Summary and Proposal for Essential Air Services Program Drafted by Severin Borenstein and Bill McGee

The EAS program was created in 1978 to protect rural communities that might lose airline service during the transition to a deregulated domestic airline industry. It was scheduled to end in 1988, but was renewed at that time by Congress and was made permanent in 1996. Most communities that had commercial service in 1978 are eligible for service under EAS if they do not receive sufficient unsubsidized service or service from a nearby airport. DOT officials and other experts have noted that the program is no longer aimed at easing the transition to a deregulated market; it is now an ongoing subsidy to rural communities on a par with subsidies of telephone service, postal delivery, electrification and other services in these areas.

There are some limits on availability of nearby air service a community can receive and still be considered eligible for subsidized service. For instance, the law makes a community ineligible for subsidized service if it is less than 70 miles from a medium or large hub. Service to airports slightly more than 70 miles from a medium/large hub or much closer to a small hub, however, are receiving EAS funds. (A small hub is defined as a commercial service airport with at least 0.05% but less than 0.25% of passenger boardings. Some small hubs are now substantial airports — often with 40 or more departures per day, most on jets and with a choice of carriers.) According to both the DOT and the Government Accountability Office, this leads to many cases in which the great majority of travelers to/from a community with EAS-subsidized service find it more cost/time effective to drive to a nearby airport that is more than 70 miles away or doesn’t quite qualify as a medium or large hub, and fly from that airport on larger aircraft with more direct service. In fact, a 2000 GAO report found that over 90% of O&D passengers around airports with EAS-subsidized service choose instead to fly from a more distant airport. ”Leakage” (as this is often referred to in the industry) of this magnitude makes it very difficult to argue that the federally-subsidized air service in these communities is essential. Not all EAS airports are in this situation, but the large number that are suggests that there is significant room to reduce costs or redirect funds to service

that is more valuable.

With the 2008 economic downturn, a number of airports that were previously served subsidy free, lost that service and are now receiving EAS-supported service. As a result, the EAS annual budget has ballooned from about $110 million in 2007 to about $200 million in 2010, and there is the real prospect of larger subsidies being required.

Unfortunately, the politics of such small, pinpointed subsidies make it very difficult to eliminate them through the normal Congressional budget process, even when the value they are generating for the local area is only a fraction of the subsidy amount being paid by the federal government. Members of Congress are apt to fight for every subsidy dollar flowing to their constituents even if the transfer is very inefficient.

It is beyond the FAAC’s manpower or timeframe to do a thorough review of EAS eligibility and the efficiency of EAS subsidies. It is clear, however, that there is likely great inefficiency in the program and that millions of dollars of taxpayer funds could be saved with very little real impact

on some of the subsidized communities.

We propose two DOT, or possibly Congressional, actions. First, freeze the airports that are eligible for EAS-subsidized service at those receiving service in 2010. Second, form an independent commission of experts in transportation, economic development, and the rural economy to review the effectiveness of the EAS program. The commission could be tasked with developing a new set of criteria for service subsidies. Ideally, the commission’s work would take place in the absence of political pressures for particular routes or communities, instead addressing the criteria that should be used in prioritizing communities for the subsidies.