grant application told DOT that the airport's location does not
allow for certain aircraft to be able to land at Friedman Memorial
Airport. Elevation of the airport (5,300 ft.) and the length of its
runway (6,600 ft.) present a challenge for the airport. The high
altitude and short runway restrict the types of aircraft that can
utilize the airport. During winter months, flights are sometimes
diverted due to low visibility conditions. During the summer, flights
are weight-restricted due to the higher density altitude caused by
warmer temperatures. A community official told us that this difficult
operating environment is a factor hampering air service.
Additionally, the grant application told DOT that the airport
experiences leakage. Other airports used by potential Friedman
passengers include Boise (154 miles), Magic Valley/Twin Falls (64
miles), Pocatello (150 miles), and Idaho Falls Regional Airport, Idaho
(140 miles). Additionally, a local official told us that the expense of
flying into Hailey is also a challenge.
In order to increase its air service, the community proposed new
service to Los Angeles. Horizon Airlines would provide daily round trip
service from Friedman Memorial Airport in Hailey to Los Angeles on 70-
seat turbo-props.
Project Funded by Grant:
The June 26, 2002, grant agreement provided the City of Hailey
$600,000. The community provided a local match of $271,743. The
community allocated $644,344 of their money to cover a revenue
shortfall for Horizon Airlines for a 12 month ramp up period. The
community estimated that it would take up to 12 months for passenger
projections to reach full maturity. An airport official told us that
the grant allowed the airline to overcome the initial risk of operating
a new route by providing a subsidy for the first year.
Additionally, Hailey allocated $175,000 for marketing, including direct
sales, direct mail, print advertising, internet marketing, and radio
advertising. Marketing would be targeted to people living in the Los
Angeles area that may be interested in visiting nearby Sun Valley and
residents in the Sun Valley area that may be interested in travel to
Los Angeles for business or personal reasons.
Grant Outcome:
On December 15, 2002, Horizon Air commenced scheduled service from
Hailey to Los Angeles via Horizon Air with one daily round trip until
December 17, 2003. In the community's final project report to DOT, it
told DOT that the recreational nature of Hailey and the nearby Sun
Valley market generated more traffic in the first and third quarters,
versus the second and fourth quarters. The two higher seasons where
more traffic occurred were in the winter and the summer months, which
are peak tourist seasons in the area. In their final report to DOT, the
community told DOT that Hailey's projections for the first year had
been 27,366 origin and destination passengers, which would lead to a
53.6 percent load factor. As shown in table 9, their actual passenger
totals were 19,335 passengers and a 41.5 percent load factor.
Table 9: Horizon Air's Hailey to Los Angeles Passenger Totals with
Revenue Guarantee:
Period: Passengers; 12/15/02-12/31/02: 1,373;
1st Quarter 2003: 5,388;
2nd Quarter 2003: 3,568;
3rd Quarter 2003: 6,902;
4th Quarter 2003: 2,104;
Totals: 19,335.
Period: Load Factor; 12/15/02-12/31/02: 63%;
1st Quarter 2003: 46%;
2nd Quarter 2003: 29%;
3rd Quarter 2003: 54%;
4th Quarter 2003: 28%;
Totals: 41%.
Source: Hailey, ID Final Report to DOT.
[End of table]
A local official in the final project report told DOT that the 70-seat
de Havilland Dash 8-400Q is a large aircraft for the market, thus
resulting in lower load factors. The official told DOT that the flight
Horizon Airlines provides would be best served by a 50-seat aircraft.
According to Hailey officials, there are no 50 seat regional jets that
have the capability to serve the market, given the airport's current
limitations.
In 2004, upon completion of the Small Community Air Service Development
Program grant, Horizon Airlines stopped providing year round service to
Hailey. Instead, the community contracted with Horizon to provide
seasonal service between Hailey and Los Angeles. Additionally, with the
grant completed, a local Hailey company provided Horizon Airlines a
revenue guarantee to continue to fly the service into Hailey. The
company official told us that the grant provided the company
justification to promote air service in the community. The official's
goal is to make the service between Los Angeles and Hailey self-
sufficient in 5 years so a revenue guarantee is no longer needed. In
addition, a local official told us that the grant helped start new air
service provided by Horizon Airlines between Oakland, California, and
Hailey.
A local official told us that the grant has reduced passenger leakage
to Boise and Twin Falls, Idaho. However, a local official told us that
one problem that the community still encounters is that flights are
diverted to Twin Falls due to weather. An airport official told us that
if a new instrument landing system were introduced, up to 30 percent of
the flights that are now diverted could land in Hailey. Currently,
under Hailey's agreement with Horizon Airlines, the community pays for
the costs of busing passengers from Twin Falls to Hailey when planes
are diverted due to weather. An airline official told us that the grant
definitely succeeded and met their expectations for being able to
provide service between Hailey and Los Angeles for part of the year.
