Commentary: Too Late to Reform EAS?

The regional airline industry is facing an uphill battle in protecting the essential air service program with both Congress and Department of Transportation(DOT) questioning its worth, something picked up recently by USA Today which joined the chorus in criticizing the program. The article illustrated, once...

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The regional airline industry is facing an uphill battle in protecting the essential air service program with both Congress and Department of Transportation(DOT) questioning its worth, something picked up recently by USA Today which joined the chorus in criticizing the program. The article illustrated, once again, the ignorance concerning how the DOT has nickel and dimed the program into failure since its inception 30 years ago. Attacks against the program are only a small part of the war on community air service as outlined in a five-part series published by Regional Aviation News, last year. Related Story
These continuing attacks, waning Congressional interest and DOT mismanagement conspired to spell the doom of what was once a promising program. Its perversion has put regional airlines struggling the serve these communities into bankruptcy, illustrated by Big Sky’s recent announcement that it is suspending service not only in its newly added eastern markets but at its Midwestern and Western EAS points. (See related story, this issue)
It is clear that failure to cover increasing fuel costs, two-year contracts and emphasis on providing only minimal service has damaged the program, thanks to DOT, but perhaps it is time to completely scrap the program in favor of a different program that would actually realize the unaddressed DOT mandate to develop air service to create unsubsidized air service. However, given the waning interest on Capitol Hill, it may already be too late.
Instead of harping on the per-passenger subsidy rate, it would be far more accurate and informative if the press were to cover the mismanagement of the program as well as other government programs that conspired to put small community air service in jeopardy. Instead, coverage is very like that of USA Today.
Despite load factors in the high 80s on most U.S. airline flights, the newspaper noted most EAS flights go out two-thirds empty, as the government picks up 93 percent of flight costs. The report indicated the program is expanding, despite the fact DOT has tried to eliminate more and more communities for exceeding the $200 per passenger cap and airlines such as Big Sky fold because subsidies do not keep up with the growing costs of providing service, especially fuel costs.
“The nearly $1 billion that Congress has poured into the program since 1999 has helped increase the number of communities with subsidized flights this year to 147 from 100, including 45 in Alaska,” said USA Today Reporter Thomas Frank. “That's 28 percent of the nation's commercial airports. The increased funding means the government pays an average of $87 a passenger on subsidized flights outside Alaska, where planes often carry few passengers but deliver mail and supplies to the state's remote islands. The 1995 subsidy was $49 a passenger.”
Let's face it EAS is chicken feed in the scope of the government budget and that $1 billion pales in comparison to the more than $29 billion coughed up for Amtrak. Of course, added to the EAS tally is the billions in subsidies paid for aviation and highway infrastructure improvements, something not given to Amtrak, which in 2005, according to Congressional testimony had per-passenger subsidies of approximately $214 per passenger just for its long-distance services. Even so, both subsidies are necessary if rural America is to stay connected.
What is troubling is the fact that even staunch advocates such as Congressman Jim Oberstar D-Minn., who chairs the House Transportation and Infrastructure Committee, fail to actually explain DOT’s role in the program’s failure and the fact the program was actually set up not only to develop air service, but to ensure independent un-subsubsidized air service, much of which was cancelled owing to other government initiatives that raised operating costs, unnecessarily. Despite that, DOT failed to fulfill the second, and most important part, of its mandate, instead shortchanging the program year after year in addition to convincing the press that the program is no longer worth it. Related Story
Frank offers the same, seemingly powerful arguments against serving any point that is within two hours of a hub, noting DOT negotiated one of the program's largest subsidies ever for Atlantic Southeast Airlines to pay 60 percent of the flight costs to fly the 81 miles between Macon, Ga. and Atlanta. Even so, he also illustrates his ignorance of trying to make it in rural America. What is at stake is not only air service but the viability of towns themselves.
“Each day, about 3,000 passengers enjoy mostly empty, heavily subsidized flights, financed by a 30-year-old program that requires the government to guarantee commercial air service to scores of small communities that can't support it themselves,” wrote Frank. “The Department of Transportation pays a few small airlines $110 million a year total so they can profitably carry as few as four passengers a day to nearby hubs, often for rock-bottom fares. For example, a round-trip in Montana from Miles City to Billings — a two-hour drive away — costs passengers just $88 with a 30-day advance purchase on Big Sky Airlines because the government kicks in $779. Flying round-trip from Lewistown, Mont., to Billings — also a two-hour drive — costs $88, as well, on Big Sky. The government cost: $1,343 a passenger. Just two people a day took the Lewistown-to-Billings flights on average in 2006, according to the DOT.”
The emphasis in that quote should be on the word “profitably.” Every general assignment report suggests airlines are profiting from EAS, ludicrous since efforts to serve these communities have consistently lost money hand over fist. Frank should try making a living in rural America. While those wishing for the rural life may see an easier life, beyond fast-paced, urban and suburban America, those actually trying to make a living there, including highly educated professionals, are finding it increasingly necessary to work two or three jobs because of the loss of a community’s competitiveness and well-paying jobs.
Furthermore, the deterioration of airline service is being excruciatingly repeated in other vital industries, further eroding basic services. The Senate Commerce Committee has been concerned for years over the Digital Divide, the lack of available internet/telecommunication services in rural areas, which are not only losing their air service but also bus and rail service. In addition, these areas are also at risk of losing even phone service as costs to serve them, just as with airline service, exceed the revenues. The prospect, only serves to remind us of the restructuring of the regional airline industry post-deregulation, which will likely be repeated with small phone carriers. First, there was market entry, then consolidation, then buyout by the big companies and the loss of essential services for small communities.
