After four grant cycles, the effectiveness of the Small Community Air Service Development program is mixed at best, according to the U.S. Government Accountability Office (GAO).

By an act of Congress, the program was created in 2000 as regional carriers were transitioning from turboprops to regional jets, which left many smaller communities with less scheduled air service than before. Congress has appropriated $20 million annually since 2002 to help these small communities improve their air service. The U.S. Department of Transportation (DOT) made 40 awards each year.

GAO, the investigative arm of Congress, found that only 23 projects out of the authorized 157 have been completed. Over the four years, five projects were terminated midstream when they simply came undone or failed to deliver. After spending $21 million of the $79 million authorized, GAO found that in 11 projects the improved air service has continued even after the grant money has gone away.

"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," GAO said. "It will take more time to determine if any air service improvements achieved with the grants are sustainable after the projects are complete. We are recommending that in preparation for the reauthorization of the program in 2008, DOT evaluate completed projects to determine the effectiveness of the program."

One element of the program was deemed to be of little or no value. Each year, DOT invited airports applying for a grant to improve their air service to also compete for the designation as an air service development zone. The program holds out the promise of extra help to spur economic development around the airport. However, GAO found that none of the three previous winners of this program could point to any achievement. "All expressed some confusion as to what the designation was suppose to achieve," the report noted. If Congress intends to continue this element of the program in the future, GAO recommended that DOT clarify just what extra support it would provide to these development zone airports.

The number of communities that apply for the grants has been decreasing each year. In the first year, there were 179 applications for 40 grants. This year there were 84 applications for 40 grants. DOT believes the decline is natural because the program is maturing, with the most probable communities having already won a grant. In addition, the matching requirement is now stricter. In the first years, a local match was suggested, but not required. In fact, two communities won grants without pledging any local match. Now a match is required.

When GAO talked to 20 airports that had never applied for the program - but fit the model of those who had successfully obtained funds - GAO found that most had not applied because they had not known of the program or felt the cost and effort of applying would be too burdensome.

DOT has set five priority goals to be accomplished with each project, and it has used these goals as the primary evaluation criteria. In reviewing the 2004 applications, GAO found that 12 of the applications that met four of the five goals were not funded and one application that met all five was not funded. At the same time, 13 applications that had only meet three goals were funded.

Another adjustment to the program over time has been the imposition of a three-year window on the grant. In the first two years of the program, there wasn't a closure date requiring that the grant be used in a specific time frame. In 2004 and 2005, DOT required that the grant be used within three years.

The first grants are at the three-year point and 16 of the 20 remaining are still active.

"Keep in mind that it is hard to get air service. It takes time," said Michael Boyd, of the Boyd Group, which has provided consulting services to a large number of communities that have applied for the grants. He points out that one client, Fresno, Calif., took two years to strike a deal with Frontier Airlines [FRNT] for service to Denver.

GAO noted that some projects have not closed, but are not on track to use the full grant. It cited Rhineland, Wis., which has only needed to use $254,000 of a $500,000 grant. A new route established with a revenue guarantee has proven to be more successful than anticipated. Thus the full guarantee has not been tapped.

"I would not call it a mixed success," Boyd said. "In the context of the money spent, it is a raging success. You have more than 100 airports that got money and look at what they have accomplished. It is beyond anyone's dream of what Congress had anticipated.

"You can't expect all 40 awards each year to be a success."

In its evaluation of the projects, GAO asked the targeted customers - the airlines - just how effective the program has been. The carriers found the promise of a revenue guarantee or similar direct financial benefit as having the greatest chance for success. A guarantee - a minimum of one year - permits the carrier to test the market without risking a financial loss if the route does not draw enough passengers. At the same time, the carriers and the DOT said travel banks - community pledges to buy a specific number of tickets - are not effective because of the difficulties in running the programs.

Over the four years, some strategies gained ground among the applicants while others fell by the wayside. "While marketing activities have always been heavily used as a strategy," GAO found that "by 2004 marketing had virtually become a universal strategy. All 46 grants included a marketing component." At the same time, the number of proposed travel banks declined by 2004 as the number of revenue guarantee pledges increase each year since 2002.

One strategy that has proven both innovative and effective is for airports to take over a carrier's ground operations. Two airports have won grants for this strategy and several others have submitted applications based on the same plan. "It is too early to tell if this model will be more widely adopted," the report added.

One goal of the GAO study was to write a recipe as to what strategies are successful and can be emulated. However, in its interviews, GAO found that the program is no longer producing innovative ideas, but instead that the airports are simply copying successful ideas from previous applications.

While the report could be a recipe, for the program to work a community still has to be a viable contender to get air service, Boyd said. "The DOT has been trying to keep it to things that work."

