GAO-02-997R Essential Air Service

August 30, 2002

Congressional Committees

Subject: Options to Enhance the Long-term Viability of the Essential Air Service Program

Over two decades ago, the Congress deregulated the airline industry, phasing out the federal

government’s control over domestic fares and routes served and allowing market forces to

determine the price, quantity, and quality of service. Concerned that air service to some small

communities would suffer in a deregulated environment, the Congress established the Essential

Air Service (EAS) program as part of the Airline Deregulation Act of 1978. The act guaranteed

that communities served by air carriers before deregulation would continue to receive a certain

level of scheduled air service. Special provisions were provided for guaranteeing service to

Alaskan communities. In general, the act guaranteed continued service by authorizing the Civil

Aeronautics Board, whose duties were later transferred to the Department of Transportation

(DOT), to require carriers to continue providing service at these communities. If an air carrier

could not continue that service without incurring a loss, DOT could then use EAS funds to award

that carrier, or another carrier willing to provide service, a subsidy. These subsidies are intended

to cover the difference between a carrier’s projected revenues and expenses and provide a

minimum amount of profit.

The Congress has expressed concern that trends in the aviation industry and rising costs may

jeopardize the program’s long-term viability. H. Rpt. 107-108 directs GAO to conduct a thorough

examination of the program. As agreed with staff of the relevant authorizing and appropriations

committees, we focused on the following research questions:

• What is the status of the program, and how has it changed since 1995?

• What major factors may affect potential future subsidy requirements?

• What are some options to revise the program to enhance its long-term viability, and what are

the associated potential effects?

During the weeks of August 19 and August 29, 2002, GAO briefed staff of the House and Senate

appropriations and authorization committees on the results of its work. References within this

report relate to figures included in the briefing slides in enclosure I.

United States General Accounting Office

Washington, DC 20548
2 GAO-02-997R Essential Air Service

Results in Brief

As of July 1, 2002, the EAS program provided subsidies to air carriers to serve 114 communities--

79 in the continental United States and another 35 in Alaska, Hawaii, and Puerto Rico. From

1995 to July 2002, the net number of EAS-subsidized communities increased by four in the

continental United States. That number is expected to increase further, because air carriers now

providing unsubsidized service to 26 communities have notified DOT that they intend to

discontinue service there. According to DOT, 12 of those 26 communities meet the eligibility

criteria for subsidized service. DOT is requiring carriers to continue serving those 12

communities, and is incurring subsidy liabilities for that service. Federal appropriations to the

program have more than tripled since 1995, rising from $37 million to $113 million in fiscal year

2002 (all dollar figures in this product are expressed in constant 2002 dollars). Over the same

period, the average subsidy per community served in the continental United States rose from

nearly $424,000 in 1995 to an estimated $828,000 in 2002. For communities in Alaska, Hawaii, and

Puerto Rico, the average subsidy per community served rose from just over $90,000 to an

estimated $251,000 in 2002. Assuming that it would award subsidies to all eligible communities

where carriers had filed notice of their intent to discontinue service, DOT projects that in fiscal

year 2002 it will award $97 million in annual subsidies out of the appropriated $113 million. Total

passenger traffic at EAS-subsidized communities decreased by 20 percent since 1995, and the

median number of passenger enplanements fell to an estimated 10 per day (just over 3

passengers per flight).

Several factors—including increasing carrier costs, limited passenger revenue, and increasing

numbers of eligible communities requiring subsidized service—are likely to affect potential

future subsidy requirements of the EAS program. Carriers’ operating costs have increased over

time, in part because of costs associated with meeting federal regulatory requirements regarding

safety in small aircraft. Carrier costs may increase further if trends in the retirement of smaller

turboprop aircraft continue and carriers begin to use larger aircraft on these routes. In contrast,

carrier revenues have been limited because many individuals traveling to or from EAS-subsidized

communities choose not to fly from the local airport, but rather to use other, larger nearby

airports, which generally offer more service at lower airfares. Lastly, the number of subsidyeligible communities has increased, and may continue to grow in the near term.

We identified and evaluated major categories of options to enhance the long-term viability of the

EAS program, each of which has associated potential effects. Certainly, the viability of the EAS

program can be ensured without any changes to the program as long as the Congress continues

to fully fund it. However, because there are clear indications that EAS program costs will

increase in the near term, federal fiscal discipline may require various changes to the program.

In no particular order, the options we identified to control costs and improve the program’s

sustainability include (1) targeting subsidized service to more remote communities by changing

eligibility criteria, (2) better matching capacity with community use by increasing the use of

smaller aircraft and restricting little-used flight frequencies, (3) consolidating service to multiple

communities into regional airports, and (4) changing the form of the federal assistance from

carrier subsidies to local grants. Potential positive effects include decreasing federal costs,

increasing passenger traffic, and creating community choice for transportation options.

Potential negative effects also exist, such as increased passenger inconvenience and the potential

negative effect on local economies of lost scheduled airline service. We are not making any

specific recommendations regarding how the Congress might consider changing the program.
3 GAO-02-997R Essential Air Service

Background

Air service is positively correlated with various measures of communities’ economic activity. As

we reported earlier this year, communities with larger, wealthier and more economically active

population bases tend to have more air service than smaller communities.1

 Communities that

receive air service subsidized through the EAS program tend to be much smaller and have less

economic activity than those small communities that receive air service through small or nonhub

airports.2

 The figure on slide 6 describes certain economic characteristics of small communities

with and without subsidized air service.

To be eligible for subsidized service, communities must meet three general requirements. They

must have received scheduled commercial passenger service as of October 1978, may be no

closer than 70 highway miles to a medium- or large-hub airport, and must require a subsidy of

less than $200 per person (unless the community is more than 210 highway miles from the

nearest medium- or large-hub airport, in which case no average per-passenger dollar limit

applies).3

Federal law defines the service that subsidized communities are to receive under the EAS

program.4

 Carriers providing EAS flights are required to use aircraft with at least 15 seats unless

the community seeks a waiver. The law specifies that communities that require subsidized

service are entitled to a minimum of 12 round-trip flights per week—2 daily round-trip flights 6

days per week, with not more than one intermediate stop on each flight to a hub airport.

However, DOT may authorize more service than the minimum specified by statute. Flights are to

occur at “reasonable times” and at prices that are “not excessive.” EAS operations to

communities in Alaska are subject to different requirements (e.g., carriers may use smaller

aircraft).

Air carriers, not the communities themselves, apply directly to DOT for EAS subsidies. Air

carriers set the subsidy application process in motion when they file a 90-day notice of intent to

suspend or terminate service. If no air carrier is willing to provide replacement air service

without a subsidy, DOT solicits proposals from carriers who are willing to provide service with a

subsidy. Carriers requesting a subsidy must document that they cannot profitably serve the

 1

 U.S. General Accounting Office, Commercial Aviation: Air Service Trends at Small Communities Since

October 2000 , GAO-02-432 (Washington, D.C.: Mar. 29, 2002). As a measure of a community’s level of

economic activity, we used manufacturing earnings.

