The Regional Airline Association accused the Department of Transportation (DOT) of hoarding funds rather than fully funding and managing the program to enhance its success. It called on Congress to audit DOT’s EAS spending practices. In addition, while DOT says there is no funding crisis at EAS, it is well known that it continually cites lack of funding when trying to drop points with its latest proposal calling for the program to prioritize on those points that are the remotest from a hub. Related Story
Senators presiding over the hearing before the Senate Committee on Commerce Aviation Operations, Safety, and Security Subcommittee are putting great faith in the advent of very light jets (VLJs) as having the potential to solve the system access problems now suffered by small communities. In addition, DOT indicated that increased funding and indexing subsidies to inflation comes with consequences.
“DOT has stated that the Essential Air Service program is not facing any crisis in funding,” said RAA Vice President Faye Malarkey in her testimony. “RAA respectfully disagrees. The demonstrability of funding needs and expenditures related to the EAS program is closely tied to management of the program. When DOT cuts service levels or eliminates points in order to lower programmatic expenditures without reinvesting in the program, it generates excess cash in the EAS coffers. This practice produces balance sheets that suggest the program is over-funded. In order to fully explore these issues, RAA requests that Congress require an audit on unspent, obligated EAS funds currently retained on the EAS balance sheets. Further, RAA requests that leftover funds be reinvested in the EAS program to raise service levels at more viable routes.” It is common knowledge DOT regularly under spends its EAS allocation and is currently carrying $15 million in unspent funding.
Senators attending the hearing were extremely concerned about administration proposals for the Essential Air Service program to the point of introducing rural air service legislation recently. Related Story

Just How Far is it from Here to There?
Mileage formulas were of greatest concern to some and assurances by Andrew Steinberg, assistant secretary for aviation and international affairs, seemed to carry little weight. “The goal of our proposed changes to the EAS program is to focus the program’s resources on the most isolated communities, i.e., those with the fewest driving alternatives,” he said. “The first change we propose is to cap EAS communities at those that currently receive subsidized air service. Second, we would rank all the subsidized communities by isolation, i.e., by driving miles to the nearest large or medium hub airport, with the most isolated getting service first.”
RAA indicated that the mileage formulas for determining EAS eligibility should be carefully watched. Current rules calls for EAS if a point is more than 70 miles from a large/medium hub and, beyond 210 miles, the per-passenger cap can be raised beyond the $200 limit. Senator Byron Dorgan (D-ND) wants mileage calculations certified by a state’s governor. “We shouldn’t allow people behind a desk in Washington, DC to surreptitiously use a mileage determination to reduce air service because they somehow use back roads and trails to find a shorter distance” to avoid triggering the 210-mile provisions on the per-passenger cap.
Malarkey agreed but said that any monies saved from dropping points either under the DOT’s proposal or because the community exceeds the $200 per-passenger cap, should be put back into the program to ensure the revenue neutrality of the decisions. “DOT would set up a tiered system to grant reduced subsidies to communities in descending order of distance from nearby hub airports, starting in Alaska and continuing until the funding runs out, which is sure to happen long before DOT’s obligation to EAS communities has been met,” she said. “DOT is telling residents of these communities that convenient, reliable air service is a luxury, and one they can't have. We want to make sure we don’t have a politically driven reason for the elimination of routes to cut funding for the program. We have to ensure fairness to these points. That would be much better than DOT cutting points by crisis of funding.”
Steinberg said that mileage was not a question of some arbitrary determination in Washington but can be had from either Mapquest or Google Maps. He noted passengers consider time more important so new roads could shorten travel time despite the fact the mileage may be more. In addition, he pointed to many EAS points that are in ready driving distance to alternative hubs. Related Story
“This can result in a struggling community airport, but not necessarily consumers who lack access to the national air transportation system,” he continued. “Utica, N.Y. generated about 24,000 passengers a year and was served profitably without EAS subsidy. Then Southwest began flying to Albany and JetBlue started service to Syracuse – both near Utica. The number of passengers using Utica airport fell to 3,500, and the federal government was paying over $1 million in EAS subsidy in attempt to compete with low-fare, jet service in nearby cities. The subsidy per passenger finally exceeded the $200 statutorily-determined ceiling thus ending the community’s eligibility for EAS.”

