United States General Accounting Office

GAO Fact Sheet for Congressional Requesters

March 1994 AIRPORT

COMPETITION

Essential Air Service

Slots at O'Hare

International Airport

GAO/RCED-94-118FS
United States GAO General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-256330

March 4, 1994

Congressional Requesters

This fact sheet responds to your June 11, 1993, request that we provide

you with information on the availability of air travel between small

/airports in the Midwest and Chicago's O'Hare International Airport. The

Essential Air Service (EAS) program was established in 1978 to guarantee

continued service from small airports following deregulation. The program

maintains a link between small airports with insufficient enplanements to

support service to hub airports,' guaranteeing residents of small

communities access to the national air travel network.

Under the program, the U.S. Department of Transportation (DOT) is

authorized to declare a community eligible for essential air service. DOT

also specifies the frequency of service and the hub(s) to which service will

be provided. Typically, a community is guaranteed two round-trip flights

per day, 6 days per week, to a medium or large hub. If revenues from the

service do not cover costs, the carriers providing the service can apply for

a subsidy.

Subsidies are provided directly to carriers applying to DOT and agreeing to

offer service to the designated communities. In fiscal year 1993, the

program provided a total of $38.6 million in subsidies. However, most

essential air service operations are not subsidized. Of the 503 communities

in the United States and Puerto Rico that were designated as eligible to

receive essential air service in 1993, only 128 communities actually

received federally subsidized commuter air service.

Some small communities in the Midwest contend that service to O'Hare is

vital for attracting new industry and maintaining healthy local economies.

Although the EAS program guarantees a certain minimum level of service

from most small airports, these communities believe that maintaining

frequent and convenient service to O'Hare has become increasingly

difficult as the limited number of takeoff and landing slots at that airport

have become controlled by a few large airlines.

Following discussions with representatives from your offices, we agreed

to provide you with information on the following: (1) changes in service

'A hub airport, as defined by the Federal Aviation Administration, enplanes at least 0.05 percent or

more of the total enplaned passengers in the United States. A large hub airport accounts for 1 percent

or more of the total domestic enplanements, and a medium hub airport accounts for 0.25 to

0.99 percent of the total domestic enplanements.

Page 1 GAO/RCED-94-118FS Airport Competition
B-256330

between small Midwestern communities and O'Hare since 1978 and since

the 1987 amendment to section 419 of the Federal Aviation Act, which

modified and extended the EAS program, (2) the level of concentration of

commuter aviation services in the Midwest, (3) differences in fares

between small communities in the Midwest and those in other regions,

(4) trends in slot utilization and capacity at O'Hare, and (5) the impact of

airport improvements on O'Hare's capacity.

In summary, we found the following:

· The number of both nonstop and direct flights available between the 41

Midwestern essential air service communities addressed in our analysis

and O'Hare Airport has decreased since the start of the EAS program.

However, 17 communities have actually gained service, while 24 have lost

service or have seen their service remain unchanged. (See sec. 1.)

· Since the implementation of the buy-sell rule in 1986, commuter slot

holdings at O'Hare Airport have become increasingly concentrated.

Currently, all commuter slots are held by only three airlines. (See sec. 2.)

· While the concentration of slot holdings has increased, the average yield

(revenues per passenger mile) for operating between small airports and

O'Hare does not appear to be substantially above that at other major hub

airports, and, in fact, the yield is roughly in the middle of the distribution

of yields at major hubs. For example, the average yield adjusted for

differences in the passenger miles traveled between essential air service

airports and O'Hare is 52.42 cents per passenger mile; the average yields

between essential air service airports and Atlanta is 73.09 cents and

between essential air service airports and Boston is 35.21 cents per

passenger mile. (See sec. 3.)

· Airport operators and airline representatives told us that O'Hare could

accommodate more traffic through more efficient slot allocation. Data

indicate some excess capacity among general aviation/military slots.

However, Federal Aviation Administration (FAA) and O'Hare Airport

officials believe that the number of additional slots in that category, if any

are available, would be minimal. (See sec. 4.)