Lynchburg, Virginia:
At the time of the grant application, Lynchburg had service to Atlanta,
Georgia; Charlotte, North Carolina; and Philadelphia and Pittsburgh,
Pennsylvania. The Atlanta service was provided by Atlantic Southeast
Airlines/Delta Connection, and the Charlotte, Philadelphia, and
Pittsburgh service was provided by US Airways/Air Midwest/Shuttle
America. According to the April 19, 2002, grant application, Lynchburg
had recently lost service from United Express/Atlantic Coast to
Washington's Dulles Airport. Furthermore, the community had experienced
a recent overall decline in service at the time of the grant
application. From April 1999 to April 2002 the community had lost 580
weekly departing seats and 23 weekly departing flights.
According to the grant application, to fill its air service deficiency
and recapture lost traffic, Lynchburg proposed an upgrade to small jet
service from turboprop for service to Atlanta and Pittsburgh.
Additionally, the community wanted an upgrade to a larger turboprop for
service to Charlotte. According to the grant application, the
objectives of the application were to:
* Establish additional service that will meet the needs of the region.
* Capture passengers from the service area that use other airports due
to insufficient services.
* Build additional ridership at the airport as a result of offering
service options that are competitive with those found at communities of
comparable size.
* Strengthen the economic base of the region.
* Enhance levels of air service in Lynchburg.
Lynchburg noted in its grant application that it had higher airfares
relative to other nearby airports in the region such as Newport News,
Roanoke, and Charlottesville, Virginia. For example, in a study the
community found that fares between Lynchburg and Los Angeles are 19.7
percent greater than from Roanoke (55 miles), 227.8 percent greater
than Newport News (213 miles), and 23.9 percent greater from
Charlottesville (66 miles) based on 3-day advance purchase business
fares. Overall, in the community's grant application, only one market
(Chicago O'Hare) in the five sample locations provided had a community
that exceeded fares offered at Lynchburg.
In addition, the grant application stated that the airport suffered a
great deal of passenger leakage to nearby airports. In the application,
the community noted that a recent study concluded that 38.4 percent of
the traffic generated by the population residing within Lynchburg's
catchment area travel to other airports was due to lower fares and
wider availability of air service. It was estimated that 9 percent of
the traffic was leaking to Roanoke (55 miles) and 13 percent to
Raleigh/Durham, North Carolina (180 miles), to utilize low fare air
service. Six other nearby airports also accounted for approximately 17
percent leakage out of the community, according to the application. The
community told DOT in its application that some of this leakage could
not be recaptured due to low fare service at Raleigh/Durham. However,
the community also told DOT that much of the lost traffic was due to
consumer preference for larger and more comfortable aircraft.
Project Funded by Grant:
The June 26, 2002, grant agreement provided Lynchburg $500,000, while
the local community provided $100,000 in matching funds for a total of
$600,000. Lynchburg allocated $475,000 of the program for a 12-month
revenue guarantee for Delta upgrading to small jet aircraft (32 seats
or greater). The remaining $125,000 was used for advertising and
marketing for the airport's newly upgraded service. This sum included
payments for consulting services to negotiate with the target carrier
and marketing efforts after the recruitment to the benefit of both the
new carrier and incumbents as well.
Grant Outcome:
Lynchburg Airport and Delta negotiated a revenue guarantee to upgrade
their Lynchburg to Atlanta service from 30-seat turboprops to 40-seat
regional jets beginning on May 4, 2003. The service provides three
roundtrips a day between Lynchburg and Atlanta, and helped increase
Delta's passenger capacity in this market by 25 percent. Additionally,
on May 2, 2004, US Airways upgraded its Lynchburg to Charlotte service
from 19 seat turboprops to 37-seat Dash-8 turboprops. This upgrade in
service was provided without a revenue guarantee from Lynchburg. In a
quarterly progress report to DOT, an airport official told DOT that US
Airways had upgraded its service partly due to the success of the new
Delta jet service. The Charlotte service provides the airport six daily
departures. In total, upgraded US Airways and Delta flights provided
Lynchburg with nine daily departures and 342 passenger seats.
Lynchburg has, however, lost air service from US Airways to Pittsburgh
and Philadelphia since the 2002 grant application. An airport official
told us that the service was lost due to the economic problems facing
major airlines, a general unwillingness for people to fly after
September 11, and US Airways reducing its operations in Philadelphia.
Despite this loss in service, Lynchburg's enplanements have risen since
2002. (See table 10.) Additionally, total passenger traffic has
increased from 100,274 in 2002 to 120,174 in 2004. The airport in their
final project report to the DOT credits this increase in traffic to the
upgrade in jet service, lowering of fares at the airport, and increased
service at the airport.
