Commercial Aviation: Initial Small Community Air Service Development Projects Have Achieved Mixed Results
Published: 2005-11-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the last decade significant changes have occurred in the airline industry. Many legacy carriers are facing challenging financial conditions and low cost carriers are attracting passengers away from some small community airports. These changes, and others, have challenged small communities to attract adequate commercial air service. To help small communities improve air service, Congress established the Small Community Air Service Development Program in 2000. This study reports on (1) how the Department of Transportation (DOT) has implemented the program; and (2) what goals and strategies have been used and what results have been obtained by the grants provided under the program.
section_title: What GAO Found
paragraphs: The Small Community Air Service Development Program grants are awarded at the discretion of the Secretary of Transportation. GAO found that DOT considered the statutory eligibility criteria and priority factors as well as other factors in evaluating proposals and in making awards. The number of grant applications has declined since 2002. DOT officials see this as a consequence of the large number of ongoing grants and the impact of 2003 legislative changes. In surveying airport directors we found that grantee airports generally responded positively to DOT's process for awarding grants, about two-thirds were satisfied with the clarity of the selection criteria, while about one-third of directors at airports not receiving grants were satisfied with the clarity. DOT oversight is based on reviews of grantee reports and reimbursement requests, and DOT has terminated some projects and reallocated the unexpended funds to others. Individual grant projects had goals including adding flights, airlines and destinations, lowering fares, obtaining better planning data, increasing enplanements, and curbing the loss of passengers to other airports. Grantees used a number of strategies to achieve their goals, including subsidies and revenue guarantees to the airlines, marketing to the public and to the airlines, hiring personnel and consultants, and establishing travel banks. Results for the 23 projects completed by September 30, 2005 were mixed: about half of the airports reported air service improvements that were self-sustaining after the grant was over. Some projects were not successful due to factors beyond the project, such as an airline decision to reduce flights at a hub. However, it is too soon to assess the overall effectiveness of the program, because most funded projects are not complete--127 of the 157 awarded grants are ongoing. DOT designates one airport each year as an Air Service Development Zone. The communities selected in 2002, 2003, and 2004 expressed similar concerns about the usefulness of this designation. None of the communities could cite any effect the Air Service Development Zone had for them. Instead, communities expressed confusion as to what DOT's designation was supposed to provide.

section_title: Letter
paragraphs: Over the last decade significant changes have occurred in the airline  industry that have impacted service to small communities. Today many of  the legacy carriers are facing challenging financial conditions.  Competition from low-cost carriers has contributed to passengers driving  long distances to obtain low fares rather than use their small community  airport. Since 2000, there has been a decrease in the use of small turboprop  aircraft that serve small community airports, with many operators opting  for larger regional jets holding 50 or more passengers. These changes, and  others, have challenged small communities to attract adequate commercial  air service at reasonable prices.
By establishing the Small Community Air Service Development Pilot  Program in 2000, Congress created a new source of funds to help small,  underserved airports improve their air service. The Congress has  appropriated $20 million annually since 2002 for the Department of  Transportation (DOT) to award up to 40 grants each year to communities  that have demonstrated insufficient air carrier service or unreasonably high  air fares. We reviewed (1) DOT’s implementation of the Small Community  Air Service Development Program and (2) the strategies communities  receiving grants have used and the results obtained by the grants provided  under the program. In addition, this report provides information on factors  affecting air service to small communities, which is included in appendix II.
To determine how DOT has implemented the Small Community Air Service  Development Program, we reviewed legislation authorizing and funding the  program as well as related orders and guidelines. We interviewed DOT  officials about their grant selection process and criteria. We reviewed grant  award information and examined how DOT used its grant criteria to select  grantees. We also reviewed program controls, receipts, quarterly reports,  and the final reports that grantees submitted. We obtained and reviewed  budget and finance data from DOT’s Office of the Secretary as well as  reimbursement data from the Federal Aviation Administration (FAA),  which reimburses the grantees. To determine what strategies have been  used and what results have been obtained, we reviewed the grant  applications and agreements for all 157 grants awarded through September  1, 2005. In addition, we reviewed the grants awarded, classified the types of  strategies carried out within the grants, and summarized the types of  activities funded. We also visited each of the 10 grantees that had  completed their grants by December 31, 2004, and interviewed airlines and  aviation consultants associated with these completed grants. We also  contacted 13 additional grantees who completed their projects between  January 1 and September 30, 2005. Further, we conducted two Web-based  surveys. We used self-administered electronic questionnaires posted to the  World Wide Web to survey the 146 airport directors involved in the 122  grants DOT awarded from 2002 through 2004, as well as 116 airport  directors representing airports that applied for, but did not receive a grant  during that period. We received response rates of 83 percent and 72  percent, respectively. To view our surveys and airport directors’ responses,  go to www.gao.gov/cgi-bin/getrpt?GAO-06-101SP. We performed our work  from September 2004 through October 2005 in accordance with generally  accepted government auditing standards. Appendix I provides more details  on our scope and methodology.
subsections: section_title: Background
paragraphs: In 1978, 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. Most legacy carriers, free to determine their own routes, developed  “hub-and-spoke” networks. These carriers provide nonstop service to  many spoke cities from their hubs. The airports in the small spoke  communities include the smallest airports in the nation’s commercial air  system. Depending on the size of those markets (i.e., the number of  passengers flying nonstop between the hub and the spoke community), the  legacy airlines may operate their own large jets or use regional affiliate  carriers to provide service, usually with regional jet or turboprop aircraft.  (See fig. 1 for an example of a turboprop aircraft.) However, low-cost  carriers, such as Southwest Airlines and JetBlue Airways, use a different  model, flying point-to-point generally to and from secondary airports in or  near major metropolitan areas, such as Ontario International near Los  Angeles and Chicago Midway.
The nation’s commercial airports are categorized into four main groups  based on the annual number of passenger enplanements—large hubs, medium hubs, small hubs, and nonhubs. The 30 large hubs and 37 medium  hub airports together enplaned the vast majority—89 percent—of the  almost 703 million U.S. passengers in 2004, the most recent data available.  In contrast, the 69 small hubs enplaned about 8 percent, and the 374  nonhub airports enplaned only 3 percent of U.S. passengers.
Air service to nonhub airports has generally declined in recent years, as  measured by the number of departure flights. As shown in figure 2,  nonhubs have had an overall decrease in departures since July 2000. While  all airports showed a decrease in service from July 2001 to July 2003,  scheduled departures at small, medium, and large hub airports have  increased since 2003. By July 2005, scheduled departures at small, medium,  and large hub airports largely rebounded, with departures from large and  small hubs exceeding the July 2000 number. However, the decline of  service at nonhub airports continued, with 17 percent fewer departure  flights serving these airports in July 2005 compared with July 2000. While  small hubs and nonhubs are eligible to apply for Small Community Air  Service Development grants, the nonhub airports have been the main  beneficiaries of the program. As of fiscal year 2005, only 6 percent of the  airports receiving grants have been small hubs.
This decline in air service to small communities is particularly prevalent at  small community airports that are near larger airports. Passengers  sometimes drive or take other modes of transportation to neighboring  larger airports to take advantage of more frequent flights and lower fares, a  phenomenon called leakage. Appendix II provides more information on the  factors that have influenced the reduction of passenger traffic and air  service at the nation’s small community airports.
We have previously reported on the decline of air service to small  communities noting the challenges these communities face in obtaining or retaining commercial passenger air service. These challenges include the  lack of demand, inability to operate profitable air service, and competition  from neighboring larger hub airports. Also, according to an aviation  consultant, these factors, plus network carrier financial difficulties and  changes in aircraft usage, have negatively affected nonhubs.
Two programs have been established to help address air service to small  communities—the Essential Air Service program and the Small Community  Air Service Development Pilot Program. The Congress established the  Essential Air Service program as part of the Airline Deregulation Act of  1978. In general, the program guarantees that communities that received air  service prior to deregulation will continue to receive air service. If an air  carrier could not continue service to a community without incurring a loss,  DOT (and before its sunset, the Civil Aeronautics Board) could then use  Essential Air Service program funds to award a subsidy to that carrier or  another carrier willing to provide service. These subsidies are intended to  cover the difference between a carrier’s projected revenues and expenses,  and include a 5 percent profit margin. Our prior work on the Essential Air  Service program found, in part, that financial incentives may offer the best  opportunity for communities to attract the new or additional service but  that it may be difficult to bring about service that can be sustained after the  incentives end.
More recently, the Congress authorized the Small Community Air Service  Development Pilot Program as part of the Wendell H. Ford Aviation  Investment and Reform Act for the 21st Century, P.L. 106-181 (AIR-21), to  help small communities enhance their air service. AIR-21 authorized the  program for fiscal years 2002 and 2003. The Vision 100-Century of Aviation  Reauthorization Act, P.L. 108-176 (Vision 100), reauthorized the program  for an additional 5 years, through fiscal year 2008, and eliminated the  “pilot” status of the program. While Vision 100 increased the annual  authorization amount to $35 million, the Congress has appropriated $20  million for the program each year from 2002 through 2005, for a total of $80  million. No funds were appropriated for the first year of the program, 2001.
Under this program, DOT is authorized to award grants to up to 40  communities served by small hub or nonhub airports (as classified in 1997)  that have demonstrated air service deficiencies or higher-than-average  airfares. The Office of Aviation Analysis in DOT’s Office of the Secretary is  responsible for administering the program. The grants may be made to a  single community or to a consortium of communities, although no more  than four grants each year may be in the same state. Consortiums are  considered one applicant for the purpose of this program. Some relatively  large airports qualify for this program. For example, Buffalo Niagara  International Airport in Buffalo, NY, and Norfolk International Airport in  Norfolk, VA, are eligible for the program, enplaning over 2.2 million and  over 1.8 million passengers in 2004, respectively. In contrast, small nonhub  airports such as the airports in Kake, AK, with about 2,500 enplanements,  or Owensboro, KY, with about 2,800 enplanements, are also eligible. The  program is available in the 50 states, District of Columbia, Puerto Rico, and  U.S. territories and possessions.
The statute also directs DOT to designate one of the grant recipients each  year as an Air Service Development Zone and work closely with the  designated community on ways to attract business to the areas surrounding  the airport and to develop land use options for the area. There are no  additional funds associated with this designation, and no special benefit or  preference is to be given to communities seeking this designation in  receiving a grant under the program. Communities apply for this  designation through the regular grant application process.
DOT has not issued separate regulations for the Small Community Air  Service Development Program. Instead, DOT issues an order every year  that requests applications and provides guidance for the proper format and  content of the applications. The authorizing legislation provides that if  funds are used to subsidize air service, the subsidy cannot last more than 3  years. However, the time needed to obtain the service is not included in the  subsidy time limit. While the legislation does not limit the period for  expenditure of funds on non-subsidy projects, DOT’s fiscal year 2005 order  indicates that in general, grant funds should be expended within 3 years of  the award.
As shown in figure 3, DOT’s awards have been geographically spread  covering all states except Delaware, Hawaii, Maryland, New Jersey, and  Rhode Island. To date, no communities in Delaware or Rhode Island have  applied for a grant. Appendix IV contains information on all grants awarded  as of September 30, 2005.
section_title: DOT’s Implementation of the Small Community Air Service Development Program Includes Awarding Grants by Using Legislatively Established Priority and Other Factors and Providing Grant Oversight
paragraphs: In the first 4 years of the Small Community Air Service Development  Program, DOT awarded a total of 157 grants. In 2002, the first year the  program was funded, DOT received 179 grant applications, but this number  has been declining and was at a low of 84 applications by 2005. DOT  officials believe this decline is natural as the program matures; many  airports are currently implementing grants and others now understand  DOT’s expectation of local matching funds. DOT evaluates the applications  according to legislatively established priority factors and other criteria.  DOT first considers five priority factors specified in the laws and then  considers numerous other factors in a second tier review of the projects.  Certain legislative factors, such as whether a local community can  demonstrate support by contributing some local matching funds, or DOT  factors such as whether an airport has received a grant in the past, were  major considerations in award decisions. In our survey of airport directors,  we found that airports that received grants generally were positive about  DOT’s process for awarding grants. However, only about one-third of the  airports we surveyed that applied for but did not receive a grant expressed  satisfaction over the clarity of selection criteria. DOT’s oversight of  projects relies largely on reviews of reimbursement documents and  required grantee quarterly reports; it does not perform on-site monitoring  visits. DOT monitoring has been sufficient to identify cases where grant  funds have not been utilized and reallocated the funds to other applicants.  As of September 30, 2005, 23 of the grants awarded were completed—20 for  2002, 2 for 2003, and 1 for 2004. About $12.5 million, or 62 percent of the  $20 million total funds for 2002 had been expended by grantees as of  September 30, 2005. DOT officials said that the newness of the program in  2002, and the need to negotiate agreements with airlines, help explain why  many early grants are still ongoing.
subsections: section_title: DOT Has Awarded 157 Grants Since 2002, but Grant Applications are Declining
paragraphs: To be considered for a Small Community Air Service Development Program  grant, airport communities prepare a grant proposal in response to a notice  in the Federal Register. The applications should discuss, among other  things, the need for additional or improved air service, the available fares at  the airport, and how the grant will help communities address these  situations. From 2002 through 2005, DOT has awarded 157 grants. In the  first year of the program, demand was the highest, with 179 applications  requesting a total of about $142.5 million in federal funding. However, from  2002 through 2005 the program has experienced about a 50 percent decline  in the number of applications. (See fig. 4 for details on the number of  applications, awards, and completed and terminated grants each year.)