>>Full report: http://www.gao.gov, GAO-06-21. Contact: Michael Boyd, Boyd Group, (303) 674-2000.<<

Small Community Air Service Development Grants By The Numbers

Project Analysis

• Total grant applications: 541
• Total grants approved: 157
• Total dollars approved: $79 million
• Amended approved projects: 47
• Projects ahead of schedule: 4
• Projects on schedule: 44
• Projects behind schedule: 47
• Total grant dollars paid out: $21 million
• On going projects expiring in 2006: 58
• Terminated projects/grants recovered: 5
• Total completed projects: 23
• Completed projects that improved air service: 19
• Self-sustaining improvements after the grant: 11
• Added a new carrier: 8
• Added a new destination: 13
• Increased the number of flights: 13
• Lowered some fares: 13
• Number of grants completed in 2005: 13

Proposed Strategies -- Airlines' Grade*

• Marketing: 149 -- Effective
• Revenue guarantees: 74 -- Most preferred
• Reduced airport fees: 56 -- No assessment
• Studies: 32 -- No assessment
• Travel banks: 25 -- Not effective
• Add personnel: 19 -- Ground staff effective
• Other subsidy: 25 -- No assessment
• Other: 53 -- No assessment

*GAO interviewed airlines and airport directors to determine effectiveness of different strategies proposed in grant applications.

Source: GAO

Assessing The Completed Projects

Some Projects That Worked

Charleston, W. Va.
Grant: $500,000 (2002 grant)
Local funds: $100,000
Goal: Two daily trips to Houston
Proposed grant use: Revenue guarantee, marketing
Result: Continental started flying in October 2002, to Houston
Post-grant: Service still in place
Stats: Enplanements up 20% from 2002-2004
Bonus: Attracted 12th carrier, Independence Air

Daytona Beach, Fla.
Grant: $743,333 (2002 grant)
Local funds: $165,000
Goal: Restore daily trips to New York market
Proposed grant use: Revenue guarantee, marketing
Result: Continental started service Dec. 12, 2002, to Newark
Post-grant: RJ service still in place
Stats: 78% load factor with 54,247 passengers in 2003
Bonus: Continental added flights to Cleveland; Delta added more flights with larger aircraft

Mobile, Ala.
Grant: $456,137 (2002 grant)
Local funds: $20,000
Goal: Expand ground operations to retain US Airways
Proposed grant use: Purchase equipment, marketing
Result: Retained US Airways service
Post-grant: Program self-supporting
Stats: none
Bonus: Able to recruit American Airlines without grant

Hailey, Idaho
Grant: $600,000 (2002 grant)
Local funds: $271,743
Goal: Establish service to Los Angeles
Proposed grant use: Revenue guarantee, marketing
Result: Horizon Air started service Dec. 15, 2002, to Los Angeles
Post-grant: Service on Q400 now subsidized by local resort.
Stats: 41% load factor with 19,335 passengers in 2003
Bonus: Horizon added flights to Oakland, Calif.

Some Projects That Didn't Work

Reading, Pa.
Grant: $470,000 (2002 grant)
Local funds: $30,000
Goal: Subsidize buses to Philadelphia to prove need
Proposed grant use: Bus subsidy, marketing
Result: Airport lost all service in 2004; bus service viewed as direct competition
Post-grant: Bus serviced ended
Stats: None
Fallout: Full grant not tapped; project terminated

Scottsbluff, Neb.
Grant: $950,000 (2002 grant)
Local funds: $750,000
Goal: Restore intra-state service
Proposed grant use: Revenue guarantee
Result: Westward Airways began service to four Nebraska communities in June 2004
Post-grant: Serviced ended July 2005
Stats: Scottsbluff had 234 enplanements in April 2005
Fallout: Westward ceased operations in July 2005

Somerset, Ky.
Grant: $95,000 (2002 grant)
Local funds: $18,000
Goal: Research need for air service from Somerset
Proposed grant use: Feasibility study, masterplan
Result: Study supports need for air service
Post-grant: Won $950,000 grant to attract carrier
Stats: none
Bonus: $2.5M in airport improvements under way

Taos, N.M.
Grant: $500,000 (2002 grant)
Local funds: $400,000
Goal: Maintain service to Albuquerque
Proposed grant use: Revenue guarantee, marketing
Result: Rio Grant Air continued to fly 9-seat Caravan on route it established in 1999
Post-grant: Service ended in June 2004 as carrier went out of business without grant support
Stats: Enplanements up 15% to 6,157 in 2003.
Bonus: New grant funded service until July 2005

Source: GAO