· Since 1983, improvements undertaken as part of the O'Hare Airport

Development Plan have increased the airport's overall capacity. FAA is

responding to the increases in O'Hare's capacity with a complete review of

the regulations controlling the number of O'Hare slots and a program of

air traffic and ground control improvement projects. (See sec. 5.)

Page 2 GAO/RCED-94-118FS Airport Competition
B-256330

Scope and We conducted our review from July to December 1993, focusing on 41

small airports in Illinois, Indiana, Iowa, Ohio, Michigan, and Wisconsin,

Methodology each of which has had guaranteed service to O'Hare and/or other

Midwestern hubs since 1978.2

To obtain information on the EAS program, we spoke with officials from

FAA and DOT'S Office of Aviation Analysis. We obtained information on

flight availability from the "Official Airline Guide" covering the years 1978

to 1993. We interviewed managers of essential air service airports in the

following communities to obtain information on their access to O'Hare:

Danville and Coles County, Illinois; Terre Haute and Bloomington, Indiana;

Oshkosh, Wisconsin; Dubuque, Iowa; and Manistee, Michigan. About 10.6

percent of the air service subsidy payments, approximately $3.9 million,

was paid to carriers serving communities in the six states addressed in our

analysis. We spoke with airline representatives to find out about their

experiences operating between small airports and O'Hare. The Office of

the Chief Counsel, FAA, provided us with data on slot holdings and usage at

O'Hare. Finally, to obtain further information on O'Hare's capacity, we

interviewed officials at O'Hare Airport.

We are sending copies to the Secretary of Transportation and the

Administrator, FAA. Copies are available to others on request.

Please contact me on (202) 512-6001 if you or your staff have any

questions. Major contributors to this fact sheet are listed in appendix I.

Kenneth M. Mead

Director, Transportation Issues

2The DOT and Related Agencies Appropriation Act of 1994 contains restrictions that could affect

service to 4 of the 41 communities: Galesburg, Illinois, and Terre Haute, Muncie/Anderson/New Castle,

and Bloomington, Indiana Nationwide, 11 essential air service airports are affected. The act prohibits

the use of funds for airports in the contiguous 48 states within 70 highway miles of a hub airport or

airports that receive passenger subsidies greater than $200 per passenger and that are less than 210

miles from the nearest hub. While the act does not specifically remove EAS eligibility, the loss of

subsidy could lead to a loss of the service for these communities.

Page 3 GAO/RCED-94-118FS Airport Competition
B-256330

List of Requesters

The Honorable Herb Kohl

The Honorable Russ Feingold

The Honorable Carl Levin

The Honorable Paul Simon

United States Senate

The Honorable Tom Petri

The Honorable Glenn Poshard

The Honorable Marcy Kaptur

The Honorable James L. Oberstar

The Honorable David Obey

The Honorable Steve Gunderson

House of Representatives

Page 4 GAO/RCED-94-118FS Airport Competition
Page 5 GAO/RCED-94-118FS Airport Competition
Contents

Letter 1

Section 1 8

Overall Nonstop Essential Air Service to O'Hare 8 Service to Direct Essential Air Service to O'Hare 9