2

 The nation’s commercial airports are categorized into four main groupings based on the number of

passengers boarding an aircraft (enplaned) for all operations of U.S. carriers in the United States. A

nonhub has less than 0.05 percent of the total annual passenger enplanements in the United States in any

given year. A small hub has at least 0.05 percent, but less than 0.25 percent, of total U.S. enplanements. A

medium hub has at least 0.25 percent and less than 1.0 percent of total U.S. enplanements, and a large hub

has 1.0 percent or more of total U.S. enplanements. These definitions are contained in statute.

3

 The average subsidy per passenger does not equate to a specific portion of a passenger's ticket price paid

for by EAS funds. Ticket pricing involves a complex variety of factors relating to the demand for travel

between two points, the supply of available seats along that route, competition in the market, and how air

carriers choose to manage and price their available seating capacity.

4

 49 USC 41732.
4 GAO-02-997R Essential Air Service

community without a subsidy. DOT requires that air carriers submit historical and projected

financial data sufficient to support a subsidy calculation. The requirements include profit-or-loss

statements that project operating expenses (e.g., fuel costs) and operating revenues (e.g.,

passenger revenues) that would result from serving the particular community. DOT then reviews

these data in light of the aviation industry’s pricing structure, the size of aircraft required, the

amount of service required, and the number of projected passengers who would use this service

at the community.5

 Finally, DOT selects a carrier and sets a subsidy amount to cover the

difference between the carrier’s projected cost of operation and its expected passenger revenues,

while providing the carrier with a profit element equal to 5 percent of total operating expenses,

according to statute.

After DOT selects an air carrier to provide subsidized service to an EAS community, that

agreement is subject to renewal, generally every 2 years, at which time other air carriers are

permitted to submit proposals to serve that community with or without a subsidy. At any time

throughout the year, an air carrier providing unsubsidized service to an EAS-eligible community

can apply for a subsidy if the carrier determines that it can no longer provide profitable service.

According to DOT, once a subsidy rate is agreed to, DOT compensates a carrier for the flights

completed, on a monthly basis.6

Program Costs Have Increased More Than Passenger Use

As of July 1, 2002, the EAS program provided subsidies to air carriers to serve 114 communities--

79 in the continental United States, and another 35 in Alaska, Hawaii, and Puerto Rico.7

 In 2000,

approximately 477,000 passengers enplaned at airports that received EAS-subsidized service—

less than 0.1 percent of the more than 700 million passenger enplanements in the United States

that year.8

 Thirteen regional air carriers served the subsidized communities in the continental

United States, and 14 served those in Alaska, Hawaii and Puerto Rico. The carriers serving the

communities in the continental United States typically used turboprop aircraft seating 19

passengers, whereas in Alaska, Hawaii, and Puerto Rico, the most commonly used aircraft seated

4 to 9 passengers. As of mid-June 2002, the federal government had obligated $82 million to

these air carriers.9

 5

 DOT officials stated that they check the reasonableness of the cost and revenue information it receives

from the air carriers against other data reported to DOT and in documents filed with the Securities and

Exchange Commission.

6

 Total monthly payments to each carrier depend on the extent to which the carrier met various

performance targets (e.g., percent of scheduled departures actually performed).

7

 There are 31 subsidized communities in Alaska, including 9 Kodiak bush points.

8

 Data for 2001 were not available at the time of our analysis.

9

 In February 2002, DOT increased the subsidies paid to EAS air carriers by an amount equal to 30 percent

of the carriers’ forecast revenue on an interim basis (DOT order 2002-2-13). DOT adjusted the subsidies in

recognition of the EAS carriers’ “precipitous rise in costs” accompanied by a “substantial drop in revenue”

that following the events of September 11, 2001. The order expressed a concern that, absent some

acknowledgment of the carriers’ financial position, some carriers could be forced to cease operations,

vitiating the program. The order noted that these losses are not directly attributable to losses incurred as a

result of federal actions taken because of the terrorist attacks—losses for which the government provided
5 GAO-02-997R Essential Air Service

As of July 1, 2002, five regional carriers served a majority of the EAS markets in the continental

United States. Those five carriers served 67 EAS subsidized communities in the continental

United States and received 85.6 percent of subsidies awarded for service to communities in those

48 states. Of the five carriers, Great Lakes received the largest amount of subsidies ($22.4

million) for serving 29 communities. Big Sky Airlines served 15 subsidized communities,

received $13.2 million, and had the highest average subsidy per passenger. One reason for Big

Sky’s higher average subsidy per passenger is that the airline served a number of communities

that are great distances from the hub airport (e.g., Wolf Point, Montana, which is 212 air miles to

Billings) but carried few passengers.10 Other things being equal, carrier costs increase with the

distance flown. Colgan Air, which provides subsidized service to seven communities, has the

highest average subsidy per community—about $1.2 million. The figure on slide 12 summarizes

the subsidy and service levels for the top five subsidized carriers in the continental United States

While the net number of subsidized EAS communities increased by four from 1995 through July

1, 2002, officials at DOT say that number will increase further during this fiscal year.11 At the

beginning of calendar year 2002, DOT subsidized service to 75 communities in the continental

United States. Since then, carriers notified DOT that they would terminate nonsubsidized service

at 26 communities in the continental United States and Alaska (which would leave those

communities without scheduled air service), 15 of which are subsidy eligible. DOT has required

carriers to continue service to those communities.12 As of July 1, 2002, DOT had issued orders

establishing subsidy levels to 3 of those 15 communities. DOT was in the process of negotiating

subsidies for service to the remaining 12 communities, and was incurring subsidy liabilities for

that continued service.

 compensation under the Air Transportation Safety and System Stabilization Act, Public Law 107-42.

Through July 2002, the subsidized carriers have received nearly $50 million in grants from that act.

10 In July 2002, DOT transferred the subsidy for serving seven communities in Oklahoma, Arkansas, and

Texas previously served by Big Sky Airlines to Mesa Airlines. Under the new order, the total subsidy

awarded for these locations is approximately $6.7 million, or about $1.1 million less than the subsidies

earlier given to Big Sky.

11 We selected 1995 as the base year for comparison because it was the most recent year in which the EAS

program was unaffected by a major change in appropriations and because it preceded a major federal

regulatory change in U.S. airline safety standards. In 1996, the Federal Aviation Administration changed

the air safety rules for commuter air carriers to match the operational, equipment, and performance safety

standards required of large air carriers—generally, those that use large jet aircraft, having a seating

capacity of more than 30 persons. Collectively known as the “Commuter Safety Initiative,” these rules

imposed many new requirements on commuter air carriers that flew aircraft equipped with 10 seats or

more. For example, this initiative required commuter air carriers to appoint safety officers, improve

ground-deicing programs, and carry additional passenger safety equipment (e.g., medical kits). The rule

also increased training requirements for pilots and further limited the number of duty hours crewmembers

can fly. See U.S. General Accounting Office, Essential Air Service: Changes in Subsidy Levels, Air

Carrier Costs, and Passenger Traffic, GAO/RCED-00-34 (Washington, D.C.: Apr. 14, 2000).