Table 10: Quarterly Enplaned Passengers for Lynchburg, Virginia for
2002-2004:
2002;
1st Quarter: 11,132;
2nd Quarter: 13,820;
3rd Quarter: 12,263;
4th Quarter: 12,676;
Totals: 49,891.
2003;
1st Quarter: 9,984;
2nd Quarter: 11,367;
3rd Quarter: 12,194;
4th Quarter: 14,649;
Totals: 48,194.
2004;
1st Quarter: 12,434;
2nd Quarter: 16,012;
3rd Quarter: 15,278;
4th Quarter: 16,763;
Totals: 60,487.
Source: Lynchburg, VA, Airport.
[End of table]
An airport official told us that the program was a success because it
resulted in an additional three sustainable jet flights daily.
Additionally, Delta Air Lines on April 5, 2004, deemed the upgraded jet
service a success and agreed to continue providing the service without
a revenue guarantee after the Small Community Air Service Development
Program revenue guarantee ended in May 2004.
Furthermore, the community's final report to DOT noted that the airport
has seen an increase in enplanements and a decrease in leakage. The
community told DOT that this has occurred due to the upgrade in jet
service and a lowering of fares at the airport. The community still has
the same amount of weekly departures as before the grant, but the
upgrade in jet service has led to more available passenger seats for
the community than in January 2002. Despite this increase in passenger
seats, airlines at Lynchburg airlines' load factors have risen since
the 2002 grant application.
Mobile, Alabama:
At the time of the grant application, Mobile was served by Delta Air
Lines, US Airways Express, Continental Express, and Northwest Airlink.
These four airlines provided Mobile service to Atlanta, Georgia;
Dallas/Fort Worth, Texas; Charlotte, North Carolina; Houston, Texas;
and Memphis, Tennessee. In previous years, however, Mobile had
experienced a decline in air service. Between 1996 and 2002, six
airlines cancelled service on seven routes. According to the grant
application, since September 2001, the community had lost service to
Chicago, Illinois; Cincinnati, Ohio; Birmingham, Alabama; and
Washington, D.C. Furthermore, since July 2001, the community has gone
from 28 daily departures to 20, and has declined from 10 nonstop cities
to 5.
According to the grant application, fares had been a long-standing
problem for Mobile. Mobile stated that it had paid up to 40 percent
higher average fares than counterparts since 1995. These higher fares
had led Mobile passengers to drive to nearby airports such as
Pensacola, Florida (60 miles), Gulfport, Mississippi (70 miles), and
New Orleans, Louisiana (150 miles) to access lower fares or direct
service.
To obtain additional service, Mobile proposed to develop an airport-
airline business model to enable more profitable air service at the
airport. Under the model, Mobile Airport Authority would own and
operate the airline ground stations, charging the airline on a per turn
(one arrival and subsequent departure) basis for its use of equipment
and staff. The airline station staff would be airport employees, and
the airport would provide all the equipment required to handle ground
operations. An airport official told us that the community believed
that this initiative would help airlines with their high start up costs
in a market. If several airlines serve the airport, the program can
reduce cost and inefficiency by not having to duplicate staff,
equipment, and operations. In addition to developing the airport-
airline business model, the goals of the grant according to the grant
application were to:
* recruit new service from US Airways Express; additional frequencies
to Charlotte and new service to selected US Airways cities; and:
* recruit nonstop service to target cities of New York, Orlando,
Chicago, and Birmingham.
At the time of the application, the Mobile Airport Authority had
already established the new airport-airline program for US Airways.
Responding to an announcement that US Airways would completely withdraw
from Mobile after September 11, 2001, the Airport Authority hired 10
former station employees and took over handling ground operations for
US Airways. In turn, US Airways maintained one local employee and kept
open some service. The goal of the program was to use the business
model to prevent other airlines from pulling out of the market or to
recruit carriers into the market.
Project Funded by Grant:
The June 26, 2002, grant agreement provided Mobile $456,137 for the
airport-airline business model, and the city of Mobile contributed
$20,000 toward the project for a total of $476,137. The grant allowed
Mobile to allocate $144,645 to purchase appropriate ground handling and
office equipment to continue to operate the existing station. The
equipment they were utilizing at the time for US Airways was on loan
from a previous tenant. In addition, $311,492 of the program was
allocated as funding for direct operating expenses for personnel,
supplies, and maintenance for the existing station for 1 year of
operation. The remaining $20,000 was allocated toward marketing support
for any new service that participated in the new airport-airline
program.
