Commercial Aviation: Programs and Options for the Federal Approach to Providing and Improving Air Service to Small Communities
Published: 2006-09-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the last decade, significant changes have occurred in the airline industry. Network 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 the ability of small communities to attract adequate commercial air service. In response to these challenges, Congress has established two key funding programs--the Essential Air Service (EAS) and the Small Community Air Service Development Program (SCASDP)--to help small communities retain or attract air service. However, the sustainability of such funding could be affected by the federal government's fiscal imbalance. In addition, GAO reports have raised questions about how these programs support commercial air service to small communities. Given this environment, this testimony discusses (1) the development and impact of EAS, (2) the status of SCASDP and (3) options for reforming EAS and evaluating SCASDP. The testimony is based on previous GAO research and interviews related to these programs, along with program updates.
section_title: What GAO Found
paragraphs: The EAS program guarantees that communities that were served by air carriers before deregulation continue to receive a certain level of scheduled air service, under certain conditions. A growing number of communities are receiving subsidies under this program and funding for the EAS program has risen more than four-fold over the past 10 years. The federal subsidies have resulted in continued air service to the EAS communities, but if the subsidies were removed, air service might end at many of these communities. SCASDP grantees have used their grants to pursue a variety of goals and have used a variety of strategies, including marketing and revenue guarantees, to improve air service. The program has had mixed results: 11 of the 23 projects completed as of September 30, 2005, showed self-sustaining improvements to air service; while the remaining 12 grantees either discontinued the improvement or the improvement was not self-sustaining. Finally, the number of applications for SCASDP grants has declined--from 179 in 2002 to 75 in 2006. There are options for reforming EAS such as consolidating service into regional airports, which might make it more cost-effective, but also could reduce service to some communities. In 2003, Congress established several programs as alternatives for EAS, but these programs have not progressed. The Department of Transportation has agreed to evaluate completed SCASDP projects, an effort that will be useful when Congress considers the reauthorization of this program in 2008; this could also identify "lessons learned" from successful projects.

section_title: Letter
paragraphs: We appreciate the opportunity to testify today on issues related to the  federal approach to providing air service to small and underserved  communities. Over the last decade, significant changes have occurred in  the airline industry that have affected service to small communities.  Service to small communities decreased as a result of the weak financial  condition of the airline industry that was exacerbated by the events of  September 11, 2001. Some network carriers are still facing challenging  financial conditions which can negatively affect small community air  service. For example, small communities may become cost-cutting targets  because they are often the carrier’s least profitable operation. This, as well  as other changes, have challenged small communities to obtain adequate  commercial air service at reasonable prices.
Two key federal programs help support air service to small communities— the Essential Air Service (EAS) program and the Small Community Air  Service Development Program (SCASDP). EAS, established after airline  deregulation in 1978, is designed to ensure that small communities that  received scheduled passenger air service before deregulation continue to  have access to the nation’s air transportation system. In fiscal year 2006,  Congress appropriated about $109 million to the Department of  Transportation (DOT) for EAS. For fiscal year 2007, the administration  requested that $50 million be allocated for the program and paid for by  overflight fees, while both the House and Senate Appropriations  Committees are proposing $117 million for the program. Congress  established SCASDP in 2000 and has appropriated $20 million annually  from 2002 through 2005 for DOT to award up to 40 grants each year to  communities that have demonstrated air-service deficiencies or higher- than-average fares. However, in fiscal year 2005, DOT transferred $5  million of these funds from SCASDP to EAS. For fiscal year 2006,  Congress authorized $10 million. For fiscal year 2007, the administration  proposed no funding for SCASDP while the House and Senate  Appropriations Committees are proposing $20 million and $10 million,  respectively. In addition, we have reported that it was too early to assess  the effectiveness of SCASDP and have raised questions about the current  structure of EAS.
While the airline industry has been facing fiscal challenges, the federal  government’s financial condition and long-term fiscal outlook also  deteriorated. We have reported on the nation’s long-term fiscal imbalances  and the need for a fundamental and periodic reexamination of the base of  government, ultimately covering discretionary and mandatory programs as  well as the revenue side of the budget. In light of these challenges, we  have identified some options for reforming EAS and recommended that  DOT evaluate SCASDP.
My testimony today will discuss (1) the development and impact of EAS,  (2) the status of SCASDP, and (3) options for reforming EAS and  evaluating SCASDP. My statement is based primarily on the body of  research that we have conducted related to these programs, program  updates, and recent interviews with (and data from) key stakeholders. We  obtained information on the status of projects from the Office of the  Secretary (OST). Based on assessments conducted during previous  reviews, we concluded that the data are reliable for the purposes of this  report. Appendix V contains a list of our related testimonies and reports.  We conducted our work on EAS from March through December 2002 and  our work on SCASDP from September 2004 through October 2005 in  accordance with generally accepted government auditing standards.