Between 1995 and 1999, the total number of subsidized communities decreased by a net 6 from 95

to 89. Eight communities that had not received subsidized service in 1995 gained it in 1999, and 14

communities lost their eligibility for subsidized service for a variety of reasons. Since 1999, the net number

of communities in the continental United States receiving subsidized EAS operations has increased by 10.

12 Under 49 USC 41734, carriers must file a notice with DOT of their intent to suspend service, and DOT is

compelled by statute to require those carriers to continue serving those communities for a 90-day period.
6 GAO-02-997R Essential Air Service

Total passenger enplanements at EAS-subsidized communities decreased about 20 percent from

1995 through 2000, falling from approximately 592,000 to about 477,000. The median number of

passengers carried each day for each subsidized community in the continental United States also

decreased, dropping from 11 in 1995 to 10 in 2000 (just over 3 passengers per flight).

Furthermore, if total EAS-subsidized passenger enplanements in 2002 equal the total for 2000, the

average subsidy per passenger in the continental United States will rise to an estimated $229—a

figure that, in the aggregate, exceeds the limit for individual communities within 210 miles of a

medium- or large-hub airport—almost tripling from the $79 average subsidy per passenger in

1995. The figure on slide 13 summarizes the service changes and projected changes at subsidized

communities from 1995 to 2002.

EAS funding has tripled since 1995. EAS program appropriations increased from $37 million in

fiscal year 1995 (in constant 2002 dollars) to $113 million beginning in fiscal year 2002.13

Consequently, the average subsidy per community served in the continental United States rose

from nearly $424,000 in 1995 to an estimated $828,000 in 2002. For communities in Alaska,

Hawaii, and Puerto Rico, the average subsidy per community served rose from just over $90,000

to an estimated $251,000 in 2002. Assuming that it would award subsidies to all eligible

communities where carriers have filed notice of their intent to discontinue service, DOT projects

that total awards for fiscal year 2002 will be $97 million.14 The figure on slide 14 summarizes the

EAS program budget history from 1995 to 2002.

Several Factors Are Likely to Increase Future Subsidy Requirements

Several factors—including increasing carrier costs, limited passenger revenue, and increasing

numbers of eligible communities requiring subsidized service—are likely to affect future

demands on the EAS program.

Carrier costs for operating 19-seat turboprop aircraft--the size of aircraft most commonly used at

EAS-subsidized communities--have increased over time. According to data reported to DOT by

the air carriers, operating costs associated with the Beech 1900 turboprop--which serves the

majority of the subsidized communities in the continental United States--have increased by about

18 percent since 1995, from $589 per block hour in 1995 to $695 in 2000.15 Costs associated with

operating other turboprop aircraft have also increased during the period. We reported in 1999

that carrier costs of operating turboprop aircraft rose beginning in 1996 because of the costs of

compliance with new federal regulatory requirements relating to safety on commuter air carriers.

The figure on slide 16 summarizes the changes in operating costs for the Beech 1900.

 13 Of that total, Congress provided $13 million in the Department of Transportation Appropriations Act for

fiscal year 2002, in addition to the recurring annual appropriation of $50 million derived from overflight

user fees. Another $50 million was added in a Department of Defense supplemental appropriations act,

Public Law 107-117, following the September 11, 2001, attacks. All dollar figures are in constant 2002

dollars.

14 For locations where carriers have filed notices of intent to leave, the subsidies would be retroactive to

the 91st day after the date contained in the notification, according to DOT officials.

15 Direct operating costs include costs associated with pilots, fuel, maintenance, and capital expenses (e.g.,

leasing costs or depreciation). These costs are per block hour, which is a common measure of aircraft

usage. A block hour begins when the aircraft backs away from the gate and ends when the aircraft pulls

into the gate at the destination.
7 GAO-02-997R Essential Air Service

Carrier costs may increase further if trends in the retirement of smaller turboprop aircraft

continue. Carriers have retired large numbers of 19-seat aircraft from their fleets over the past

few years. According to data from an industry trade association, as of January 1, 1999, U.S.

regional carriers operated 368 19-seat aircraft. As of January 1, 2002, that number had dropped

to 154. The average seating capacity of aircraft in regional service increased from 24.6 in 1995 to

33.5 in 2001. Those larger aircraft—especially the “regional jet” aircraft that many carriers are

incorporating into their fleet—are more expensive than 19-seat aircraft to operate. For example,

according to data for 2000 from DOT, total operating costs for the 30-seat Saab 340 were $780 per

block hour, and total operating costs for the 50-seat Bombardier CRJ-100 regional jet were $1,212

per block hour.

EAS-subsidized communities tend to generate limited passenger revenue for two fundamental

reasons. First, these communities (and the surrounding geographic areas) have small

populations. Second, of the relatively few travelers those areas tend to generate annually, many

choose either to drive to their destination or to fly to and from other, larger airports (a

phenomenon commonly referred to as “passenger leakage”). EAS community airports often

serve less than 10 percent of the local passenger traffic. For instance, information provided by

airport officials at Watertown, New York, indicated that only about 3 percent of local passengers

use that airport. Most travelers choose to drive to and fly from the airport at Syracuse, New

York, about 65 miles south of Watertown on Interstate 81. Over half of subsidized communities

in the continental United States are within 125 miles, or roughly 2 hours highway driving time, of

a larger airport. The figures on slides 17 and 20 summarize the proximity of subsidized

communities to other service options.

Passengers drive to other airports to get lower airfares and improved service options. For

example, one-day advance purchase (i.e., business) fares between Syracuse and Los Angeles, as

of July 22, 2002, were approximately $455 (or about 58 percent) less expensive than those

between Watertown and Los Angeles. As of July 31, 2002, Watertown was served by a single

carrier with three daily nonstop flights to Pittsburgh, whereas Syracuse—a small hub--was served

by seven different carriers operating 107 daily nonstop flights to 17 different destinations.

Similarly, business fares between Beckley, West Virginia (an EAS-subsidized community), and

Denver were $425 (67 percent) more expensive than those available at Charleston, West Virginia

(a non-hub 69 miles north of Beckley on Interstate 77). As of July 31, 2002, Beckley was served

by a single carrier operating three daily round trips to two different destinations, while

Charleston was served by five different airlines providing 72 daily nonstop flights to 11 different

destinations. In other markets, carriers had set prices that may influence leisure travelers at EAS

communities. For example, average 21-day advance purchase fares available for travel between

Jamestown, North Dakota (an EAS-subsidized community), and Denver were $170 (54 percent)

more expensive than comparable fares available at Fargo, North Dakota, 99 miles east on

Interstate 94. Similarly, average 21-day advance purchase fares between Devil’s Lake, North

Dakota (an EAS-subsidized community), and Chicago were $129 (43 percent) more expensive

than comparable fares available at Grand Forks, 146 miles east.16 The figures on slides 18 and 19

illustrate comparisons of airfares at subsidized and larger airports.