Grant Outcome:
Mobile successfully retained US Airways service to Charlotte. An
airline official told us before the grant that the Mobile to Charlotte
service was not performing as well as expected, and that the airline
was planning to leave the market. The airline official told us that
much of the problem was due to US Airways staff not being used
efficiently. This was due to US Airways having a limited number of
flights, which led to high ground station costs per flight. The airline
official told us that the Small Community Air Service Development
Program grant for US Airways was enough of a cost savings to keep them
in the market.
Currently, there are eight Airport Authority staff allocated to the
program. The staff is put through a training program sponsored and paid
for by US Airways, with the exception of lodging and food which is paid
for by the airport. One airport official told us that they were not
sure how much they were saving US Airways, but US Airways continues to
provide Mobile air service. After the training takes place, the
staffing initiative is administered and funded by the airport. There
are no local taxes or funding supporting the program.
Additionally, Mobile officials told us that station cost program was
successful in securing new service from American Airlines. On April 11,
2005, Mobile announced that American Airlines would operate two daily
round-trip flights between Mobile and Dallas/Ft. Worth, Texas,
beginning June 9, 2005, using 44-seat Embraer ERJ-140 jets. An airport
official told us that Mobile's station cost program was the reason for
American's decision. The airport official convinced American that
Mobile was prepared to take over ground station costs until the airline
made a profit with its new service.
US Airways and American Airlines are the only airlines in Mobile to
utilize the airport's station cost offer so far. Airport officials told
us that they have offered the ground station program to other air
carriers serving Mobile, but none of the carriers expressed interest in
the program. An airport official told us that the program would not
work as well for incumbent airlines because ground staff would likely
lose their jobs. If other carriers chose to participate, the Authority
would probably not need to hire all airline staff. The authority would
economize the operations with the staff that they already have employed
and increase staff as needed. However, an airport official told us that
it would work well for airlines like US Airways that are planning to
pull out of the market, and for smaller carriers coming into the market
where the start-up costs are prohibitive.
Reading, Pennsylvania:
At the time of the grant application, Reading was served by US Airways
with two daily flights to Philadelphia, Pennsylvania, and four daily
flights to Pittsburgh, Pennsylvania. The community noted that lack of
other air service and the fares at the airport caused 91 percent of
Reading's ticketed passengers to leak to nearby airports. Additionally,
at the time of the grant application, the airport enplanement numbers
were half of the volume generated in 1989.
In the community's grant application, Reading indicated that they have
attempted to have talks with US Airways regarding service improvements
and with additional carriers about providing service to Reading. The
community told DOT that they had discussions with US Airways to return
service to pre-September 11 levels. Additionally, they had discussions
with Delta Air Lines for new service to Atlanta, Georgia, or
Cincinnati, Ohio; Air Tran for service to Atlanta, Georgia, and
Florida; and Northwest Airlink for service to Detroit, Michigan.
Reading's 2002 application desired to (1) implement a marketing
campaign to raise awareness of flying from Reading, (2) retain a
marketing and air service consultant to develop and manage the
airport's local advertising campaign, and (3) develop the Reading
Connection to provide regularly scheduled bus service to Philadelphia
to demonstrate the demand for air service that has been reduced.
Project Funded by Grant:
The June 26, 2002, grant agreement provided Reading $470,000 for the
total project and Reading added a local match of $30,000. Reading
allocated $300,000 to subsidize the Reading Connection bus service,
$50,000 towards general airport advertising, $50,000 for consultant
services, and $70,000 toward advertising and promotion of new carrier
services at the airport.
The Reading Connection was a bus service between Reading and
Philadelphia that was intended to demonstrate demand to airlines that
there was a need for increased air service at Reading. General airport
advertising included radio promotions, print advertising, press
releases, direct mail pieces, email newsletters, and website
development. The consultant services were used to retain a marketing
and air service development consultant to manage the airport's local
advertising, public relations, and community outreach programs. The
advertising and promotion component would be used to aggressively
market a new carrier's entrance into the Reading market. Elements of
the program included: billboards, radio, print, direct mail, and
community receptions.
Grant Outcome:
Reading Airport lost all commercial air service as of September 2004.
The community lost service to Philadelphia and Pittsburgh via US
Airways and was unable to recruit new additional service. A local
official told us that US Airways stopped serving Reading because they
felt the bus service would be in direct competition with the airline.
Additionally, the official told us that Reading's proximity to nearby
airports in Philadelphia, Allentown, and Harrisburg, Pennsylvania, made
Reading a low priority for air service in Pennsylvania.
According to a local official, the Reading Connection's bus service
operated until the subsidy provided by Small Community Air Service
Development Program was completed.[Footnote 30] After the grant, the
service could not be sustained on its own, and the service ended.