Indexing Subsidies to Inflation
Malarkey cited two provisions of current EAS program that conspire against carriers trying to provide service to small communities including the current length of the contract at two years and DOT’s failure to invoke Section 402 which would cover cost increases beyond a carriers control, such as fuel. She said the inability to finance aircraft was a barrier to entry because financial institutions balk at only a 2-year contract.
“DOT has been unwilling to implement Section 402 to date, citing a lack of funds,” she said echoing several members of the Senate panel and witnesses who suggested indexing subsidy rates to inflation to covering sharply rising costs. “RAA therefore respectfully asks this committee to include language in its FAA bill to require DOT to make these real-time rate adjustments.” DOT already has the authority to do this under Section 402 of Vision 100 but has chosen not to use it.
She cited Great Lakes (GLUX) which experienced annualized, system-wide fuel cost increases of over $4 million. “To put these numbers into perspective, please consider this: EAS contracts currently have a two-year lifetime. A winning carrier who negotiated a competitive contract one year ago would have based cost projections on then-current fuel rates of $1.80 per gallon. That same carrier would now be providing the service with fuel costs at nearly $3 per gallon. Because EAS carriers are strictly limited to five percent profit margins, climbing fuel costs can quickly turn once-profitable routes into losses.”
According to RAA statistics, since 9/11 at least 40 additional communities have been forced onto the EAS roles and 17 EAS communities have been dropped from the program altogether in the past five years. The smallest airports -- those with between one and three daily departures -- have seen a 21 percent decline in daily departures between September 2001 and September 2006. Thirteen of these airports have lost service completely. Airports with between three and six daily flights in September 2001 have experienced a 33 percent decline in departures since then, with eight such airports losing service altogether.

More $ Needed
Karen Miller a County Commissioner in Boone County, Mo., representing the National Association of Counties (NACo), called on DOT to not only put in incentives for carriers to provide better service but impose penalties for those who don’t. “Carriers get paid for completed service, whether on time or three hours late,” she said. “We need airlines that meet demand, are there on time and get passengers to their connections and if they don’t there should be penalties. They should not be paid if problems force passengers to miss and flight, which could mean having to spend the night.”
Miller called for more marketing of EAS service to the community with funds coming directly from the EAS program. “NACo supports the provision now included in S. 1300 requiring airlines who are bidding on EAS service to include a funded marketing plan in their proposal.”
She also called for full funding for the Small Community Air Service Development Program. “This program needs to be funded at a level that comes close to meeting the demand and the $35 million annual authorized level in S.1300 is a positive step,” she said. “Every year grant applications exceed the available funding by a substantial margin and the $10 million appropriated for FY2007 is inadequate. In particular, small communities need marketing dollars to help them get the word out to their residents that airline service is available.”
Noting that the airport improvement, the highway and transit programs all have additional dedicated or guaranteed sources of revenue, she called on the panel to provide for such a thing in EAS. “While the international over-flight fee generates $50 million annually for EAS, the remainder currently has to come from the General Fund and this creates an uncertainty for the communities and the air carriers,” she said. “An additional dependable source, such as the Airport and Airway Trust Fund, which assures communities and air carriers that the program will be fully funded, would make EAS a stronger program. Another option would be to require the Trust Fund to help fund EAS to the extent that the over flight fee and general fund contribution failed to reach the fully authorized level. We also need more funds so we can subsidize better service. Like any other product or service, EAS has to be attractive to the customer. Hopefully with more funds, the issues often raised by EAS communities concerning frequency, convenience, and type of aircraft can be better addressed.”

VLJs and EAS
While senators at the pointed to the advent of very light jets as having the potential to improve air service to small communities, RAA disagreed. First Malarkey noted that much of the reason for regionals’ rising costs relates to one government initiative – the single level of safety rule imposed a decade ago. Although she said that RAA does not advocate a return to duel safety standards, it was pointed out that the safety statistics for the entire regional airline industry mirrored that of the majors before the inception of a single level of safety.
“Further, the business models of those smaller aircraft remain unproven," she said. "The VLJ business models that do exist promise direct, non-stop service to destinations that would bypass the hub and spoke system,” she said. “They would therefore fail to connect passengers to the existing air transportation system in favor of limited service. The fares for VLJs are another great unknown, with most advocates acknowledging that they are fairly expensive. We strongly caution the Congress against advancing this unproven technology as a solution to EAS shortfalls. The Congressional commitment to rural communities during deregulation was a continuation of scheduled air service. It is inappropriate to place the burden on passengers and communities to secure air service through expensive, untested, and potentially unreliable sources.”
DOT is looking forward to the opportunity to exploit such services, despite the fact it is unlikely these services would go into such small markets. Related Story
“Recent technological advances may offer a new market solution to the problems of small community air service,” said Steinberg. “The most dramatic innovation is the Very Light Jet (or VLJ) which represents a breakthrough in jet aircraft operating economics. Another very important innovation is information-technology that allows demand for air service to be aggregated over the internet. The combination of VLJ with internet-enabled information technology could potentially facilitate the provision of on-demand, jet air taxi service at these small communities. Companies such as DayJet have already begun operations employing these technologies. In that regard, our office looks forward to continuing discussions with your staff on finding ways to better enable the marketplace to supply air service to small communities.”