O'Hare Has Declined, EAS Airport Managers' Comments on the Decline of O'Hare 11

but Some Service

Communities Have

Experienced

Increased Service

Section 2 12

Commuter Aviation

Services in the

Midwest Are

Becoming

Increasingly

Concentrated

Chapter 3 14

Fares Between Small

Midwestern Airports

and O'Hare Generally

Are Not Higher Than

Those to Other Hubs

Page 6 GAO/RCED-94-118FS Airport Competition
Contents

Section 4 15

Airport and Airline

Officials Believe

O'Hare Could

Accommodate More

Air Traffic Through

More Efficient Slot

Allocation

Section 5 17

Improvements at

O'Hare Are Yielding

Capacity Increases

Appendix Appendix I: Major Contributors to This Fact Sheet 18

Tables Table 1.1: Daily Nonstop Flights to O'Hare 8

Table 1.2: Daily Direct Flights to O'Hare 10

Table 2.1: Commuter Slot Concentration at Domestic 13

Slot-Controlled Airports

Table 3.1: 1992 Fare Yields Between EAS Airports and Hubs 14

Figure Figure 4.1: Average Half-Hourly General Aviation/Military Slot 16

Usage at O'Hare Airport, November 1993

Abbreviations

ADP Airport Development Plan

DOT Department of Transportation

EAS essential air service

FAA Federal Aviation Administration

GAO General Accounting Office

OAG Official Airline Guide

Page 7 GAO/RCED-94-118FS Airport Competition
Section 1

Overall Service to O'Hare Has Declined, but

Some Communities Have Experienced

Increased Service

Our analysis of the "Official Airline Guide," which lists all scheduled

flights, shows that the number of nonstop and direct flights available

between the 41 Midwestern essential air service (EAS) communities and

O'Hare International Airport has decreased since the start of the EAS

program.' However, 17 communities have actually gained service, while 24

have lost service or their service has remained unchanged.

Nonstop Essential Air By 1993, airports serving the 41 communities had lost over 19 percent of

the nonstop service they had in 1978, declining from 125 daily flights in

Service to O'Hare September 1978 to 104 in September 1993. However, while 6 airports have

fewer nonstop flights to O'Hare and 7 airports have lost nonstop service

altogether since 1978, 17 airports have gained some nonstop service; 1

airport has maintained the same number of nonstop flights; and 10 airports

never had nonstop service. Table 1.1 compares daily nonstop flight

availability from each of the 41 airports in September 1978, 1987, and 1993

to O'Hare Airport.

Table 1.1: Daily Nonstop Flights to

O'Hare September September September

Airport 1978 1987 1993

Akron/Canton, OH 4 5 3

Appleton, WI 15 7 5

Bloomington, IL 11 2 5

Bloomington, IN 5 1 0

Burlington, IA 3 1 4

Champaign, IL 5 6 6

Danville, IL 6 4 0

Decatur, IL 1 4 0

Dubuque, IA 4 7 5

Escanaba, MI 0 0 3

Flint, MI 2 1 3

Fort Dodge, IA 0 0 0

Galesburg, IL 7 3 0

Green Bay, WI 7 11 10

Hancock/Houghton, MI 0 0 0

Iron Mountain/Kingsford, MI 0 0 2

Ironwood, MI/Ashland, WI 0 0 0

Kalamazoo, Ml 5 11 10

LaCrosse, WI 7 2 4

(continued)

'A direct flight could include one or more stops but does not require a change of aircraft.

Page 8 GAO/RCED-94-118FS Airport Competition
Section 1

Overall Service to O'Hare Has Declined, but

Some Communities Have Experienced

Increased Service

September September September Airport 1978 1987 1993

Lafayette, IN 11 6 2

Manistee/Ludington, MI 0 0 1

Marinette/Menominee, WI 0 0 1

Marquette, MI 0 0 0

Mason City, IA 1 0 1

Mattoon, IL 0 0 0

Mount Vernon, IL 0 0 0

Muncie, IN 5 2 0

Muskegon, MI 2 5 4

Oshkosh, WI 3 2 0

Ottumwa, IA 0 0 0

Pellston, MI 0 0 0

Quincy, IL 0 0 0

Rhinelander, WI 0 0 3

Rockford, IL 2 0 8

Springfield, IL 3 7 7

Sterling, IL 7 2 2

Terre Haute, IN 8 2 0

Traverse City, MI 0 4 3

Waterloo, IA 1 0 4

Wausau, WI 1 3 8

Youngstown, OH 3 0 0

Total 129 98 104

Average 3 2 3

Source: The "Official Airline Guide."

Direct Essential Air By 1993, airports serving the 41 communities had lost over 25 percent of the direct service that they had in 1978. In September 1978, airlines serving Service to O'Hare these airports provided 211 direct flights daily to O'Hare. This number fell

to 157 in September 1993.2 Today, 21 communities have fewer direct

flights to O'Hare than in 1978. However, 16 communities now have more

frequent direct service, and 4 communities have the same number of

flights as in 1978. Of the 21 communities that have less frequent direct

service, 8 have lost service to O'Hare completely and now connect to the

2

Daily flights refer to those available for a majority of weekdays. Flights available only on weekends were eliminated for this analysis.