However, a local entrepreneur has since started the service again
without subsidy and provides five round trips daily between Reading and
Philadelphia. According to a local official, although the grant did not
work the first time, the name recognition that the original grant
provided has led to the demand for the bus service now.
Scottsbluff, Nebraska:
At the time of the grant application, Scottsbluff was served by Great
Lakes Airlines with three daily round trip flights to Denver, Colorado.
The community told DOT that for travelers that travel to Lincoln or
Omaha, Nebraska the connections and fares were poor through Denver. A
local official told us that the 450 miles from Scottsbluff to Omaha
could be driven faster than flying to Denver and waiting several hours
for a connecting flight to Omaha.
Additionally, a local official told us that people in western Nebraska
feel separated from the rest of the state. In the grant application,
the community noted that the lack of intrastate service hinders
government entities, businesses, educational institutions, and
individuals traveling for personal reasons. Thus, Scottsbluff in its
2002 grant application proposed to support the development of an intra-
state air service, provided by Westward Airways, linking eastern and
western Nebraska. Scottsbluff previously had similar intra-state
service, but operations ceased in November 1995 when the carrier
declared bankruptcy. This previous service had been provided under the
Essential Air Service program. An airport official told us that there
is no direct competition for the Westward Airways intra-state service.
Project Funded by Grant:
The June 26, 2002, grant agreement provided Scottsbluff $950,000 for
the project, and the local community provided $750,000 in funding for a
total of $1,700,000. Westward Airways in conjunction with Scottsbluff
provided the intra-state service. The grant allocated $867,893 to be
used to fund pre-operating expenses. These expenses included all the
costs the company anticipated during the 6 month pre-operating period.
Examples of these expenses include administrative and flight operations
personnel wages and benefits, personnel training, professional fees,
facility rent and insurance, and aircraft acquisition. The remaining
$832,107 was allocated to fulfill the company's working capital
requirement. Working capital requirements included funds for cash flow
operations and forecasted growth phases.
Grant Outcome:
Westward Airways commenced their Nebraska intra-state service in June
2004 and ceased operations in July 2005. The service consisted of two
daily weekday roundtrips that stop in Scottsbluff, North Platte,
Lincoln, and Omaha, Nebraska. All Westward Airways flights in Nebraska
were conducted on the Pilatus PC-12 aircraft, a pressurized aircraft
capable of 300 miles per hour cruising speeds at altitudes up to 30,000
feet. As shown in table 11, Scottsbluff service had 234 passengers in
April 2005.
Table 11: Scottsbluff Total Enplanements June 2004-April 2005:
Scottsbluff Total Passenger Enplanements;
June 2004: 1041;
July 2004: 997;
Aug. 2004: 1151;
Sept. 2004: 1145;
Oct. 2004: 1248;
Nov. 2004: 1108;
Dec. 2004: 1099;
Jan. 2005: 852;
Feb. 2005: 791;
Mar. 2005: 945;
Apr. 2005: 891.
Westward Airways Scottsbluff Passenger Enplanements;
June 2004: 149;
July 2004: 130;
Aug. 2004: 143;
Sept. 2004: 166;
Oct. 2004: 205;
Nov. 2004: 173;
Dec. 2004: 177;
Jan. 2005: 138;
Feb. 2005: 152;
Mar. 2005: 215;
Apr. 2005: 234.
Source: Scottsbluff County, Nebraska.
Note: Westward Airways started service in Scottsbluff, Nebraska on June
1, 2004.
[End of table]
Westward Airways intra-state service added 10 weekly flights from
Scottsbluff, increasing the airport's weekly departures from 18 to 28.
The community in its final report to the DOT stated that the program
increased enplanements and reduced passenger leakage at the airport.
However, the final project report said that initial passenger
enplanements were not as robust as expected. It noted that the market
had taken longer to develop because travelers are extremely price
sensitive. In July 2005 Westward Airways had financial difficulties and
ceased operations.
Figure 9: Westward Airways Pilatus PC-12 Aircraft:
[See PDF for image]
[End of figure]
Somerset, Kentucky:
At the time of the grant application, Somerset did not have commercial
air service. Passengers in the region travel to Lexington, Kentucky (80
miles), Louisville, Kentucky (130 miles), and Cincinnati, Ohio (150
miles) to utilize commercial air service. According to the grant
application, because Somerset is not located on the interstate highway
system, access to these nearby commercial airports is more difficult.
The community told DOT in the grant application that the lack of
commercial air service in the region limits the community's ability to
attract additional industry and recreational travelers. In the grant
application, Somerset noted that the nearest airport at Lexington
offered only a modest amount of nonstop service at a relatively high
average fare. Thus, the community noted that an air traveler wanting to
go to or from the Somerset region was faced with the alternative of
driving a considerable distance and paying high prices for air travel.