While it missed the opportunity to erroneously describe EAS carriers as profiting from the taxpayer’s trough, a normal part of most general assignment coverage, USA Today failed to note that the number of EAS carriers has slipped to seven with the loss of Big Sky, compared to 51 in 1987, the 10th anniversary of the program, according to the U.S. Government Accountability Office, which has carefully outlined problems with the program. The newspaper also failed to outline the oft-cited mismanagement of DOT and how it contributes to the failure of the program.
“Regional Aviation Partners believes there are parallels in how the DOT administers the EAS program and what [is defined] as a Chinese inspection,” said RAP, likening DOT’s administration to inspections which allow perishable items to sit on the docks until inspectors are “ready” to inspect and process them. “By the time the inspectors get around to it, the goods are often spoiled and are of no value. For nearly 30 years, the method by which the DOT has administered the program has remained relatively consistent; they utilize program funds to subsidize carriers to provide only a minimum level of commercial air service. In addition to the program’s guarantee to provide a basic level of commercial air service to communities, the EAS program also contains provisions aimed at improving air service to small communities above the basic level while also protecting carriers from fluctuating jet fuel costs. Unfortunately, while these provisions have been in place for years, the Department has refused to implement them to shore up today’s fuel crisis and declining service levels, citing a lack of funds and direction from Congress.”
RAP again pointed to the excess funds preserved annually by DOT budgeters who fund at only basic levels. “They are simply choosing not to spend these funds on program improvements,” it said. “For example, the Department’s FY08 budget justification documents show the DOT has been carrying over from one fiscal year to the next since FY06 nearly $20 million in un-obligated program funds.
"Therein lies the parallel to the Chinese Inspection…The DOT is simply employing delay tactics knowing full well that doing nothing to improve the program will result in the continued decay of air service to many small communities and ultimately their removal from the program. It is obvious the DOT believes most communities in the lower 48 states should not have subsidized air service because this is clearly spelled out in their annual budget request. As they cannot get Congress to significantly reduce the size of the program legislatively, they have taken it upon themselves to accomplish the task and slowly eliminate communities and reduce the size of the program. Furthermore, the Department also realizes airline interest in the program will continue to erode as carriers remain exposed to substantial increases in jet fuel costs without adjustments during the two-year contract period. Airlines have and will continue to leave the program in search of markets that present a better opportunity for them to sustain their operations, or as we are seeing with Big Sky Aviation and other carriers, they may simply go out of business in the face of mounting financial losses. Either way, fewer airlines participating in the program means less competition, higher subsidies, and a continuing reduction in the quality of service for communities. The minimum level of service isn’t working in most circumstances as more assistance is needed to help communities maximize their potential and move off of or reduce their subsidy needs.”
The Regional Airline Association joined RAP in accusing the 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
RAP noted not only the recent loss of Big Sky, but cited additional carrier pullouts are on the horizon with Air Midwest filing in May of 2007 to exit 50 percent or 13 of its 26 EAS communities and the February 2007 notice by Skyway Airlines stating it was no longer interested in serving its four subsidized communities in Michigan. In addition to Air Midwest, Big Sky and Skyway, current EAS carriers include Colgan Air, Great Lakes Aviation, Horizon, Mesaba, Pacific Wings, and SkyWest.
“Highlighting how difficult it has become for communities to obtain the services of a new carrier with so few participating, RAP observes that while the DOT has been trying to locate replacement carriers in both cases they, after eight and 11 months, respectively, have been unable to do so and continue to hold in Air Midwest and Skyway until a replacement carrier is found,” said RAP. “Furthermore, when RegionsAir ceased operations to its 11 EAS communities in March 2007, it was nearly seven months until service resumed to many of the communities. One of those carriers, interestingly enough, was Big Sky which was selected to serve Cape Girardeau, MO; Jackson, TN, and Owensboro, KY all of which may now have to be re-bid to find yet another replacement carrier.”
Regional Aviation News does not advocate continuing with the program as it is now administered. However, it has shown many of the communities that have since slipped in and out of the EAS rolls, were once profitable and could still be today were it not for other government actions that conspired to increase airline costs. The question now remains, based on the press coverage and DOT management, how far is too far from a hub. Rutland, Vt. is 90 minutes by car from Burlington. Certainly passengers have voted with their wheels and bypassed Rutland for the larger airport which also offers discount fares. Downstate Vermonters head to either to Albany, N.Y. and Manchester, N.H., also sites for discount flights.
How many other communities fit this profile? Certainly, many in the east, with its outstanding road network, would qualify. However, the west is a different story with much more windshield time to the hub. In addition, terrain issues throughout the U.S. may complicate a simple time-to-hub formula.
DOT suggested eliminating the Rutlands in favor of regional airports that would collect passengers from a rural catchment area to bring them to major hubs. Then again, it and GAO also suggested that the solution lies in subsidizing non-scheduled, air taxi operators, which would be a boon to that industry but would further erode air service for small communities as air taxi costs are far more expensive than scheduled service. Even so, those suggestions would be unlikely to work if DOT remains in charge. It just wants the program cancelled period.
Actions to save the program were partially successful in 2001 when Congress added provisions that would have covered increasing costs of providing air service mid-contract. But DOT refused to implement that provision – Section 402 – of the legislation and Congress failed to make it do so, even as it held over funds from year to year. Consequently, it is highly unlikely that any reforms would be very successful as long a DOT is at the helm of any new program. It is more than proved its disdain for both the program and the communities that have lost service.
RAN does not suggest it has all the answers but regional EAS airports and mandates to cover escalating costs outside the control of the airline, as well as longer contracts would definitely help or should be explored. However, if Congress were to reform EAS, it is time to take DOT out of the equation, perhaps by creating, as has been suggested, an office of small/rural community air service that, unlike current managers, actually believes in developing air service to rural areas. After all, many of these points built the regional airline industry during the 1980s.