Page 9 GAO/RCED-94-118FS Airport Competition
Section 1

Overall Service to O'Hare Has Declined, but

Some Communities Have Experienced

Increased Service

national air travel network through other Midwestern hubs. Table 1.2

compares daily direct flight availability from each of the 41 airports in

September 1978,1987, and 1993.

Table 1.2: Daily Direct Flights to

O'Hare September September September

Airport 1978 1987 1993

Akron/Canton, OH 6 6 3

Appleton, WI 15 7 6

Bloomington, IL 11 6 5

Bloomington, IN 8 3 0

Burlington, IA 3 4 8

Champaign, IL 5 6 6

Danville, IL 6 4 0

Decatur, IL 6 6 3

Dubuque, IA 9 7 6

Escanaba, MI 0 2 8

Flint, MI 3 4 6

Fort Dodge, IA 1 2 2

Galesburg, IL 7 4 0

Green Bay, WI 13 13 10

Hancock/Houghton, MI 2 0 0

Iron Mountain/Kingsford, MI 3 2 4

Ironwood, MI/Ashland, WI 2 0 1

Kalamazoo, MI 8 11 10

LaCrosse, WI 12 5 5

Lafayette, IN 11 6 2

Manistee/Ludington, MI 1 2 2

Marinette/Menominee, WI 2 0 3

Marquette, MI 1 4 7

Mason City, IA 3 0 3

Mattoon, IL 2 4 0

Mount Vernon, IL 2 0 0

Muncie,IN 5 3 0

Muskegon, MI 6 5 4

Oshkosh, WI 7 3 2

Ottumwa, IA 2 2 2

Pellston, MI 2 4 2

Quincy, IL 3 3 3

Rhinelander, WI 2 2 3

(continued)

Page 10 GAO/RCED-94-118FS Airport Competition
Section 1

Overall Service to O'Hare Has Declined, but

Some Communities Have Experienced

Increased Service

September September September

Airport 1978 1987 1993

Rockford, IL 2 0 8

Springfield, IL 7 15 9

Sterling, IL 7 2 2

Terre Haute, IN 9 5 0

Traverse City, MI 2 9 4

Waterloo, IA 6 7 8

Wausau, WI 6 8 8

Youngstown, OH 3 2 2

Total 211 178 157

Average 5 4 4

Source: The "Official Airline Guide."

EAS Airport Managers of EAS airports we talked with told us that service to O'Hare requires much effort to maintain. Changes in factors such as flight Managers' Comments frequencies, numbers of available seats, and actual numbers of air carriers

on the Decline of providing service to O'Hare make it difficult to achieve and maintain O'Hare Service profitable enplanement levels, and that some carriers have discontinued

even profitable service. Although the EAS program guarantees a certain

minimum level of service, the managers told us that the program does not

necessarily guarantee service of sufficient frequency or convenience to

maintain adequate traffic levels.

Even though the EAS program has guaranteed that communities losing

service to O'Hare are able to make connections through Midway Airport in

Chicago and other Midwestern hubs, managers told us that other large

airports, including Chicago's Midway, are not, in their opinion, adequate

substitutes for O'Hare because they do not offer as many connecting

opportunities. Therefore, the small airports have difficulty attracting

passengers who require flights that connect through O'Hare.

This claim is consistent with our analysis of DOT data, which showed that

of the 10 communities requiring subsidies in 1993, only 3 had flights to

O'Hare, with 6 connecting to Midway and 1 connecting to St. Louis. Our

analysis also showed that 84 percent of passengers flying between the 41

EAS airports and O'Hare are connecting to other destinations.

Page 11 GAO/RCED-94-118FS Airport Competition
Section 2

Commuter Aviation Services in the Midwest

Are Becoming Increasingly Concentrated

Not only do fewer flights arrive at O'Hare from small Midwestern regional

airports, but fewer commuter air carriers, the typical providers of essential

air services, hold O'Hare slots.' Since implementation of the buy-sell rule

in 1986, commuter slot holdings have become increasingly concentrated.