The community noted that these factors tended to constrain air travel
demand and the economic development of the Somerset region.
As a result, Somerset in association with the counties of Casey,
McCreary, Pulaski, Russell, and Wayne proposed to conduct a feasibility
study to determine the potential for commercial air service for the
Somerset-Pulaski County Airport. If feasible, the study would also
identify a mechanism to implement an appropriate level of service. The
objectives of the application included:
* identifying the level of demand under different operating scenarios-
operators, equipment, frequencies, destinations, and fares;
* preparing materials for presentation to potential carriers; and:
* contacting potential carriers to determine implementation needs.
Project Funded by Grant:
The grant provided Somerset with $95,000 and the community provided a
local contribution of $18,000. The grant was used to complete a
feasibility study for commercial air services in the region and also
provided the community with funds to solicit potential airlines.
Specifically the study goals were to look at (1) potential travel
demand for the airport, (2) development of proposed operating
scenarios, (3) economics of operating scenarios, (4) identification of
potential operators, and (5) development of Somerset-Pulaski County air
service marketing plan.
According to the grant application, the potential demand projections
would allow Somerset to estimate demand if air service was available to
the region. The development of proposed operating scenarios would help
determine possible service options, scheduling, and selection of
appropriate aircraft. The economics of operating scenarios would
determine potential operating scenarios of location and aircraft and
rank them accordingly based on their economic potential. Identification
of potential operators would place emphasis on air carriers with the
appropriate equipment to serve the Somerset market. Lastly, a marketing
plan would be developed to include identifying future budgetary needs.
Grant Outcome:
Somerset developed an air service development plan study to document
the air service needs of the community. A local official told us that
the community learned from the development plan that they can support
new air service. The community is currently attempting to attract
commuter air service to help with tourism, to attain more industry, and
for better jobs. According to the local official the air service
development plan has led to initial talks with airlines with regard to
providing service to Somerset.[Footnote 31]
Community officials told us that they predict people using the airport
would be interested in saving time and money by flying out of Somerset.
The community's feasibility study found that 30 percent of businesses
in the Somerset area stated that good air transportation access is
important or very important for business expansion. For recreation, one
local official told us that the community attracts six to seven million
tourists per year, and that the number could increase if commercial air
service were provided.
Community officials told us that they believe that given the drive time
and costs, such as gas and parking fees at other airports, passengers
will utilize Somerset's airport. However, one local official told us
that to see the new service succeed the community must support it and
market it extensively. For example, this official suggested that local
businesses could tell their employees to fly the routes served by
Somerset to keep the load factors high.
Furthermore, community leaders told us that the study has had indirect
benefits as well. The study has spurred spin-off improvements at the
airport and community, including new lights at the airport, a new
Instrument Landing System and a new inter-modal transportation park.
Additionally, the community is in the process of building a new $2
million terminal at the airport, and are adding $1.5 million in airport
infrastructure.
Taos, New Mexico:
Taos had scheduled commercial air service at the time of the grant
application via Rio Grande Air to Albuquerque, New Mexico. The service,
provided on 9-seat Cessna Caravans, began in August 1999 with scheduled
service between Taos, Los Alamos, and Albuquerque, New Mexico. In
January 2000, the state helped supplement this service when they
awarded a grant of $100,000 which was matched by the Town of Taos, the
Village of Taos Ski Valley, and the county of Los Alamos. In October
2001, the state awarded a grant of $190,000 to help fund service
between Taos, Ruidoso, and Albuquerque, New Mexico. Taos provided
$25,000 in matching funds, the Village of Taos ski valley provided
$25,000, and Ruidoso provided $150,000. In 2002, Taos and Ruidoso
jointly applied for a Small Community Air Service Development Program
grant. The primary objective of the grant was to fund Rio Grande's
service to Albuquerque. Ruidoso eventually decided to withdraw from the
grant due to their desire to obtain service to El Paso, Texas.
According to an airport official, the elevation of the Taos airport
(7,091 ft.) and the length of the runway (5,800 ft.) pose landing
problems for aircraft: the runway is too short and narrow to land many
types of airplanes. He told us that if the runway situation improved
they would try to get larger aircraft to serve Taos. At the time of the
grant application, the community noted that there is a reluctance of
some travelers to fly on small aircraft that serve Taos. Along with
reluctance to fly small aircraft, the application noted that capturing
local passengers that drive to Albuquerque is a problem. The community
noted in its grant application that many travelers and travel agents in
other markets were not aware of Rio Grande Air. Additionally, the
community described the air service at the time of the grant
application provided by Rio Grande as fragile due to its relative
newness.