 16 The fares listed for the North Dakota airports represent the average of the lowest-available fares

obtained on a weekly basis between December 5, 2001, and May 30, 2002.
8 GAO-02-997R Essential Air Service

However, it is important to note that EAS carriers typically do not set the airfares charged for the

major markets for EAS travelers. Instead, fares are set by the major network airlines, such as US

Airways and Northwest Airlines, with which EAS carriers usually have contractual agreements.

Among other things, those agreements may specify the terms under which the EAS carriers and

their major network airline partners agree to share the revenue generated at these communities.

Depending upon the exact agreement, the EAS carrier usually sets fares for travel only in “local”

markets (i.e., for origin and destination travel between the EAS community and the connecting

hub, such as between Beckley and Pittsburgh), while the major airline sets the fares for travel

between the EAS community and the key destinations “beyond” the connecting hub (i.e., fares

between Beckley and Los Angeles).

Finally, EAS program costs are also likely to increase because more communities may require

subsidized service. As noted earlier, since September 2001, carriers filed notices to discontinue

unsubsidized service at 15 additional communities. According to officials at DOT, additional

small communities will likely lose unsubsidized service in the future—especially those served by

a single carrier. As of October 2001, there were 98 small communities being served by one

carrier. Of the 98, 25 have smaller populations and lower levels of employment than the typical

EAS-subsidized community, 21 have lower levels of income per capita, and 35 have lower levels

of manufacturing earnings.17

On the other hand, the increase in program costs may be restrained because some communities

that now receive subsidized service may lose their eligibility. The combination of decreased

passenger traffic and increased subsidy levels means that some communities may exceed the

maximum $200 subsidy per passenger statutory limit for communities within 210 miles of a

medium- or large-hub airport. Estimating the number of communities whose eligibility may be

affected is difficult because of uncertainty about passenger traffic levels at individual

communities. This may be particularly true now, given the broad decline in the national

economy that began early in 2001 and the events of September 11, 2001. Nationally, for the

period January through July 2002, domestic passenger enplanements decreased by nearly 12

percent compared to the same period in 2001.18 If passenger traffic at subsidy-eligible

communities in 2002 equals the same levels recorded for 2000, we estimate that 11 communities

in the continental United States will exceed the per passenger subsidy limit. In 2002, carriers

received $11 million to provide subsidized service to those communities.

While total EAS obligations could be reduced if some of those communities were dropped from

the program, DOT has not always done so. As we reported in 2000, before removing a

community’s subsidized service, DOT considers extenuating circumstances that could have

caused a temporary decline in passenger traffic. For various reasons (e.g., service interruptions),

DOT allowed eight communities located within 210 miles of a medium- or large-hub community

 17 In addition, some communities may lose service as various air carriers retire their turboprop aircraft.

For example, Atlantic Coast Airlines, Inc., which operates as a United Express and a Delta Connection

carrier, is planning to become an “all-jet” carrier by the end of 2003. When it retired its 19-seat turboprop

aircraft in December 2001, it discontinued service to two small communities. Other regional carriers, such

as American Eagle and Continental Express, have also announced plans to become “all-jet” carriers. 18 These data cover operations of large air carriers only, as reported by the Air Transport Association.
9 GAO-02-997R Essential Air Service

airport to receive subsidized service in 1999, even though the subsidies per passenger exceed the

$200 limit.19

Options to Enhance the Long-term Viability of the EAS Program and Some

Associated Potential Effects

While the long-term viability of the EAS program could be ensured without any changes to the

program as long as the Congress continues to fully fund it, there are indications that those costs

will increase over time, particularly as the number of eligible communities requiring subsidized

service increases. Federal fiscal discipline may require various changes to the program. As

requested, we identified and evaluated options to control cost increases and improve the

program’s sustainability. In no particular order, they include (1) targeting subsidized service to

more remote communities, (2) better matching capacity with community use, (3) consolidating

service to multiple communities into regional airports, and (4) changing the form of the federal

assistance from carrier subsidies to local grants. Each option presents different positive and

negative effects. The positive effects include lowered federal costs, increased passenger traffic

at subsidized communities, and enhanced community choice of transportation options. Potential

negative effects include increased passenger inconvenience and the potential negative effect on

local economies of lost scheduled airline service.

Targeting Subsidized Service on More Remote Communities

To target subsidized service to more remote communities, (1) the highway distance criteria

between EAS-eligible communities and the nearest qualifying airport could be increased and (2)

the definition of qualifying nearby airports could be expanded to include small hubs and nonhubs

with jet service from at least two competing carriers. Currently, to be eligible for EAS-subsidized

service, a community must be more than 70 highway miles from the nearest medium- or largehub airport. If the distance criterion was increased to 125 highway miles and the qualifying

airports were expanded as described, 44 current EAS-subsidized communities would no longer

qualify for subsidies, and travelers at those communities would need to drive to the nearby larger

airport to access air service. The figure on slide 23 summarizes the number of communities and

passengers potentially affected, as well as the potential savings in federal subsidies.

 Potential Positive and Negative Effects

Limiting subsidized service to more remote communities could potentially save the federal

government $36.6 million annually (in current dollars). This estimate assumes that the total

subsidies now in effect at the communities that might lose their eligibility would not be obligated

to other communities, and that those amounts would not change over time. On the other hand,

the passengers who now use subsidized service at those 44 airports--approximately 229,000 in

2000--would be inconvenienced because of the increased driving required to access air service at

the nearest hub airport. In addition, implementing this option could potentially negatively impact

the economy of the affected communities. For instance, officials from some communities, such

 19 DOT officials note that, while the governing statutes include a $200 per passenger subsidy cap, they are

silent on how that calculation is to be made (e.g., using passenger enplanement data for the most recent

calendar year or using the average of the last 3 years).
10 GAO-02-997R Essential Air Service

as Brookings, South Dakota, claim that they are able to attract and retain local businesses

because of several factors relating to the quality of life there—with one important factor being its

scheduled air service.20

Better Matching Capacity with Community Use

Passenger enplanement data indicate that relatively few passengers fly in many EAS markets,

and that, on average, most EAS flights operate with aircraft that are largely empty. To better

match capacity with community use, air carriers could reduce unused capacity, either by using

smaller aircraft or by reducing the number of flights. Carriers could use smaller aircraft. For

instance, at Alamogordo, New Mexico, the community chose to seek a waiver from DOT so that

it could obtain service from a carrier that operates four daily departures using a 9-seat aircraft in

place of a carrier operating three daily departures with a 19-seat aircraft. The figure on slide 24

compares the old and new air service at Alamogordo. Another way to better match capacity with

use is for carriers to reduce the number of daily departures at communities where passenger

traffic has not responded to increasing flight frequencies. For example, since 1995, total

passenger traffic dropped at 9 of 24 communities where carriers added flight frequencies.