In recent years, a growing number of communities have received subsidies  under EAS—expanding from 95 communities in fiscal year 1997 to 152 in  fiscal year 2006. Similarly, funding for EAS has risen more than four-fold  over this 10-year period—from $25.9 million in fiscal year 1997 to $109.4  million in fiscal year 2006. In addition, EAS funds were used to subsidize  about 1 million passenger enplanements in 2004—about 0.15 percent of  the nation’s 706 million annual passenger enplanements. It is possible that  air service might end at many of these communities, if these subsidies  were removed.
Our recent review of SCASDP found that the number of grant applications  was declining, grantees were pursuing a variety of goals and strategies for  supporting air service, and completed grants had mixed results.  Specifically, we found that the number of applications for SCASDP has  declined—from 179 in 2002 to 75 in 2006. We also found that the goals  grantees are pursuing include trying to add flights and destinations, or  trying to obtain lower fares. The different strategies grantees are  employing to improve air service in their communities include offering  subsidies or revenue guarantees to airlines, marketing, hiring personnel,  and conducting studies. Finally, although we could not assess the  effectiveness of the program, since few projects—23 of 157—had been  completed at the time of our review, we found the results of the completed  projects were mixed. Of the 23 projects, 11 had implemented a self- sustaining improvement to air service, while the remaining 12 had not.
To ensure the effective use of scarce resources, these programs need to be  examined and options for program improvement need to be addressed. We  have previously reported on some options for changing EAS to potentially  make it more cost-effective. These options include (1) targeting subsidized  service to more remote communities, (2) better matching capacity with  community use, (3) consolidating service to multiple communities into  regional airports, and (4) changing the form of the federal assistance from  carrier subsidies to local grants. These changes require legislative action.  Although these options might make EAS more cost-effective, they could  also reduce service to some areas. In 2003, the Vision 100-Century of  Aviation Reauthorization Act, (Vision-100) provided for several alternative  programs for EAS communities. However, these programs have not  progressed due, in part, to a lack of response from EAS communities.
Regarding SCASDP, as we recommended, DOT plans to conduct a  comprehensive evaluation of completed projects after fiscal year 2006. The  results of such an evaluation will be useful when Congress considers the  reauthorization of this program in 2008 and could result in identifying  “lessons learned” from successful projects. These lessons could be shared  with other small communities that are trying to improve air service, and, if  needed, to reform and refocus the program.
subsections: section_title: Background
paragraphs: Before I discuss these issues in detail, let me sketch the background of air  service to small communities and these programs. Air service to many  small communities has declined in recent years, particularly after the  September 11, 2001 attacks. As of 2005, scheduled departures at small-,  medium-, and large-hub airports had largely returned to 2000 levels.  However, departures from nonhub airports continued to decline—the  number of departures declined 17 percent at nonhub airports between July  2000 and July 2005. Small-hub airports actually had more scheduled  departures in July 2005 than in July 2000, a fact that clearly distinguishes  them from nonhub airports.
Several factors may help explain why some small communities, especially  nonhubs, face relatively limited air service. First, small communities can  become cost-cutting targets of air carriers because they are often a  carrier’s least profitable operation. Consequently, many network carriers  have cut service to small communities and regional carriers now operate  at many small communities where the network carriers have withdrawn.  Second, the “Commuter Rule” that FAA enacted in 1995 brought small  commuter aircraft under the same safety standards as larger aircraft—a  change that made it more difficult to economically operate smaller  aircraft, such as 19-seat turboprops. For example, the Commuter Rule  required commuter air carriers who flew aircraft equipped with 10 or more  seats to improve ground deicing programs and carry additional passenger  safety equipment. Additionally, the 2001 Aviation and Transportation  Security Act instituted the same security requirements for screening  passengers at smaller airports as it did for larger airports, sometimes  making travel from small airports less convenient than it had been. Third,  regional carriers had reduced the use of turboprops in favor of regional  jets, which had a negative effect on small communities that have not  generated the passenger levels needed to support regional jet service.  Finally, many small communities experience passenger “leakage”—that is,  passengers choosing to drive longer distances to larger airports instead of  using closer small airports. Low-cost carriers have generally avoided flying  to small communities but have offered low fares that encourage  passengers to drive longer distances to take advantage of them.
Mr. Chairman, as you know, Congress established EAS as part of the  Airline Deregulation Act of 1978 to help areas that face limited service.  The act guaranteed that communities served by air carriers before  deregulation would continue to receive a certain level of scheduled air  service. In general, the act guaranteed continued service by authorizing  DOT to require carriers to continue providing service at these  communities. If an air carrier could not continue that service without  incurring a loss, DOT could then use EAS funds to award that carrier a  subsidy. Under the Airline Deregulation Act, EAS was scheduled to  sunset, or end, after 10 years. In 1987, Congress extended the program for  another 10 years, and in 1998, it eliminated the sunset provision, thereby  permanently authorizing EAS.
Funding for EAS comes from a combination of permanent and annual  appropriations. The Federal Aviation Reauthorization Act of 1996 (P.L.  104-264) permanently appropriated the first $50 million of such funding— for EAS and safety projects at rural airports—from the collection of  overflight fees. Congress can appropriate additional funds from the  general fund on an annual basis.