DOT has determined that, under the EAS program, service to O'Hare is to be

maintained from each of the 41 essential air service airports. Service must

be provided between the small airport and O'Hare or, in some cases,

between the small airport, another Midwestern hub, and O'Hare. However,

O'Hare is one of four airports in the United States subject to FAA's slot

controls.2 FAA restricts the number of takeoffs and landings O'Hare may

accommodate to 155 per hour, with 25 per hour dedicated to commuter air

carriers. In addition, in 1986 FAA promulgated the buy-sell rule, which

allows airlines to buy and sell slots, in effect creating an asset for the

airline that held the slots at that time.

As a result, slots have become a valuable commodity at O'Hare to any air

carriers seeking to expand their operations. According to the airport

operators we interviewed, the value of slots has increased significantly

over the last few years. At present, slot prices at O'Hare are estimated to

be as high as $2 million.

In 1986, eight airlines held commuter slots at O'Hare. Currently, only three

airlines hold commuter slots: American Airlines Eagle (65 percent), Air

Wisconsin (27 percent), and Great Lakes Aviation (8 percent). Because Air

Wisconsin and Great Lakes are United Express carriers, commuter slots

are essentially controlled by the two dominant major airlines at

O'Hare-American and United.

A comparison of the commuter slot holdings at each of the slot-controlled

airports shows that O'Hare is the most concentrated. Table 2.1 lists the

number of carriers and the percent of slots held by the leading slot holder

at the four slot-controlled airports.

'Each take-off and landing is considered to be a "slot."

2

The four domestic slot-controlled airports are: Washington National, John F. Kennedy, La Guardia,

and O'Hare.

Page 12 GAO/RCED-94-118FS Airport Competition
Section 2

Commuter Aviation Services in the Midwest

Are Becoming Increasingly Concentrated

Table 2.1: Commuter Slot

Concentration at Domestic Percentage of slots

Slot-Controlled Airports held by carrier with

Airport Number of carriers most slots

O'Hare 3 65

Washington National 7 49

John F. Kennedy 5 49

La Guardia 6 47

Source: Federal Aviation Administration.

Page 13 GAO/RCED-94-118FS Airport Competition
Chapter 3

Fares Between Small Midwestern Airports

and O'Hare Generally Are Not Higher Than

Those to Other Hubs

While concentration has increased, yields (revenues per passenger mile)

for operating between small airports and O'Hare generally are not higher

than those for flights between small airports and other hubs. Yields are

generally lower for flights from small airports to O'Hare, but part of the

reason is that flights from small airports to O'Hare are somewhat longer

than for most of the other hubs. ' The average distance traveled between

small airports and O'Hare, when adjusted for differences in traffic, is 229.7

miles. This is exceeded only by miles traveled between small airports and

two other major hubs, Atlanta (320.2 miles) and Dallas/Fort Worth (262.4

miles).

Correspondingly, yields for operating between small airports and O'Hare

are lower than at Atlanta and Dallas/Fort Worth, slightly above St. Paul,

and higher than the four other hubs, Pittsburgh, St. Louis, Denver, and

Boston. These findings are consistent with those from our earlier studies

of fares at hub airports. 2 Table 3.1 lists 1992 fare yields between small

airports served by the EAS program and their hubs.

Table 3.1: 1992 Fare Yields Between

EAS Airports and Hubs Cents per passenger mile

Airport Average Yield Adjusted yield

Dallas/Fort Worth 33.36 59.88

O'Hare 41.59 52.42

Atlanta 41.59 73.09

Denver 44.42 40.76

Minneapolis/St. Paul 55.18 49.69

Pittsburgh 59.10 44.49

Boston 60.72 35.21

St. Louis 61.42 41.84

Source: U.S. Department of Transportation.

'Yields tend to decline as distance increases and as costs are spread out over more miles. The yields

calculated for this analysis are for flights from essential air service airports to hub cities that terminate

at the hub cities. The yields do not include the fares for flights that connect at the hub with flights

destined for points beyond the hub.

2

Airline Competition: Higher Fares and Reduced Competition at Concentrated Airports

(GAO/RCED-90-102, July 11, 1990); Airline Competition: Higher Fares and Less Competition Continue

at Concentrated Airports (GAO/RCED-93-171, July 15, 1993).