 Potential Positive and Negative Effects

Better matching capacity with community use could save federal subsidies. For instance,

limiting the number of daily subsidized departures to three could save federal subsidies by

reducing carrier costs in some locations. Federal subsidies could also be lowered at

communities where carriers used smaller—and hence less costly--aircraft. As suggested at

Alamogordo, those subsidies may be reduced even if the number of daily flight frequencies rises.

On the other hand, there are a number of potential disadvantages. For example, passenger

acceptance is uncertain. Representatives from some communities, like Beckley and Bluefield,

West Virginia, said that passengers who are already somewhat reluctant to fly on 19-seat

turboprops would be even less willing to fly on smaller aircraft. Such negative passenger

reaction may cause more people to drive to larger airports or simply drive to their destinations.

Additionally, the loss of some daily departures at certain communities would likely

inconvenience a relatively small number of passengers. Lastly, reduced capacity may have a

negative impact on the economy of the affected community.

 20 Although scheduled commercial air service is positively correlated with local economic activity, we were

unable to locate reliable studies that describe the extent to which scheduled commercial air service is

directly responsible for economic development in small communities in the United States (i.e., whether air

service precedes, follows, or develops simultaneously with local economic activity). Various calculations

have been made estimating the direct and indirect financial contributions that air service makes to local

communities. But questions arise about the relative contributions that scheduled commercial air service

makes as an effective economic asset to a community. For example, the value of scheduled air service to a

community may be related to use of that local air service compared with the use, availability, and quality of

alternatives.
11 GAO-02-997R Essential Air Service

Consolidating Subsidized Service Now Provided to Multiple Communities into Service at

Regional Airports

As of July 1, 2002, 21 EAS subsidized communities were located within 70 highway miles of at

least one other subsidized community. If subsidized service to each of these communities were

regionalized, 10 regional airports could serve those 21 communities. The figure on slide 25

illustrates the locations of the communities that are within 70 highway miles of each other.

 Potential Positive and Negative Effects

Regionalizing service to some communities could generate federal savings. However, those

savings may be marginal, because the total costs to serve a single regional airport may be only

slightly less than the cost to serve two or three neighboring airports. For example, DOT provides

$1.9 million in annual subsidies to Air Midwest, Inc., to serve Watertown, New York, with stops at

two other EAS-subsidized communities--Ogdensburg and Massena, New York—before arriving at

its final destination, Pittsburgh, Pennsylvania. According to an official with Air Midwest, the

marginal cost of operating the flight segments to Massena and Ogdensburg are small in relation

to the cost of operating the flight from Pittsburgh to Watertown. Another potential positive

effect is that passenger levels at the proposed regional airports could grow because the airline(s)

would be drawing from a larger geographic area, which could prompt the airline(s) to provide

better service (i.e., larger aircraft or more frequent departures). There are also a number of

disadvantages to implementing this option. First, local passengers would be inconvenienced

since they would likely have to drive longer distances to obtain local air service. Moreover, the

passenger response to regionalizing local air service is unknown. For example, city officials at

Watertown reported that they believed no one would drive 60 miles north to Ogdensburg to fly

with an EAS carrier because Syracuse is roughly the same distance to the south and offers better

fares and service. Additionally, as with other options, the potential impact on the economy of the

affected communities is unknown. Regionalizing air service has sometimes proven controversial

at the local level, in part because regionalizing air service would require some communities to

give up their own local service for the hypothetical benefits of a less convenient regional facility.

Even in situations where one airport is larger and better equipped than others (e.g., where one

airport has longer runways, a superior terminal facility, and better safety equipment on site), it is

likely to be difficult for the other communities to recognize and accept the benefits of

surrendering their local control and benefits.

Changing Carrier Subsidies into Local Grants

Local grants could enable communities to match their transportation needs with individually

tailored transportation options to connect them to the national air service system. DOT has been

pilot testing local transportation grants to communities.21 Through this program, in July 2002,

DOT awarded $20 million in grants to 40 small communities, including 5 EAS-subsidized

communities, in part to test whether increased flight frequencies, capacity, and/or marketing at

those communities could improve service and passenger ridership. For instance, DOT awarded

$500,000 to Cape Girardeau, Missouri, to support the community’s efforts to test the benefits of

increased flight frequencies at the community airport. According to DOT, nearly all of the 40

 21 The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21), Public Law 106-

181, established a pilot program designed to help smaller communities enhance their air service.
12 GAO-02-997R Essential Air Service

grants awarded involved additional financial contributions from the communities themselves,

and a majority either has or will establish public/private partnerships to increase community

participation in the proposed projects. Slide 26 lists a range of DOT AIR-21 pilot grants.

 Potential Positive and Negative Effects

Local grants would enable communities to choose how to meet their transportation needs. Some

of these choices may be less costly than the current federal subsidies paid to air carriers. In

addition, depending on the option, passenger traffic could grow because, in theory, the

community could choose the most appropriate way for people in that community to access the

national air service system. There are also a number of disadvantages to implementing this

option. First, to administer the local grants, an administrative mechanism would need to be

created and funded. Second, the passenger response to any change in access to air service is

unknown. In addition, depending on the option implemented, local passengers could be

inconvenienced. The unknown passenger response, coupled with the possibility of additional

passenger inconvenience, could potentially result in a greater passenger leakage. Additionally,

the resulting impact on the economy of the affected communities is unknown.

Concluding Observations

The EAS program appears to be meeting its statutory objective—to ensure continued air service

to small communities. However, information we developed indicates that relatively few people

who travel to or from some of these communities use the federally-subsidized air service. Many

travelers at some of these communities have alternatives to their local airports. Their decisions

to use those alternatives—whether another, larger airport or simply the highway system--are

economically and financially rational. Changing those individuals’ behavior would likely require

significant changes in the fares and service provided at small community airports. Increasing

EAS-subsidized communities’ stakes in their local service would seem to be beneficial. Yet

decisions regarding fares and service are shaped by market forces and often made by

corporations that are not party to EAS contractual agreements with DOT--major U.S. network

airlines. As a result, we believe that the program’s costs will rise in the short run (particularly as

air carriers file notices to discontinue service at various communities), and that the number of

passengers who use subsidized service will continue to be relatively small. To the extent that the

program must operate within certain fiscal constraints, we identified some directions that the

Congress may wish to consider to redefine the circumstances under which communities can

receive subsidized air service, as it has done in the past, or to fundamentally change the form of

the federal assistance provided to these communities for air service. Any changes to the

program’s structure or objective will affect each EAS-subsidized community differently,

depending on such characteristics as its distance to alternate, larger airports. The Congress will

need to weigh the effects of each option against the program’s overall goal.