To be eligible for this subsidized service, communities must meet three  general requirements. They (1) must have received scheduled commercial  passenger service as of October 1978, (2) may be no closer than 70  highway miles to a medium- or large-hub airport, and (3) must require a  subsidy of less than $200 per person (unless the community is more than  210 highway miles from the nearest medium- or large-hub airport, in which  case no average per-passenger dollar limit applies). Federal law also  defines the service that subsidized communities are to receive under  EAS. For example, carriers providing EAS flights are required to use  aircraft with at least 15 seats unless the community seeks a waiver. In  addition, flights are to occur at “reasonable times” and at prices that are  “not excessive.” EAS operations to communities in Alaska are subject to  different requirements (e.g., carriers may use smaller aircraft).
Air carriers apply directly to DOT for EAS subsidies. Air carriers set the  subsidy application process in motion when they file a 90-day notice of  intent to suspend or terminate service. If no air carrier is willing to or able  to profitably provide replacement air service without a subsidy, DOT  solicits proposals from carriers who are willing to provide service with a  subsidy. DOT requires that air carriers submit historical and projected  financial data, such as projected operating expenses and revenues,  sufficient to support a subsidy calculation. DOT then reviews these data in  light of the aviation industry’s pricing structure, the size of aircraft  required, the amount of service required, and the number of projected  passengers who would use this service in the community. Finally, DOT  selects a carrier and sets a subsidy amount to cover the difference  between the carrier’s projected cost of operation and its expected  passenger revenues, while providing the carrier with a profit element equal  to 5 percent of total operating expenses, according to statute.
Turning now to SCASDP, Congress authorized SCASDP as a pilot program  in the Wendell H. Ford Aviation Investment and Reform Act for the 21st  Century (AIR-21), to help small communities enhance their air service.  AIR-21 authorized the program for fiscal years 2002 and 2003, and  subsequent legislation reauthorized the program through fiscal year 2008  and eliminated the “pilot” status of the program.
The Office of Aviation Analysis in DOT’s Office of the Secretary is  responsible for administering the program. The law establishing SCASDP  allows DOT considerable flexibility in implementing the program and  selecting projects to be funded. The law defines basic eligibility criteria  and statutory priority factors, but meeting a given number of priority  factors does not automatically mean DOT will select a project. DOT also  considers many other relevant factors in making decisions on projects,  and the final selection of projects is at the discretion of the Secretary of  Transportation. (See app. I for a list of the factors used in DOT  selections.)
SCASDP grants may be made to single communities or a consortium of  communities, although no more than four grants each year may be in the  same state. Consortiums are considered one project for the purpose of this  program. Inclusion of small hubs for eligibility means that some relatively  large airports qualify for this program. For example, Buffalo Niagara  International Airport in Buffalo, New York, and Norfolk International  Airport in Norfolk, Virginia, are eligible for the program; these airports  enplaned over 2.4 million and over 1.9 million passengers in 2005,  respectively. In contrast, small nonhub airports, such as those in Moab,  Utah (with about 2,600 enplanements) or Owensboro, Kentucky (with  about 3,600 enplanements) are also eligible. SCASDP grants are also  available in the 50 states, the District of Columbia, Puerto Rico, and U.S.  territories and possessions. As shown in appendix II, DOT’s awards have  been geographically spread out—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 III  includes information on all SCASDP grants awarded as of August 31, 2006.
section_title: Number of Airports and Amount of EAS Subsidies Has Been Growing
paragraphs: Mr. Chairman, demand for EAS subsidies has been growing over the past  10 years, as has the amount of funds appropriated for the program. As  shown in table 1, for fiscal year 2006, EAS is providing subsidies to air  carriers to serve 154 communities—an increase of 57 communities over  the 1997 low point. The funding for EAS has also grown from $25.9  million in 1997 to $109.4 million in 2006. This amounts to an average of  about $720,000 per EAS community in fiscal year 2006. Appendix II  includes a map showing the locations of current EAS communities and  appendix IV lists EAS communities and their current subsidy amounts.
In addition, in recent years, the number of communities and states  receiving EAS funding has increased. Since 1998, when a $50 million  funding level was established, eight additional states now have EAS  communities. These states include Alabama, Georgia, Kentucky, Maryland,  Mississippi, Oregon, Tennessee and Virginia. Excluding Alaska, where  different program rules apply, four states now have had significant  increases in the total number of communities served by EAS, compared to  1998. The number of EAS communities in Pennsylvania increased by five,  West Virginia and Wyoming increased by four, and New York increased by  three. These states are now among the largest participants in the program,  in terms of the number of communities served.
In 2004, slightly more than 1 million passengers enplaned at airports that  received EAS-subsidized service—about 0.15 percent of the more than 706  million passenger enplanements in the United States that year. As of May  1, 2006, 13 regional air carriers served the subsidized communities in the  continental United States, and 15 served those in Alaska, Hawaii, and  Puerto Rico. The carriers serving the communities in the continental  United States typically used turboprop aircraft seating 19 passengers,  whereas in Alaska, Hawaii, and Puerto Rico, the most commonly used  aircraft seated 4 to 9 passengers.
If EAS subsidies were removed, air service may end at many small  communities. EAS subsidies have helped communities that were served by  air carriers before deregulation continue to receive scheduled air service.  Since air carriers have to show financial data to support a subsidy  calculation, it is likely that if the subsidy is no longer available commercial  air service would also end. Furthermore, according to a DOT official, once  a community receives subsidized air service it is rare for an air carrier to  offer to provide unsubsidized air service. Finally, in previous work, we  reported that subsidies paid directly to air carriers have not provided an  effective transportation solution for passengers in many small  communities.
section_title: The Small Community Grant Program Has Had Mixed Results
paragraphs: Mr. Chairman, our previous work was not able to evaluate the overall  effectiveness of SCASDP; however, we found that SCASDP grantees  pursued several goals and strategies to improve air service, and that the  projects have obtained mixed results. In addition, the number of  applications for SCASDP has declined each year.
As shown in figure 1, in 2002 (the first year SCASDP was funded) DOT  received 179 applications for grants; and by 2006 the number of  applications had declined to 75. DOT officials said that this decline was, in  part, a consequence of several factors, including: (1) many eligible airport  communities had received a grant and were still implementing projects at  the time; (2) the airport community as a whole was coming to understand  the importance DOT places on a fulfilling the local contribution  commitment part of the grant proposal; and (3) legislative changes in 2003  that prohibited communities or consortiums from receiving more than one  grant for the same project, and that established the timely use of funds as  a priority factor in awarding grants. There have been 182 grant awards  made in the 5 years of the program. Of these, 56 grants are now  completed—34 from 2002, 15 from 2003, and seven from 2004. Finally, as  of August 31, 2006, DOT had terminated seven grants it initially awarded.
Although at the time of our review it was too soon to determine the overall  effectiveness of the program, our review of the 23 projects completed by  September 30, 2005, found mixed results. The kinds of improvements in  service that resulted from the grants included adding an additional air  carrier, destination, or flights; or changing the type of aircraft serving the  community. In terms of numbers, airport officials reported that 19 of the  23 grants resulted in service or fare improvements during the life of the  grant. In addition, during the course of the grant, enplanements rose at 19  of the 23 airports. However, after the 23 SCASDP grants were completed,  11 grants resulted in improvements that were self-sustaining. Three  additional improvements were still in place, although not self-sustaining;  thus 14 improvements were in place after the grants were completed. (See  fig. 2.)
Charleston, West Virginia provides an example of a successful project.  With the aid of a SCASDP grant, Charleston was able to add a new carrier  and new nonstop service to a major market, Houston. At the time of our  review, and after the grant was completed, this service was continuing at  the level the grant provided.
Finally, for SCASDP grants awarded from 2002 though 2004, we surveyed  airport officials to identify the types of project goals they had for their  grants. We found that grantees had identified a variety of project goals to  improve air service to their community. These goals included adding  flights, airlines, and destinations; lowering fares; upgrading the aircraft  serving the community; obtaining better data for planning and marketing  air service; increasing enplanements; and curbing the loss of passengers to  other airports. (See fig. 3 for the number and types of project goals  identified by airport directors.)
To achieve these goals, grantees have used many strategies, including  subsidies and revenue guarantees to the airlines, marketing, hiring  personnel and consultants, and establishing travel banks in which a  community guarantees to buy a certain number of tickets. (See fig. 4.) In  addition, grantees have subsidized the start-up of an airline, taken over  ground station operations for an airline, and subsidized a bus to transport  passengers from their airport to a hub airport. Incorporating marketing as  part of the project was the most common strategy used by airports. Some  airline officials said that marketing efforts are important for the success of  the projects. Airline officials also told us that projects that provide direct  benefits to an airline, such as revenue guarantees and financial subsidies,  have the greatest chance of success. According to these officials, such  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. They further noted that, in the current  aviation economic environment, carriers cannot afford to sustain losses  while they build up passenger demand in a market. The outcomes of the  grants may be affected by broader industry factors that are independent of  the grant itself, such as a decision on the part of an airline to reduce the  number of flights at a hub.
section_title: Options Exist for Reforming EAS and Evaluating SCASDP
paragraphs: Mr. Chairman, let me now turn to a discussion of options both for the  reform of EAS and the evaluation of SCASDP. I raise these options, in part,  because they link to our previous report on the challenges facing the  federal government in the 21st century, which notes that the federal  government’s long-term fiscal imbalance presents enormous challenges to  the nation’s ability to respond to emerging forces reshaping American  society, the United States’ place in the world, and the future role of the  federal government. In our previous report, we call for a more  fundamental and periodic reexamination of the base of government,  ultimately covering discretionary and mandatory programs as well as the  revenue side of the budget. In light of these challenges, Congress may wish  to weigh options for reforming EAS and obtaining additional information  about SCASDP’s effectiveness—information that could be obtained if DOT  follows our recommendation to evaluate the program’s effectiveness once  more grant projects have been completed.
subsections: section_title: Examine Options for Enhancing EAS
paragraphs: In previous work, we have identified options for enhancing the  effectiveness of EAS and controlling cost increases. These options include  targeting subsidized service on more remote communities than is currently  the case, improving the matching of capacity with community use,  consolidating service to multiple communities into regional airports, and  changing the form of federal assistance from carrier subsidies to local  grants; all of these options would require legislative changes. Several of  these options formed the basis for reforms passed as part of Vision-100.  For various reasons these pilot programs have not progressed, so it is  premature to assess their impact. Let me now briefly discuss each option,  stressing at the outset that each presents potential negative, as well as  positive, effects. The positive effects might include lowered federal costs,  increased passenger traffic at subsidized communities, and enhanced  community choice of transportation options. Potential negative effects  might include increased passenger inconvenience and an adverse effect on  local economies that may lose scheduled airline service.
subsections: section_title: Targeting Subsidized Service to More Remote Communities
paragraphs: The first option would be to target subsidized service to more remote  communities. This would mean increasing the highway distance criteria  between EAS-eligible communities and the nearest qualifying airport, and  expanding the definition of qualifying nearby airports to include small  hubs. Currently, to be eligible for EAS-subsidized service, a community  must be more than 70 highway miles from the nearest medium- or large- hub airport. We found that, if the distance criterion was increased to 125  highway miles and the qualifying airports were expanded to include small- hub airport with jet service, 55 EAS-subsidized communities would no  longer qualify for subsidies—and travelers at those communities would  need to drive to the nearby larger airport to access air service.
Limiting subsidized service to more remote communities could potentially  save federal subsidies. For example, we found that about $24 million  annually could be saved if service were terminated at 30 EAS airports that  were within 125 miles of medium- or large-hub airports. This estimate  assumed that the total subsidies in effect in 2006 at the communities that  might lose their eligibility would not be obligated to other communities  and that those amounts would not change over time. On the other hand,  the passengers who now use subsidized service at such terminated  airports would be inconvenienced because of the increased driving  required to access air service at the nearest hub airport. In addition,  implementing this option could potentially negatively impact the economy  of the affected communities. For instance, officials from some  communities, such as Brookings, South Dakota, told us that they are able  to attract and retain local businesses because of several factors relating to  the quality of life there—with one important factor being its scheduled air  service.
section_title: Better Matching Capacity with Community Use
paragraphs: Another option is to better match capacity with community use. Our past  analysis of passenger enplanement data indicated that relatively few  passengers fly in many EAS markets, and that, on average, most EAS  flights operate with aircraft that are largely empty. To better match  capacity with community use, air carriers could reduce unused capacity— either by using smaller aircraft or by reducing the number of flights.  Carriers could use smaller aircraft. For example, we reported that from  1995 to 2002, total passenger traffic dropped at 9 of 24 EAS communities  where carriers added flight frequencies.
Better matching capacity with community use could save federal  subsidies. For instance, reducing the number of required daily subsidized  departures could save federal subsidies by reducing carrier costs in some  locations. Federal subsidies could also be lowered at communities where  carriers used smaller—and hence less costly—aircraft. On the other hand,  there are a number of potential disadvantages. For example, passenger  acceptance is uncertain. Representatives from some communities, like  Beckley and Bluefield, West Virginia, told us that passengers who are  already somewhat reluctant to fly on 19-seat turboprops would be even  less willing to fly on smaller aircraft. Such negative passenger reaction  may cause more people to drive to larger airports—or simply drive to their  destinations. Additionally, the loss of some daily departures at certain  communities would likely further inconvenience some passengers. Lastly,  reduced capacity may have a negative impact on the economy of the  affected community.
section_title: Consolidating Subsidized Service Provided to Multiple Communities into Service at Regional Airports
paragraphs: Another option is to consolidate subsidized service at multiple  communities into service at regional airports. As of July 1, 2002, 21 EAS  subsidized communities were located within 70 highway miles of at least  one other subsidized community. We reported that if subsidized service to  each of these communities were regionalized, 10 regional airports could  serve those 21 communities.
Regionalizing service to some communities could generate federal savings.  However, those savings may be marginal, because the total costs to serve a  single regional airport may be only slightly less than the cost to serve two  or three neighboring airports. For example, in 2002, DOT provided $1.9  million in annual subsidies to Air Midwest, Inc., to serve Ogdensburg and  Massena, New York, with stops at another EAS-subsidized community  (Watertown, New York) before arriving at its final destination of  Pittsburgh, Pennsylvania. According to an official with Air Midwest, the  marginal cost of operating the flight segments to Massena and Ogdensburg  are small in relation to the cost of operating the flight from Pittsburgh to  Watertown. Another potential positive effect is that passenger levels at the  proposed regional airports could grow because the airline(s) would be  drawing from a larger geographic area, which could prompt the airline(s)  to provide better service (i.e., larger aircraft or more frequent departures).
There are also a number of disadvantages to implementing this option.  First, local passengers would be inconvenienced, since they would likely  have to drive longer distances to obtain local air service. Moreover, the  passenger response to regionalizing local air service is unknown.  Passengers faced with driving longer distances may decide that driving to  an altogether different airport is worthwhile, if it offers better service and  air fares. Additionally, as with other options, the potential impact on the  economy of the affected communities is unknown. Regionalizing air  service has sometimes proven controversial at the local level, in part  because regionalizing air service would require some communities to give  up their own local service for the hypothetical benefits of a less  convenient regional facility. Even in situations where one airport is larger  and better equipped than others (e.g., where one airport has longer  runways, a superior terminal facility, and better safety equipment on site),  it is likely to be difficult for the other communities to recognize and accept  surrendering their local control and benefits.
section_title: Changing Carrier Subsidies to Local Grants
paragraphs: Another option is to change carrier subsidies into local grants. We have  noted that local grants could enable communities to match their  transportation needs with individually tailored transportation options to  connect them to the national air service system. As we previously  discussed, DOT provides grants to help small communities to enhance  their air service via SCASDP.
Our work on SCASDP identified some positive aspects of the program that  could be beneficial for EAS communities. First, in order for communities  to receive a Small Community grant, they had to develop a proposal that  was directed at improving air service locally. In our discussion with some  of these communities, it was noted that this required them to take a closer  look at their air service and better understand the market they serve—a  benefit that they did not foresee. In addition, in one case developing the  proposal caused the airport to build a stronger relationship with the  community. SCASDP also allows for flexibility in the strategy a local  community can choose to improve air service, recognizing that local facts  and circumstances affect the chance of a successful outcome. In contrast,  EAS has one approach—a subsidy to an air carrier.
However, there are also differences between the two programs that make  the grant approach problematic for some EAS communities; these  differences should be considered. First, because the grants are provided  on a one-time basis, their purpose is to create self-sustaining air service  improvements. The grant approach is therefore best applicable where a  viable air service market can be developed. This could be difficult for EAS  communities to achieve because, currently, the service they receive is not  profitable unless there is a subsidy. While some EAS communities might  be able to transition to self-sustaining air service through use of one of the  grants, for some communities this would not be the case. In addition, the  grant program normally includes a local cash match, which may be  difficult for some EAS communities to provide. This could systematically  eliminate the poorest communities, unless other sources of funds—such  as state support or local industry support—could be found.
section_title: Vision-100 Small Community Programs Have Not Progressed
paragraphs: In Vision-100, Congress authorized several programs relevant to small  communities. These programs have not progressed for various reasons.  The Alternate Essential Air Service Pilot Program allows the Secretary of  Transportation to provide assistance directly to a community, rather than  paying compensation to an air carrier. Under the pilot program,  communities could provide assistance to air carriers using smaller aircraft,  fund on-demand air taxi service, provide transportation services to and  from several EAS communities to a single regional airport or other  transportation center, and purchase aircraft. Vision-100 also authorized  the Community Flexibility Pilot Program, which requires the Secretary of  Transportation to establish a program for up to 10 communities that agree  to forgo their EAS subsidy for 10 years in exchange for a grant twice the  amount of the EAS subsidy. The funds may be used to improve airport  facilities. (The grants can be used for things other than general aviation.)  DOT has solicited proposals for projects in both of these programs.  However, according to a DOT official, no communities expressed any  interest in participating in these programs. Finally, the EAS Local  Participation Program allows the Secretary of Transportation to select no  more than 10 designated EAS communities within 100 miles, by road, of a  small hub (and within the contiguous states) to assume 10 percent of their  EAS subsidy costs for a 4-year period. However, Congress has prohibited  DOT from obligating or expending any funds to implement this program  since Vision-100 was enacted.
section_title: Evaluate the Effectiveness of SCASDP before Reauthorization
paragraphs: We recently recommended that DOT examine the effectiveness of this  program when more projects are complete. Such an evaluation would  provide DOT and Congress with information about whether additional or  improved air service was not only obtained, but whether it continues after  the grant support has ended. This may be particularly important since our  work on the limited number of completed projects found that, 11 of 23  grantees reported that the improvements were self-sustaining after the  grant was complete. In addition, our prior work on the air service to small  communities found that once financial incentives are removed, additional  air service may be difficult to maintain. Since our report, an additional 33  grants have been completed and DOT’s plans to examine the results from  these completed grants should provide a clearer and more complete  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 Congress considers the  reauthorization of this program in 2008.
In addition to the benefit of providing Congress with information upon  which to evaluate the merits of SCASDP, the evaluation would likely have  additional benefits. In conducting this evaluation, DOT could potentially  find that certain strategies the communities used were more effective than  others. For example, during our work, we found some opposing views on  the usefulness of travel banks and some marketing strategies as  incentives for attracting improved service. As DOT officials identify  strategies that have been effective in starting self-sustaining improvements  in air service, they could share this information with other small  community airports and, perhaps, consider such factors in its grant award  process. In addition, DOT might find some best practices and could  develop some lessons learned from which all small community airports  could benefit. For example, one airport used the approach of assuming  airline ground operations such as baggage handling and staffing ticket  counters. This approach served to maintain airline service of one airline  and to attract additional service from another airline. Sharing information  on approaches like this that worked (and approaches that did not) may  help other small communities improve their air service, perhaps even  without federal assistance.
In conclusion, Mr. Chairman, Congress is faced with many difficult choices  as it tries to help improve air service to small communities, especially  given the fiscal challenges the nation faces. Regarding EAS, I think it is  important to recognize that for many of the communities, air service is  not—and might never be—commercially viable and there are limited  alternative transportation means for nearby residents to connect to the  national air system. In these cases, continued subsidies will be needed to  maintain that capability. In some other cases, current EAS communities  are within reasonable driving distances to alternative airports that can  provide that connection to the air system. It will be Congress’ weighing of  priorities that will ultimately decide whether this service will continue or  whether other, less costly options will be pursued. In looking at SCASDP, I  would emphasize that we have seen some instances in which the grant  funds provided additional service, and some in which the funds did not  work. When enough experience has been gained with this program, the  Congress will be in a position to determine if the air service gains that are  made are worth the overall cost of the program. I would be pleased to  answer any questions that you or other Members of the Subcommittee  may have at this time.
section_title: Contact Information
paragraphs: For further information on this testimony, please contact Gerald L.  Dillingham at (202) 512-2834 or dillinghamg@gao.gov. Individuals making  key contributions to this testimony and related work include Robert  Ciszewski, Catherine Colwell, Daniel Concepcion, Brandon Haller, Dave  Hooper, Stuart Kaufman, Alex Lawrence, Bonnie Pignatiello Leer,  Maureen Luna-Long, John Mingus, and Glen Trochelman.
section_title: Appendix I: Additional Department of Transportation Selection Factors for SCASDP Grants
paragraphs: 1.
How many carriers are serving the community?
2.
How many destinations are served?
3.
What is the frequency of flights?
4.
What size aircraft service the community?
5.
Has the level of servic e been increasing or decreasing over the past 3 years?
6. ng over the past 3 years?
7.
Is the Metropolitan Statistical Area population increasing or decreasing?
8.
Is the per-capita income increasing or decreasing?
9.
Are the number of busin  increasing or decreasing?
10.
What is the proximity to larger air service centers?
11.
What is the quality of road access to other air service centers?
12.
Does the community lac markets? ed top origin and destination  13. hts?
14.
If this is an air service proje willing and committed ct, has the community selected a carrier that is   to serve?
15.
If  his is an air service would serve? project, does the community have a targeted carrier that  1.
Do demographic indicators and the business environment support the  project?
2.
Does the community have a demonstrated track record of implementing air  service development projects?
3.
Does the project address the stated problem?
4.
Does the community have a firm plan for promoting the service?
5.
Does the community hav terminating the projec e a definitive plan for monitoring, modifying, and  t, if necessary?
6.
Does the community  sufficiency or completi have a plan for continued support of the project  on is not attained after the grant expires?
7.
If it is mainly a marketing implementation plan i  does the community have a firm  n place?
8.
Is the applicant a participating consortium?
9.
Is the project innovative?
10.
Does the project have unique geographical traits or other considerations?
11.
Is the amount of funding amount of funding ava  requested reasonable compared with the total  ilable?
12.
Is the local contribution r easonable compared with the amount requested ?
13.
Can the project be compl ng the funding period requested?
14.
Is the applicant a small hub now?
15.
Is the applicant a large nonhub now?
16.
Is the applicant a small nonhub now?
17.
Is the applicant currently subsidized through Essential Air Service?
18.
Is the project for marketing only?
19.
Is the project a study only?
20.
Does the project involve intermodal services?
21.
Is the project primarily a carrier incentive?
22.
Is the project primarily air fare focused?
23.
Does the project involve a low-fare service provider?
24. ft costs from the local or state level to t he federal level?
25.
Does the proposal show that proximity to other service would detract from it?
26.
Is the applicant geographically close to a past grant recipient?
section_title: Appendix III: Status of SCASDP Grants Awarded, 2002 - 2006
paragraphs: Status as of   August 31, 2006  1.  2.  3.
Aleutians East Borough, AK  4.  5.  6.  7.  8.  9.  10.    11.
Brainerd, St Cloud, MN  12.    13.    14.
Casper, Gillette, WY   15.    16.    17.    18.    19.    20.    21.    22.
Lake Havasu City, AZ  23.    24.    25.    Manhattan, KS  26.    Marion, IL  27.    Mason City, IA   28.    Meridian, MS  29.    Moab, UT  30.    Mobile, AL  31.    32.    33.
Status as of   August 31, 2006  34.    35.    36.    37.    38.    39.    40.
Status as of  August 31, 2006   1.  2.
Status as of  August 31, 2006   1.  2.  3.  4.  5.  6.  7.  8.  9.
Clarksburg/Morgantown  (reallocation), WV  11.
Ongoing   Status as of  August 31, 2006   12.    13.    14.    15.    16.    17.
Hot Springs (reallocation), AR  18.    19.    20.    21.    22.    23.    24.    25.    26.    27.    28.    29.    30.    31.
Rutland (reallocation), VT  32.    33.    34.    35.    36.    37.    38.    39.
Syracuse (reallocation), NY  40.    41.
Visalia (reallocation), CA  42.    43.    44.    45.
Worcester (reallocation), MA  46.
Ongoing   Status as of  August 31, 2006   Status as of  August 31, 2006  1.  2.  3.  4.  5.  6.  7.  8.  9.  10.    Greenville, NC  11.    Gulfport/Biloxi, MS  12.    Hancock/Houghton, MI  13.    Hibbing, MN  14.    Huntington, WV  15.    16.    17.    18.    Killeen, TX  19.    Knox County, ME  20.
Ongoing   Status as of  August 31, 2006  28.    Oregon/Washington  Consortium, OR/WA  29.    Rockford, IL  30.    Ruidoso, NM  31.    Somerset, KY  32.    Stewart (Newburgh), NY  33.    Vernal, UT  34.    Williamsport, PA  35.    Wyoming Consortium, WY  1.  2.
Big Sandy Region, KY  3.  4.  5.  6.  7.  8.
Garden City/Dodge City/Liberal, KS  9.  10.    Grand Forks, ND  11.    Harrisburg, PA  12.    13.    14.
section_title: Related GAO Products
paragraphs: Airline Deregulation: Reregulating the Airline Industry Would Reverse  Consumer Benefits and Not Save Airline Pensions. GAO-06-630  Washington, D.C.: June 9, 2006.
Commercial Aviation: Initial Small Community Air Service  Development Projects Have Achieved Mixed Results. GAO-06-21  Washington, D.C: November 30, 2005.
Commercial Aviation: Survey of Small Community Air Service Grantees  and Applicants. GAO-06-101SP. Washington, D.C.: November 30, 2005  Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms  of Underlying Structural Issues. GAO-05-945 Washington, D.C.:  September 30, 2005.
Commercial Aviation: Legacy Airlines Must Further Reduce Costs to  Restore Profitability. GAO-04-836 Washington, D.C.: August 11, 2004 Commercial Aviation: Issues Regarding Federal Assistance for  Enhancing Air Service to Small Communities. GAO-03-540T.  Washington, D.C.: March 11, 2003 Federal Aviation Administration: Reauthorization Provides  Opportunities to Address Key Agency Challenges. GAO-03-653T.  Washington, D.C.: April l0, 2003.
Commercial Aviation: Factors Affecting Efforts to Improve Air Service  at Small Community Airports. GAO-03-330 Washington, D.C.: January 17,  2003 Commercial Aviation: Financial Condition and Industry Responses  Affect Competition. GAO-03-171T. Washington, D.C.: October 2, 2002.
Options to Enhance the Long-term Viability of the Essential Air Service  Program. GAO-02-997R. Washington, D.C.: August 30, 2002.
Commercial Aviation: Air Service Trends at Small Communities Since  October 2000. GAO-02-432. Washington, D.C.: March 29, 2002.
Proposed Alliance Between American Airlines and British Airways  Raises Competition Concerns and Public Interest Issues. GAO-02-293R.  Washington, D.C.: December 21, 2001.  “State of the U.S. Commercial Airlines Industry and Possible Issues for  Congressional Consideration,” Speech by Comptroller General of the  United States David Walker. The International Aviation Club of  Washington: November 28, 2001.
Financial Management: Assessment of the Airline Industry’s Estimated  Losses Arising From the Events of September 11. GAO-02-133R.  Washington, D.C.: October 5, 2001.
Commercial Aviation: A Framework for Considering Federal Financial  Assistance. GAO-01-1163T. Washington, D.C.: September 20, 2001.
Aviation Competition: Restricting Airline Ticketing Rules Unlikely to  Help Consumers. GAO-01-832 Washington, D.C.: July 31, 2001.
Aviation Competition: Challenges in Enhancing Competition in  Dominated Markets. GAO-01-518T. Washington, D.C.: March 13, 2001.
Aviation Competition: Regional Jet Service Yet to Reach Many Small  Communities. GAO-01-344 Washington, D.C.: February 14, 2001.
Airline Competition: Issues Raised by Consolidation Proposals. GAO-01- 402T. Washington, D.C.: February 7, 2001.
Aviation Competition: Issues Related to the Proposed United Airlines-US  Airways Merger. GAO-01-212, Washington, D.C.: December 15, 2000.
Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs, and  Passenger Traffic. RCED-00-34, Washington, D.C.: April 14, 2000.
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