Page 14 GAO/RCED-94-118FS Airport Competition
Section 4

Airport and Airline Officials Believe O'Hare

Could Accommodate More Air Traffic

Through More Efficient Slot Allocation

Most of the airport operators and airline representatives we talked with

said that O'Hare could accommodate more traffic. Some believe that,

within current slot restrictions, the slots could be more efficiently

allocated to handle more flights. Several operators and representatives

mentioned improvements in procedures and facilities that have increased

the airport's capacity.

According to FAA data on daily general aviation traffic, some excess

capacity exists at O'Hare, although at certain times of the day most slot

allocation to general aviation aircraft are used. Figure 4.1 shows that peak

slot utilization occurs in the morning and the mid-afternoon hours.

However, the critical factor for improving access to O'Hare through better

slot utilization is the time of day that slots are not used. Unused slots are

only useful if they occur at times EAS flights could use for making

connections. Nevertheless, airport officials told us that service to EAS

communities could be enhanced by adding slots and scheduling flights at

the off-peak times.

Page 15 GAO/RCED-94-118FS Airport Competition
Section 4

Airport and Airline Officials Believe O'Hare

Could Accommodate More Air Traffic

Through More Efficient Slot Allocation

Figure 4.1: Average Half-Hourly General Aviation/Military Slot Usage at O'Hare Airport, November 1993

5 Operations

4

0

4? C e 4 4 No 4. 4? N Ca*

Time

Notes: FAA regulations under instrument flight rules allow a maximum of five general

aviation/military operations in each half-hour period. Operations each use one slot.

Operations are averaged over the daily instrument flight rules general aviation/military totals for

the weekdays of November 1993, excluding operations over the Thanksgiving holiday.

Source: Federal Aviation Administration.

Although slots allocated to general aviation, which includes military, might

be a source for additional EAS operations, an O'Hare Airport official told us

that he believed that the number of slots available from that source would

be minimal. He also pointed out that relatively few military air operations

are conducted at O'Hare, and if military operations were to be eliminated

completely, less than one slot per hour would be recovered.

Page 16 GAO/RCED-94-118FS Airport Competition
Section 5

Improvements at O'Hare Are Yielding

Capacity Increases

Since 1983, improvements undertaken as part of the O'Hare Airport

Development Plan (ADP) have increased the airport's overall capacity.

Terminal capacity, for example, has been significantly expanded by

2 million square feet to approximately 3.6 million square feet of area, and

60 domestic gates have been added. A new 1.2 million-square-foot

international terminal with 20 gates has also been added. Approximately

$139 million has been spent by the city of Chicago on taxiway and runway

improvements, with an additional $50 million raised through a 1992 bond

issue for additional airfield capital projects.

In response to the ADP projects, FAA is planning a complete review of the

High Density Rule, under which FAA controls O'Hare slots, to explore

whether these capacity increases might affect the number of operators

that O'Hare and the other slot-controlled airports can safely accommodate.

This review is expected to be completed in 1994. FAA has also started or

has plans to start air traffic and ground control projects that may also

affect O'Hare's capacity. Construction has begun on a new control tower

that would be more than twice the size of the present tower. A new ground

control radar will be installed, and FAA has begun construction on a new

$91.5 million terminal radar approach control facility at Elgin, Illinois,

replacing the current O'Hare terminal approach facility.

As part of an overall Aviation System Capacity Plan developed in 1991 and

1992, FAA has recommended additional improvements to O'Hare airfield

operations which may also affect its capacity. These improvements

include runway extensions and relocations, air traffic control

improvements, and several new technology improvements that will result

in maintaining safety while reducing a number of operating restrictions.

Page 17 GAO/RCED-94-118FS Airport Competition
Appendix I

Major Contributors to This Fact Sheet

Allen Li, Associate Director, Transportation Issues

Resources, Francis P. Mulvey, Assistant Director

Community, and Peter J. Espada, Evaluator-in-Charge

Economic Kristen Burnham, Evaluator

Development

Division, Washington,

D.C.

Chicago Regional Robert M. Ciszewski, Senior Evaluator

Office

(341404) Page 18 GAO/RCED-94-118FS Airport Competition