Scope and Methodology

To describe the current state of the EAS program and how it has changed since 1995, we

analyzed information from DOT on air service levels (e.g., the number of communities served,

passengers enplaned, and available seating capacity in each market), subsidy rates, and the EAS

program’s budget. To identify and describe major factors that may affect potential future subsidy

requirements, we used quantitative and testimonial information from DOT, air carriers, and

commercial aviation databases with which GAO has annual contracts (e.g., BACK Aviation

Solutions). We conducted case studies at five EAS-subsidized communities in the continental
13 GAO-02-997R Essential Air Service

United States to illustrate these factors. Those communities were Beckley and Bluefield, West

Virginia; Watertown, New York; Brookings, South Dakota; and Wolf Point, Montana. We selected

those communities because they varied in passenger traffic, carrier subsidies, geographic

locations, and other factors. To identify and evaluate options that might enhance the long-term

viability of the EAS program and their potential related effects, we interviewed DOT officials and

representatives from various industry groups, EAS communities, and major and regional air

carriers, and analyzed information from those and other data sources. Because of time

constraints, we did not analyze the reliability of DOT’s passenger enplanement data or carriers’

financial information.

- - - - -

As arranged with your offices, we will provide copies to the Honorable Norman Mineta,

Secretary of Transportation; air carriers that provide subsidized EAS operations; and other

interested parties. We are sending copies of this report to interested congressional committees.

We will also send copies to others upon request. In addition, the report will be available at no

cost on the GAO Web site at http://www.gao.gov.

We provided a draft of this report to DOT for its review. DOT officials provided technical and

clarifying comments, which we incorporated as appropriate. We conducted our review between

March and August 2002 in accordance with generally accepted government auditing standards.

If you have any questions about this report, please contact me or Steve Martin at 202-512-2834.

Key contributors to this assignment are listed in enclosure II.

JayEtta Z. Hecker

Director, Physical Infrastructure Issues
14 GAO-02-997R Essential Air Service

List of Congressional Committees

The Honorable Patty Murray

Chairman

The Honorable Richard Shelby

Ranking Minority Member

Subcommittee on Transportation

Committee on Appropriations

United States Senate

The Honorable Ernest F. Hollings

Chairman

The Honorable John McCain

Ranking Minority Member

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable John D. Rockefeller, IV

Chairman

The Honorable Kay Bailey Hutchinson

Ranking Minority Member

Subcommittee on Aviation

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable Harold Rogers

Chairman

The Honorable Martin Olav Sabo

Ranking Minority Member

Subcommittee on Transportation

Committee on Appropriations

House of Representatives

The Honorable Don Young

Chairman

The Honorable James Oberstar

Ranking Minority Member

Committee on Transportation and Infrastructure

House of Representatives
15 GAO-02-997R Essential Air Service

The Honorable John L. Mica

Chairman

The Honorable William O. Lipinski

Ranking Democratic Member

Subcommittee on Aviation

Committee on Transportation and Infrastructure

House of Representatives
Enclosure I

16 GAO-02-997R Essential Air Service

1

Commercial Aviation

Options to Enhance the Long-term Viability of the Essential

Air Service (EAS) Program

Briefings to Congressional Committees, August 22-29, 2002
Enclosure I

17 GAO-02-997R Essential Air Service

2

Overview

• Objectives

• Results in brief

• Background

• Review results

• Summary

• Scope and methodology
Enclosure I

18 GAO-02-997R Essential Air Service

3

Objectives

• What is the status of the EAS program, and how has it changed since

1995?

• What major factors may affect potential future subsidy requirements?

• What are some options that might enhance the long-term viability of the

EAS program and their potential effects?
Enclosure I

19 GAO-02-997R Essential Air Service

4

Results in Brief

• As of July 1, 2002, the EAS program subsidized air service to 79

communities in the continental U.S. and 35 in Alaska, Hawaii, and

Puerto Rico—a net increase of 4 since 1995 for the continental U.S.

DOT was incurring subsidy liabilities to carriers serving another twelve

communities. Total FY 2002 awards may approach $97 million.*

• Several factors–including increasing carrier costs, limited passenger

revenue, and increasing numbers of eligible communities requiring

subsidized service—are likely to affect future subsidy requirements.

• We identified four options to enhance the long-term viability of the EAS

program. Potential effects of these options include decreasing federal

costs, increasing passenger traffic, and creating community choice on

transportation options. Potential negative effects also exist, such as

increased passenger inconvenience.

*All dollar figures are expressed in constant 2002 dollars.
Enclosure I

20 GAO-02-997R Essential Air Service

5

Background: EAS Program

Goals

• When Congress deregulated the airline industry in 1978, it was

concerned that small communities might lose access to the national air

service system. Therefore, it provided for a continuation of air

transportation to all cities with air service provided by a certificated

carrier as of October 24, 1978.

• Congress established the EAS program to carry out this mandate by

providing direct subsidies to air carriers to serve eligible small

communities they would not serve without being subsidized. The

Department of Transportation (DOT) administers the EAS program.
Enclosure I

21 GAO-02-997R Essential Air Service

6

Background: Small Communities’ Air

Service and Economic Activity

Community

type

Number of

communities Population Employment

Income per

capita

Manufacturing

earnings

Carriers serving

community

Daily

departures

Average county Typical number of

EAS-subsidized

communities

(continental

U.S.)

Nonsubsidized

small communities*

(continental

U.S.)

79

202

52,352

126,813

29,638

77,558

$21,997

$25,147 $344,579

$127,943

2

1

6

3

*Nonsubsidized small communities are those served by airports that are defined as “nonhubs” by statute (49 USC 41731). (See GAO-02-432 for more Information on air service to

small communities.)

Source: GAO analysis of 1999 economic data from the Bureau of Economic Analysis and airline schedule data from the Kiehl Hendrickson Group, as of October 2001. Number of

EAS communities is as of July 1, 2002.
Enclosure I

22 GAO-02-997R Essential Air Service

7

Background: EAS Program Service

and Eligibility Criteria

• Received service in October 1978

• Are located more than 70 highway miles from the nearest medium or

large hub

• Require a subsidy of less than $200 per passenger (except for

communities more than 210 miles away from a medium or large hub)

Communities would be eligible for subsidized air service under three

general conditions:
Enclosure I

23 GAO-02-997R Essential Air Service

8

Background: EAS Program Service

and Eligibility Criteria (Cont’d)

• Service to a medium or large hub airport with not more than one

intermediate stop*

• Service with aircraft having at least 15 passenger seats (e.g., Beech

1900, Embraer 110, Jetstream 31)

• Two daily round trips

• Service with pressurized aircraft for flights over 8000 feet

• Flights at “reasonable” times at prices that are “not excessive”

compared to generally prevailing prices

• Service to Alaskan communities subject to different requirements

Current law requires that essential air service generally include:

*A large hub enplanes at least 1 percent of all U.S. passengers, a medium hub 0.25 to 0.99 percent.
Enclosure I

24 GAO-02-997R Essential Air Service

9

Background: Subsidy Calculation

(Direct and indirect

expenses: e.g., fuel and

oil, maintenance,

insurance, salaries, leasing)

(e.g., passenger revenue,

freight revenue)

Projected operating

expenses

Projected operating

revenues

Profit element

(5% of operating expenses)

Carrier subsidy

Note: Air carriers provide the data for the subsidy calculations. DOT officials state that they confirm reasonableness of information submitted.
Enclosure I

25 GAO-02-997R Essential Air Service

10

What Is the Status of the EAS Program and How Has

It Changed Since 1995?

