Management of the Essential Air Service (EAS) program often conspires to kill air service to communities even when traffic holds promise for becoming independent from subsidies, witnesses told the Senate Commerce Aviation Subcommittee during its recent hearing on rural air service. Furthermore, requirements for changing subsidy rates and exiting a community are too cumbersome for growing, or even maintaining, air service. While witnesses also blamed fuel prices for recent abandonments, they said EAS changes are necessary if 140 communities now subsidized under the EAS program want to avoid losing service.

Operators and communities alike have characterized DOT's treatment of the EAS program as death by a thousand cuts, given its annual budgetary under-funding and its failure to implement a Congressionally enacted cost escalator program that would help carriers weather cost increases.

"Unfortunately, DOT has been unwilling to implement the program, citing a lack of specific appropriations for the activity," said Regional Airline Association (RAA) Vice President of Legislative Affairs Faye Malarkey, asking Congress to mandate DOT's cooperation in making real-time rate adjustments for cost increases. She further called on Congress to audit unspent, obligated funds and mandate that any leftover funds be redirected to the EAS program to make real-time, retrospective rate adjustments to carriers facing cost increases. DOT turns back unspent funding from year to year.

Forty communities have lost air service since 2001 with more threatened, said RAA, which is expecting a change in the eligibility criteria for communities receiving subsidy. "These decisions should be based on rational factors and not a funding crisis at DOT," she said. "As we consider a potential eligibility criteria rewrite, we ask that Congress ensure whatever criteria is applied to these decisions be applied consistently and with an eye toward enhancing the program and protecting rural air service."

The changes to the program were outlined by DOT's Acting Assistant Secretary for Aviation and International Affairs Michael Reynolds, who said the EAS program has not kept pace with changes in the industry. He noted that it was conceived as a safety net providing threshold levels of air service. "It does little to help communities attract self sustaining unsubsidized air service," he said, adding this was one of its original goals. "The goal of the proposed changes is to end this dependence and give communities the ability to [tailor their transportation services] to their needs."

The changes have two major themes - the need for greater participation by communities and greater flexibility. The greatest change is the requirement that the community become stakeholders. Reynolds indicated community leaders now treat it as an entitlement program. "A number of EAS communities do not even display their subsidized EAS flights on their homepages, and some have shown the availability of air service at nearby hubs, especially if it is low-fare service," he said. "As a result...EAS flights are not well patronized and our funds are not being used as efficiently or effectively as possible."

Reynolds indicated that flexibility could include funding air charters or air taxies or even ground transport links and regional air service where several communities could be served through one airport, with larger aircraft and increased frequencies. In an effort to reserve federal funds for the most remote communities (more than 210 miles from the nearest large or medium hub), the plan would eliminate service for communities within 100 driving miles of such hubs, 75 miles of a small hub or 50 miles of a non-hub with jet service. All other EAS points would have to cover 25 percent of the subsidy. Those greater than 210 miles would be required to provide only 10 percent of the subsidy.

"The proposed small-hub and non-hub criteria are important," he said. "Under current law, communities within 70 miles of a larger or medium hub are not eligible for subsidized air service. Given the growth of air services in this country since deregulation, our proposal simply recognizes that the same principle should apply for communities located near small hubs and non-hubs offering jet service."

Reynolds said two efforts to reform EAS - the Community Flexibility Pilot Program and Alternative Essential Air Service - have yielded nothing from communities to date. The former allows up to 10 communities to receive two-year's worth of subsidy in exchange for foregoing EAS for a decade while the latter pays communities rather than airlines, provided they have a plan to link to air service.

RAA's Malarkey urged the continuation of EAS. She noted that most small operators serving EAS points do not have the same code-sharing agreements with majors but operate largely on revenue sharing agreements which make them more vulnerable to cost fluctuations. Even fee-for-departure, code-sharing relationships are impacted when costs skyrocket.

"Major carriers have no choice but to eliminate regional routes that lose money for long periods, even if those routes contribute some connecting revenues to the mainline system," she said. "In some cases, this means the fee-for-departure carrier finds itself forced to park aircraft."

Malarkey applauded the committee for opposing the proposed aviation security fee increase of 120 percent. "The new tax would raise the cost of air travel by an estimated $1.5 billion a year and would bring the total federal security tax on airlines to $4.7 billion," she said. "Such tax increases would only serve to further divert resources away from airlines already struggling to provide service to small and rural communities. This tax increase will raise fares for travel to rural communities and makes this service even more expensive for carriers, putting air service to rural communities at risk."

Current EAS funding levels as proposed by DOT would eliminate a third of the communities now in the program. These moves, she said, tell residents of smaller communities that convenient, reliable air service is a luxury they can't have, instead suggesting surface alternatives. But studies indicate that rail and bus services have abandoned these communities as well.

RAA also cited the $200 per-passenger cap as highly problematic for carriers because it has not been changed in 16 years. While the association has no position on this issue, it requested any discussion of EAS reform also examine adjusting the subsidy cap to account for inflation as well as to consider a mechanism for annually indexing the cap for inflation.

Director Physical Infrastructure Issues for the General Accountability Office Gerald Dillingham reported on the progress of the Small Community Air Service Development Program (SCASDP). Dillingham indicated the program has mixed results: 11 of the 23 projects completed as of September 30, 2005, showed self-sustaining improvements to air service, while the remaining 12 grantees either discontinued the improvement or the improvement was not self-sustaining. He also said SCASDP beneficiary communities are declining from 179 in 2002 to 75 in 2006. He also noted that in fiscal year 2005, DOT transferred $5 million of these funds from SCASDP to EAS, pointing out one of the greatest challenges is the federal deficit.

DOT's Reynolds said it was too early to judge the success of this program. During the past fiscal year, DOT received 75 applications seeking nearly $33 million in a program DOT has funded at $10 million, down from $20 million. "Our experience demonstrates the great interest of communities to tackle their air service challenges," he said. "In each year, between 2002 and 2005 we made 35 grant awards and in FY2004 we made an additional six grant awards using unspent funds from prior years' completed or terminated grants."

Such funding is being used to provide ground handling for carriers, financial assistance for new airlines, expansion of low-fare services, ground transportation, marketing campaigns, revenue guarantees, and subsidies.