According to officials at DOT’s Office of Aviation Analysis, the downward  trend in the number of applications was a natural consequence of the  implementation of the program. First, many eligible airport communities  have already received a grant and are still implementing their projects—as  of September 30, 2005, 127 of the 157 grants were ongoing. Current  grantees are not likely to reapply soon because many of the projects that  were funded take time to implement, with some taking over 3 years to  complete. Second, Office of Aviation Analysis officials told us that the  airport community has learned that DOT expects that a local cash match  should be part of the proposal and that communities must honor their  committed local contribution for the proposed projects. The officials told  us that some applicants did not fully appreciate this expectation during the  pilot phase of the program. Finally, according to DOT officials, legislative  changes in 2003 prohibited communities or consortiums from receiving  more than one grant for the same project and established the timely use of  funds as a priority factor for DOT to consider in awarding grants.
Based on our survey, for airports that had applied for but never received a  grant at the time of the survey, 58 of 81 airport directors, or about 72  percent, said that they would reapply. The remaining 23 airport directors  indicated that they would not, or were unsure whether they would apply.  These airport directors cited two primary reasons for not applying—the  cost and effort of applying, or a belief that DOT would not fund their  desired project.
Finally, some eligible airports have never applied for a grant. To understand  why, we contacted airport directors from a group of 20 randomly selected  airports that had never applied under the program but were eligible to do  so. Although this does not constitute a generalizable sample, it provides  some useful information on the reasons why some communities did not  apply. Among the more common reasons cited by the directors for not  applying were that they did not know about the program, or they felt that  the cost and effort of applying were too burdensome. Among the other  reasons given by more than one airport director were the airport already  had sufficient air service, officials thought the airport was not eligible, their  grant application would not be competitive, or DOT would not fund the  kind of project the airport would like to do.
In our survey of 2002 though 2004 grantees and discussions with officials of  the 10 completed projects, we found that the grantees were generally  satisfied with the application process and paperwork requirements. Of the  121 grantee airport directors responding, 103 were satisfied or very  satisfied with the application process. In addition, in our discussions with  the directors of the 10 community airports that had completed grant  projects, most were satisfied with the application process, although three  expressed concern about the limited amount of time they had to complete  their applications after the 2002 announcement. In our survey of grantees,  this issue did not appear to be significant, especially in years subsequent to  2002. DOT has made minor modifications in the application process as it  has gained experience with the program, such as allowing 90 days instead  of 60 days to complete the application, and has continued to allow for  flexibility in application format, according to Office of Aviation Analysis  officials.
section_title: DOT Evaluates Grant Applications According to Legislatively Established Priority Factors and DOT Criteria
paragraphs: The Small Community Air Service Development Program is a discretionary  program that allows DOT considerable flexibility in selecting projects for  financial assistance, within the basic eligibility criteria. To be eligible, the  airport cannot be larger than a small hub airport based on 1997 FAA  boarding data and must have insufficient air service or unreasonably high  air fares. In addition to the basic eligibility criteria, DOT must give priority  to projects according to five factors established in the law. These factors  constitute DOT’s Office of Aviation Analysis’ first tier of project evaluation.  DOT must give priority consideration to communities that (1) have air fares  higher than average for all communities, (2) provide a portion of the cost of  the project from local sources other than airport revenues, (3) have or will  establish a public-private partnership to facilitate air carrier service to the  public, (4) will provide material benefits to a broad segment of the public  that has limited access to the national air transportation system, and (5)  will use the assistance in a timely manner. Although a local community  match from nonairport revenues enhances a community’s chance of  receiving a grant, it is not required under the act. However, DOT has funded  only two projects that did not contain a local cash match.
In addition to the priority factors, DOT has, as part of a second tier  evaluation, other “service-related” and “project-related” factors that it takes  into consideration in evaluating competing proposals. (See app. III for a list  of the factors used in DOT selections.) DOT uses this second tier  evaluation to ensure that a project has a strong justification, and the factors  themselves have changed and evolved over time, according to DOT  officials. For example, as part of this second tier evaluation, DOT looked at  15 air service factors to identify whether a carrier served the airport and  reviewed the airport’s existing service frequencies, destinations, aircraft  size, and passenger boardings. It also examined air service in the broader  geographic area, including the applicant community’s proximity to larger  airports and the quality of the roads providing access to those airports.  DOT also considered 26 project-related factors, which include such items  as whether the area’s demographics will support the project or whether the  project actually addressed the community’s air service problem. Some  project-related factors can make it less likely to be selected, including  whether (1) the proposal simply shifted costs from the local to the federal  level, (2) the air service was in proximity to other service that would  detract from the proposal, and (3) the proposal potentially worked at cross  purposes with another grant if the airport is located close to a past grant  recipient.
DOT has developed review procedures that detail how it processes the  applications that it receives and how it applies this two-tier evaluation of  projects. DOT moved to a more structured process when the Congress, in  December 2003, changed the status of the program, dropping the pilot  designation of the program. For 2004, DOT developed more formal  documentation of its assessment of how well projects met the statutory  eligibility criteria and priority factors for each grant application.
The DOT application evaluation reports we reviewed have shown how DOT  incorporates the priority factors in its 2004 deliberations and how those  results then translate into the projects it recommends to the Secretary of  Transportation. Generally, applications that meet fewer of the priority  considerations are less likely to be selected for grant assistance. However,  priority factors are not the sole criteria in the final selection. As shown in  table 1, applications that met four or five of the priority factors were not  guaranteed selection. Twelve of the 35 applications that met four out of five  of the priority considerations did not make the final award list, and one  proposal that met all five was not selected. In contrast 13 applications that  met three priority considerations were funded.
Projects that meet priority factors may not be funded for a number of  reasons. According to a DOT official, a project may meet the priority  factors yet not have any realistic possibility of implementation or success.  DOT may also choose to award a grant to a community that has never  received one before awarding a second grant to another community. DOT’s  review of the priority factors involves determining a yes or no response for  each factor. DOT does not use a weighting or point system or other scoring  system to numerically rate the projects. However, DOT officials told us that  they are aware that, although in some cases a proposal may technically  meet the factor, it may do so very weakly. For example, a project satisfies a  priority factor if it will use nonairport revenues as part of its local  contribution, no matter how small that nonairport contribution may be. On  the other hand, a large non-airport contribution can be viewed as a strong  indicator of community support. The final decisions on which projects are  selected are thus a result of the consideration of both the priority factors  and other factors that affect the quality of the proposal and its perceived  chances of success.
Once Office of Aviation Analysis staff have reviewed and analyzed the  individual projects, the Assistant Secretary for Aviation and International  Affairs reviews the staff assessments and finalizes a list of recommended  projects for the Secretary of Transportation. According to Office of  Aviation Analysis staff, through fiscal year 2004, the Secretary had agreed  with the recommended list. In fiscal year 2005, subsequent to the meeting  with the Secretary to review recommended awards, DOT made changes in  the recommended grants. According to Office of Aviation Analysis staff,  this was done to achieve a better balance of participating communities and  a better balance in the distribution of funds.
Our survey of grantee airports showed that a large majority of the directors  at these airports were satisfied with DOT’s selection criteria and process  for the program, while fewer nongrantee airport directors thought the  selection criteria were clear. Eighty of 121 grantees responding—or 66  percent—were either satisfied or very satisfied with the clarity of the  selection criteria, while only 26 of 82 nongrantee airport directors—or 32  percent—were either satisfied or very satisfied with the clarity of the  selection criteria. A possible explanation for this is that while DOT has  flexibility in making awards and considers many criteria in addition to the  five priority factors, the ultimate selection decision is discretionary. A few  of the fiscal year 2002 airport grantees we visited observed that although  they were pleased they were chosen, they were not sure how grantees are  selected and what criteria were used.
section_title: DOT Oversees Projects Largely by Reviewing Reimbursement Documents and Reports from Grantees
paragraphs: DOT’s Office of Aviation Analysis staff are responsible for oversight of the  grants and serve as contact points with grantees. For the 2005 program  cycle, six staff were assigned part-time to the program, an increase from  four part-time staff during the program’s first 3 years. DOT uses a  document review approach to oversight in which it requires grantees to  submit quarterly reports that are used to assess a project’s progress and  timeliness. The agency also requires that grantees submit a final report on  the project, which is used as the basis for its overall evaluation of the  project and holds back 10 percent of the grant funds until the receipt of a  final report. DOT operates the program on a reimbursable basis—grantees  must first expend funds from their own resources for project activities and  then request reimbursement from DOT for allowable expenses. To ensure  that government reimbursements are proper and allowable, DOT reviews  expense receipts, invoices, and other evidence of expenditures grantees  submit for reimbursement and, if satisfactory, will authorize FAA to make  payment. DOT and FAA maintain and monitor reimbursement information  on their financial databases. Office of Aviation Analysis officials told us  that they use this approach because performing on-site visits is impractical  given the small number of DOT staff who administer the over 100 active  grantees currently in the program. They also noted that there is no  provision for administrative expenses in the appropriation, thus DOT does  not have funds available for site visits.
DOT monitoring has been sufficient to identify cases where grant  recipients have been both successful and unsuccessful in implementing  their grants. In those cases where sponsors have difficulty implementing  their projects and are unable to utilize their grant awards, the grants are  terminated and funds reverted back to DOT for reallocation to other  applicants. From 2002 through 2004, DOT reallocated about $4.5 million to  other projects.
The manner in which DOT administers oversight of grantee  reimbursements and provides assistance generated a favorable response  from grantees. Our survey found that grantees had high levels of  satisfaction with the way DOT monitored the grants and provided  assistance to grantees. Specifically, 108 of 121, or 89 percent, of grantee  airport directors who responded to our survey said that they were satisfied  or very satisfied with DOT’s assistance. Likewise, 96 of 121, or 79 percent,  of responding airport directors were satisfied or very satisfied with DOT’s  monitoring or oversight activities.
In general, grantees did not see the amount of paperwork required by  DOT’s quarterly reporting mandate as burdensome, with 86 of 121—71  percent—of survey respondents being satisfied or very satisfied with this  quarterly reporting requirement. A lower number, 58 of 119—or about half  of airport respondents—said they were satisfied or very satisfied with the  paperwork DOT required for reimbursement and only 5 respondents were  dissatisfied or very dissatisfied. However, one airport consultant noted that  for very small airports with very few full-time staff, the reimbursement  requirements can be more difficult to complete.
section_title: Grantees Have Been Slow to Implement Some Projects
paragraphs: The Vision 100—Century of Aviation Reauthorization Act added a provision  that DOT grant assistance will be used in a timely fashion as an additional  priority consideration for selection to participate in the program as of 2004.  The only limitation the authorizing legislation places on the timely  expenditure of funds is that air service subsidies cannot last more than 3  years. DOT’s 2004 and 2005 grant announcements set an expectation that  the funds should be used within 3 years. Although this criterion was not  part of the 2002 grant process, it does provide a benchmark for  performance, and 2002 grants are at the 3-year point. As of September 30,  2005, 16 of 40 fiscal year 2002 grants were still active, 20 were completed,  and 4 had been terminated by DOT. About 62 percent of the $20 million  total 2002 program grant allocation had been reimbursed to 2002 grantees.  In addition, 58 grants are scheduled to expire in fiscal year 2006. Table 2  shows the amounts DOT reimbursed each year through September 30,  2005. (See app. IV for more detailed information about the status of specific  grants.)
Office of Aviation Analysis officials told us that the 2002 grants are not an  indication of what has happened with the grants awarded in following  years. According to the officials, a number of factors contributed to the  2002 projects being delayed. First year grants were not awarded until late  fall of 2002. In addition, the airlines were at that time still recovering  following September 11, which made it difficult for communities to attract  new service. Many projects included revenue guarantees, which can take  some time to finalize. Finally, communities may wait to ask for  reimbursements after several months of expenditures, which slows the  payout of federal funds. The reimbursement data indicate that the 2003  grants also experienced low reimbursements the first year. Only about 11  percent of the 2003 grant funds were reimbursed by the end of calendar  2004.
Finally, it should be noted that when a project includes a revenue  guarantee, the slow expenditure of funds does not always indicate a  problem. Revenue guarantees are only paid out if the airline fails to meet a  revenue target. If it meets the target, no funds are drawn down, which may  actually be an indication of project success. For example, the $500,000  grant award to Rhinelander, WI, included almost $492,000 for a revenue  guarantee. However, upon project completion, Rhinelander had used about  $254,000 for the revenue guarantee. According to the airport director, the  new route initiated under the grant generated more revenue for the airline  during the grant period than had been expected. Therefore, the airport did  not have to reimburse the airline as much as it had anticipated.
As part of our survey of grantees, we asked whether their projects were  proceeding on schedule, and, if not, why they were proceeding more slowly  than expected. About 40 percent—42 of 106—of the grantee airport  directors reported that their projects are behind schedule, including 11 of  26 airport directors surveyed who were involved in implementing grants  awarded in 2002. (See table 3.) Most of these respondents, 23 of the 42,  cited difficulties in entering and finalizing agreements with the airlines as  the main reason for the delay. Grantees we surveyed also cited other  reasons for delays, including issues with airport personnel and among the  grant consortium, operational changes at Chicago O’Hare airport, and the  need to coordinate the grant with the Essential Air Service program.
On a case-by-case basis, DOT has approved a number of grant  amendments, including extending the grant expiration date, to projects that  have been slow to be implemented. As of July 26, 2005, DOT had amended a  total of 47 grants, including 27 of the 2002 grants. For example,  Binghamton, NY, wanted to obtain enhanced service to Washington, D.C.,  via United Express and Detroit, MI, via Northwest Airlink by providing the  airlines with revenue guarantees. According to officials from the Office of  Aviation Analysis, there was some delay because of difficulties in  negotiating with the airlines. DOT agreed to extend the grant expiration  date, allowing Binghamton extra time to work out agreements with United  and Northwest. However, during these extended negotiations, the airlines  told Binghamton that they would agree to provide the enhanced service  only if the community offered subsidies rather than revenue guarantees. As  a result, DOT also allowed Binghamton to amend its grant to provide the  airlines with subsidies rather than revenue guarantees to better  accommodate the airlines’ requirements. Another example is the grant  agreement amendment DOT provided Lamar, CO. Lamar did not have any  commercial service prior to its grant award. The purpose of the grant was  to obtain service from Rio Grande Airlines to access scheduled service to  Denver International Airport. Lamar was not successful in obtaining  service from Rio Grande Airlines and instead obtained service to Denver’s  Front Range Airport from Lamar Flying Service, a charter carrier. The  Office of Aviation Analysis agreed to amend Lamar’s grant to allow Lamar  Flying Service the time to expand its base of operations and establish  dependable air transportation. Lamar subsequently provided four  scheduled trips a week to Denver International Airport and has since been  able to upgrade its aircraft.
section_title: Variety of Goals and Strategies to Improve Air Service are Used, but the Results to Date of Completed Projects are Mixed
paragraphs: The Small Community Air Service Development Program allows  communities to set a variety of goals for projects, and individual projects  have been directed at adding flights, airlines, and destinations; lowering  fares; changing the aircraft serving the community; completing a study for  planning and marketing air service; increasing enplanements; and curbing  the leakage of passengers to other airports. To achieve these goals, grant  sponsors have used a number of strategies, commonly including subsidies  and revenue guarantees to the airlines, marketing to the public and to the  airlines, hiring personnel and consultants, and establishing travel banks in  which a community guarantees to buy a certain number of tickets. In  addition, communities have employed a number of other strategies,  including buying an aircraft, subsidizing the start-up of an airline, and  taking over ground station operations to reduce the costs for an airline. The  outcomes of the grants may be affected by broader industry factors that are  independent of the grant itself, such as larger strategic decisions on the  part of the airlines. Our evaluation of completed projects indicates mixed  results, but only 23 of 157 projects were completed as of September 30,  2005. While officials at 19 of the 23 airports reported improvements to air  service or fares during the life of the grant, only about half said that the  improvements appeared to be self-sustaining. With 127 of the 157 grants  still ongoing, it is too soon to determine which specific types of strategies  work best or assess the overall effectiveness of the grant program to  improve air service to small communities.
subsections: section_title: Most Common Project Goals Were Related to Increasing Service and Enplanements
paragraphs: According to our survey of 146 airport directors that received funds from  the 122 grants DOT awarded from 2002 through 2004, the most common  goals associated with Small Community Air Service Development Program  grants were generally related to increasing service and enplanements (see  fig. 5). Recapturing passenger traffic—that is, stopping leakage to other  airports—was also a frequent objective that increased in importance each  year of the program. In contrast, conducting a study of the local market or  changing the type of aircraft serving the community were relatively  infrequent goals. By 2004, relatively few airports cited these goals for their  grants. Finally, although addressing high fares is an explicit goal of the  program, lowering fares was cited as an objective by 62 airport directors of  the 146 airport directors over the 3-year span.
section_title: Grant Projects Use Many Different Strategies to Meet Their Goals
paragraphs: Grantees engaged in a number of strategies to meet their goals, including  various financial incentives, marketing, studies, and other approaches. For  example, a number of different financial incentives have been funded  under the program, including:  Start-up subsidies—these provide assistance for an airline to begin  operations or pay for an aircraft.
Revenue guarantees—the community and air carrier agree on a revenue  target and the community pays the carrier only if revenues from the  service do not meet the target.
Travel banks—businesses or individuals deposit or promise future  travel funds to a carrier providing new or expanded service. A business  entity may handle an account containing the travel funds, and  contributing entities then draw down on this account.
Airport station operations—the airport may assume the ground station  operations for one or a number of carriers serving the airport. Ground  personnel such as baggage handlers and ticket agents become airport  employees and may be shared among the airlines. Airlines pay for these  services, but their cost can be lower than if provided by the airline itself.
Marketing support generally took a variety of forms, including mass media  such as television, radio, magazine and newspaper advertising, outdoor  advertising such as billboards and banners, direct mail, internet advertising  including using the airport web site, airport special events such as open  houses, frequent flyer promotions, travel agent incentives, and other  approaches. Figure 6 shows an example of the use of outdoor advertising in  one of the marketing projects funded by the grants.
The Small Community Air Service Development Program also has funded  studies and various other approaches. For example, in 2002, DOT awarded  the Aleutians East Borough in Alaska a $240,000 grant to study the air  service market for some rural airports in the lower Alaskan peninsula and  the eastern Aleutian Islands. DOT also subsequently awarded the Aleutians  East Borough $70,000 in 2003 to expand the study. Finally, other  approaches have included developing alternative ground services such as  bus service to nearby hubs and funding personnel such as airport economic  development staff positions or consultants.
We reviewed the grant applications and agreements for all 157 grants  awarded from 2002 through 2005. Projects commonly include more than  one strategy, such as combining a revenue guarantee with marketing for the  air service provided under the grant. Over time, a few trends can be seen in  the strategies used by communities. First, while marketing activities have  always been heavily used as a strategy, by 2004 marketing had virtually  become a universal strategy. All 46 grants—the initial 40 DOT awarded plus  the 6 additional grants awarded with reallocated prior year grant funds— included marketing as a component. Second, the number of projects using  direct subsidies and travel banks declined by 2004 and remained low in  2005, while the number of projects using revenue guarantees increased  after 2002. Revenue guarantees have been the most common form of  financial assistance each year of the program. Figure 7 provides a summary  of the types of strategies communities have used under the program.
Because marketing was such a heavily used strategy, we contacted all 23  airports that had completed their grants by September 30, 2005, to  determine what types of marketing they actually did. We found that 22 of  the 23 completed grants had included some kind of marketing component  to encourage greater use of the airport or the airlines that fly there; the lone  exception was a grant which funded a study only. All 22 grantees used  newspaper advertising, 21 used radio advertising, and 21 used the  Internet—for example, the airport Web site. Television and outdoor  advertising were also common strategies, 17 grantees used television and  18 used outdoor advertising. After these strategies, the most common  forms of marketing were airport special events (14 projects), magazine ads  (12 projects), and direct mail (11 projects). Other types of marketing, such  as frequent flyer promotions, travel agent incentives, or trade show booths,  were also used in a few cases.
section_title: Participating Airlines Generally Favored Revenue Guarantees
paragraphs: Officials from airlines participating in the Small Community Air Service  Development Program said revenue guarantees or other forms of financial  subsidies were generally their preferred type of strategy, but they also  considered other types of strategies proposed by communities under the  program. We contacted each of the airlines associated with the 10 projects  completed by January 1, 2005, including Continental Airlines, Delta Air  Lines, Horizon Airlines, Rio Grande Air, TransStates Airlines, US Airways,  and Westward Airways. Although their comments do not constitute a  comprehensive analysis of industry views of the grant program, they  provide a useful perspective on how participating airlines view the  program. Several airline officials noted that reducing financial risk has  become a key factor for airline and airport officials and consultants we  interviewed also made this observation. Finally, airline officials said they  perform their own due diligence doing market analyses of the airports, the  competitive situation, and route finances regardless of what a local study  says.
Airlines face challenges when initiating air service to a community. Start-up  costs can be significant and include repositioning equipment, renting  space, and hiring and training personnel. Also, even if a viable air travel  market exists in a community, entering a new market involves changing  passengers’ existing travel patterns and loyalties, which may take time.  Airline officials noted that given the current financial condition of the  industry, airlines cannot afford to take a year of losses to build a customer  base in a market, as they had in the past. For this reason, airline officials  stated that they often could not enter smaller markets without some kind of  revenue guarantee, such as that provided by a Small Community Air  Service Development Program grant, or other financial support from the  community.
Airline officials emphasized that for a project to be of interest to them, the  market must be potentially self-sustaining without subsidy or revenue  guarantee in the longer term. The grant will eventually end and airlines do  not wish to start over in another market, with the accompanying costs and  risks. Airline officials also emphasized the importance of local funding to  provide marketing for the new service; for some airlines, this was a crucial  factor in selecting the community. A related observation by airline officials  was that the level of local support and commitment to air service was a key  factor in their decision to work with a local community. The Small  Community Air Service Development Program has this component of local  commitment, which some airline officials saw as important. In addition,  some airline officials said that the overall project (grant and local match)  must be sufficiently large to gain their interest. Finally, most airline officials  were unfavorably disposed toward travel banks citing the difficulty in  administering them and their poor track record of success. However, one  airline official said they had been involved with successful travel banks and  was open to the prospect of trying that strategy again.
All airline officials we talked to had positive views of the Small Community  Air Service Development Program. Several officials stated that the program  was superior to the Essential Air Service program because it addressed  markets that were potentially self-sustaining but were underserved.  However, in one case, airline officials said they were concerned about  communities using the program to attract low-cost carriers to compete  with existing service they were already providing to the community. Office  of Aviation Analysis officials noted that higher than average fares is a  statutory criterion for priority consideration in the selection of grantees, so  introducing a low-cost carrier into a community is an acceptable strategy  for a community under the program.
section_title: Completed Grants Indicated Mixed Results
paragraphs: We contacted officials of the 23 Small Community Air Service Development  Program grant projects that were complete by September 30, 2005, and  compared them against the program’s goals of improved air service and  found that there were mixed results. In general, we found that the airport  officials reported almost all the completed projects had some positive  effect on air service during the life of the grant, but in some cases the  improvements did not remain after the initial grant period, or that the  improvements were not self-sustaining. For most completed grants, 19 of  the 23, airport officials reported some kind of improvement in service,  either in terms of an added carrier, destination, flights, or change in the  type of aircraft. Of the 23, 8 reported adding a new carrier, 13 a new  destination, and 13 an increase in the number of flights. In addition, 13  reported that some fares had lowered at the airport during the grant. These  service and fare improvements may explain the positive effect on  enplanements the airport officials reported—19 grantees reported  enplanements rose during the course of the grant. However, the  improvements seen during the grant did not always continue afterwards.  Fourteen of the 23 grantees reported that the improvements were still in  place as of October 1, 2005. Further, there is the question of whether the  service or fare improvement is self-sustaining and will continue without  additional funding. About half the grantees with completed grants—11 of  the 23 grantees—reported that the improvements they experienced as a  result of the program were self-sustaining thus far. It should be noted that  these outcomes are preliminary. Thirteen of these grants were completed in  2005, and determining whether a particular project is successful may  depend on the timeframe used. For example, Westward Airways was able  to initially provide service to Scottsbluff, NE, under the grant, but later  went out of business.
We also visited 10 airports that had completed grants by January 1, 2005, in  order to gain a more detailed understanding of the outcomes of their  projects (app. V contains discussion of each of these). Of these, five  projects—Charleston, WV; Daytona Beach, FL; Hailey, ID; Lynchburg, VA;  and Mobile, AL, were generally successful in achieving their goals and had  made self-sustaining improvements to air service at the time of our review.
Charleston was able to add a new air carrier (Continental) and  destination (Houston). However, Continental subsequently reduced the  number of daily flights from two to one. Charleston officials said this  was a result of a larger strategic allocation of equipment by Continental,  and the airline later restored this second flight to Charleston.
Daytona Beach’s objective was to add service to Newark, NJ, which has  remained in place after the grant was completed. After the grant was  completed, Continental extended its agreement with the airport. DOT  officials said that Continental has also expanded its service at the  community to additional destinations.
Hailey successfully added air service to Los Angeles via Horizon Airlines  (see fig. 8). Although the service continues, it does not operate all year  long due to the seasonal nature of demand to this resort community.  After the grant expired, a local resort funded the revenue guarantee to  Horizon, indicating that the service was initially not self-sustaining.
However, Horizon now offers the service without a grant guarantee. In  addition, the grant helped convince Horizon to add another flight to a  new destination, Oakland, CA.
Lynchburg, VA, was able to upgrade service to Atlanta from 30-seat  turboprops to 50-seat regional jets through a revenue guarantee. The  new jet service resulted in higher load factors on the larger regional jets  than on the smaller turboprops due to increased demand. This service  also has continued after the completion of the grant. DOT officials said  that the community has also succeeded in negotiating, with its carrier,  relative fare parity with the carrier’s operations with a nearby airport.
Mobile, AL, established an innovative program to assume the ground  operations, including baggage handling and staffing ticket counters for  US Airways, which was about to abandon service to the airport,  according to an airline official. US Airways has maintained its  operations in Mobile, and the airport has expanded this program, with  American Airlines joining the ground operations service.
The four projects that did not result in self-sustaining improvements in air  service were Fort Smith, AR; Reading, PA; Scottsbluff, NE; and Taos, NM.
Ft. Smith provides an example of how larger events in the aviation  industry can affect the outcome of the grant. Ft. Smith obtained the air  service it sought under the grant, however, American Airlines’ strategic  decision to reduce the number of flights at its St. Louis hub resulted in  Ft. Smith losing the service.
In the case of Reading, PA, the grant may have had a negative effect on  air service. The grant established a bus service from Reading Airport to  the Philadelphia airport, with the goal of demonstrating that air travel  demand existed in Reading and service could be added to the airport.  However, the bus service provided competition to the existing air carrier  at Reading, which subsequently withdrew its service. The bus service  ultimately failed (although a private operator has re-established bus  service without subsidy), and Reading was left for a time without any  scheduled air service.
Scottsbluff, NE, was initially successful in resuming an intrastate air  service between Scottsbluff, North Platte, Lincoln, and Omaha via start- up air carrier Westward Airways. This service did not reach the  expected level of enplanements and Westward Airways, which was able  to begin operations with the help of the grant, ceased operations in July  2005.
Taos, NM, was not able to achieve sufficient enplanements to make its  air service self-sufficient, and Rio Grande Air, the small carrier that  provided the service to Taos, went bankrupt.
Finally, it is too early to determine whether the $95,000 grant to Somerset,  KY, may be considered a success. The purpose of the grant was to conduct  a study, which has been successfully completed. However, the ultimate goal  of the program and the grant is to improve or attract air service. Because  the community received a second grant in 2005, it will be possible in the  future to determine the ultimate outcome of the initial and subsequent  grants. Until the results of Somerset’s efforts to attract service are known,  it is too soon to evaluate this grant.
Some of the 10 grantees we visited identified additional positive and  negative indirect effects not anticipated at the time of the grant. For  example, one airport cited increased community involvement as a positive  outgrowth of the grant—it helped forge ties between the airport and  business community that were not there before. In addition, the study  performed with grant funding fostered better community understanding of  the local airline market. In a few instances, services begun under the grant  stimulated other air service not part of the grant such as attracting other  new service or improved service by a competing carrier. Conversely, some  airport officials were concerned that grants to nearby competing airports  could dilute effects of the grant at their airports. An airport official and an  industry consultant also expressed concern that the program was no longer  producing innovative ideas. Instead, some airports were copying  approaches that had been funded in the past as a way to improve their  chances of receiving a grant.
Because a large majority of Small Community Air Service Development  Project grants are not complete (127 of the 157 grants were ongoing as of  September 30, 2005), it is too soon to determine which strategies have  performed the best or assess the overall effectiveness of this program to  improve air service to small communities. However, in addition to the  preliminary results from the projects we studied, comments from DOT  officials, airport directors, and airline officials provide some indications of  what strategies that had positive results. Airline officials saw projects that  provide direct financial benefits to the airline, such as revenue guarantees,  as having the greatest chance of success. These officials noted that these  types of projects allow the airline to test the real market for air service in a  community without enduring the typical financial losses that occur when  new air service is introduced. Airline officials also said that marketing  efforts were important for success. DOT and some airline officials doubted  the effectiveness of travel banks, in part because of the difficulty with  administering the program. Finally, one strategy that airport and airline  officials found innovative was for airports to take over the airlines’ ground  station operations, such as ticketing and baggage handling. Only two  airports have used this strategy under the program, so it is too early to tell  if this model will be more widely adopted.
section_title: Most Airport Directors Indicated That Their Grant Projects Were Effective or That It Was Too Soon to Tell
paragraphs: Most grantee airport directors we surveyed indicated that their projects  were at least partially successful or that it is too early to make an  assessment. As shown in table 4, 60 of 120 airport directors that responded  said that their grant was effective or very effective in increasing passenger  traffic. About 46 percent (54 of 118) of airport directors said that their grant  was effective or very effective in improving service quality. However, in  both instances, almost as many airport directors said that they had no basis  to judge effectiveness or that the question was not applicable. In addition,  38 of 118 airport directors answered that their grant had been effective or  very effective in reducing high fares. A majority, 63 airport directors, said  that this issue was not applicable or they had no basis to judge.
Some of the airport directors responding to our survey also said that they  thought the funds used for marketing had been effective. For example, one  airport director said that the small airport he directs does not have a  marketing budget and that the grant funds provided for marketing were  more than the airport’s total annual operating budget. The marketing funds  therefore, brought public awareness the airport would not otherwise have  been able to obtain. Another airport director said that he believed the  marketing program conducted as part of the airport’s grant resulted in an  11 percent annual increase in enplanements.
section_title: Usefulness of Air Service Development Zone Designation Is Not Clear
paragraphs: AIR-21 requires that each year DOT designate an Air Service Development  Zone as part of the Small Community Air Service Development Program.  The act specifies that DOT shall work with the community or consortium  on means to attract business to the area surrounding the airport, to develop  land use options for the area, and provide data working with the  Department of Commerce and other agencies. DOT sees this designation as  providing an opportunity for the selected community to work with its grant  award to stimulate economic development, increase use of the airport’s  facilities, and create a productive relationship between the community and  the federal government to achieve these goals. DOT has designated one  airport each year of the program as an Air Service Development Zone— Augusta, GA (2002); Dothan, AL (2003); Waterloo, IA (2004); and Hibbing,  MN (2005). Airports may apply for the designation by indicating their  interest and providing supporting information on their grant applications.  Airport officials said there are no special reporting requirements nor any  additional funding for airports designated Air Service Development Zones.
Airport and local officials at the three locations designated in 2002 through  2004 said they did not know the criteria for being selected as an Air Service  Development Zone or they were unclear on why their airports were  selected. Upon selection, all three airports met with DOT staff to further  clarify what the program entails. Officials from one airport said that DOT  suggested the airport come up with ideas for how to use the designation,  which could serve as a model for other communities. Another airport  official told us that DOT offered to introduce the airport to other federal  agencies as part of the designation. However another official said that  other federal agencies, including FAA, do not “recognize” the designation  as providing any special status for the airport. DOT officials said all of the  requirements of other agencies, including DOT agencies, still apply to the  airport and community. According to one local official, this makes the  designation ineffective in fostering economic development.
All three communities told us that the Air Service Development Zone  designation has neither positive nor negative effects on the airport,  because it has done nothing to either help or hurt them. The officials from  all three airports noted that receiving the designation initially provided  some positive local publicity for the airport, but that was the only effect  they could name. Community and airport officials told us that any actual  economic development that has been created at or near the airport would  have occurred without the Air Service Development Zone designation.
section_title: Conclusions
paragraphs: Our review of completed Small Community Air Service Development  Program grants to date found that they had a mixed record of meeting  program goals. The projects we reviewed included both instances where  grantees were able to develop self-sustained air service and cases where  this was not achieved. However, given that relatively few Small Community  Air Service Development Program projects have been completed thus far  (23 completed grants of the 157 awarded grants, or about 15 percent, as of  September 30, 2005), it was too early for us to assess the overall  effectiveness of the grants in improving air service to small communities.  Examining the effectiveness of this program when more projects are  complete would allow the evaluation of whether additional or improved air  service was not only obtained but whether it continues after the grant  support has expired. This may be particularly important since our work on  the limited number of completed projects found that only about half of the  grantees reported that the improvements were self-sustaining after the  grant was complete. In addition, our prior work on the Essential Air Service  program found that once incentives are removed, additional air service  may be difficult to maintain. Over the next year, an additional 58 projects  are scheduled to expire and examining the results from completed grants at  that time may provide a clearer picture of the value of this program. Any  improved service achieved from this program could then be weighed  against the cost to achieve those gains. This information will be important  as the Congress considers the reauthorization of this program in 2008.
We also found that the Air Service Development Zone concept has had no  identifiable effect at any of the three locations designated from 2002  through 2004. The officials at the 3 designated airports remained unclear  about what they were supposed to do once designated a development zone.  DOT sees this designation as providing an opportunity for the selected  community to work with its grant award to stimulate economic  development, increase use of the airport’s facilities, and create a productive  relationship between the community and the federal government to  achieve these goals. DOT officials said they are available to help the  designees, if they are asked. However, DOT has not developed guidance or  a conceptual model for what an Air Service Development Zone should be or  what it should accomplish. Without this guidance, DOT advice or direction  is limited and the designees may or may not pursue any air service  development zone activities.
section_title: Recommendations for Executive Action
paragraphs: To ensure the effectiveness of the Small Community Air Service  Development Program, we are making the following two recommendations  to the Secretary of Transportation:  The Secretary should conduct an evaluation of the Small Community Air  Service Development Program in advance of the program’s  reauthorization in 2008. Such an evaluation should occur after  additional grant projects are complete and include a determination of  the extent to which the program is meeting its intended purpose of  improving air service to small communities.
The Secretary should clarify what support and services it will provide to  communities that are designated as Air Service Development Zones.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided copies of a draft of this report to the Department of  Transportation for its review and comment. We received oral comments  from DOT officials including the Associate Director, Office of Aviation  Analysis. The officials told us that, in general, they concurred with the  report’s findings and agreed to consider the recommendations as they go  forward with the program. DOT also provided clarifying and technical  comments, which we incorporated into this report as appropriate.
We are sending copies of this report to appropriate congressional  committees and the Secretary of Transportation. We will make copies  available to others on request. In addition, the report will be available at no  charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions regarding the contents of this report,  please contact me at (202) 512-2834 or dillinghamg@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. Individuals who made major  contributions to this report are listed in appendix VI.
section_title: Objectives, Scope, and Methodology
paragraphs: To determine how the Department of Transportation (DOT) has  implemented the Small Community Air Service Development Grant  Program, we obtained and reviewed legislation authorizing and funding the  program as well as related orders and guidelines. We interviewed DOT  officials regarding their grant review and selection process as well as the  procedures they use to oversee and monitor grant implementation. We  reviewed grant proposals and award information and information about  how DOT used grant criteria to review grant applications and award grants.  We reviewed program controls to understand DOT’s program oversight and  monitoring. We also reviewed quarterly reports and final reports grantees  submitted. We obtained and reviewed DOT financial data from the Office of  the Secretary and from the Federal Aviation Administration. Based on our  understanding of the data through discussions with knowledgeable agency  officials, as well as checks for obvious errors in accuracy and  completeness, we determined that the data were sufficiently reliable for  our purposes.
To determine what strategies have been used and what results have been  obtained, we reviewed the grant applications and agreements for all 157  grants awarded from 2002 through 2005. We classified the types of  strategies carried out within the program and summarized the types of  activities funded.
In addition, we conducted site visits at each of the 10 grantees that had  completed their projects as of December 31, 2004. This included  Charleston, WV; Daytona Beach, FL; Fort Smith, AR; Hailey, ID; Lynchburg,  VA; Mobile, AL; Reading, PA; Scottsbluff, NE; Somerset, KY; and Taos, NM.  We interviewed airlines associated with these completed grants to obtain  information on air service trends at small community airports and the  Small Community Air Service Development Program. Airlines interviewed  include American Eagle Airlines, Continental Airlines, Delta Air Lines,  TransStates Airlines, US Airways, Horizon Airlines, Rio Grande Air, and  Westward Airways. We contacted 13 additional airports that completed  their grants by September 30, 2005, to obtain basic information on the  outcome of their grant. We also interviewed selected aviation consultants  that had prepared grant applications to obtain information on air service  trends at small community airports and the Small Community Air Service  Development Program. Aviation consultants interviewed include Wilbur  Smith Associates, Vesta Rae and Associates, and Intervistas.
In addition, we conducted two Web-based surveys. We sent surveys to the  146 airport directors involved in the 122 grants awarded by DOT from 2002  through 2004. We sent a different survey to the 116 airport directors who  applied for but did not receive a grant. For both surveys, we sent the survey  to the airport directors or managers who were knowledgeable about the  grant that was received or, in the case of the nongrantees, were  knowledgeable about the grant proposal. To determine the airports that  were included in the grant award, we reviewed the grant applications,  information on the grants from DOT, and information from the grantees. To  determine the airport directors who applied for but did not receive a grant,  we reviewed the grant proposal documents from the DOT docket and  information on the applications from DOT. We did not include airports  smaller than a nonhub airport (as defined in 1997) in the nongrantee survey  because they did not have scheduled commercial service.
Each survey asked a combination of questions that allowed for open-ended  and closed-ended responses.  The survey to airports that received the grant  included questions about (1) the intended goals of the project, (2) project  elements, (3) assessments of DOT’s implementation of the grant program,  (4) results obtained under the project, and (5) recent trends that have  affected air service at the airport. The survey to airports that did not  receive the grant included questions about (1) the intended goals of the  project, (2) project elements, (3) assessments of DOT’s implementation of  the grant program, and (4) recent trends that have affected air service at  the airport.
For both surveys, a GAO survey specialist designed the questionnaires in  conjunction with other GAO staff knowledgeable about the grant program.  In addition, we pretested the grantee questionnaire with three communities  that had received fiscal year 2002 grants. We also had two aviation experts  review the grantee questionnaire and provide comments. We pretested the  nongrantee questionnaire with three other communities that had applied  for, but did not receive, grants for each of the fiscal year 2002 through 2004  periods. During the pretests for each questionnaire, we asked whether the  questions were understandable and if the information was feasible to  collect. We refined each of the questionnaires as appropriate.
Both surveys were conducted using self-administered electronic  questionnaires posted to the World Wide Web. For the grantee survey, we  sent email notifications to 146 airport managers and directors beginning on  March 2, 2005. We then sent each potential respondent a unique password  and username on March 8, 2005, by email to ensure that only members of  the target population could participate in the survey. To encourage  respondents to complete the questionnaire, we sent an email message to  prompt each nonrespondent each week after the initial email message for  approximately 3 weeks. We closed the survey on April 18, 2005. Because of  the location and nature of the two grants awarded to the Aleutians East  Borough islands in Alaska, we did not send surveys to each airport  included in the grants. Instead, we asked that the legal sponsor of the  grants complete a single survey for each of the two grants awarded. For  those questions in the survey that specifically pertain to the airports  involved in the grants, we asked that the sponsor respond for any of the  airports in that grant for that specific grant year. We received 121  completed surveys, a response rate of 83 percent. To view our survey and  airport directors’ responses, go to www.gao.gov/cgi-bin/getrpt?GAO-06-101SP.
The nongrantee surveys were also conducted using self-administered  electronic questionnaires posted to the World Wide Web. For this survey,  we sent email notifications to 116 airport managers and directors beginning  on April 12, 2005. We then sent each potential respondent a unique  password and username on April 14, 2005, by email to ensure that only  members of the target population could participate in the survey. To  encourage respondents to complete the questionnaire, we sent an email  message to prompt each nonrespondent each week after the initial email  message for approximately 3 weeks. We closed the survey on May 18, 2005.  There was an application from two airports in Hawaii. Because both  airports had the same airport director, we sent him only one survey. We  received 83 completed surveys, a response rate of 72 percent. We removed  two airport directors from the respondent list because their airports were  included in a proposal submitted by a representative of the state DOT  without the airports’ knowledge. Therefore, the airport directors did not  have sufficient information to complete the survey. To view our survey and  airport directors’ responses, go to www.gao.gov/cgi-bin/getrpt?GAO-06-101SP.
Because these were not sample surveys, there are no sampling errors.  However, the practical difficulties of conducting any survey may introduce  errors, commonly referred to as nonsampling errors. For example,  difficulties in how a particular question is interpreted, in the sources of  information that are available to respondents, or in how the data are  entered into a database or were analyzed, can introduce unwanted  variability into the survey results. We took steps in the development of the  questionnaires, data collection, and the data analysis to minimize these  nonsampling errors. For example, social science survey specialists  designed the questionnaires in collaboration with GAO staff with subject  matter expertise. Then, as mentioned earlier, the draft questionnaire was  pretested with appropriate officials to ensure that the questions were  relevant, clearly stated, and easy to comprehend. When the data were  analyzed, a second, independent analyst checked all computer programs.  Since these were Web-based surveys, respondents entered their answers  directly into the electronic questionnaires. This eliminated the need to have  the data keyed into a database thus removing an additional source of error.
We also called a random sample of 20 small hub and nonhub airport  directors or managers as categorized in 1997. We selected our sample from  a total of 206 small and nonhub airports we determined had never applied  for a grant. We called the 20 airport directors to ask them why they had not  applied. The sample was stratified by FAA region and airport size. While we  did not attempt to project these results to all airports that did not apply for  grants, the sample provided some useful observations on the types of  reasons airports had for not applying.
To determine how passenger traffic and air service have changed at the  nation’s small community airports, we conducted a literature review of  aviation trends, focusing on studies that describe overall trends at small  community airports (small hubs and nonhubs) in terms of the number of  scheduled flights and destinations, available seats on scheduled flights, and  scheduled flights by aircraft type. We narrowed our criteria to analyses  contained in published studies and reports in the past 5 years. We reviewed  each of the studies meeting our criteria and determined that the studies  were methodologically sound.
As an additional assessment of the reliability of the studies’ findings, we  considered the reliability of the underlying data that were used in the  studies and reports. Where noted in the study, we considered the steps that  the study authors took to determine if the data used in their analyses were  sufficiently reliable for their purposes. For example, much of the published  data are from DOT’s Office of the Inspector General who periodically  reports to the Congress on small community air service. The Inspector  General’s reports on aviation trends relied on data from various sources.  The data that we cited primarily came from the Federal Aviation  Administration’s Flight Schedule Data System, which derives from the  Official Airline Guide Schedules Database. While the Inspector General did  not systematically audit or validate the databases they used in their report,  they conducted trend analyses and sporadic checks of the data to assess  reasonableness and comprehensiveness. When their judgmental sampling  identified anomalies or apparent limitations in the data, they discussed  these irregularities with managers responsible for maintaining the data.
Additionally, we made use of BACK Aviation Solutions, a private contractor  that uses the Official Airline Guide Schedules Database and the Federal  Aviation Administration Aerospace Forecasts, which is based on the  Department of Transportation’s Bureau of Transportation Statistics data on  passenger traffic and fleet type. We recently issued a report and assessed  the reliability of BACK’s and DOT’s data. Based on (1) reviews of  documentation from BACK Aviation Solutions and DOT about their data  and the systems that produced them and (2) interviews with  knowledgeable agency and company officials, we found the information to  be sufficiently reliable for these types of analyses. On the basis of our  review of the methodologies cited in the studies, together with the authors’  statements concerning steps they took to assess the reliability of the  underlying data along with our previous data reliability assessments of  BACK Aviation Solutions and DOT databases, we concluded that the  studies’ analyses were sufficiently reliable for our purposes.
We performed our work from September 2004 through October 2005 in  accordance with generally accepted government auditing standards.
section_title: Factors Affecting Air Service to Small Communities
paragraphs: Air service to nonhub airports has generally declined in recent years, as  measured by the number of departure flights. Nonhubs have had an overall  decrease in departures since July 2000. While all airports showed a  decrease in service from July 2001 to July 2003 scheduled departures at  small, medium, and large hub airports have increased since 2003. By July  2005, scheduled departures at small, medium, and large hub airports largely  rebounded, with departures from large and small hubs exceeding the July  2000 number. However, the decline of service at nonhub airports  continued, with 17 percent fewer departure flights serving these airports in  July 2005 compared with July 2000.
Many factors may help explain why some small communities face relatively  limited air service. First, many network carriers have cut service to small  communities while carriers face financial difficulties and restructure their  operations. Regional carriers now operate at small communities where  network carriers have withdrawn. Second, regional carriers are phasing out  turboprops in favor of regional jets, which has had a negative effect on  small communities that have not generated the passenger levels needed to  support regional jet service. Third, the “Commuter Rule” that FAA enacted  in 1997 might have also had an effect. This rule was intended to bring small  commuter aircraft operated under the same safety standards as larger  aircraft. This change created challenges for small communities because it  is more difficult to economically operate smaller aircraft such as 19-seat  turboprops under the new safety requirements. In addition, the Aviation  and Transportation Security Act instituted the same security requirements  for the screening of passengers for smaller airports as it did for larger  airports, creating a “hassle factor” for passengers. Fourth, low cost  carriers have emerged in the deregulated environment, but these airlines  have generally avoided small communities, leading to the phenomenon of  “leakage”—that is, passengers choosing to drive to a larger airport instead  of the small community airport. According to industry consultants, low  cost carriers are now looking at medium-sized markets to expand, which  could result in further reduction of air service at small community airports.
subsections: section_title: Network Carrier Restructuring and Downsizing Negatively Affect Service to Small Communities
paragraphs: The financial condition of network carriers has negatively affected service  to small communities, especially those served by nonhubs. We have  reported that in response to the economic downturn begun in early 2001  and the events of September 11, 2001, many network carriers have been  undertaking major restructuring and downsizing of their operations. A  regional airline association official noted that as part of restructuring,  network carriers have transferred routes to regional carriers or reduced air  service to certain communities. According to an industry association,  network carriers have also discontinued some service at major hubs, which  can, in turn, reduce service to small communities. Flights to small  communities have been cut because they are often considered to be less  profitable than other routes.
section_title: Aircraft Changes at Small Communities Pose Challenges
paragraphs: According to aviation consultants, turboprops have been the primary  source of airline service to small communities, and in particular nonhubs,  because turboprops have been the most economically viable for small  communities. However, turboprop use is declining. According to one  aviation consultancy, from 1995 to 2005, the number of nonstop routes  served by turboprops declined 54 percent. According to the FAA Aerospace  Forecast Fiscal Years 2005-2016, the trend is for further decline. By 2016,  FAA expects that 10-40 seat turboprop aircraft will represent 13.3 percent  of the fleet, down from 22.8 percent in 2004.
According to FAA, the primary reason for the decline in turboprops has  been the rise of the use of regional jets at small community airports.  According to the DOT Office of the Inspector General, the number of regional jet flights at nonhubs has increased 199 percent from July 2000 to  July 2005. In comparison, flights by other types of aircraft have declined— by 29 percent for large jets, 39 percent for turboprops, and 17 percent for  piston aircraft. The increased use of regional jets at small communities is in  line with national trends at larger airports. The FAA Aerospace Forecast  Fiscal Years 2005-2016 states that jet departures by regional air carriers  accounted for 65.8 percent of industry departures in 2004 compared with  just 0.2 percent in 1991.
According to an aviation consultant, increased use of regional jets, which  tend to have 50 seats or more, makes it more difficult for small  communities to fill the aircraft. Thus, according to an aviation consultant,  regional jets have not been a direct substitution for turboprops on routes;  rather, regional jets may fly to denser passenger markets where they can  profitably operate. Another trend that might negatively affect service to  small communities is that some airlines have been procuring more 70 and  90 seat aircraft. According to the FAA Aerospace Forecast Fiscal Years  2005-2016, because the larger aircraft allow for longer flight lengths, new  markets may be tapped for point-to-point service that will by-pass  congested hub airports. We have reported in the past that small  communities may have particular difficulty attracting regional jet service  because their passenger demand could not support it.
In addition, an aviation consultant and industry airline association official  both stated that scope clauses in labor agreements between regional and  network carriers can constrain regional airlines in the aircraft size, routes,  and airports served. For example, the aviation consultant said clause  requirements that jets be used on certain routes have led to the retirement  of turboprops even where turboprop service had been profitable.
section_title: The “Commuter Rule” Has Contributed to Loss of Air Service to Some Small Communities
paragraphs: In 1997, the FAA enacted the “Commuter Rule” that called for “one level of  safety” among all commercial aircraft and placed stringent safety standards  on regional carriers. The intent was to bring aircraft that have 10 to 30 seats  and operate scheduled service under the same safety standards as network  carriers that operate with larger aircraft. The additional costs required to  meet the increased safety standards made some smaller aircraft  uneconomical to operate. According to industry association officials and  an aviation consultant, the safety upgrades have contributed to eliminating  the 19-seat plane because of the increased operating costs. According to  the FAA Aerospace Forecast Fiscal Years 2005-2016, in 1998, 1 year after  the implementation of the Commuter Rule, the number of city pairs  serviced by the regional or commuter carriers fell to its lowest level of the  decade. Although the trend reversed in 1999 as more regional jets entered  the fleet, the number of short-haul markets under 200 miles continued to  decline. Furthermore, between 2001 and 2004, 456 city pairs in the 0-199  mile range and 248 in the 200-499 mile range lost nonstop regional or  commuter service. Taking into account city pairs that gained service, the  overall result was a net loss of 184 city pairs in the 0-199 mile range and 90  in the 200-499 mile range. FAA told us that part of this decline may be due  to the Commuter Rule.
Small community airports are required to meet the same security standards  as larger airports, which can be costly for small community airports and  create a “hassle factor” for passengers. According to an aviation consultant,  with the rise in increased security measures at airports, many in the  traveling public have opted to drive or take trains or buses to travel in the  post 9/11 era. Consumers believe that with the increased time it takes to  pass through security, they would be better off using another method of  transportation to go to their final destination.
section_title: Increase in Low Cost Carrier Service May Also Contribute to Reduced Service at Small Community Airports
paragraphs: Low-cost carriers such as Southwest and JetBlue, provide point-to-point  service in dense population markets with limited access to low fares, and in  recent years this model has been relatively successful. According to the  FAA Aerospace Forecast Fiscal Years 2005-2016, since 2000, network  carriers have reduced their domestic capacity by 14.3 percent, while low  cost carriers have increased capacity by 40.5 percent.
Low-cost carriers generally avoid nonhub airports where demand for their  point-to-point service is insufficient to make it economically feasible to  serve with their fleets of larger aircraft. According to the Department of  Transportation Office of the Inspector General, low-cost carriers scheduled  service to only 5 of the more than 500 nonhub airports in July 2005,  representing approximately 2 percent of the total available passenger seats  at these airports. An aviation consultant stated that only the six large  network carriers pay attention to small community air service.
Low-cost carriers provide a challenge to small communities. Neighboring  larger airports that have low cost carrier service are attracting passengers  from smaller airports, a phenomenon called leakage. We have reported this  as a critical factor determining a community’s demand for air service.  During interviews with aviation consultants and during an industry  conference, this issue was noted as one of the most significant challenges  to bringing and maintaining air service at small community airports.
According to aviation consultants, some low-cost carriers may begin flying  from medium density airports. Such a strategy might increase the impact of  leakage, as more small community passengers become closer to airports  where low cost service is provided. Some potential small community  airport passengers may elect to drive to airports served by a low cost  carrier to access lower fares. Service at the smallest community airports  might thus be further reduced.
section_title: DOT Additional Selection Factors
paragraphs: How many carriers are serving the community?
How many destinations are served?
What is the frequency of flights?
What size aircraft service the community?
Has the level of service been increasing or decreasing over the past 3 years?
Have enplanements been increasing or decreasing over the past 3 years?
Is the Metropolitan Statistical Area population increasing or decreasing?
Is the per-capita income increasing or decreasing?
Are the number of businesses in the area increasing or decreasing?
What is the proximity to larger air service centers?
What is the quality of road access to other air service centers?
Does the community lack service in identified top Origin & Destination markets?
Is the proposal designed to provide:
First air service,  Second carrier service,  New destinations,  Larger aircraft, or  More frequencies?
If this is an air service project, has the community selected a carrier that is willing  and committed to serve?
If this is an air service project, does the community have a targeted carrier that  would serve?
Do demographic indicators and the business environment support the project?
Does the community have a demonstrated track record of implementing air  service development projects?
Does the project address the stated problem?
Does the community have a firm plan for promoting the service?
Does the community have a definitive plan for monitoring, modifying, and  terminating the project if necessary?
Does the community have a plan for continued support of the project if self- sufficiency or completion is not attained after the grant expires?
If mainly a marketing proposal, does the community have a firm implementation  plan in place?
Is the applicant a participating consortium?
Is the project innovative?
Does the project have unique geographical traits or other considerations? (Continued From Previous Page)
Is the amount of funding requested reasonable compared with the total amount  of funding available?
Is the local contribution reasonable compared with the amount requested?
Can the project be completed during the funding period requested?
Is the applicant a small hub now?
Is the applicant a large nonhub now?
Is the applicant a small nonhub now?
Is the applicant currently subsidized through the Essential Air Service program?
Is the project for marketing only?
Is the project a study only?
Does the project involve intermodal services?
Is the project primarily a carrier incentive?
Is the project primarily air fare focused?
Does the project involve a low-fare service provider?
Does the proposal shift costs from the local or state level to the federal level?
Does the proposal show that proximity to other service would detract from it?
Is the applicant close to a past grant recipient?
section_title: Status of Grants Awarded, 2002 through 2005
paragraphs: DOT has recovered all or portions of the grant awarded to the grantee.
DOT has recovered all or portions of the grant awarded to the grantee.
Clarksburg/Morgantown, WV (reallocation)
section_title: Summary of 10 Completed Small Community Air Service Development Program Grants
subsections: section_title: Charleston, West Virginia
paragraphs: At the time of the grant application, Charleston was served by five major  airlines that had scheduled flights to 10 destinations. The application noted  that despite this level of service, there was poor service to communities in  the southwestern United States, Mexico, Central and South America. The  application also noted that there were large numbers of local public and  private firms, as well as academic entities that needed service to the  Houston metro area.
In 2002, Charleston proposed that the grant would be used to obtain new  regional jet service between Charleston’s Yeager Airport and Houston,  Texas’ Intercontinental Airport. The application stated that this new service  from Continental Airlines would have benefits for Charleston and West  Virginia, including:  serving a major origin and destination market for Charleston;  enhancing connectivity for the region, saving consumers considerable  time when connecting from points throughout the Southwestern United  States;  opening same-carrier service to the important industrial centers of   giving West Virginia consumers an additional carrier choice; and  enabling businesses to save employee time by eliminating connecting  time for traveling to and from Houston.
Charleston desired two weekday nonstop round trips to Houston, plus two  round trips on the weekend using 37-seat or regional jets. Charleston would  require Continental to offer fares reasonably consistent with those charged  on a per mile basis on other routes of similar length and with the same  aircraft.
subsections: section_title: Project Funded by Grant
paragraphs: On June 26, 2002, Charleston was awarded a $500,000 Small Community Air  Service Development Pilot grant to facilitate acquiring service to Houston.  The community provided an additional $100,000 local match. Charleston  allocated $500,000 as a revenue guarantee to reduce the risk of losses for  Continental in the early months of the new service. The community also  allocated $20,000 for expenses necessary to meet with the new carrier and  to provide basic advertising and marketing support for the new service.
section_title: Grant Outcome
paragraphs: On October 1, 2002, Continental started new nonstop service from  Charleston to Houston. Initially, the service provided two flights daily, with  the exception of Saturday when one daily departure was provided. In  January 2004, the service was reduced to one flight daily. Airport officials  told us the reduction in the number of flights was a result of aircraft fleet  utilization issues at Continental. However, according to an airport official,  Continental subsequently resumed the second daily flight.
The community stated in their final project report to DOT that the airport  experienced an increase in enplanements and a reduction in passenger  leakage as a result of the Charleston to Houston service. Additionally, as  shown in table 5, the airport has experienced a 31.8 percent overall  increase in enplanements in October 2004 versus October 2002 when the  service first started. In 2004, the airport set a record for enplanements with  291,300 and experienced a 15.6 percent increase in overall enplanements  versus 2002. An airport official told us enplanement levels continue to rise  as the airport continues to expand its catchment area, and that service  levels at the airport are comparable to communities that are double the size  of the airport. In 2002, there were 11 carriers representing five major  airlines serving the airport, and in 2004 there were 12 carriers serving the  market.
One local official told us that the success of the new Charleston to Houston  service had a secondary effect in obtaining an additional airline as well. In  July 2004, Independence Air started serving the Charleston market. The  official told us that the success of the Houston service, and the fact that  Charleston had not experienced a drop in enplanements, showed  Independence Air that Charleston could continue to handle additional  service from another airline.
section_title: Daytona Beach, Florida
paragraphs: At the time of the grant application, Delta Air Lines and Continental  Connection Carrier, Gulfstream were the only two carriers serving Daytona  Beach. Delta provided daily service to Atlanta, Georgia, and Saturday  service to Cincinnati, Ohio. Continental Connection provided 14 weekly  nonstop flights to Tampa, Florida. However, the community in its grant  application told DOT that the airport could handle an increase in scheduled  commercial airline service, particularly to New York. The airport stated  that they had a market area of 1,383,000 people, that the community had 8.5  million visitors to the area in 2000, and that more than 325,000 of these  visitors were from New York. Additionally, the grant application told DOT  that the New York area provided the strongest pattern of in-migration to  Volusia County/Daytona Beach, among all states, excluding Florida. Thus,  the community in its grant application stated that it needed direct service  to the New York area. According to the grant application, Daytona Beach  used to have service to New York, but as of September 11, 2001, the service  was discontinued despite having an 81 percent average load factor  (percentage of occupied seats on flights) for the last 12 months of service.
According to Daytona Beach’s grant application, air service had suffered in  the community due to the large amount of traffic leakage to nearby  airports. Daytona estimated that 50 percent to 60 percent of their leakage  was to either Orlando (65 miles) or Jacksonville (90 miles). Community  officials in the grant application said that this high traffic leakage was a  direct result of a lack of competitive air service, inadequate seat inventory,  and resulting fare differentials at Daytona Beach International Airport. At  the time of the grant application, Orlando had approximately 354 daily  departures and Jacksonville had 220 daily departures. Daytona at the same  time had an average of 7 daily departures.
According to the grant application, higher fares flying out of Daytona  versus the nearby airports of Orlando and Jacksonville contributed to this  leakage. Daytona Beach officials told DOT that on average, their airport’s  fares were 13 percent higher to the same cities than Orlando, and 15  percent higher than Jacksonville when purchased 21 days in advance. The  community noted in the grant application that weaker load factors and  additional seats at Orlando and Jacksonville have led to higher fares in  Daytona. In order to increase this air service, Daytona Beach stated in their  grant application that it desired twice daily regional jet service to New York  area’s Newark Airport. The new service provided by Continental Airlines  was scheduled to begin on December 14, 2002.
subsections: section_title: Project Funded by Grant
paragraphs: On June 26, 2002, Daytona/Volusia County was awarded a $743,333 Small  Community Air Service Development Program grant. The local community  provided an additional $165,000 for a total project cost of $908,333. The  community allocated $743,333 to Continental Airlines for a revenue  guarantee for the initial 12-month ramp-up period. The community’s goal  was to make this service self-sufficient in the second year. Additionally, the  community provided $165,000 for advertising and marketing for  Continental’s new service. Components of the marketing program included:  newsprint advertising, newsletter advertising, Web site promotions, media  press releases, radio advertising, ribbon cutting ceremonies, and magazine  advertising in both Daytona Beach and New York areas.
section_title: Grant Outcome
paragraphs: On December 12, 2002, Continental Airlines began service between  Daytona Beach and Newark Airport. Continental operated two daily trips  utilizing 50 seat regional jets. The revenue guarantee between Daytona  Beach and Continental for service to Newark lasted 1 year until December  11, 2003. Table 6 shows the quarterly passenger totals for this service.
A local official told us that the project has been a success. The Daytona  Beach to Newark service continued to operate as of September 30, 2005. In  addition, following the completion of the revenue guarantee, Continental  extended its agreement 2 years with the airport to provide service between  Daytona Beach and Newark. The agreement expires in December 2005, but  a local official expects the agreement to be renewed with Continental to  continue providing this service.
In addition, according to a community official, passenger traffic has risen  30 percent at the airport in the last 2 years since the grant. The airport now  has service to Cleveland, Ohio, and seasonal commuter service to Tampa,  Florida. Also, Delta has increased its service to 12 flights per day and has  brought in larger aircraft to serve those flights. In their final report to DOT,  one community official told DOT that the service expansion would not  have been possible without the DOT grant. An airline official told us that  the grant was successful because even with the grant completed, Daytona  Beach still has service to the New York area.
section_title: Fort Smith, Arkansas
paragraphs: At the time of the grant application, Fort Smith was served by eight daily  round-trips via American Eagle Airline to Dallas/Ft. Worth, Texas, and three  daily round-trips by Northwest Airlink to Memphis, Tennessee. Airport  officials noted in their grant application that they had inadequate service to  the North and East at the time of the grant application. Furthermore, the  grant application told DOT that business travelers in the region noted that  excessive backtracking was a reason they did not use the Fort Smith  airport for travel to markets in the North and East.
According to an airport official, the airport suffers traffic leakage to other  airports. Fort Smith loses passengers primarily to Tulsa, Oklahoma (118  miles), Oklahoma City, Oklahoma (183 miles), and to a lesser extent, Little  Rock, Arkansas (159 miles). A local official estimated this leakage to be  approximately 46,000 enplanements per year.
To overcome this lack of service to the North and the East, Fort Smith  proposed to obtain service to St. Louis, Missouri, or Chicago, Illinois. The  community previously had service to St. Louis, but problems in the service  resulted in its cancellation in 1999. The community believed that this lost  service led business travelers in the area to use alternate airports to  provide service to markets in the North and East. Thus, the community  believed that initiation of service to St. Louis or Chicago would help answer  this untapped demand. Additionally, the grant application stated that  officials at Fort Smith needed to overcome other challenges to improve the  airport, including:  the general lack of understanding of the airline industry within the  business community had created unrealistic expectations;  business travelers were not fully considering the productivity losses  sustained due to the use of other airports;  the terrorist attacks of September 11, 2001, and the weak economy, had  created uncertainty among potential travelers; and  a general community perception that local air service was limited and  available fares were high.
subsections: section_title: Project Funded by Grant
section_title: Grant Outcome
paragraphs: On October 7, 2002, American Connection began providing three daily  round trips from Fort Smith to St. Louis. The service was initially provided  with Jetstream 41 turboprop aircraft. Table 7 provides quarterly  enplanements for this service. American Connection posted its strongest  monthly performance with 1,144 enplanements in June 2003.
At the end of the third quarter in July 2003, American Airlines announced  its plans to downsize its St. Louis hub. Daily departures out of St. Louis  were reduced from 417 to 207 on November 1, 2003. Additionally, 26 feeder  cities, including Fort Smith, lost service to St. Louis as of November 1. An  airline official stated that had American not downsized St. Louis, the  service from Fort Smith to St. Louis would have continued if passenger  levels remained the same.
According to Fort Smith’s quarterly reports to DOT, an indirect benefit that  Fort Smith has seen since the grant application is that American Airlines  and Northwest Airlink have transitioned from turboprop service to a  regional jet service. According to airport officials, passenger loads are high  and the airport continues to gain seats they lost from the termination of the  St. Louis service. Additionally, as shown in table 8, the community has seen  an overall increase in passenger numbers from 2002 to 2004.
Fort Smith officials stated that the money spent on marketing and studies  helped their cause despite losing service to St. Louis. An official told us that  the studies were helpful because they showed prospective airlines that they  could fly profitably from Fort Smith. The official told us that due to the  flight reductions at Chicago and St. Louis, the studies are important  because local officials are now looking to acquire service to Detroit,  Michigan via Northwest Airlines. Airport officials told us that Detroit can  serve as an alternative to Chicago and St. Louis. A local official told us that  Detroit will provide Fort Smith travelers access to the northeastern part of  the country as well as Europe and Japan. Local officials told us that the  studies performed under the grant put the airport in a position to talk with  airlines about potential service to Detroit.
section_title: Hailey, Idaho
paragraphs: At the time of grant application, Hailey’s Friedman Memorial Airport had  scheduled commercial air service to Seattle/Tacoma, Washington, and Salt  Lake City, Utah. Seattle service was provided by de Havilland Dash 8 (37-  seat) and Salt Lake service was provided by Embraer 120 (30 seat aircraft).  Hailey’s application stated that it was a resort destination community with  an economy dependent on tourism. It stated that Los Angeles, California,  was the area’s number one market. The purpose of the grant request was to:  provide air service improvements to stimulate air travel and reduce  travel expense between Sun Valley and Los Angeles;  stimulate local economic activity by improving air service between Sun  Valley and Los Angeles;  improve air access from the Sun Valley region to key destinations in the  western United States; and   improve air service to a rural region whose airport, Friedman Memorial  Field, is significantly restricted by high altitude and mountainous  terrain.
The grant application told DOT that the airport’s location does not allow for  certain aircraft to be able to land at Friedman Memorial Airport. Elevation  of the airport (5,300 ft.) and the length of its runway (6,600 ft.) present a  challenge for the airport. The high altitude and short runway restrict the  types of aircraft that can utilize the airport. During winter months, flights  are sometimes diverted due to low visibility conditions. During the  summer, flights are weight-restricted due to the higher density altitude  caused by warmer temperatures. A community official told us that this  difficult operating environment is a factor hampering air service.
Additionally, the grant application told DOT that the airport experiences  leakage. Other airports used by potential Friedman passengers include  Boise (154 miles), Magic Valley/Twin Falls (64 miles), Pocatello (150 miles),  and Idaho Falls Regional Airport, Idaho (140 miles). Additionally, a local  official told us that the expense of flying into Hailey is also a challenge.
In order to increase its air service, the community proposed new service to  Los Angeles. Horizon Airlines would provide daily round trip service from  Friedman Memorial Airport in Hailey to Los Angeles on 70-seat turbo- props.
subsections: section_title: Project Funded by Grant
paragraphs: The June 26, 2002, grant agreement provided the City of Hailey $600,000.  The community provided a local match of $271,743. The community  allocated $644,344 of their money to cover a revenue shortfall for Horizon  Airlines for a 12 month ramp up period. The community estimated that it  would take up to 12 months for passenger projections to reach full  maturity. An airport official told us that the grant allowed the airline to  overcome the initial risk of operating a new route by providing a subsidy  for the first year.
Additionally, Hailey allocated $175,000 for marketing, including direct  sales, direct mail, print advertising, internet marketing, and radio  advertising. Marketing would be targeted to people living in the Los  Angeles area that may be interested in visiting nearby Sun Valley and  residents in the Sun Valley area that may be interested in travel to Los  Angeles for business or personal reasons.
section_title: Grant Outcome
paragraphs: On December 15, 2002, Horizon Air commenced scheduled service from  Hailey to Los Angeles via Horizon Air with one daily round trip until  December 17, 2003. In the community’s final project report to DOT, it told  DOT that the recreational nature of Hailey and the nearby Sun Valley  market generated more traffic in the first and third quarters, versus the  second and fourth quarters. The two higher seasons where more traffic  occurred were in the winter and the summer months, which are peak  tourist seasons in the area. In their final report to DOT, the community told  DOT that Hailey’s projections for the first year had been 27,366 origin and  destination passengers, which would lead to a 53.6 percent load factor. As  shown in table 9, their actual passenger totals were 19,335 passengers and a  41.5 percent load factor.
A local official in the final project report told DOT that the 70-seat de  Havilland Dash 8-400Q is a large aircraft for the market, thus resulting in  lower load factors. The official told DOT that the flight Horizon Airlines  provides would be best served by a 50-seat aircraft. According to Hailey  officials, there are no 50 seat regional jets that have the capability to serve  the market, given the airport’s current limitations.
In 2004, upon completion of the Small Community Air Service  Development Program grant, Horizon Airlines stopped providing year  round service to Hailey. Instead, the community contracted with Horizon to  provide seasonal service between Hailey and Los Angeles. Additionally,  with the grant completed, a local Hailey company provided Horizon  Airlines a revenue guarantee to continue to fly the service into Hailey. The  company official told us that the grant provided the company justification  to promote air service in the community. The official’s goal is to make the  service between Los Angeles and Hailey self-sufficient in 5 years so a  revenue guarantee is no longer needed. In addition, a local official told us  that the grant helped start new air service provided by Horizon Airlines  between Oakland, California, and Hailey.
A local official told us that the grant has reduced passenger leakage to  Boise and Twin Falls, Idaho. However, a local official told us that one  problem that the community still encounters is that flights are diverted to  Twin Falls due to weather. An airport official told us that if a new  instrument landing system were introduced, up to 30 percent of the flights  that are now diverted could land in Hailey. Currently, under Hailey’s  agreement with Horizon Airlines, the community pays for the costs of  busing passengers from Twin Falls to Hailey when planes are diverted due  to weather. An airline official told us that the grant definitely succeeded  and met their expectations for being able to provide service between Hailey  and Los Angeles for part of the year.
section_title: Lynchburg, Virginia
paragraphs: At the time of the grant application, Lynchburg had service to Atlanta,  Georgia; Charlotte, North Carolina; and Philadelphia and Pittsburgh,  Pennsylvania. The Atlanta service was provided by Atlantic Southeast  Airlines/Delta Connection, and the Charlotte, Philadelphia, and Pittsburgh  service was provided by US Airways/Air Midwest/Shuttle America.  According to the April 19, 2002, grant application, Lynchburg had recently  lost service from United Express/Atlantic Coast to Washington’s Dulles  Airport. Furthermore, the community had experienced a recent overall  decline in service at the time of the grant application. From April 1999 to  April 2002 the community had lost 580 weekly departing seats and 23  weekly departing flights.
According to the grant application, to fill its air service deficiency and  recapture lost traffic, Lynchburg proposed an upgrade to small jet service  from turboprop for service to Atlanta and Pittsburgh. Additionally, the  community wanted an upgrade to a larger turboprop for service to  Charlotte. According to the grant application, the objectives of the  application were to:  Establish additional service that will meet the needs of the region.
Capture passengers from the service area that use other airports due to  insufficient services.
Build additional ridership at the airport as a result of offering service  options that are competitive with those found at communities of  comparable size.
Strengthen the economic base of the region.
Enhance levels of air service in Lynchburg.
Lynchburg noted in its grant application that it had higher airfares relative  to other nearby airports in the region such as Newport News, Roanoke, and  Charlottesville, Virginia. For example, in a study the community found that  fares between Lynchburg and Los Angeles are 19.7 percent greater than  from Roanoke (55 miles), 227.8 percent greater than Newport News (213  miles), and 23.9 percent greater from Charlottesville (66 miles) based on 3-  day advance purchase business fares. Overall, in the community’s grant  application, only one market (Chicago O’Hare) in the five sample locations  provided had a community that exceeded fares offered at Lynchburg.
In addition, the grant application stated that the airport suffered a great  deal of passenger leakage to nearby airports. In the application, the  community noted that a recent study concluded that 38.4 percent of the  traffic generated by the population residing within Lynchburg’s catchment  area travel to other airports was due to lower fares and wider availability of  air service. It was estimated that 9 percent of the traffic was leaking to  Roanoke (55 miles) and 13 percent to Raleigh/Durham, North Carolina (180  miles), to utilize low fare air service. Six other nearby airports also  accounted for approximately 17 percent leakage out of the community,  according to the application. The community told DOT in its application  that some of this leakage could not be recaptured due to low fare service at  Raleigh/Durham. However, the community also told DOT that much of the  lost traffic was due to consumer preference for larger and more  comfortable aircraft.
subsections: section_title: Project Funded by Grant
paragraphs: The June 26, 2002, grant agreement provided Lynchburg $500,000, while the  local community provided $100,000 in matching funds for a total of  $600,000. Lynchburg allocated $475,000 of the program for a 12-month  revenue guarantee for Delta upgrading to small jet aircraft (32 seats or  greater). The remaining $125,000 was used for advertising and marketing  for the airport’s newly upgraded service. This sum included payments for  consulting services to negotiate with the target carrier and marketing  efforts after the recruitment to the benefit of both the new carrier and  incumbents as well.
section_title: Grant Outcome
paragraphs: Lynchburg Airport and Delta negotiated a revenue guarantee to upgrade  their Lynchburg to Atlanta service from 30-seat turboprops to 40-seat  regional jets beginning on May 4, 2003. The service provides three  roundtrips a day between Lynchburg and Atlanta, and helped increase  Delta’s passenger capacity in this market by 25 percent. Additionally, on  May 2, 2004, US Airways upgraded its Lynchburg to Charlotte service from  19 seat turboprops to 37-seat Dash-8 turboprops. This upgrade in service  was provided without a revenue guarantee from Lynchburg. In a quarterly  progress report to DOT, an airport official told DOT that US Airways had  upgraded its service partly due to the success of the new Delta jet service.  The Charlotte service provides the airport six daily departures. In total,  upgraded US Airways and Delta flights provided Lynchburg with nine daily  departures and 342 passenger seats.
Lynchburg has, however, lost air service from US Airways to Pittsburgh and  Philadelphia since the 2002 grant application. An airport official told us that  the service was lost due to the economic problems facing major airlines, a  general unwillingness for people to fly after September 11, and US Airways  reducing its operations in Philadelphia.
Despite this loss in service, Lynchburg’s enplanements have risen since  2002. (See table 10.) Additionally, total passenger traffic has increased from  100,274 in 2002 to 120,174 in 2004. The airport in their final project report to  the DOT credits this increase in traffic to the upgrade in jet service,  lowering of fares at the airport, and increased service at the airport.
An airport official told us that the program was a success because it  resulted in an additional three sustainable jet flights daily. Additionally,  Delta Air Lines on April 5, 2004, deemed the upgraded jet service a success  and agreed to continue providing the service without a revenue guarantee  after the Small Community Air Service Development Program revenue  guarantee ended in May 2004.
Furthermore, the community’s final report to DOT noted that the airport  has seen an increase in enplanements and a decrease in leakage. The  community told DOT that this has occurred due to the upgrade in jet  service and a lowering of fares at the airport. The community still has the  same amount of weekly departures as before the grant, but the upgrade in  jet service has led to more available passenger seats for the community  than in January 2002. Despite this increase in passenger seats, airlines at  Lynchburg airlines’ load factors have risen since the 2002 grant application.
section_title: Mobile, Alabama
paragraphs: At the time of the grant application, Mobile was served by Delta Air Lines,  US Airways Express, Continental Express, and Northwest Airlink. These  four airlines provided Mobile service to Atlanta, Georgia; Dallas/Fort  Worth, Texas; Charlotte, North Carolina; Houston, Texas; and Memphis,  Tennessee. In previous years, however, Mobile had experienced a decline in  air service. Between 1996 and 2002, six airlines cancelled service on seven  routes. According to the grant application, since September 2001, the  community had lost service to Chicago, Illinois; Cincinnati, Ohio;  Birmingham, Alabama; and Washington, D.C. Furthermore, since July 2001,  the community has gone from 28 daily departures to 20, and has declined  from 10 nonstop cities to 5.
According to the grant application, fares had been a long-standing problem  for Mobile. Mobile stated that it had paid up to 40 percent higher average  fares than counterparts since 1995. These higher fares had led Mobile  passengers to drive to nearby airports such as Pensacola, Florida (60  miles), Gulfport, Mississippi (70 miles), and New Orleans, Louisiana (150  miles) to access lower fares or direct service.
To obtain additional service, Mobile proposed to develop an airport-airline  business model to enable more profitable air service at the airport. Under  the model, Mobile Airport Authority would own and operate the airline  ground stations, charging the airline on a per turn (one arrival and  subsequent departure) basis for its use of equipment and staff. The airline  station staff would be airport employees, and the airport would provide all  the equipment required to handle ground operations. An airport official  told us that the community believed that this initiative would help airlines  with their high start up costs in a market. If several airlines serve the  airport, the program can reduce cost and inefficiency by not having to  duplicate staff, equipment, and operations. In addition to developing the  airport-airline business model, the goals of the grant according to the grant  application were to:  recruit new service from US Airways Express; additional frequencies to  Charlotte and new service to selected US Airways cities; and  recruit nonstop service to target cities of New York, Orlando, Chicago,  and Birmingham.
At the time of the application, the Mobile Airport Authority had already  established the new airport-airline program for US Airways. Responding to  an announcement that US Airways would completely withdraw from  Mobile after September 11, 2001, the Airport Authority hired 10 former  station employees and took over handling ground operations for US  Airways. In turn, US Airways maintained one local employee and kept open  some service. The goal of the program was to use the business model to  prevent other airlines from pulling out of the market or to recruit carriers  into the market.
subsections: section_title: Project Funded by Grant
paragraphs: The June 26, 2002, grant agreement provided Mobile $456,137 for the  airport-airline business model, and the city of Mobile contributed $20,000  toward the project for a total of $476,137. The grant allowed Mobile to  allocate $144,645 to purchase appropriate ground handling and office  equipment to continue to operate the existing station. The equipment they  were utilizing at the time for US Airways was on loan from a previous  tenant. In addition, $311,492 of the program was allocated as funding for  direct operating expenses for personnel, supplies, and maintenance for the  existing station for 1 year of operation. The remaining $20,000 was  allocated toward marketing support for any new service that participated  in the new airport-airline program.
section_title: Grant Outcome
paragraphs: Mobile successfully retained US Airways service to Charlotte. An airline  official told us before the grant that the Mobile to Charlotte service was not  performing as well as expected, and that the airline was planning to leave  the market. The airline official told us that much of the problem was due to  US Airways staff not being used efficiently. This was due to US Airways  having a limited number of flights, which led to high ground station costs  per flight. The airline official told us that the Small Community Air Service  Development Program grant for US Airways was enough of a cost savings  to keep them in the market.
Currently, there are eight Airport Authority staff allocated to the program.  The staff is put through a training program sponsored and paid for by US  Airways, with the exception of lodging and food which is paid for by the  airport. One airport official told us that they were not sure how much they  were saving US Airways, but US Airways continues to provide Mobile air  service. After the training takes place, the staffing initiative is administered  and funded by the airport. There are no local taxes or funding supporting  the program.
Additionally, Mobile officials told us that station cost program was  successful in securing new service from American Airlines. On April 11,  2005, Mobile announced that American Airlines would operate two daily  round-trip flights between Mobile and Dallas/Ft. Worth, Texas, beginning  June 9, 2005, using 44-seat Embraer ERJ-140 jets. An airport official told us  that Mobile’s station cost program was the reason for American’s decision.  The airport official convinced American that Mobile was prepared to take  over ground station costs until the airline made a profit with its new  service.
US Airways and American Airlines are the only airlines in Mobile to utilize  the airport’s station cost offer so far. Airport officials told us that they have  offered the ground station program to other air carriers serving Mobile, but  none of the carriers expressed interest in the program. An airport official  told us that the program would not work as well for incumbent airlines  because ground staff would likely lose their jobs. If other carriers chose to  participate, the Authority would probably not need to hire all airline staff.  The authority would economize the operations with the staff that they  already have employed and increase staff as needed. However, an airport  official told us that it would work well for airlines like US Airways that are  planning to pull out of the market, and for smaller carriers coming into the  market where the start-up costs are prohibitive.
section_title: Reading, Pennsylvania
paragraphs: At the time of the grant application, Reading was served by US Airways  with two daily flights to Philadelphia, Pennsylvania, and four daily flights to  Pittsburgh, Pennsylvania. The community noted that lack of other air  service and the fares at the airport caused 91 percent of Reading’s ticketed  passengers to leak to nearby airports. Additionally, at the time of the grant  application, the airport enplanement numbers were half of the volume  generated in 1989.
In the community’s grant application, Reading indicated that they have  attempted to have talks with US Airways regarding service improvements  and with additional carriers about providing service to Reading. The  community told DOT that they had discussions with US Airways to return  service to pre-September 11 levels. Additionally, they had discussions with  Delta Air Lines for new service to Atlanta, Georgia, or Cincinnati, Ohio; Air  Tran for service to Atlanta, Georgia, and Florida; and Northwest Airlink for  service to Detroit, Michigan.
Reading’s 2002 application desired to (1) implement a marketing campaign  to raise awareness of flying from Reading, (2) retain a marketing and air  service consultant to develop and manage the airport’s local advertising  campaign, and (3) develop the Reading Connection to provide regularly  scheduled bus service to Philadelphia to demonstrate the demand for air  service that has been reduced.
subsections: section_title: Project Funded by Grant
paragraphs: The June 26, 2002, grant agreement provided Reading $470,000 for the total  project and Reading added a local match of $30,000. Reading allocated  $300,000 to subsidize the Reading Connection bus service, $50,000 towards  general airport advertising, $50,000 for consultant services, and $70,000  toward advertising and promotion of new carrier services at the airport.
The Reading Connection was a bus service between Reading and  Philadelphia that was intended to demonstrate demand to airlines that  there was a need for increased air service at Reading. General airport  advertising included radio promotions, print advertising, press releases,  direct mail pieces, email newsletters, and website development. The  consultant services were used to retain a marketing and air service  development consultant to manage the airport’s local advertising, public  relations, and community outreach programs. The advertising and  promotion component would be used to aggressively market a new  carrier’s entrance into the Reading market. Elements of the program  included: billboards, radio, print, direct mail, and community receptions.
section_title: Grant Outcome
paragraphs: Reading Airport lost all commercial air service as of September 2004. The  community lost service to Philadelphia and Pittsburgh via US Airways and  was unable to recruit new additional service. A local official told us that US  Airways stopped serving Reading because they felt the bus service would  be in direct competition with the airline. Additionally, the official told us  that Reading’s proximity to nearby airports in Philadelphia, Allentown, and  Harrisburg, Pennsylvania, made Reading a low priority for air service in  Pennsylvania.
According to a local official, the Reading Connection’s bus service operated  until the subsidy provided by Small Community Air Service Development  Program was completed. After the grant, the service could not be  sustained on its own, and the service ended. However, a local entrepreneur  has since started the service again without subsidy and provides five round  trips daily between Reading and Philadelphia. According to a local official,  although the grant did not work the first time, the name recognition that  the original grant provided has led to the demand for the bus service now.
section_title: Scottsbluff, Nebraska
paragraphs: At the time of the grant application, Scottsbluff was served by Great Lakes  Airlines with three daily round trip flights to Denver, Colorado. The  community told DOT that for travelers that travel to Lincoln or Omaha,  Nebraska the connections and fares were poor through Denver. A local  official told us that the 450 miles from Scottsbluff to Omaha could be  driven faster than flying to Denver and waiting several hours for a  connecting flight to Omaha.
Additionally, a local official told us that people in western Nebraska feel  separated from the rest of the state. In the grant application, the  community noted that the lack of intrastate service hinders government  entities, businesses, educational institutions, and individuals traveling for  personal reasons. Thus, Scottsbluff in its 2002 grant application proposed  to support the development of an intra-state air service, provided by  Westward Airways, linking eastern and western Nebraska. Scottsbluff  previously had similar intra-state service, but operations ceased in  November 1995 when the carrier declared bankruptcy. This previous  service had been provided under the Essential Air Service program. An  airport official told us that there is no direct competition for the Westward  Airways intra-state service.
subsections: section_title: Project Funded by Grant
paragraphs: The June 26, 2002, grant agreement provided Scottsbluff $950,000 for the  project, and the local community provided $750,000 in funding for a total of  $1,700,000. Westward Airways in conjunction with Scottsbluff provided the  intra-state service. The grant allocated $867,893 to be used to fund pre- operating expenses. These expenses included all the costs the company  anticipated during the 6 month pre-operating period. Examples of these  expenses include administrative and flight operations personnel wages and  benefits, personnel training, professional fees, facility rent and insurance,  and aircraft acquisition. The remaining $832,107 was allocated to fulfill the  company’s working capital requirement. Working capital requirements  included funds for cash flow operations and forecasted growth phases.
section_title: Grant Outcome
paragraphs: Westward Airways commenced their Nebraska intra-state service in June  2004 and ceased operations in July 2005. The service consisted of two daily  weekday roundtrips that stop in Scottsbluff, North Platte, Lincoln, and  Omaha, Nebraska. All Westward Airways flights in Nebraska were  conducted on the Pilatus PC-12 aircraft, a pressurized aircraft capable of  300 miles per hour cruising speeds at altitudes up to 30,000 feet. As shown  in table 11, Scottsbluff service had 234 passengers in April 2005.
Westward Airways intra-state service added 10 weekly flights from  Scottsbluff, increasing the airport’s weekly departures from 18 to 28. The  community in its final report to the DOT stated that the program increased  enplanements and reduced passenger leakage at the airport. However, the  final project report said that initial passenger enplanements were not as  robust as expected. It noted that the market had taken longer to develop  because travelers are extremely price sensitive. In July 2005 Westward  Airways had financial difficulties and ceased operations.
section_title: Somerset, Kentucky
paragraphs: At the time of the grant application, Somerset did not have commercial air  service. Passengers in the region travel to Lexington, Kentucky (80 miles),  Louisville, Kentucky (130 miles), and Cincinnati, Ohio (150 miles) to utilize  commercial air service. According to the grant application, because  Somerset is not located on the interstate highway system, access to these  nearby commercial airports is more difficult.
The community told DOT in the grant application that the lack of  commercial air service in the region limits the community’s ability to  attract additional industry and recreational travelers. In the grant  application, Somerset noted that the nearest airport at Lexington offered  only a modest amount of nonstop service at a relatively high average fare.  Thus, the community noted that an air traveler wanting to go to or from the  Somerset region was faced with the alternative of driving a considerable  distance and paying high prices for air travel. The community noted that  these factors tended to constrain air travel demand and the economic  development of the Somerset region.
As a result, Somerset in association with the counties of Casey, McCreary,  Pulaski, Russell, and Wayne proposed to conduct a feasibility study to  determine the potential for commercial air service for the Somerset-Pulaski  County Airport. If feasible, the study would also identify a mechanism to  implement an appropriate level of service. The objectives of the application  included:  identifying the level of demand under different operating scenarios- operators, equipment, frequencies, destinations, and fares;  preparing materials for presentation to potential carriers; and  contacting potential carriers to determine implementation needs.
subsections: section_title: Project Funded by Grant
paragraphs: The grant provided Somerset with $95,000 and the community provided a  local contribution of $18,000. The grant was used to complete a feasibility  study for commercial air services in the region and also provided the  community with funds to solicit potential airlines. Specifically the study  goals were to look at (1) potential travel demand for the airport, (2)  development of proposed operating scenarios, (3) economics of operating  scenarios, (4) identification of potential operators, and (5) development of  Somerset-Pulaski County air service marketing plan.
According to the grant application, the potential demand projections would  allow Somerset to estimate demand if air service was available to the  region. The development of proposed operating scenarios would help  determine possible service options, scheduling, and selection of  appropriate aircraft. The economics of operating scenarios would  determine potential operating scenarios of location and aircraft and rank  them accordingly based on their economic potential. Identification of  potential operators would place emphasis on air carriers with the  appropriate equipment to serve the Somerset market. Lastly, a marketing  plan would be developed to include identifying future budgetary needs.
section_title: Grant Outcome
paragraphs: Somerset developed an air service development plan study to document  the air service needs of the community. A local official told us that the  community learned from the development plan that they can support new  air service. The community is currently attempting to attract commuter air  service to help with tourism, to attain more industry, and for better jobs.  According to the local official the air service development plan has led to  initial talks with airlines with regard to providing service to Somerset.
Community officials told us that they predict people using the airport  would be interested in saving time and money by flying out of Somerset.  The community’s feasibility study found that 30 percent of businesses in  the Somerset area stated that good air transportation access is important or  very important for business expansion. For recreation, one local official  told us that the community attracts six to seven million tourists per year,  and that the number could increase if commercial air service were  provided.
Community officials told us that they believe that given the drive time and  costs, such as gas and parking fees at other airports, passengers will utilize  Somerset’s airport. However, one local official told us that to see the new  service succeed the community must support it and market it extensively.  For example, this official suggested that local businesses could tell their  employees to fly the routes served by Somerset to keep the load factors  high.
Furthermore, community leaders told us that the study has had indirect  benefits as well. The study has spurred spin-off improvements at the  airport and community, including new lights at the airport, a new  Instrument Landing System and a new inter-modal transportation park.  Additionally, the community is in the process of building a new $2 million  terminal at the airport, and are adding $1.5 million in airport infrastructure.
section_title: Taos, New Mexico
paragraphs: Taos had scheduled commercial air service at the time of the grant  application via Rio Grande Air to Albuquerque, New Mexico. The service,  provided on 9-seat Cessna Caravans, began in August 1999 with scheduled  service between Taos, Los Alamos, and Albuquerque, New Mexico. In  January 2000, the state helped supplement this service when they awarded  a grant of $100,000 which was matched by the Town of Taos, the Village of  Taos Ski Valley, and the county of Los Alamos. In October 2001, the state  awarded a grant of $190,000 to help fund service between Taos, Ruidoso,  and Albuquerque, New Mexico. Taos provided $25,000 in matching funds,  the Village of Taos ski valley provided $25,000, and Ruidoso provided  $150,000. In 2002, Taos and Ruidoso jointly applied for a Small Community  Air Service Development Program grant. The primary objective of the grant  was to fund Rio Grande’s service to Albuquerque. Ruidoso eventually  decided to withdraw from the grant due to their desire to obtain service to  El Paso, Texas.
According to an airport official, the elevation of the Taos airport (7,091 ft.)  and the length of the runway (5,800 ft.) pose landing problems for aircraft:  the runway is too short and narrow to land many types of airplanes. He told  us that if the runway situation improved they would try to get larger aircraft  to serve Taos. At the time of the grant application, the community noted  that there is a reluctance of some travelers to fly on small aircraft that serve  Taos. Along with reluctance to fly small aircraft, the application noted that  capturing local passengers that drive to Albuquerque is a problem. The  community noted in its grant application that many travelers and travel  agents in other markets were not aware of Rio Grande Air. Additionally, the  community described the air service at the time of the grant application  provided by Rio Grande as fragile due to its relative newness.
The goals of the grant application were to:  fortify Taos’ air service,  expand advertising and promotion to solidify support for the service,   create a self sustaining air service for Taos’ mountain resort   provide a link to new air service through ground transportation  connections and other communities of the Taos/Enchanted Circle  region.
The application sought funds to continue service by Rio Grande Air to  Albuquerque at the time of the grant. At the time of the grant application,  the service was only 2 years old and the community considered it fragile.
subsections: section_title: Project Funded by Grant
paragraphs: The June 26, 2002, grant agreement provided Taos with $500,000. The Town  of Taos, Taos Ski Valley Incorporated, and Taos Aviation Services provided  $200,000. The State of New Mexico provided another $200,000 in state  funding for the project, bringing the overall project total to $900,000.
The application allocated $634,423 of the program’s cost to cover a revenue  guarantee for Rio Grande Airways during the initial phases of service. In  addition, the application allocated the Town of Taos $265,577 for  advertising and promotion of the continuing service. The advertising and  promotion component includes billboards, newspapers, magazines,  television, and radio advertisements. The advertising and promotion  program was used to target the drive market visitor, business travelers, and  in-state tourists.
section_title: Grant Outcome
paragraphs: Rio Grande continued to provide service to Albuquerque until June 2004. At  that time, the service was discontinued because the airline went bankrupt.  An airline official from Rio Grande Airline told us that the support from the  community had not sustained after the Small Community Air Service  Development Program funding was completed. He also told us that there  were many setbacks that the grant could not control, such as a tremendous  drought in the region leading to a weak ski season, a major forest fire that  caused a drop in enplanements and a drop in the overall economy after  September 11. Additionally, the Rio Grande official told us that the airline  needed more planes to improve their economies of scale to support itself.  The official also told us that an airline cannot succeed if all the overhead  costs have to be applied to just two aircraft, since the aircraft become too  expensive to operate.
However, the Rio Grande official told us that the service, when operating,  helped build enplanements and a steady growth in passengers for Taos. An  airport official told us that the project was a success because the  community had a taste of air service and that there is now a demand for  service from Taos to Albuquerque. Table 12 shows the passenger traffic for  Rio Grande Airways from the 2002 grant application year through May  2004.
In 2003, Taos and a consortium of New Mexico communities received  another Small Community Air Service Development grant. The grant  provided intrastate service for Gallup, Taos, and Las Cruces, New Mexico.  The new service began in December 2004 and was provided by Westward  Airways. However the service was discontinued in July 2005 when  Westward Airways filed for bankruptcy.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, other key contributors to this  report were Glen Trochelman, Assistant Director and Robert Ciszewski,  Catherine Hurley, Stuart Kaufman, Alexander Lawrence, Bonnie Pignatiello  Leer, Maureen Luna-Long, and Nitin Rao.