U.S. Department 

of Transportation Economic Impact on Air Service at 

Airports Serving Small Air Carrier 

Aircraft Resulting from Certain 

Changes to Title 14 CFR Part 139-

Certification of Airports 

Federal Aviation 

Administration 

Washington, DC 20591 December 2003 Report of the Secretary of Transportation 

to the United States Congress 

Pursuant to Section 404(c) of the 

FAA Reauthorization Act of 1996 
Table of Contents 

... Executive Summary ........................................................................................................... 111 

I. Introduction .................................................................................................................... 1 

II . Overview ....................................................................................................................... 3 

III. costs............................................................................................................................. 7 

IV. Impact ........................................................................................................................ 12 

V . M... itigation.................................................................................................................... 18 

VI. Conclusion................................................................................................................. 21 

Technical Appendix .......................................................................................................... 23 

. 

.. 

11 
Executive Summary 

Under 14 CFR part 139, Certification of Airports, the Federal Aviation Administration 

(FAA) requires airports that desire to serve operations of specified air carrier aircraft to 

comply with certain safety requirements in order to obtain an airport certificate. The 

FAA is making significant changes to part 139. Of particular importance, these changes 

will require for the first time certain airports desiring to serve small scheduled air carrier 

aircraft (10 to 30 seats), designated as Class 111airports in proposed part 139 revisions, to 

be FAA certificated. To become certificated, an airport operator would be required to 

develop and implement an Airport Certification Manual (ACM) specifying certain safety 

and operational actions, such as maintenance of runway pavement, markings and 

lighting; notification to air carriers of unsafe conditions; and preparedness for aircraft 

accidents and other emergencies. 

The FAA is directed by the authorizing statute (Title 49, U.S.C. 6 44706) to issue 

requirements for the certification and operation of airports. The statute requires the FAA 

to establish minimum safety standards for certificated airports that provide for the 

operation and maintenance of adequate safety equipment, including aircraftrescue and 

firefighting (ARFF) equipment. The authorizing statute also allows the FAA to exempt 

certain airport operators from all or some of ARFF requirements (certificated airports that 

have less than one-quarter of one percent of the total number of annual passenger 

boardings) and allows the FAA to adopt regulatory alternatives for commuter airports 

(Class 111airports) that are “least costly, most cost-effective or the least burdensome” but 

provide comparable safety at all certificated airports. 

This report has been prepared to satisfy a requirement that FAA submit to Congress a 

report on the economic impact of changes in part 139 with regard to Class 111airports. 

Specifically, Sec. 404(c) of the FAA Reauthorization Act of 1996 provides that the 

regulation “. . .shall not take effect until such regulation, and a report on the economic 

impact of the regulation on air service to the airports covered by the rule, has been 

submitted to Congress and 120 days have elapsed following the date of such submission.” 

While compliance with the revised part 139 for Class 111airports may be based on a 

lower-cost alternative method that will be determined on a case-by-case basis, the FAA 

estimates the cost herein based on rigorous compliance with the rule. Such rigorous 

compliance has thepotential to impose significant costs. These costs may be divided into 

two components-risk reduction and accident mitigation items. Risk reduction items are 

associated with making an airport safer so that accidents may be avoided. Accident 

mitigation items, which impose the majority of costs, are incurred to mitigate accident 

damage once an accident has occurred. Thissecond group consists primarily but not 

exclusively of ARFF costs. These costs have two parts. First is fire-fighting equipment 

including a fire truck. FAA estimates that typical costs would be $50,000 per airport. 

The second is the labor and other operating costs associated with providing ARFF 

services. FAA estimates that these costs would typically be $107,OOO per year at airports 

that would meet the definition of Class III under the revised part 139. Overall, FAA 

... 

111 
estimates the present value of the cost of the rule at all of these airports to be about $33.4 

million over 10 years. 

FAA estimates that the cost per passenger served will average $28 (18.2 percent of 

average fare paid) at airports that would meet the definition of Class III where carriers 

receive Essential Air Service (EAS) subsidies and $8 (4.4 percent of average fare paid) at 

airports that would meet the definition of Class 111where EAS subsidies are not paid. On 

an airport-specific basis, cost per passenger served varies widely. At airports where 

carriers receive EAS subsidies, average cost per passenger is estimated to range &om $2 

(1 percent of average fare paid) to $504 (673 percent of average fare paid). At airports 

where EAS subsidies are not paid, average cost per passenger is estimated to range from 

$.31 (.21 percent of average fare paid) to more than $93 (196 percent of average fare 

paid). The higher costs per passenger at airports where air carriers receive EAS subsidies 

are the result of both higher average compliance costs and lower enplanements than at 

airports where EAS subsidies are not paid. 

Several factors may help mitigate these costs and their subsequent effects. First,airport 

operators will have the option of either meeting Index A of part 139 or proposing and 

obtaining the Administrator’s approval of an alternative plan that provides a comparable 

level of safety. Another is the practice of the FAA to work with an airport operator 

during the certification process to tailor compliance options through the ACM so as to 

reduce costs. Also, Airport Improvement Program (AIP) hding is available for certain 

capital expenditures that may be required by the rule such as fire fighting equipment, 

airport marking and signs, and traffic and wind direction indicators. Although legislative 

changes that may affect AIP funding have been proposed by Congress as of the date of 

this report, under FAA’s current authorization Congress has specifically directed the 

FAA to set aside $15 million of AIP funds for the five fiscal years following the effective 

date of the amendments to part 139 to assist airport operators in meeting their terms (49 

USC 471 16(e)). Still another is the authority of the FAA Administrator to exempt an 

airport from some or all of the requirements of this rule. An applicant or a certificate 

holder may petition the Administrator under 14 CFR part 1 1, General Rulemaking 

Procedures, for an exemption hm any requirement of part 139. Moreover, under 49 

U.S.C. 44706(c), the Administrator may exempt an applicant or a certificate holder 

whose airport annually has less than one-quarter of one percent of the total number of 

passengers enplaned at all air carrier airports-a requirement met by all airports that 

would meet the definition of Class 11-from all, or part, of the ARFF requirements of 

part 139, on the grgunds that compliance with those requirements is, or would be, 

unreasonably costly, burdensome, or impractical. 

Because most airports meeting the definition of Class 111are owned by small 

communities, serve a limited number of passengers, and operate at a loss, it is most likely 

that costs not mitigated would be passed through to air carriers. At airports where 

carriers receive EAS subsidies-about two thirds of these airports-the Federal 

Government would ultimately end up supporting most if not all of the costs of the rule 

through increased subsidies. The air carriers’ monopoly position at airports meeting the 

definition of Class 111together with the current structure of the EAS program-which 

iv 
pays carriers the shortfall of revenues below cost plus a percentage profit based on costwould cause fares, frequency of service, and air carrier profits earned at these airports to 

change little if any. (Note, however, recent changes in the EAS program may possibly 

reduce subsidies at a limited number of airports where they are now paid. Because these 

changes have not yet been implemented, it is uncertain how they might affect airports 

that meet the definition of Class ID.Should reductions occur at airports that meet the 

definition of Class III, frequency of service, average fares, and air carrier profits 

potentially could be adversely affected at these airports.) 

At airports where no EAS subsidies are paid, it is most likely that passengers would share 

the burden of the rule with the carriers providing service. Because costs borne by carriers 

would increase at non-EAS subsidy airports, average fares could be expected to increase, 

frequency of service to decline, and profits generated by operations at these airports to 

decline. But the air carriers’ monopoly position, plausible passenger sensitivity to fare 

increases, and the cost characteristics of the new rule would insure that service impacts 

would be relatively small at most of these airports. Estimates made in the body of the 

report suggest, in fact, that no one passenger would actually pay a higher fare (although 

some might not travel and others might need to travel at non-preferred times) and that the 

decline in flights at affkcted airports located in North America would never exceed 4 

percent. However, flights at one of two airports that would meet the definition of Class 

III in the Pacific Territory of American Samoa could decline by two thirds and flights at 

the other possibly might be eliminated altogether. The adverse impact on air carrier 

profits earned at non-EAS subsidy airports could be as large as $5 13,200annually. 