The goals of the grant application were to:
* fortify Taos' air service,
* expand advertising and promotion to solidify support for the service,
* create a self sustaining air service for Taos' mountain resort
communities, and:
* provide a link to new air service through ground transportation
connections and other communities of the Taos/Enchanted Circle region.
The application sought funds to continue service by Rio Grande Air to
Albuquerque at the time of the grant. At the time of the grant
application, the service was only 2 years old and the community
considered it fragile.
Project Funded by Grant:
The June 26, 2002, grant agreement provided Taos with $500,000. The
Town of Taos, Taos Ski Valley Incorporated, and Taos Aviation Services
provided $200,000. The State of New Mexico provided another $200,000 in
state funding for the project, bringing the overall project total to
$900,000.
The application allocated $634,423 of the program's cost to cover a
revenue guarantee for Rio Grande Airways during the initial phases of
service. In addition, the application allocated the Town of Taos
$265,577 for advertising and promotion of the continuing service. The
advertising and promotion component includes billboards, newspapers,
magazines, television, and radio advertisements. The advertising and
promotion program was used to target the drive market visitor, business
travelers, and in-state tourists.
Grant Outcome:
Rio Grande continued to provide service to Albuquerque until June 2004.
At that time, the service was discontinued because the airline went
bankrupt. An airline official from Rio Grande Airline told us that the
support from the community had not sustained after the Small Community
Air Service Development Program funding was completed. He also told us
that there were many setbacks that the grant could not control, such as
a tremendous drought in the region leading to a weak ski season, a
major forest fire that caused a drop in enplanements and a drop in the
overall economy after September 11. Additionally, the Rio Grande
official told us that the airline needed more planes to improve their
economies of scale to support itself. The official also told us that an
airline cannot succeed if all the overhead costs have to be applied to
just two aircraft, since the aircraft become too expensive to operate.
However, the Rio Grande official told us that the service, when
operating, helped build enplanements and a steady growth in passengers
for Taos. An airport official told us that the project was a success
because the community had a taste of air service and that there is now
a demand for service from Taos to Albuquerque. Table 12 shows the
passenger traffic for Rio Grande Airways from the 2002 grant
application year through May 2004.
Table 12: Rio Grande Airways Total Passengers (Arrivals and Departures)
from Taos from 2002 Grant Application to 2004 Termination of Service:
2002;
1st Quarter: 1,429;
2nd Quarter: 1,169;
3rd Quarter: 1,432;
4th Quarter: 1,283.
2003;
1st Quarter: 1,494;
2nd Quarter: 1,242;
3rd Quarter: 1,768;
4th Quarter: 1,653.
2004;
1st Quarter: 1,974;
2nd Quarter: 1,046.
Source: Taos Airport.
Notes: Taos agreed to the Small Community Air Service grant in June
2002.
Includes total passengers through May 2004, the service was terminated
in June 2004.
[End of table]
In 2003, Taos and a consortium of New Mexico communities received
another Small Community Air Service Development grant. The grant
provided intrastate service for Gallup, Taos, and Las Cruces, New
Mexico. The new service began in December 2004 and was provided by
Westward Airways. However the service was discontinued in July 2005
when Westward Airways filed for bankruptcy.
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Gerald L. Dillingham, (202) 512-2834 or [Hyperlink,
dillinghamg@gao.gov].
Staff Acknowledgments:
In addition to the individual named above, other key contributors to
this report were Glen Trochelman, Assistant Director and Robert
Ciszewski, Catherine Hurley, Stuart Kaufman, Alexander Lawrence, Bonnie
Pignatiello Leer, Maureen Luna-Long, and Nitin Rao.
(540093):
FOOTNOTES
[1] The U.S. legacy carriers are Alaska Airlines, American Airlines,
Continental Airlines, Delta Air Lines, Northwest Airlines, United
Airlines, and US Airways.
[2] We considered a grant complete when the activities associated with
the grant were finished and FAA had made final reimbursements of
allowable costs.
[3] Under the hub-and-spoke system, airlines bring passengers from a
large number of spoke cities to one central location (the hub) and
redistribute them to connecting flights for their final destinations.
[4] The categories are based on the number of passengers boarding an
aircraft (enplaning) for all operations of U.S. carriers in the United
States. A large hub enplanes at least 1 percent of all passengers, a
medium hub 0.25 to 0.99 percent, a small hub 0.05 to 0.249 percent, and
a nonhub less than 0.05 percent. Nonhubs and small hubs are defined in
49 U.S.C. 41731; medium hubs are defined in 49 U.S.C. 41714; and large
hubs are defined in U.S.C. 47134.
[5] GAO, Commercial Aviation: Factors Affecting Efforts to Improve
Service at Small Community Airports, GAO-03-330 (Washington, D.C.
Jan.17, 2003).