• As of July 1, 2002, the EAS program subsidized air service to 79

communities in the continental U.S. and 35 in Alaska, Hawaii, and

Puerto Rico—a net increase of 4 since 1995 for the continental U.S.

DOT was incurring subsidy liabilities for carriers serving another 12

communities.

• Five regional carriers serve the majority of the EAS markets in the

continental U.S.

• Since 1995, the budget authority for the EAS program has increased

from $37 million to $113 million. Since 1995, the average subsidy per

continental U.S. community has increased from $424,000 to $828,000.

Total FY 2002 awards may approach $97 million.
Enclosure I

26 GAO-02-997R Essential Air Service

11

EAS Program Status

(as of July 1, 2002)

• 114 subsidized communities (Tentative additional communities*: 12)

• Total annual subsidies awarded: $74.2 million** (Tentative additional

subsidies: $11.6 million)

• Estimated average annual subsidy per community: $828,000

(continental U.S.), $251,000 (AK, HI, PR)

• EAS carriers: 13 (continental U.S.), 14 (AK, HI, PR)

• Most common aircraft type: 19-seat Beech 1900 (continental U.S.) and

4-9 seat Cessna (AK, HI, PR)

*New communities defined as subsidy eligible by statute where carriers have filed notice to discontinue unsubsidized service.

** Fourteen of the 114 subsidized communities are under rate negotiation with DOT. The estimated additional annual subsidies to be awarded to carriers serving the 14

communities is $5.1 million. DOT expects to award an additional $6.5 million in retroactive subsidies under DOT Order 2002-2-13.
Enclosure I

27 GAO-02-997R Essential Air Service

12

Top Five EAS Carriers

(as of July 1, 2002)

Carrier

2001-2002

subsidies

(millions)

Percentage of

EAS subsidy

awards in the

continental U.S.

Number of EAS

communities

served

Average

subsidy per

community

2002

passengers

Percentage of EAS

passengers in the

continental U.S. 

Average

subsidy per

passenger

Great Lakes

Big Sky

Projected

Colgan

Mesa

Corporate

Subtotal

Source: GAO analysis of data from DOT.

$22.4

$13.2

$8.4

$6.2

$5.5

$55.7

34.2%

20.5%

12.8%

9.6%

8.5%

85.6%

29

15

7

9

7

67

$770,904

$880,883

$1,195,946

$693,737

$785,855

258,000

79,000

98,000

65,000

79,000

579,000

35%

11%

13%

9%

11%

79%

$87

$167

$85

$95

$70
Enclosure I

28 GAO-02-997R Essential Air Service

13

EAS Service Changes

 (as of July 1, 2002)

1995 1999 2002 (estimated)

Percentage

total change

Number of subsidized communities

Median daily passengers enplaned per

community

Average subsidy per community

Average subsidy per passenger

Number of subsidized communities

Median daily passengers enplaned per

community

Average subsidy per community

Average subsidy per passenger

Service elements - Alaska, Hawaii, Puerto Rico

75

11

$423,803

$79

Service elements - continental U.S.

31

2

$90,403

$13

68

8

$668,448

$133

28

2

$97,966

$42

79

10*

$828,474

$229*

35

1*

$251,219

$99*

5.3%

-9.1%

95.5%

189.9%

12.9%

-50.0%

177.9%

661.5%

*Passenger estimates for 2002 are based on passenger enplanements for 2000.

Source: GAO analysis of data from DOT and FAA.
Enclosure I

29 GAO-02-997R Essential Air Service

14

EAS Budget Since 1995

0

20

40

60

80

100

120

1995 1996 1997 1998 1999 2000 2001 2002

*Outlays and obligations are projected. 

Source: GAO analysis of data from DOT.

Millions (2002 constant dollars)

Budget authority

Outlays

Obligations

Projections
Enclosure I

30 GAO-02-997R Essential Air Service

15

What Major Factors May Affect Potential

Future Subsidy Requirements?

• Increased aircraft operating costs

• Limited revenue caused by EAS carriers’ limited ability to capture local

passenger traffic:

• Passengers may choose to travel from larger airports.

• Passengers may choose other transportation modes.

• Additional eligible communities may require subsidized service.
Enclosure I

31 GAO-02-997R Essential Air Service

16

Increased Carrier Costs

0

100

200

300

400

500

600

700

800

1995 1996 1997 1998 1999 2000

Beech 1900 operating costs per block hour* (2002 constant dollars)

*Block hours are a common measure of aircraft usage. A block hour begins when the aircraft backs away from the gate and ends when the aircraft pulls into the gate

at the destination.

Source: GAO analysis of selected air carrier data from DOT.
Enclosure I

32 GAO-02-997R Essential Air Service

17

Limited Revenue: Passengers

May Choose Larger Airports

Source: GAO analysis.

Many EAS subsidized

airports are relatively

near larger airports.

Larger airports may

have more carriers

and therefore more

competition, which can

result in lower fares.

EAS and Air Alternatives

Within 125 driving miles of all hubs or nonhub

Within 125 driving miles of low-fare service and all hubs or nonhub

Further than 125 driving miles from low-fare service and all hubs or nonhub
Enclosure I

33 GAO-02-997R Essential Air Service

18

Limited Revenue: Passengers May

Choose Larger Airports

0

200

400

600

800

1000

1200

1400

Orlando Las Vegas Los Angeles Denver New Orleans

Actual fare ($)

Watertown, NY (EAS)

Syracuse, NY

Destination

Business fares may

be lower at larger

airports.

Note: Business fares based on 1-day advance fare purchase.

Source: GAO analysis of fare data from www.orbitz.com (7/22/02). 
Enclosure I

34 GAO-02-997R Essential Air Service

19

Limited Revenue: Passengers May

Choose Larger Airports (Cont’d)

0

100

200

300

400

500

600

700

800

Phoenix Las Vegas Denver Minneapolis Chicago

Average fare ($)*

North Dakota EAS community

North Dakota Non-EAS community

Destination

*Average leisure fares from two North Dakota EAS airports compared to fares available at Bismarck or Grand Forks, ND.

Source: GAO analysis of data from the North Dakota Aeronautics Commission as of June 11, 2002.

Leisure fares may

be lower at larger

airports.
Enclosure I

35 GAO-02-997R Essential Air Service

20

Limited Revenue: Passengers May

Choose Other Transportation Modes

Source: GAO analysis.

People may choose to

drive or take rail

service to their final

destination. 42 EAS

subsidized

communities have

immediate access to

Amtrak, interstate

highways, or both.

EAS and Ground Alternatives

 Within 20 driving miles of Amtrak

 Within 20 driving miles of interstate

 Within 20 driving miles of both

 Further than 20 driving miles from both
Enclosure I

36 GAO-02-997R Essential Air Service

21

Additional Eligible Communities

May Require Subsidized Service

• Since September 11, 2001, carriers at 15 additional eligible communities

filed notice to discontinue unsubsidized service. Projected subsidies

required: $14.5 million.*

• Additional eligible communities may require subsidies in the future. Of

the 98 small communities with air service from only one carrier:**

• 25 have smaller populations and lower levels of employment than

the average EAS-subsidized community.

• 21 have lower levels of income per capita than the average EASsubsidized community.

• 35 have lower levels of manufacturing earnings than the average

EAS-subsidized community.

*Projected subsidies are the average subsidy per community (based on most current orders) multiplied by the number of additional subsidy-eligible communities

post-September 2001 or DOT estimates.

**Data is as of October 2001. See GAO-02-432.

Source: GAO analysis of data from the Geospatial and Statistical Data Center.
Enclosure I

37 GAO-02-997R Essential Air Service

22

What Are Some Options That Might Enhance the

Long-term Viability of the EAS Program and Their

Potential Related Effects?

• Target subsidized service to more remote communities

• Better match capacity with community use

• Consolidate service to multiple communities into regional airports

• Change carrier subsidies into local grants

• Summary: each option potentially would have different effects.
Enclosure I

38 GAO-02-997R Essential Air Service

23

Option: Target Subsidized Service

to Remote Communities

Mileage

EAS communities

no longer meeting

eligibility criteria

(continental U.S.)

Passengers

(estimated

CY 2000)

Current annual

EAS subsidy

<70 driving miles**

<100 driving miles

<125 driving miles

<150 driving miles

Cumulative outcomes

13

25

44

55

67,669

125,967

229,277

280,539

$11,815,476

$22,685,589

$36,596,430

$45,795,085

Note: A small hub enplanes 0.05 to 0.249 percent of all U.S. passengers, and a nonhub less than 0.05 percent.

*Service data for nonhubs is from Kiehl-Hendrickson schedule data (October 2001).

** Only small and nonhubs with jet service from two or more carriers are included in analysis.

Source: GAO analysis of data from DOT.

Increase the highway

distance criteria for

eligibility to focus on

the most remote

communities and

expand the qualifying

nearby airports to

include small hubs and

non-hubs with jet

service from two or

more competing

carriers.*
Enclosure I

39 GAO-02-997R Essential Air Service

24

Option: Better Match Capacity

with Community Use

• Encourage communities to seek a waiver from the Secretary of

Transportation of the requirement that service must be provided with

aircraft carrying at least 15 seats. Alamogordo, NM, example:

• Reduce unused capacity at communities where carriers have added

daily flight frequencies. Since 1995, carriers added flight frequencies at

24 communities in the continental U.S., and passenger traffic dropped at

9.

Carrier

Mesa

(2000-2002 data)

Rio Grande

(projected data) Percentage

change

Aircraft type

Daily flights

Subsidy

Beech 1900

3

$923,789

Cessna Caravan

4

$849,235

-36.8%

33.3%

-8.1%

(available seats) (19 seats) (9 seats)

*Change in the total seats per day.

Source: GAO analysis of data from DOT.

*
Enclosure I

40 GAO-02-997R Essential Air Service

25

Option: Consolidate Service to Multiple

Communities into Regional Airports

Source: GAO analysis.

21 EAS-subsidized

communities are

located within 70

highway miles of at

least one other EASsubsidized community.

If these 21

communities were

consolidated, the

result would be10

regional EASsubsidized airports.

All others

EAS airports within 70 driving miles
Enclosure I

41 GAO-02-997R Essential Air Service

26

Option: Change Carrier

Subsidies into Local Grants

• Moab, UT, community-based marketing ($250,000)

• Cape Girardeau, MO, increased frequencies ($500,000)

• Mason City, IA, revenue guarantee ($600,000)

• Casper/Gillette, WY, aircraft purchase ($500,000)

• Baker City, OR, Sky Taxi charter service ($300,000)

• Scottsbluff, NE, start-up commuter carrier ($950,000)

• Binghamton, NY, equipment upgrade to regional jet ($500,000)

• Meridian, MS, increased flight frequency and hub access ($500,000)

• Hailey, ID, air carrier revenue guarantees ($600,000)

• Reading, PA, airport shuttle service ($470,000)

Local grants could allow small communities to choose a variety of ways to

meet local transportation needs.

Selected DOT AIR-21 pilot grants:
Enclosure I

42 GAO-02-997R Essential Air Service

27

Summary: Potential Effects

Less cost

Community

choice

Increased

passenger

traffic

Increased

passenger

leakage

Unknown

economic

impact on

community

Unknown

passenger

acceptance

Increased

passenger

inconvenience

Target remote

communities

Better match capacity

with use

Consolidate to

regional airports

Local grants

Admin.

Structure

needed

Note: The above table does not include all potential effects for each option listed. In addition, the net effect of each option above is indeterminable.

Source: GAO analysis
Enclosure I

43 GAO-02-997R Essential Air Service

28

Scope and Methodology

• To describe the current status of the EAS program budget and service, and

how it has changed over time, GAO used quantitative and testimonial

information from DOT, air carriers, and commercial aviation databases with

which GAO has annual contracts.

• To identify and describe the factors that may affect future subsidy

requirements, GAO used quantitative and testimonial information from DOT, air

carriers, and commercial aviation databases with which GAO has annual

contracts. To illustrate the factors, we conducted case studies at five EASsubsidized communities in the continental U.S., chosen by variation in

passenger traffic, subsidy amounts, and geographic location.

We conducted our

work between March

and August 2002 in

accordance with

generally accepted

government auditing

standards.
Enclosure I

44 GAO-02-997R Essential Air Service

29

Scope and Methodology

(Cont’d)

• To identify and evaluate options to enhance the long-term viability of the EAS

program, including ways to decrease carrier costs and increase passenger

demand, and their potential effects, we analyzed cost and revenue data from

DOT and air carriers, and interviewed DOT officials and representatives from

various industry groups, EAS communities, and major and regional air carriers.
Enclosure II

45 GAO-02-997R Essential Air Service

GAO Contacts and Staff Acknowledgments

GAO Contacts

JayEtta Z. Hecker, (202) 512-2834

Steven C. Martin, (202) 512-2834

Acknowledgments

In addition to those named above, Triana Bash, David Hooper, Patty Hsieh, John Mingus, Ryan

Petitte, and Alwynne Wilbur made key contributions to this report.

(544035)