On a carrier-by-carrier basis, profit impacts will vary widely. For carriers whose service 

to airportsmeeting the definition of Class III is exclusively or largely to airports where 

EAS subsidies are paid-Arizona Express, Big Sky Airlines, Colgan Air,Great Lakes 

Airlines, and Rio Grande Air-profit impacts will be small. (Should the reauthorization 

process limit EAS subsidies, carriers serving exclusively airports where EAS subsidies 

are paid might experience lower profits relative to what would occur under the program 

as it currently operates.) For carriers for which service to airports meeting the definition 

of Class III constitutes only a small portion of their business-Mesa Airlines, Midwest 

Airlines, and Sky West Airlines-profit impacts probably will be small relative to total 

profits. For Samoa Air, which operates a large portion of its flights to airports which 

would meet the definition of Class 111and serves communities not eligible for EAS 

subsidies, profit impacts may be significant. 

c 

V 
I. Introduction 

Since 1970, the FAA Administrator has had the statutory authority-Title 49, United 

States Code (U.S.C.) 0 44706, Airport operating certificates-to issue airport operating 

certificates to airports desiring to serve certain air carriers and to establish safety 

standards for the operation of those airports. The FAA uses this authority to issue 

requirements for the certification and operation of certain land airports-Title 14, Code 

of Federal Regulations part 139 (14 CFR 139), Certification and Operations: Land 

Aqorts Serving Certain Air Carriers, as amended. These requirements cover a broad 

range of airport operations including the maintenance of runway pavement, markings and 

lighting, notification to air carriers of unsafe or changed conditions, and preparedness for 

aircraft accidents and other emergencies. 

Until 1996, this statutory authority was limited to those land airports serving passenger 

operations of an air carrier that are conducted with aircraft having a seating capacity of 

more than 30 passengers. This authority was broadened by the Federal Aviation 

Administration Reauthorization Act of 1996. Section 44706 was amended to allow the 

FAA to certificate airports, with the exception of those located in the State of Alaska,that 

serve any scheduled passenger operation of an air carrier operating aircraft designed for 

more than 9 passenger seats but 30or fewer passenger seats (small air carrier aircraft). 

FAA's existing authority to certificate airports serving air carrier operations conducted in 

aircraft with more than 30 seats remained unchanged. 

To implement its new authority regarding airport certification, FAA published a Notice 

of Proposed Rulemaking (NPRM) on June 21,2000 (65 FR 38636). This NPRM 

proposed comprehensive amendments to the current airport certification requirements in 

14 CFR part 139. Of particular importance, the amendments would, for the first time, 

include in the airport certification program airports desiring to serve scheduled operations 

flown by small air carrier aircraft, designated as Class III airports, to ensure safety in air 

transportation at these airports. Specifically, operators of airports that would meet the 

definition of Class IIIunder the revised part 139 and desire a certificate would be 

required to develop and implement an Airport Certification Manual (ACM) and to 

comply with certain safety and operational requirements, such as maintenance of runway 

pavement, markings and lighting; notification to air carriers of unsafe conditions; 

preparedness for aircraft accidents and other emergencies; and aircraft rescue and 

firefighting (Ma.While compliance with the revised rule for Class 111 airports may be 

based on a lower-cost alternative method that will be determined on a case-by-case basis, 

the FAA estimates the cost herein based on rigorous compliance with the rule. Such 

rigorous compliance has the potential to impose significant costs. 

Most airports that would meet the definition of Class 111are ownedby small 

communities, serve a limited number of passengers, and operate at a loss. This makes it 

most likely that the costs of the rule cannot be absorbed by the airport operator but must 

be passed through to the air carriers whose operations trigger the requirements of the rule. 

This has the potential to significantly impact air service at these airports. 

1 
Paragraph (e) of amended section 44706 states that any regulation to certificate airports 

serving scheduled passenger operation of small air canier aircraft shall "not take effect 

until such regulation, and a report on the economic impact of the regulation on air service 

to the airportscovered by the rule, has been submitted to Congress and 120 days have 

elapsed following the date of such submission." As required by statute, this reportissued in conjunction with the final rule-addresses the economic impact, both in 

aggregate and on an airport-by-airport basis, on air service at airports desiring to serve 

scheduled passenger operations of small air canier aircraft that could be newly 

certificated under the revised part 139. First, an overview of airports that would meet the 

definition of Class III under the revised part 139 is presented together with a summary of 

air service currently provided at these airports. Next the estimated costs of compliance 

with the rule are examined. This is followed by an analysis of the likely impact of the 

rule by airport on fares, flights operated, and the air carriers providing service. The 

estimates presented are intended to represent the maximum foreseeable impacts. 

Mitigating factors that would result in the actual impacts being less, perhaps much less 

than the maximum foreseeable impacts, are then explored. Finally, conclusions are 

presented. 

2 
11. Overview 

Airports that would meet the definition of ClassIII and whose operators desire a 

certificate are new to regulation under the amendments to part 139. Anports that would 

meet the definition of Class III under the revised regulation are defined as airports not 

located in the State of Alaska that serve scheduled air carrier operations conducted in 

aircraft designed for 30 or fewer passenger seats but more than 9 passenger seats. These 

airports may also serve air carrier operations not covered by part 139 such as scheduled 

operations conducted in aircraft designed for 9 or fewer seats and unscheduled operations 

conducted in aircraft designed for 30 or fewer seats.’ The characteristics of these airports 

and the air carriers which serve them are discussed below. 

Class I11 Airport Characteristics 

Airports considered to meet the definition of Class III in this report are those identified in 

the Regulatory Evaluation prepared in support of the rulemaking.2 Numbering 37, their 

characteristics are summarized in Table 1. As indicated, they are located in 16 statesand 

the Pacific Territory of American Samoa. Half are in four states-seven in Montana, five 

in New Mexico, four in Arkansas, and three in Maine. They are all owned by state or 

local governments. The populations of the owning entities vary widely. Three have 

populations ranging upwards of 100,000 but most are far smaller. Of those for which 

financial data are available, most operate at a loss. Given these characteristics, the ability 

of airports that would meet the dewtion of Class HIto absorb the costs of the rule is, at 

best, limited. 

Driving distances to alternative airports where passengers can obtain at least equivalent 

service are substantial. About one-third of airports that would meet the definition of 

Class III-located in Montana, New Mexico, Utah, Arkansas, Arizona, and North 

Dakota-are more than 100highway miles from airports that would meet the definition 

of either ClassI or 11. And only three are within 50 miles of a Class I or II airport. 

Under the proposed revisions to part 139, Class I airports are those whose service recipients include 

scheduled air carriers &rating aircraft designed for more than 30 seats. Class II airports are those serving 

both scheduled air carriers flying aircraft designed for more than9 but 30 or fewer seats and unscheduled 

air carriers operating aircraft designed for more than 30 seats. Class IV airports are those serving only 

unscheduled air carrier operations in aircraft designed for more than 30 seats. Class I airports currently 

hold “full” part 139 certificates while Class II and IVhave “limited” certificates. Under the proposed rule, 

“limited” certificates would no longer exist. 

George A. Euring Jr., “Regulatory Evaluation, Regulatory Flexibility Determination, Intemational Trade 

Impact Assessment, and Unfunded Mandates Assessment For Final Rulemaking Title 14 CFR Parts 121, 

139, Certificationof Airports,” Federal Aviation Administration, September 2002. Note, however, the 

defition of Class III is based on the characteristics of air service fiunished by operators to an airport. 

Because service characteristics can change, the specific airports meeting the definition of Class IC1 can be 

expected to vary fiom time-to-time. 

3 
Table 1 

Class I11Airport Characteristics 

I - I 

=/ID 1 Airport (kmmrmbip 

Popolatia 

Of lntity O0.r.ting 

ic. lbU..t ClU. I OI Cl". 

11 Airport 

a) U.S. Ce~usBureau, 1990 Census. 

b) FM Form 5100-125. No airport specific data is available for airport6 not required to tile ~orm5100-125. This is indicated with *. 

(c) Airport closed. 

Air Service Characteristics at Class 111Airports 

4 

I 
Air service characteristics at airports that would meet the definition of Class III are 

summarized in Table 2. FAA has identified 9 different carriers, which provide scheduled 

service at these airports. Almost all operate aircraft with 19 seats, although some service 

is provided with aircraft as large as 30 seats and some service with aircraft as small as 

9 seats.3 Service averages 3 departures per day, ranging fiom 2 to 6 departures per day. 

Average enplanements per departure is about 3.1 although 5 locations enplane more than 

7 passengers per departure. Overall, the annual average total number of enplaning 

passengers is about 3000, or about 8 per day. Fares paid by departing passengers range 

between $48 and $248 with an average of $163. In addition, virtually all Class III 

airports serve unscheduled traffic (air taxis) operated by aircraft with fewer than 3 1 seats. 

Air carriers operating at more than two-thirdsof the airports that would meet the 

definition of Class III (26 airports) receive Essential Air Service (EAS) subsidies. 

Congress established the EAS program to ensure that smaller communities would retain a 

link to the national air transportation system, with Federal subsidy where necessary, 

following deregulation of the airline industry. With some exceptions, communities 

generally are EAS eligible if they received scheduled air service on October 24, 1978. 

Under the program, which is today administered by the Department of Transportation 

(DOT), a minimum level of service at each eligible community is defined by specifying a 

hub through which the community is linked to the national network, a minimum number 

of round trips and available seats that must be provided to that hub, certain characteristics 

of the aircraft to be used, and the maximum permissible number of intermediate stops to 

the hub. Air carriers provide at least this minimum level of service to most communities 

without subsidy. Where necessary, however, DOT will enter into an agreement with a 

carrier to pay a subsidy to ensure that the specified level of service is provided. These 

agreements normally runfor 2 years after which DOT will either renegotiate the 

agreement with the incumbent carrier or solicit proposals fiom interested carriers4 

Two airports serve communities-Imperial and Inyokem, California-that would be 

eligible for EAS subsidy should no carrier be willing to voluntarily continue service to 

that community. Three non-EAS eligible communities lost service when the carriers 

providing service pulled out-Mountain Home, Arkansas; Spencer, Iowa; and 

Cumberland, Maryland. Gallup, New Mexico lost its EAS subsidy and service when its 

per passenger subsidy grew to more than $200 (one of the exceptions under which 

otherwise eligible communities can lose subsidized service). Two airports-Show Low, 

Arizona and Alamogordo, New Mexico-are served with aircraft having 9 seats, less 

than the thresholdjo be considered a Class III airport. They are included because 

previous service providers used aircraft with 19 seats. 

~ 

Although the two airports served with aircraft designed for 9 seats do not meet the definition of Class III, 

they are included because service has previously been provided with aircraft designed for more than 9 

seats. 

For a summary of the EAS program and its administration, see “What is Essential Air Service?,” Office of 

Aviation Analysis, U.S.Departmentof Transportation, May 1998. 

5 
Table 2 

Air Service Characteristics at Class I11 Airports 

Fitiuta Village PT I PAQ/TAV Samoa Air 19 662 2 1.6 Not Eliqible 1,060 $53 

ofu (is), Am Samoa PT I 208/0FU Samoa Air 19 670 2 1.0 Not Eligible 650 $40 

I 

Average I I 1 19 I 945 I 3 I 3.1 I $886,722 I 2,926 I $163-

Number ( f1 I 37 1 9 I I I I 26 I I 

(a) Official Airline Guide, 2002 and 2003. 

(b) U. S. Department c7f Transportation, EAS and Domestic Analysis Division, June 2003. 

(c) U. S. Department of Transportation Origin and Destination Ten Percent Passenger Survey, Calendar Year 2002. 

(d) subsequent to their identification as Class I11 airports in the Regulatory Evaluation, these airports lost 

scheduled service. 

(e) Airport closed 

(f) For EAS Subsidy, number represents airports receiving subsidy. -

6 
111. costs 

The proposed amendments to part 139 may impose significant costs on airports that 

would meet the definition of Class III. Although the FAA Administrator may approve 

lower cost alternative methods of compliance on a case-by-case basis, costs presented 

below assume rigorous compliance with the rule. This approach is followed in order to 

identify the maximum expected impact of the rule. 

Costs may be divided into two components-risk reduction and accident mitigation 

items. The first are associated with making an airport safer for air transportation so that 

the rate of accidents is reduced. The second, which impose the majority of the costs, are 

intended to mitigate accident damage if an accident occurs. This second group consists 

primarily but not exclusively of airport rescue and fire fighting (ARFF) items. The 

following sections summarize estimates of these by airport, grouped by non-ARFF (both 

risk reduction and accident mitigation items) and AFUT costs. A detailed discussion of 

these costs is presented in the Regulatory Evaluation supporting the nile~naking.~ 

Non-ARFF Costs 

Table 3 reports typical non-ARFF costs estimated for airportsdesiring a certificate that 

would meet the definition of Class IIIbroken out by the section of part 139 that would 

require that they be incurred. Information is presented for one-time initial costs, annually 

recurring costs, initial costs annualized over 10years at 7 percent, and the sum of 

annualized initial costs and annually recurring costs-total annual cost. As indicated, the 

typical airport that would meet the definition of Class III can be expected to incur about 

$7400 in additional common costs to meet the non-ARFF requirements of part 139. With 

respect to four classes of costs, FAA anticipates that some airportswill incur them while 

others will not. Most airportsthat would meet the definition of Class III are already in 

compliance with respect to marking, signs, and lighting, but four are expected to incur 

additional initial costs of $33,000 ($4,698 annualized) each and two additional costs of 

$83,000 ($1 1,s 17 annualized) each. Snow and ice control measures will be necessary 

only at 27 airports that would meet the deftion of Class III in parts of the country 

which experience snow and ice. Additional costs for lighting traffic and Wind direction 

indicators will be required at three airports and for wildlife hazard management at 15 

airports. These costs are indicated by airport in Table 4. In addition, three airportsShow Low, Arizoila, and Augusta and Bar Harbor, Maine-provided in their comments 

to the NPRM for this rule additional estimates of non-ARFF compliance costs for items 

Euring, “Regulatory Evaluation, Regulatory Flexibility Determination, International Trade Impact 

Assessment, and Unfunded Mandates Assessment For Final Rulemaking Title 14 CFR Parts 121,139, 

Cemficationof Airports.” 

7 
Table 3 

Non-ARFF Costs Common to All Class I11 Airports 

L 

139.329 Pedestrian/Ground Vehicles 

139.337 Wildlife hazard management 

$2,415 

(d) 

$450 

$538 

$344 

(d) 

$794 

$53I 

I I 

Subtotal - Subpart D

I 

7

Total Per Airport Risk Reduction Costs 

I I I 

Non ARFF Mitigation Items: 

I 139.3251A/P Emergency Plan 

I

I I 

Total Per Airport Non ARFF Mitigation Costs 

I I

I' Total Per Afrport Non ARFF Costs I 

I

1 

I 

I 

1 

I 

I

I 

I 

$3,1071 

$4,2221 

I 

$896 

$8961 

I 

$5,1181 

I 

I 

$4,910) 

$6,1151 

I 

$538 

$5381 

I 

$6,6531 

I 

I 

$4421 

$6011 

I 

$128 

I 

$1281 

I

I 

$7291 

$5,352 

$6.716 

$666 

$666 

$7,382 

Notes : 

(b) Costs apply to 27 Class I11 airports. (See Table 4) 

(c) Initial costs of $1,500 apply to 3 Class I11 airports. (See Table 4) 

/(d) Initial costs apply to 15 Class I11 airports. (See Table 4) 

8 

1 
Table 4 

Annual Non-ARFF Costs 

such as wildlife management, airport emergency plans, airport certification manuals, and 

record keeping. Adjustments reflecting these comments are included in Table 4. 

ARFF Costs 

The additional ARFF costs that would be incurred can be expected to vary widely across 

airports that would meet the definition of Class III. This variation results from 

differences in current ARFF capabilities and air carrier schedule differences across 

airports. It will also vary depending on whether Class 111airport operators elect to 

comply with the requirements of the proposed amendments to part 139by meeting 

Index A of part 139 or by proposing and obtaining the Administrator’s approval of an 

9 
alternate plan that provides a comparable level of safety. Because there is no way to 

determine which Class 111airport operators will elect the alternative, this analysis is based 

on the costs of meeting Index A. 

Table 5 reports estimated additional initial (representing mostly equipment purchases), 

annual personnel, and other annual costs. Annualized initial costs are also shown. 

Table 5 also reflects comments to the docket of five airports-Show Low, Arizona; 

Augusta and Bar Harbor, Maine; and Alamogordo and Silver City, New Mexicoproviding estimates of AFUF costs they anticipated incuning at their respective airports. 

Table 5 

ARFF costs 

10 
Total Costs 

Table 6 summarizes non-ARFF and ARFF costs by airport. To support analysis of the 

impact of the part 139 revisions, it also segregates these costs into costs which can be 

expected to vary with the number of flights at an airport and costs which must be incurred 

under part 139 but which do not vary with flights-fixed costs. For this report, variable 

costs are taken to be ARFF personnel costs; all other costs are considered fixed with 

respect to the number of flights at an airport. As can be seen, annual costs vary 

significantly from airport to airport. They average $128,571 with their range running 

fiom a low of less than $10,000 to almost $300,000. Annual costs total $4.8 million with 

a present value over 10years of $33.4 million for all afkted airports. 

Table 6 

Total Annual Costs per Airport 

11 
IV. Impact 

In considering the likely economic impacts of the costs of the rule, it is first useful to 

examine the cost of the rule on a per passenger basis and as a percent of fares paid. 

Tables 7 and 8 present information on average fare, annual cost of the rule, number of 

passengers, cost per passenger, and cost as a percent of fare by airport for non-EAS 

subsidy and EAS subsidy communities, respectively. As can be seen, cost per passenger 

at airports serving non-EAS subsidy communities ranges fiom less than $1 to $93. This 

cost exceeds the typical $3 passenger facility charge at all but one of these airports. With 

the exception of airports in American Samoa, it runs fiom less than 1percent to about 6.4 

percent of average fare. For the two airports in American Samoa that would meet the 

definition of Class III, cost per passenger is 108percent and 196percent of fare. 

Table 7 

Part 139 Cost per Passenger 

At Class I11 Airports without EAS Subsidies 

I ~~ I I I Total I Total I Costs Der I

Name Average I Fared mual Costs per I Passenger as 

Fare Passengers Costs Passenger Percent of 

(a) Fare 

Total 87.760 $983.134 

Average $189 $8 4.40% 

(a) Fared passengers are equivalent to two times the difference between total 

enplanements and non-revenue enplanements. 

(b) Although Mountain Home AK, Spencer IA, and Cumberland MD were identified as 

Class I11 airports in the Regulatory Evaluation, they have subsequently lost 

scheduled service. Merrill C. Meigs has closed. 

- At airports where the carrier providing service receives a subsidy under the EAS 

program, the situation is quite different. Reflecting both lower passenger enplanements 

and higher average compliance costs at these airports, the cost per passenger averages 

$28. Ranging from $2 to $504 per passenger, it exceeds the typical $3 passenger facility 

charge at all but one airport. On a percentage basis, it runs fiom about 2 percent to over 

673 percent of fare. At about four-fifths of these airports, the cost per passenger exceeds 

10percent of fare. 

12 
Table 8 

Part 139 Cost per Passenger 

At Class I11 Airports with EAS Subsidies 

The costs of the rule will initially fall on airport operators. Because, as noted under 

Overview, above, sost airports are owned by relatively small entities and have very 

limited financial ability to absorb such costs, most, if not all, will be forced to pass costs 

on to the air carriers whose activity triggers the requirements of the rule. All airports that 

would meet the definition of Class III are served by only one carrier. This monopoly 

situation may enable caniers to make certain adjustments to minimize the impact of the 

costs of the rule on their profits. These adjustments will consist, where possible, of 

changes in the number of flights provided, fares charged, and the level of EAS subsidies 

requested. Together with the magnitude of the costs, they will determine the lmpact of 

the rule on average fares, flights flown, EAS subsidies, and changes in air carrier profits. 

13 
In general, the impacts at an airport will differ depending on whether the air carrier 

providing service receives an EAS subsidy for serving the airport. 

Non-EAS Subsidy Airports 

At airports serving communities not eligible for EAS subsidies, carriers will attempt to 

minimize the impact of the costs of the rule on theirprofits by eliminating those marginal 

flights which no longer generate more revenue than they cost to produce once the 

additional costs are imposed. The impact of reduced service is presented in Table 9.6 

Table 9 

Change in Daily Flights 

at Airports without EAS Subsidies 

[Lake Havaau Citv AZ I 5.101 4.901 -0.201 -3.8921 

I I I 

6.121 6.121 0.001 0.002 

5.621 5.531 -0.081 -1.492 

Merrill C Meigs (b) IL I 

Spencer (b) IA I 

ICumberland (b) I 

Santa Pe NM 11.00 10.89 -0.11 -1.012 

Pitiuta Village PT 3.63 1.21 -2.42 -66.752 

Ofu (is), Am Samoa PT 3.72 0.00 -3.72 -100.002 

.. MDI I I I 

I I I I 

Average I 5.861 4.771 -1.091 -28.862 

(a) The reduction is given for average daily flights. While a 

flight is either flown or not flown, the average can be changed by 

a fractional flight by trimning selected marginal flights on, for 

example, non-peak days, weekends, or the off-season. 

(b) Although Mountain Home AIC, spencer IA, and Cumberland W were 

identified-as Class I11 airports- in the Regulatory Evaluation, 

Ithey have subsequently lost scheduled service. Merrill C. Meigs I 

The methodology used to measure the impact of part 139 costs on air service are detailed in the Technical 

Appendix. Briefly, the incremental cost per flight that the amendments to part 139 impose are estimated 

and added to existing incremental cost per flight. Whenthis new incremental cost per flight exceeds total 

revenue per flight, profit maximizing airlines are presumed to eliminate the flight. 

14 
As can be seen, average daily flights at all affected airports in North America are 

expected to decline by no more than one-fifth flight per day, or less than 4 percent.’ 

Given the low enplanements per departure at airports that would meet the definition of 

Class III (See Table 2), most of the passengers who would have used these flights could 

most likely be accommodated on other flights. However, in American Samoa the impact 

is potentially large enough to adversely affect travelers. Service to Fitiuta Village is 

estimated to decline by two-thirds and service to Oh (is) very likely to be eliminated. 

Elimination of marginal flights may also have the impact of increasing average fares 

because those flights generating lower revenues which are no longer profitable under the 

rule will be eliminated. Given that air carriers use yield management techniques to 

extract the maximum fare fiom each passenger that the passenger is willing to pay, it is 

unlikely that fares now paid by passengers on flights that are not eliminated will increase, 

Thus,while average fares may increase because fewer lower fare paying passengers are 

traveling, it is unlikely that any one passenger who now travels will pay more. 

Finally, the possibility exists that the total costs imposed by the part 139 amendments at 

any particular airport may cause an air carrier’s service at that airport to become 

unprofitable. At the 2 airports serving EAS eligible communities with scheduled service 

which is not currently subsidized-Imperial and Inyokem, California-this would most 

likely result in the initiation of EAS subsidies. At the remaining 4 airports now having 

scheduled service which serve communities which are not eligible for EAS subsidiesLake Havasu City, Arizona; Santa Fe, New Mexico; and Fitiuta Village and Oh (is), 

American Samoa-it is possible that loss of service could occur. 

EAS Subsidy Airports 

At airports serving communities eligible for EAS subsidies where carriers are currently 

subsidized, no change in service or average fare is expected to occur immediately. This 

is because the number of flights per day is specified in the EAS agreement between DOT 

and the carrier providing service. These agreements typically runfor 2 years at which 

time they are subject to re-negotiation. Carriers may also file a notice to terminate 

service. Under certain circumstances, this could lead to a re-negotiation of the agreement 

prior to its expiration. Upon re-negotiation of an agreement, it is possible that service 

levels might be reduced with the agreement of the DOT. This could occur should EAS 

funding not be sufficient c to meet all needs. 

In addition, recent changes in the EAS program may possibly reduce subsidies at a 

limited number of airports where subsidies are now paid. Briefly, these changes provide 

for the establishment of pilot programs to provide transportation services through 

alternatives to EAS and to require communities located in proximity to hub airports to 

assume a share of EAS costs. Because these changes have not yet been implemented, it 

’The reduction is given for average daily flights. While a flight is either flown or not flown, the average 

can be changed by a fiactional flight by trimming selected marginal flights on, for example, non-peak days, 

weekends, or the off-season. 

15 
is uncertain how they might affect airports that meet the definition of Class III. However, 

should subsidy reductions occur at airports which meet the definition of Class 111,it is 

possible that fi-equency of service could decline and average fares could increase at these 

airports. 

Air Carrier Profit Impact 

Despite adjustments to service by carriers at airports where EAS subsidy is not paid in 

response to part 139 costs, air carrier profits generated at these airports can be expected to 

decline. As explained in the Technical Appendix of this report, this is because certain 

costs of the rule cannot be avoided and others can only be partially avoided by these 

adjustments. At airports where carriers are being paid EAS subsidies, profits can be 

expected to decline initially by the amount of the part 139 costs. This will occur because 

no adjustment in service is possible at EAS subsidy airports. Carriers will not be able to 

avoid any of the costs and consequently must bear the entire cost of the rule, under most 

circumstances, during the life of the current EAS agreement at these airports. When the 

agreement is renegotiated, the part 139 costs may be added to the subsidy provided for in 

the new agreement.* Thus, profits generated at airports where carriers receive EAS 

subsidies will decline by the amount of the rule’s costs for up to 2 years. 

The impact of the rule on an air carrier’s profits will depend on the reduction in profit at 

each particular airport, the volume of its total business an air carrier does at airports that 

would meet the definition of Class III, and the overall size of the carrier. Table 10 

reports the percent of total flights and miles flown to or fiom airports that would meet the 

definition of Class 111for each of the 9 carriers serving these airports. Also reported is 

the total reduction in profit by carrier at these airports prior to the re-negotiation of EAS 

agreements. Profit reduction is reported in bold type where it exceeds 5 percent of the 

carriers operating profit or loss. As indicated, 6 carriers-Arizona Express, Big Sky 

Airlines, Colgan Air, Great Lakes Airlines, Rio Grande Air, and Samoa Air-fly more 

than 15 percent of their flights or miles to airports that would meet the definition of Class 

III. The part 139 amendments produce a profit reduction that exceeds 5 percent of the 

operating profits or operating losses for at least 3 of these carriers including Big Sky 

Airlines, Colgan Air, and Samoa Air. Four other carrim-Great Lakes Airlines, Mesa 

Airlines, Midwest Airlines, and Skywest-have a profit impact less than 5 percent. (Data 

limitations preclude identifjmg the magnitude of the impact on Arizona Express or Rio 

Grande Air.) 

- Table 10 also reports the impact on profits (losses) should additional costs imposed on 

carriers serving airports in communities where EAS subsidies are paid be covered by 

EAS subsidies when existing agreements are renegotiated. Three carriers continue to 

experience some reduction in profits stemming fiom operations at non-EAS airports that 

would meet the definition of Class 111. One-Samoa Air, which operates in the Pacific 

~~~~ 

Subsidies are typically set to equal the shortfall of revenues below costs plus allowed profit of 5 percent 

of costs. 

16 

I 
Territories where no communities are eligible for EAS subsidies-would continue to 

have profit reductions in excess of 5 percent of operating profits (losses). 

Table 10 

Percent of Total Flights and Miles Flown to and from Class 111 

Airports and Reduction in Profits before and after Renegotiated 

EAS Subsidies by Carrier , 

Carrier Flights Miles Change in Annual Change in Annual 

Profits before Profits after 

Renegotiated EAS Renegotiated EAS 

Subsidy (a) Subsidy(a) (b) 

Arizona Express 100.002 100.002 -5290,223 $0 

Big Sky 45.342 28.542 -$852,779 SO 

Airlines 

Colgan Air 19.492 12.722 -$744,514 $0 

Great Lakes 19.512 21.442 -$609.535 $0 

Airlines 

Mesa Airlines 5.472 2.912 -5993.220 -$241,303 

Midwest 1.122 0.182 -$126,953 SO 

Airlines 

Rio Grande Air 55.012 63.362 -$264,501 $0 

Samoa Air 28.432 5.142 -$150,880 -$150,880 

Sky West 0.712 0.272 -$121,018 -$121,018 

Air1 ines 

Total -54,153,623 -5513,201 

17 
V. Mitigation 

The impacts identified above represent the largest plausible effects that the imposition of 

the amendments to part 139 might have on airports that would meet the definition of 

Class III. At least five factors will mitigate these impacts. FAA believes that the 

combined effect of these and other factors together with the safety in air transportation 

provided by the rule will largely offset any adverse impacts. 

Compliance Options 

Variations in airport layout, operations, and air carrier service will require FAA to tailor 

compliance procedures for each airport throughthe ACM. While airport operators that 

choose to be certificated under part 139 will be required to document procedures for 

complying with part 139 and to comply with certain safety and operational requirements, 

the tailoring process will permit them some flexibility in complying with more 

burdensome requirements. 

FAA recognizes that in some instances the cost to comply with certain requirements, 

particularly ARFF requirements, may be substantial for certain airports. Accordingly, 

airport operators will have the option of either meeting Index A of part 139 or proposing 

and obtaining the Administrator’s approval of an alternative plan that provides a 

comparable level of safety. During the certification process, FAA will work with airport 

operators to determine the appropriate method of compliance. Depending on an airport’s 

existing facilities and local community services, there may be several compliance options 

available that could be tailored to the airport to significantly reduce costs. For example, 

existing airport personnel could be crossed-trained to perform ARFF duties and Federal 

funds may be available to purchase ARFF equipment. In the event that additional capital 

improvements, equipment, and personnel are needed, FAA will assist the airport operator 

in applying for Federal fimds for equipment and facilities and provide guidance on 

training events and the availability of regional resources. 

EAS Funding 

At airports wheresaniers currently receive subsidies, carriers could not discontinue 

service even if some or all costs of the rule were to be passed throughto them. They 

would be required to continue service until the expiration of their EAS agreement. At 

this time they could renegotiate a greater subsidy to offset the additional costs of the rule 

that had been passed on to them. Carriers may also file a notice to terminate service. 

Under certain circumstances, this could lead to a re-negotiation of the agreement prior to 

its expiration. The total cost of the rule at airports where carriers receive EAS subsidies 

is estimated to be about $3.6 million annually. 

18 
In addition, the possibility exists that carriers which do not now receive an EAS subsidy 

for serving a particular airport might elect to discontinue service at that airport in 

response to passed-through cost of the rule. If the airport's community were EAS 

eligible-two of the six communities with scheduled service which is not currently 

subsidized are eligible-the carrier would be required to give notice to the DOT. DOT 

would then attempt to find another carrier that would serve the airport without subsidy. If 

none could be found, DOT would then initiate the process to ensure continuation of 

service throughpayment of subsidy to either the incumbent carrier or a replacement 

carrier. 

AIP Funding 

All airports that would meet the definition of Class III are identified in FAA's National 

Plan of Integrated Auport Systems ("US) and are eligible to receive Federal grants 

under the Airport Improvement Program (AIP). AIP funds are available for capital 

improvements and safety equipment required by regulation. Since 1982, a total of 

$220,430,7 17 in AIP funds have been distributed to airports that would meet the 

definition of Class III. 

Certain items required by the proposed amendments to part 139 are eligible for funding 

through the AIP program. These include most ARFF equipment (ground vehicles, radios, 

etc); marking, signs and lighting; and traffic and wind indicators. At airports that meet 

the definition of Class III, items required to comply with the amendments eligible for AIP 

funding are estimated to cost approximately $2.5 million. Congress has specifically 

directed the FAA to set aside a total of $15 million of AIP hds for the five fiscal years 

following the effective date of the amendments to part 139 to assist airport operators in 

meeting their terms (49 USC 471 16(e)). Should all items required by the amendments at 

airportsmeeting the definition of Class IIIeligible for AIP funding actually be funded 

fiom AIP,costs of the amendments to these airports could be expected to fall by about 

6.7 percent.' 

Under current eligibility standards, AIP funding of parts of the cost of the rule would 

probably not affect the volume of service provided at airports. As noted above, EAS 

agreements provide for specified levels of service. At airportswhere carriers do not 

receive EAS subsidies, adverse service level impacts would only be partially offset by 

AIP funding. This is because AIP tends to pay for capital improvement items whose 

costs tend not to vky incrementally with the level of operations at an airport-fixed 

costs-but which are shared by a large number of operations. There are also significant 

costs which vary with the level of operations. Because these variable costs of providing 

an additional operation are not offset by AIP funding, the volume of service would not 

likely be impacted. 

-

From Table 6, the annualized cost of the rule is $4,757,129. This has a present value of about $33.4 

million (over 10 years at a 7% discount rate). Typically, 90 percent of AIP eligible items ($2.25 million 

here) can be paid for by AIP. $2.25 million represents about 6.7 percent of $33.4 million. 

19 
AIP hding, to the extent that it lowers costs of the amendments passed through to air 

carriers, will affect the profits or losses they generate at any particular airport. At airports 

where EAS subsidies are not paid, these eff'ects will flow directly to carriers. At airports 

where subsidies are paid, effects will initially impact carriers until EAS agreements are 

renegotiated. At this point, given the typical subsidy arrangement, subsidy levels would 

be readjusted so as to leave the carrier in the same financial position whether or not 

certain costs of the rule were absorbed by AP. In other words, costs of the rule picked 

up by AIP would not end up being paid by EAS subsidy. 

Local Support 

Travelers residing in communities served by airports that would meet the definition of 

Class III enjoy the benefit of being able to connect to the nation's air transportation 

system fiom the local airport. They pay, at least in part, for this benefit through the fares 

for air transportation. Other residents also derive a benefit-the option of being able to 

access the national air transportation system, even though they do not regularly do so. As 

a consequence, local communities may be willing to underwrite part of the costs imposed 

by the rule to ensure that they continue to have the ability to travel by commercial air 

from the local airport. Thus, even if EAS subsidies should be limited by funding 

constraints, service might well be maintained through increased local support. 

Exemption 

An applicant or a certificate holder may petition the Administrator under 14 CFR part 1 1, 

General Rulemaking Procedures, for an exemption fiom any requirement of part 139. 

Moreover, under 49 V.S.C.44706(c), the Administrator may exempt an applicant or a 

certificate holder whose airport annually has less than one-quarter of 1percent of the total 

number of passengers enplaned at all air carrier airports-a requirement met by all 

airports that would meet the definition of Class III-fiom all, or part, of the ARFF 

requirements of part 139, on the grounds that compliance with those requirements is, or 

would be, unreasonably costly, burdensome, or impractical. Under this authority, the 

FAA plans to give careful consideration to requests for limited exemptions fiom ARFF 

requirements at all airportsserving small air carrier aircraft consistent with the 

requirements of 49 U.S.C. 44706. 

20 
VI. Conclusion 

The FAA is making significant changes to part 139. Of particular importance, these 

changes will require for the first time certain airports desiring to serve small scheduled air 

carrier aircraft (10 to 30 seats), designated as Class 111airports in proposed part 139 

revisions, to be FAA certificated. Overall, based on compliance with the provisions of 

the rule, FAA estimates the present value of certification costs for all of the airports 

meeting the definition of Class 111to be about $33.4 million over 10 years. Despite these 

potentially significant costs, the impact on air service at these airports is expected to be 

limited. Various mitigation measures-tailoring compliance options on an airport 

specific basis through the ACM, AIP fhding for certain required capital expenditures, 

increased local support for airports, an alternative compliance plan option, and FAA 

exemption fiom certain requirements where compliance with part 139 ARlT 

requirements would be unduly burdensome, costly, or impractical-may reduce final 

impacts below the impacts indicated below. 

There are 37 airports that would meet the definition of Class III. Most are owned by 

small communities, serve a limited number of passengers, and operate at a loss. This 

makes it most likely that the costs of the rule cannot be absorbed by the airport operator 

but must be passed through to the air carriers which trigger the requirements of the 

part 139 amendments. Of the 37 airports, carriers serving more than two-thirds-2& 

receive Essential Air Service @AS) subsidies. Carriers serving another two would be 

eligible for EAS subsidy should no carrier be willing to voluntarily continue service. 

Typically, these subsidies pay the carrier providing service the shortfall of revenues 

below cost plus a reasonable profit. 

At airportswhere carriers currently receive EAS subsidies, no significant change in 

service or average fare is expected to occur. This is because the minimum number of 

flights per day is specified in the EAS subsidy agreement between DOT and the carrier 

providing service. Moreover, because the carrier is already extracting the maximum 

possible revenue fiom its passengers, it is unlikely that fares can be raised. Thus, the 

additional costs must be borne by the carrier through the agreement term (typically 2 

years). At the end of this period, it is most probable that the carrier will negotiate a 

higher subsidy to recover any part 139 costs that are passed through to it by the airport. 

Carriers may also file with DOT a notice to terminate service. Under certain 

circumstances, this could lead to a re-negotiation of the agreement prior to its expiration. 

Effectively, the adaitional costs of the amendments at airportsmeeting the definition of 

Class III where carriers receive EAS subsidies will be shifted to the Federal Government 

as increased EAS subsidies. Total mitigation of these impacts would require an increase 

in the EAS program budget of about $3.6 million annually. 

At airports where EAS subsidies are not currently paid to carriers, average daily flights 

are expected to decline by less than one flight per day. For the airports in North America, 

the decline in service never exceeds 4 percent. Given the low enplanements per 

departure at these airports, most of the passengers who would have used these flights 

21 
could most likely be accommodated on other flights. At the two airports in the American 

Samoa, the impact is a reduction of 67 percent and 100percent, large enough to 

adversely affect travelers. 

Elimination of marginal flights may also have the impact of increasing average fares 

because those flights generating lower revenues which are no longer profitable under the 

revisions to part 139 might be eliminated. Given that air caniers use yield management 

techniques to extract the maximum fare from each passenger that that passenger is 

willing to pay, it is unlikely that fares now paid by passengers on flights that are not 

eliminated will increase. Thus, while average fares may increase because fewer lower 

fare paying passengers are traveling, it is unlikely that any one passenger who continues 

to travel will pay more. 

The possibility exists that the total costs imposed by the part 139 amendments at any 

particular airport may cause an air carrier’s service at that airport to become unprofitable. 

At the 2 airports currently with scheduled service serving communities eligible for EAS 

subsidies but not currently receiving subsidies-Imperial and Inyokem, California-this 

would most likely result in the initiation of EAS subsidies. At the remaining 4 airports 

now having service located in communities which are not eligible for EM subsidien 

Lake Havasu City, Arizona; SantaFe, New Mexico; and Fitiuta Village and Oh (is), 

Pacific Temtones-it is possible that loss of service could occur. 

At airports where EAS subsidies are paid to the carrier providing service, no long term 

impact on carrier profits is likely-increases in subsidy levels as new agreements are 

negotiated will offset any costs of the amendments to part 139 passed on to carriers. 

However, before payment levels can be renegotiated-up to 2 yem-carrier profits 

generated at these airports may fall significantly. At airports where no EAS subsidies are 

paid, carrier profits will be adversely affected, declining in aggregate by an estimated 

$513,201 annually. 

On a carrier-by-carrier basis, impacts after EAS subsidies adjust will vary widely. For 

carriers whose service to airportsmeeting the definition of Class III is exclusively or 

largely to airports where EAS subsidies are paid-Arizona Express, Big Sky Airlines, 

Colgan Air, Great Lakes Airlines, and Rio Grande Air-profit impacts will be small. For 

caniers for which service to airports meeting the definition of Class III constitutes only a 

small portion of their business-Mesa Airlines, Midwest Airlines, and Sky West 

Airlines-profit impacts most likely will be small relative to total profits (or losses). For 

Samoa Air, which-operates a large portion of its flights to airports which would meet the 

definition of Class IIIand serves communities not eligible for EAS subsidies, profit 

impacts may be significant. 

22 
Technical Appendix 

The revisions to part 139 have the potential to impose significant costs on airports that 

would meet the definition of Class III. Although individual operators or owners of these 

airports may wish to absorb part or all of the costs of part 139 compliance, impacts on air 

service will occur in those cases where they do not. The following sections describe the 

methodology used to measure the impact of the costs of part 139 on air service. Where 

assumptions are required, they are made so as to yield the maximum plausible estimate of 

impacts. Impacts which can be measured are the likely increase in fares, the potential 

reduction in the number of flights provided, the increase in air carrier costs and ultimate 

reduction in air carrier profits that may occur, and the potential requirement for additional 

funding under the Essential Air Service (EAS) program to maintain current service levels 

at airports where air carriers are paid EAS subsidies. 

A separate approach is required for airports where carriers receive EAS subsidies and for 

those where they do not. Assumptions common to both situations are that service is 

provided by a single carrier and that this monopoly carrier using yield management 

techniques is able to achieve complete price discrimination-this is, charge each 

passenger the maximum amount they are willing to pay for air transportation to any 

particular destination. Both assumptions arejustified because all airports meeting the 

definition of Class JII are served by a single carrier and are significant distances fiom the 

nearest substitute airport served by a competing carrier. It is also assumed that the 

average variable cost of providing air service at an airport is constant and thus equal to 

marginal cost. 

Non EM Subsidy Airporl 

Air carriers will provide service to an airport provided they can cover all costs-fixed 

and variable-incurred in providing service at that airport. The number of flights will be 

increased up to the point that the additional or marginal revenue associated with the last 

flight equals the incremental or marginal cost of providing the flight. The case of a 

perfectly discriminating monopolist providing service at an airport is shown in Figure 1. 

The figure presents a demand curve-D=MR-which indicates the maximum revenue 

that passengers are willing to pay for each successive flight on any given day. Unlike the 

case under ordinary monopoly where all customers are charged the same price and the 

demand curve represents average revenue, perfect price discrimination results in this 

demand curve representing the marginal revenue associated with each additional flight. 

An average revenue curve-AR-representing the average revenue associated with all 

flights conducted at the airport on any given day can be constructed for the demand curve 

by summing the marginal revenue associated with all flights and dividing by the number 

of flights. 

23 
Figure 1 

Revenue 

per Flight 

D 

C 

P1 

PO 

0 Flights per Day 

The point C represents the average revenue paid per flight by all passengers utilizing the 

airport on anyparticular day prior to the new part 139requirement. It is the product of 

the average farepaid by all fared passengers and the average number of enplaning or 

deplaning passengers per flight. The point QOrepresents the number of flights per day at 

the airport. These two points taken together define point A on the average revenue curve. 

Assuming a value for demand elasticity it is possible to determine the slope of the 

average revenue curve and define the entire curve. lo For this analysis, a value of 1.5 is 

selected. Based on existing empirical studies of air carrier passenger demand, this value 

lo The demand elasticity is used to determine the slope of the average revenue curve rather than the demand 

curve because almost all studies of air passenger demand utilize average fare data and thus estimate the 

elasticity of the average revenue curve rather thanthe demand curve. 

24 
is probably the largest (in absolute terms) that might be expected at airports that would 

meet the defmition of ClassIII. Accordingly, it will yield an upper bound for plausible 

impacts. 

Determination of the average revenue curve permits the demandmarginal revenue curve 

to be established. Its value at Qo,which is B, indicates the point where marginal revenue 

equals marginal cost. Marginal cost, which is assumed equal to average variable cost 

(AVC=MC), is thus equal to BQo. Distance A-B represents the margin of average 

revenue over average variable cost for each flight at Qo. QO x (A-B) x 365 days is the 

excess of total revenue over total variable cost or the annual contribution margin to offset 

fixed costs of operating at the subject airport and other fixed costs of the carrier. 

Establishment of the new part 139 requirement can be expected to shift the marginal cost 

curve upwards by the average variable cost per flight attributable to part 139 (VC139), 

distancePI-Po.This in turn will cause the number of flights per day to fall to Q1 and 

average revenue per flight to increase to D. Moreover the contribution margin will 

decline to Q1 x (F-G) x 365 days. Establishment of the new part 139 requirements will 

also increase the fixed cost to a carrier ofserving the airport. The total impact on 

profitability will equal the decrease in contribution margin plus the increase in part 139 

fixed costs. As long as the contribution margin continues to cover all fixed costs 

including this increase particular to the subject airport the canier will continue to operate 

voluntarily at this airport, albeit at a reduced level of profitability." 

EAS Subsidy Airports 

For airports with a carrier receiving EAS subsidies, the total revenue (exclusive of the 

EAS subsidy) that can be eamed by the carrier is less than the sum of the variable and 

fixed costs specific to the subject airport. No carrier is willing to provide service unless it 

is provided with a subsidy at least equal to this shortfall. The Department of 

Transportation has procedures in place under the EAS program to select carriers able to 

provide acceptable quality service for subsidies which typically equal the shortfall of 

revenue below cost plus an allowed profit of five percent of cost. EAS subsidy 

agreements typically have a two-year term. 

Any part 139 costs that are passed throughto a carrier by an airport would offset this 

subsidy. Upon accepting a subsidy to provide service, a carrier must agree to provide at 

least a certain number of flights per day. Accordingly, a subsidized carrier cannot change 

the quantity of service provided during its contract period.'* Moreover, because it is 

"Should service become unprofitable, the carrier might elect to discontinue service which could result in 

the payment of EAS subsidies. Because profitability impacts at non-EAS airports are small, it is assumed 

that service will not be discontinued at airports not currently receiving EAS subsidies. '*

It is possible that a carrier might elect to provide more that the contracted frequency of service. This 

might occur inthose cases where the carrier was capable of earning revenues in excess of marginal costs 

but generating a contribution margin which was insufficient to offset the fixed costs incurred to serve the 

airport. If the EAS subsidy offset the fixed costs, the carrier might find it profitable to increase service 

until marginal revenues just equaled marginal costs. In such cases, any increase in marginal costs including 

25 
already extracting the maximum possible revenue from its passengers it is unlikely that 

fares can be raised. Thus the additional costs must be bome by the carrier through the 

contract period. At the end of the contract period, it is most probable that the carrier will 

negotiate a higher subsidy to cover any part 139 costs that are passed through to it by the 

airport. Carriers may also file a notice to terminate service. Under certain circumstances, 

this could lead to re-negotiation of the agreement prior to its expiration. Effectively, any 

additional costs will be shifted to the Federal Government as increased EAS subsidies. 

Impact Estimates 

Table A-1 presents estimates of impacts on air service at airports that would meet the 

definition of Class IU resulting from the additional costs associated with the new part 139 

requirements employing the methodology developed above. Average revenue per flight 

(column 6; C in Figure 1) is the product of average fare paid (column 2) and 

enplanements per departure (column 4). It represents the average amount passengers 

using the airport are willing to pay in fares for a single flight. 

Marginal revenue (column 7) is the additional revenue passengers would be willing to 

pay for one more flight to the airport per day. It is calculated based on the relationship 

between average (AR)and marginal revenue @=MR) curves depicted in Figure 1 and the 

number of flights per day at the airport prior to introducing the new part 139 

requirements (Qo).For airports for which the serving carrier is not receiving an EAS 

subsidy, it is equivalent to marginal cost which is taken to be equal to average variable 

cost (AVC=MC). 

The additional average variable and fixed costs of the new part 139 requirements, as 

explained in the main text, are reported in columns 8 and 9, respectively. The new 

marginal cost after the new part 139 requirements for airports where carriers air not paid 

EAS subsidies is equal to marginal revenue (column 7)-equal to the previous marginal 

cost-plus the average variable cost of the new requirements (column 9; distance PI-POin 

Figure 1). 

For airports where carriers are not paid EAS subsidies, the number of flights flown after 

part 139 costs are incurred (column 10; Q1 in Figure 1) is found by evaluating the 

demand curve at the new marginal cost. For airports where carriers are paid EAS 

subsidies, the number of flights shown is the same as before because carriers are 

obligated to prode this number by the subsidy agreement. The average revenue paid by 

all passengers per flight at the new number of flights (column 12; D in Figure 1) is found 

the introduction of the new part 139 requirements might lead a carrier to reduce service back to the 

contracted for levels. While it is not unheard of for carriers to provide EAS in excess of required levels, the 

practice is not widespread. Accordingly, this situation is not analyzed Mer here. 

26 
Table A-1: Impact of New Part 139 Costs on Per Flight Revenues and Flights Per Day 

PART 139 PART 139 FLIGHTS/ PERCENT 

 AIRPORT NAME FARED AIRCRAFT ENP/ FLIGHTS/ REVENUE/ MARGINAL REV/ FIXED VARIABLE DAY CHANGE IN F

AV FARE (a) SEATS (b) DEPART. DAY (b) FLIGHT FLIGHT COST/FLT COST/FLT AFTER P139 FLIGHTS 

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) 

Lake Havasu City AZ $133.01 19 7.78 5.10 $1,035.45 $345.15 $12.03 $53.76 4.90 -3.89% Show Low AZ $74.83 9 0.16 4.00 $12.30 $4.10 $56.66 $142.12 4.00 0.00% El Dorado AR $129.38 19 1.05 9.35 $135.75 $45.25 $6.38 $29.31 9.35 0.00% Harrison AR $116.04 19 2.91 5.13 $337.20 $112.40 $14.40 $53.42 5.13 0.00% Jonesboro AR $134.41 19 2.88 3.65 $386.91 $128.97 $19.83 $74.96 3.65 0.00% Mountain Home (c) AR Imperial CA $144.58 30 10.85 6.12 $1,568.72 $522.91 $3.30 $0.00 6.12 0.00% Inyokern CA $237.35 30 10.34 5.62 $2,454.60 $818.20 $7.12 $48.78 5.53 -1.49% Merrill C Meigs (c) IL Spencer (c) IA Augusta ME $170.14 19 3.00 7.13 $510.94 $170.31 $10.24 $66.09 7.13 0.00% Bar Harbor ME $178.63 19 7.86 8.26 $1,404.62 $468.21 $18.87 $79.45 8.26 0.00% Rockland ME $166.78 19 3.12 11.35 $521.05 $173.68 $5.37 $24.14 11.35 0.00% Cumberland (c) MD Manistee MI $132.52 19 1.84 3.25 $243.18 $81.06 $22.69 $84.18 3.25 0.00% Glasgow MT $163.90 19 2.52 3.40 $412.40 $137.47 $17.55 $80.65 3.40 0.00% Glendive MT $137.48 19 1.00 3.68 $137.07 $45.69 $16.00 $74.40 3.68 0.00% Havre MT $144.82 19 0.66 5.44 $110.84 $32.08 $10.95 $50.35 5.44 0.00% Lewistown MT $112.36 19 0.47 6.79 $52.60 $17.53 $8.78 $40.36 6.79 0.00% Miles City MT $131.21 19 0.68 6.79 $88.96 $29.65 $8.98 $40.36 6.79 0.00% Sidney MT $146.84 19 1.97 5.32 $289.14 $96.38 $11.21 $51.55 5.32 0.00% Wolf Point MT $171.63 19 1.25 5.04 $214.77 $71.59 $11.97 $54.41 5.04 0.00% Chadron NE $248.36 19 1.08 5.22 $268.71 $89.57 $11.29 $52.52 5.22 0.00% Kearney NE $228.75 19 2.89 8.10 $661.97 $220.66 $4.95 $33.81 8.10 0.00% Alamogordo NM $120.93 9 0.95 6.43 $115.37 $38.46 $91.35 $21.29 6.43 0.00% Carlsbad NM $142.71 19 2.85 5.70 $417.14 $135.39 $7.04 $48.08 5.70 0.00% Gallup (c) NM Santa Fe NM $241.13 19 7.67 11.00 $1,849.29 $616.43 $5.60 $24.90 10.89 -1.01% Silver City NM $107.57 19 2.20 5.13 $236.49 $78.83 $11.88 $60.51 5.13 0.00% Dickinson ND $207.39 30 2.10 6.79 $436.52 $145.51 $8.97 $40.32 6.79 0.00% Ponca City OK $118.06 19 2.08 6.41 $245.41 $81.80 $6.26 $42.77 6.41 0.00% Brownwood TX $93.51 19 2.01 5.30 $187.59 $62.53 $17.36 $51.71 5.30 0.00% Moab UT $223.18 19 1.31 5.35 $292.69 $97.56 $11.15 $51.23 5.35 0.00% Vernal UT $213.24 19 2.50 5.07 $412.66 $180.99 $4.13 $0.00 5.07 0.00% Bluefield WV $194.34 19 1.43 8.41 $278.54 $92.85 $8.85 $32.57 8.41 0.00% Fitiuta Village PT $53.00 19 1.60 3.63 $84.86 $28.29 $48.84 $75.53 1.21 -66.75% Ofu (is), Am Samoa PT $47.60 19 0.96 3.72 $45.63 $15.21 -- $73.75 0.00 -100.00% (a) U. S. Department of Transportation Origin and Destination Ten Percent Passenger Survey, CY 2002. (b) Official Airline Guide, CY 2002. (c) Although Mountain Home AK, Spencer IA, Cumberland MD, and Gallup NM were identified as Class III airports in the Regulatory Evaluation, they have subsequently lost sc

Meigs has closed. 

 Note: Carriers do not receive EAS subsidies at shaded airports. 

27 
by evaluating the average revenue curve at the new number of flights. Average revenue 

paid for subsidy airports remains unchanged. 

The impact of part 139 costs on profits-Table A-2-is equal to the decrease in 

contribution margin plus the increase in part 139 fixed costs. For airports where carriers 

are not paid EAS subsidies, the contribution margin before the new part 139 costs are 

imposed (column 2) is given by average revenue (Table A-1, column 6; C in Figure 1) 

less marginal revenue (Table A-1, column 7; POin Figure l), which is equal to average 

variable cost, all multiplied by flights per day (Table A-1, column 5; QOin Figure 1) 

times 365 days per year. At non-subsidy airports, the contribution margin after 

imposition of the new part 139 costs (column 3) is given by new average revenue (Table 

A-1,column 12;D in Figure 1) less the sum of marginal cost-equals to average variable 

cost--(Table A-1, column 7; POin Figure 1) plus part 139 variable cost (Table A-1, 

column 9; PI-PoinFigure 1) all multiplied by the new number of daily flights (Table A-1, 

column 10; Q1 in Figure 1) times 365 days. This amount is less than the total cost of part 

139 compliance because some variable costs are avoided by reducing the number of 

flights. Total impact on profits is the change in contribution margin (column 4) plus part 

139 fixed costs. 

At airports where carriers receive EAS subsidies, contribution margin cannot be 

estimated because marginal revenue may not equal marginal cost because the EAS 

program may result in flights being flown for which marginal cost exceeds marginal 

revenue. Nonetheless, the decrease in profits can easily be determined. It is simply the 

increase in part 139 costs. Because the number of flights is fixed, contribution margin 

falls by the amount of variable cost. And profits fall buy this amount plus the increase in 

fixed cost. 

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Table A-2: 

Impact of New Part 139 Costs on Profits 

CONTRIBUTION MARGIN P139 CHANGE 

 AIRPORT NAME BEFORE AFTER CHANGE FROM ANNUAL IN 

P139 P139 P139 FIXED COST PROFITS 

(1) (2) (3) (4) (5) (6) 

Lake Havasu City AZ $1,283,961 $1,185,908 -$98,053 $21,501 -$119,553 

Show Low AZ -$207,500 $82,723 -$290,223 

El Dorado AR -- -- -$100,000 $21,756 -$121,756 

Harrison AR -- -- -$100,000 $26,953 -$126,953 

Jonesboro AR -- -- -$100,000 $26,455 -$126,455 

Mountain Home (a) AR 

Imperial CA $2,336,346 $2,336,346 $0 $7,382 -$7,382 

Inyokern CA $3,354,614 $3,255,359 -$99,255 $14,382 -$113,636 

Merrill C Meigs (a) IL 

Spencer (a) IA 

Augusta ME -- -- -$172,099 $26,657 -$198,756 

Bar Harbor ME -- -- -$239,450 $56,887 -$296,337 

Rockland ME -- -- -$100,000 $22,255 -$122,255 

Cumberland (a) MD 

Manistee MI -- -- -$100,000 $26,953 -$126,953 

Glasgow MT -- -- -$100,000 $21,756 -$121,756 

Glendive MT -- -- -$100,000 $21,501 -$121,501 

Havre MT -- -- -$100,000 $21,756 -$121,756 

Lewistown MT -- -- -$100,000 $21,756 -$121,756 

Miles City MT -- -- -$100,000 $22,255 -$122,255 

Sidney MT -- -- -$100,000 $21,756 -$121,756 

Wolf Point MT -- -- -$100,000 $21,999 -$121,999 

Chadron NE -- -- -$100,000 $21,501 -$121,501 

Kearney NE -- -- -$100,000 $14,637 -$114,637 

Alamogordo NM -- -- -$50,000 $214,501 -$264,501 

Carlsbad NM -- -- -$100,000 $14,637 -$114,637 

Gallup (a) NM 

Santa Fe NM $4,951,153 $4,851,658 -$99,495 $22,255 -$121,750 

Silver City NM -- -- -$113,400 $22,255 -$135,655 

Dickinson ND -- -- -$100,000 $22,255 -$122,255 

Ponca City OK -- -- -$100,000 $14,637 -$114,637 

Brownwood TX -- -- -$100,000 $33,574 -$133,574 

Moab UT -- -- -$100,000 $21,756 -$121,756 

Vernal UT -- -- $0 $7,637 -$7,637 

Bluefield WV -- -- -$100,000 $27,167 -$127,167 

Fitiuta Village PT $74,907 $8,282 -$66,625 $21,501 -$88,126 

Ofu (is), Am Samoa PT $41,253 $0 -$41,253 $21,501 -$62,754 

TOTAL: NON-EAS $12,042,234 $11,637,553 -$404,681 $108,520 -$513,201 

EAS -$2,782,449 $857,973 -$3,640,422 

TOTAL -$3,187,130 $966,492 -$4,153,623 

(a) Although Mountain Home AK, Spencer IA, Cumberland MD, and Gallup NM were identified 

as Class III airports in the Regulatory Evaluation, they have subsequently lost scheduled 

service. Merrill C. Meigs has closed. 

Note: Carriers do not receive EAS subsidies at shaded airports. 

29