[6] To be eligible for subsidized service, communities must meet three
general requirements. They must have been listed on a carrier's Civil
Aeronautics Board issued service certificate and received scheduled
commercial passenger service as of October 24, 1978, may be no closer
than 70 highway miles to the nearest medium or large hub airport, and
must require a subsidy of less than $200 per person (unless the
community is more than 210 highway miles from the nearest medium or
large hub airport, in which case no average per passenger dollar limit
applies).
[7] For fiscal year 2005, DOT transferred $5 million from the Small
Community Air Service Development Program to the Essential Air Service
Program, under authority granted by The Emergency Supplemental
Appropriations Act for Defense, the Global War on Terror, and Tsunami
Relief, 2005, P.L. 109-13.
[8] Communities that do not currently have commercial air service are
also eligible, but when they seek grant funds to secure air service
under the grant program they must have met or be able to meet in a
reasonable period all necessary requirements of the Federal Aviation
Administration for the type of service involved in their grant
applications.
[9] Two of the 157 grants DOT awarded were later terminated by DOT
before grantees expended any federal funds.
[10] Funds for this program come out of the Airport Improvement Program
and are actually disbursed by FAA staff in Oklahoma who make payments
to grantees based on information from the Office of Aviation Analysis.
[11] DOT officials said they will not award grants that involve
obtaining air service that would compete with the air service provided
by a subsidy under the Essential Air Service program.
[12] DOT has also terminated seven grants.
[13] Outdoor advertising includes such things as stationary and mobile
billboards, and street banners.
[14] Taos later regained air service from Westward Airways under a
different Small Community Air Service Development Program grant as part
of a consortium. However, as noted above, Westward Airways also later
ceased operations.
[15] GAO, Transatlantic Aviation: Effects of Easing Restrictions on
U.S.-European Markets, GAO-04-835 (Washington, D.C. July 21, 2004).
[16] In this instance, we define small communities as those served by
small hubs and nonhubs. A small hub enplanes 0.05 to 0.249 percent of
total U.S. domestic enplanements and a nonhub less than 0.05 percent of
total U.S. domestic enplanements.
[17] Code of Federal Regulations Title 14 Part 121 (14 CFR Part 121)
details certification requirements for aircraft that operate scheduled
service with 10 or more seats. The Commuter Rule was instituted with 62
Fed. Reg. 32412, June 13, 1997.
[18] Aviation and Transportation Security Act, Section 110 of P.L. 107-
71, 115 Stat. 597 (2001).
[19] A network carrier operates a significant portion of their flights
using at least one hub where connections are made for flights on a
spoke system.
[20] GAO, Commercial Aviation: Factors Affecting Efforts to Improve
Service at Small Community Airports, GAO-03-330 (Washington, D.C.
Jan.17, 2003).
[21] Regional carriers provide service from small cities primarily
using regional jets to support the network carriers' hub and spoke
systems.
[22] FAA Aerospace Forecasts Fiscal Years 2005-2006. U.S. Department of
Transportation, Federal Aviation Administration, March 2005.
[23] Aviation Industry Performance: Trends in Demand and Capacity,
Aviation System Performance, Airline Finances and Service to Small
Airports. U.S. Department of Transportation, Office of the Inspector
General.
[24] GAO Aviation Competition: Commercial Aviation Regional Jet Service
Yet to Reach Many Small Communities, GAO-01-344 (Washington, D.C. Feb.
14, 2001).
[25] Network air carriers have contracts with regional carriers to
provide service. Within these contracts are scope clauses, which place
restrictions on regional carrier operations.
[26] The other major factor affecting service in short-haul markets
that FAA noted was that regional jet aircraft can more economically
operate in denser passenger markets.
[27] GAO-03-330.
[28] An airport's catchment area is the potential geographic area for
drawing passengers. The geographic size of a catchment area varies from
airport to airport depending on such factors as how close an airport is
to other airports and whether the airport is served by a low-fare
airline (and, therefore, attractive to passengers from farther
distances).
[29] Friedman Memorial Airport is a nonhub airport located in Hailey,
ID. The Airport serves the Sun Valley/Wood River Valley resort
community and surrounding areas.
[30] Reading did not ask DOT for the final $106,000 of the grant and
did not file a final report. In September 2005 DOT informed Reading
that it had de-obligated the funds.
[31] In 2005, DOT awarded Somerset a second grant for a revenue
guarantee to support air service between Somerset and Cincinnati.
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The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office
441 G Street NW, Room LM
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm
E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Public Affairs:
Jeff Nelligan, managing director,
NelliganJ@gao.gov
(202) 512-4800
U.S. Government Accountability Office,
441 G Street NW, Room 7149
Washington, D.C. 20548:
