Commercial Aviation: Air Service Trends At Small Communities Since October 2000
Released: 2002-03-29T00:00:00

Letter

Background

The U.S. air transportation structure is dominated by “hub-and-spoke” networks and by agreements between major airlines and their regional affiliates. Since the deregulation of U.S. commercial aviation in 1978, most major airlines have developed hub-and-spoke systems. For example, Northwest Airlines (Northwest) has hubs in Minneapolis, Detroit, and Memphis. United Airlines (United) has hubs in Chicago (at O’Hare International Airport), Denver, Los Angeles, San Francisco, and Washington, D.C. (at Dulles International Airport). Major airlines provide nonstop service to many “spoke” cities from their hubs, ranging from large cities like Portland, Oregon, to smaller communities such as Des Moines, Iowa, and Lincoln, Nebraska. Depending on the size of those markets (i.e., the number of passengers flying nonstop between the hub and the “spoke” community), the major airlines may operate their own large jets on those routes or use regional affiliates to provide service to other communities, usually with regional jet and turboprop aircraft.

The airports in small “spoke” communities are the smallest in the nation’s commercial air system. The Federal Aviation Administration (FAA) and federal law categorize the nation’s commercial airports into four main groups based on the number of passenger enplanements—large hubs, medium hubs, small hubs, and nonhubs. Generally, airports in major metropolitan areas—such as Chicago, New York, Tampa, and Los Angeles—are “large hubs.” There are 31 large hubs, and they serve the majority of airline traffic, accounting for nearly 70 percent of U.S. passenger enplanements in 1999. At the opposite end of the spectrum are the nonhub airports—the airports for the communities that are the focus of this study. In all, 404 airports were categorized as nonhubs in 1999. As a group, they enplaned only about 3 percent of passengers in 1999. Of those airports, we analyzed 267, which are generally the largest airports within this group. These included 202 small community airports in the continental United States and 65 in Alaska and Hawaii. Table 1 provides more information about the four airport categories, along with an illustration of each type.

Most Small Communities Had Limited Air Service in October 2000

The typical community of the 202 small communities in our analysis had nine departing flights per day in October 2000, and most had no jet service. They were typically served by two airlines, though 41 percent had service from only one airline. Individually, however, they varied considerably, from having no more than 1 or 2 daily departures to having more than 60. As a group, their limited level of service is related to their small populations. As individual communities, the varied levels of service reflect differences in other factors such as the level of local economic activity and proximity to nearby airports.

Most Small Communities Had Few Flights and Few Air Carriers, Though Service Levels Varied Considerably

In October 2000, the typical small community among the 202 we analyzed had the following levels of service: Service from two different airlines or their regional affiliates, each providing service to a different hub where passengers could make connections to other flights in the airline’s hub-and-spoke system. However, a substantial minority of the communities—41 percent—had service from only one airline.

Nine departing flights a day, most if not all of them turboprops rather than jets. In all, only 67 of the 202 communities had any jet service.

The level of service varied significantly from community to community. At the higher end were airports serving resort destinations like Key West, Florida, where five different carriers operated 44 average daily departures to six nonstop destinations, and communities such as Fayetteville and Bentonville, Arkansas (the headquarters for Wal-Mart Stores, Inc.), near the Northwest Arkansas Regional Airport, where five air carriers scheduled 42 average daily jet and turboprop departures to seven nonstop destinations. The highest number of daily departures—62—was for Nantucket, Massachusetts, a resort community served by turboprop and even smaller piston aircraft. At the other extreme were communities such as Hattiesburg, Mississippi, and Thief River Falls, Minnesota, with an average of 3 and 1 daily departures, respectively. In total, the 10 small communities with the most air service typically had more than 38 scheduled departures per day, while the 10 small communities with the least air service typically had fewer than 3 scheduled departures per day.Table 2 summarizes the range of air service that was available at the 202 small community airports in October 2000.

For purposes of comparison, appendix II provides additional information on key differences in the scope of air service that airlines scheduled at nonhub and small hub communities. Small hub airports tend to serve somewhat larger communities and have significantly more commercial air service than do the 202 nonhub airports in the continental United States.

Overall Limited Level of Service Reflects Communities’ Small Size

The most obvious reason for the generally limited level of service at these small communities is their small size. As a whole, the 202 airports served a small portion of the U.S. population and geographic territory. In 2000, the median population of the 202 nonhub airport communities in our analysis was about 120,000, and the median number of daily passenger enplanements in 1999 was about 150. However, airports typically serve populations and businesses in a larger surrounding area—typically referred to as a “catchment area.” An airport’s catchment area is the potential geographic area for drawing passengers. The geographic size of a catchment area varies from airport to airport depending on such factors as how close an airport is to other airports and whether the airport is served by a low-fare airline (and, therefore, attractive to passengers from farther away). Catchment area size estimates provided by the airport directors we surveyed showed that these airports potentially serve a total population of about 35 million (about 12 percent of the continental U.S. population).Figure 1 shows the location and catchments areas of the 202 airports in our analysis as estimated by airport directors responding to our survey and our estimates of catchment areas for those who did not respond to the survey.

The small size of these markets greatly affects the level of service because airlines’ decisions about offering service are motivated primarily by the need to maintain profitability. An airline’s profitability generally depends on its ability to generate revenues in a given market while managing its costs. The airline industry is capital- and labor-intensive and is largely dependent on passenger traffic for its revenues. The airlines use sophisticated computer models to help them identify whether certain markets can be served profitably. The limited amount of passenger traffic from many of these communities limits the number of flights airlines provide. It is also not surprising that turboprops have typically provided most service to these communities, because turboprop aircraft are generally the least expensive type of aircraft to buy and operate.

The role of size in limiting a small community’s service can be seen by stratifying the small communities into population groups. As part of our analysis, we separated the 202 small communities into three groups— those smaller than 100,000, those with populations of 100,000 to 249,999, and those with populations of 250,000 and greater. As figure 2 shows, the “smallest of the small” typically had lower median levels of service as measured by such indicators as number of daily departures (both turboprop and jet) and service from more than one airline.

Variation in Air Service Is Related to Level of Local Economic Activity

Besides population, a variety of other factors may influence how much service an individual community receives. In our analysis, two such factors stood out. One of these was the level of economic activity. The airline industry is highly sensitive to the business cycle, and its economic performance is strongly correlated with fluctuations in personal disposable income and gross domestic product. When the economy is growing, the demand for air transportation grows, allowing carriers to raise yields (prices) and profitability. When the economy falls into recession, unemployment grows, individuals postpone discretionary travel, and airline yields and profitability decline. In particular, a key element to the profitability of an airline’s operation in a given location is the availability of high-yield passenger traffic—that is, business travelers who are more likely to pay higher airfares than leisure travelers. Communities with greater amounts of local business activity may have more (and different) air service than communities with less economic activity. Of course, the reverse may also be true—that local economic activity cannot improve without enhanced air service. Thus, the presence or absence of air service may also positively or negatively affect local economic activity, rather than local economic activity dictating the amount and type of air service.

Our analysis showed a statistically valid relationship between the economic characteristics of small communities and the amount of air service that they received. Economic principles led us to expect that passenger demand for air service would be greater in communities with more jobs and higher incomes. Our results were consistent with these expectations. Larger communities with more income and “regional product” had service from more major carriers and had more weekly departures. For example, for every additional 25,000 jobs in a county, a community received 4.3 more jet departures per week and 4.8 more turboprop departures per week. Similarly, for every additional $5,000 in per capita income, a community received 3.3 more jet departures per week and 12.7 more turboprop departures per week. In other words, if two small communities, A and B, were similar except that Community A had $5,000 more in income per capita than Community B, Community A would have had 16 more departures per week than Community B.

Variation Is Also Related to Proximity to Larger Airports

A third main factor that stood out as helping to explain the variation in service levels between small communities, in addition to relative size and economic activity, was the community’s relative proximity to larger airports. If a small community is located within relatively close driving distance of another commercial airport, passengers may drive to the other airport, rather than fly to or from the local community airport. This tendency to lose passengers to other airports is referred to as “leakage.” Of the 202 small communities in our study, 94 (47 percent) are within 100 miles of an airport that is served by a low-fare airline or that serves as a hub for a major airline. Figure 3 shows circles with 100-mile radiuses around those hub or low-fare carrier airports, and thus the number of small communities that are within 100 miles of those alternative airports. As figure 3 also shows, the concentration of nonhub airports that are close to larger airports is much greater east of the Mississippi River than west of the river. Over 70 percent of the eastern small communities are within 100 miles of a hub or low-fare airport, compared with 26 percent of the western small communities.

Our survey of small community airport officials confirmed the likely effect of being close to alternative airports. When asked whether they believed local residents drove to another airport for airline service (prior to September 11), over half of them said that they believed this occurred to a great or very great extent. Eighty-one percent of them attributed the leakage to the availability of lower fares from a major airline at the alternative airport. According to the results of our survey of airport directors, more small community airports that are closer to other larger airports experience a greater extent of passenger leakage than small community airports that are farther away from other larger airports.

We were not able to obtain and analyze certain key data that might explain in detail why passengers might opt to use different airports rather than their local facility. In particular, we were not able to obtain information on the differences in airfares among competing airports. However, prior GAO reports indicate that fares at small community airports tend to be higher than fares at larger airports. While choosing to drive to other airports in the vicinity that offer service from other airlines may allow passengers to gain the flight options and fares they want or need—a clear benefit to the individual traveler—it likely affects the local community’s ability to attract or retain other competitive air service. In addition, there may be other factors that influence the amount and type of service that air carriers can provide at small communities. As agreed, we intend to examine possible approaches to enhancing air service to these communities in a subsequent report.

Airline Service at Small Communities Declined Between October 2000 and October 2001

Between October 2000 and October 2001 (revised), the number of total daily departures in small communities dropped by 19 percent. Airlines planned part of these decreases before September 11 (a 6 percent reduction) but made even steeper reductions (13 percent) afterward. In 36 communities, at least one of the airlines providing service withdrew entirely from the market, with most of these withdrawals coming before September 11. The number of communities with service from only one airline grew by 12, raising the percentage of communities with one-airline service to 47 percent. While many communities lost service, carriers initiated service at 14 communities. Nearly all of these gains occurred prior to September 11.

Air Service Levels in Small Communities Declined Both Before and After September 11 Attacks

Airlines substantially reduced total scheduled departures at the 202 small communities we reviewed between October 2000 and October 2001. As figure 4 shows, airlines scheduled an average of 2,406 departures daily during the week of October 15–21, 2000. In their original schedules for the week of October 15–21, 2001 (that is, the schedules prepared before September 11), airlines had planned to operate an average of 2,257 departures per day, a reduction of 6 percent from the October 2000 level. Airlines made further—and sharper—service reductions following September 11. According to our analysis of the airlines’ revised schedules for October 2001, the average number of scheduled daily departures from smaller communities dropped to 1,937, or about 320 (13 percent) fewer departures than originally planned. Combined, these schedule changes amounted to a total reduction of about 19 percent from October 2000’s flight schedule. The median community in our group of 202 had nine daily departures in October 2000. After the combined drop that was planned both before and after September 11, the median community had six daily departures in October 2001.

October 2001 (original)

October 2001 (revised)

Other industry data regarding service decreases was consistent with the decreases identified in our 202 small communities. According to one industry analysis, the changes in daily scheduled seats from U.S. airports were generally comparable across airports of all sizes. Small hubs experienced a greater relative decrease in service (-15.5 percent) compared to nonhubs (-13.5 percent). Large hubs had the greatest relative decrease in total available seats (-16.3 percent), and medium hubs had a smaller decrease (-12.4 percent).

The 19-percent drop in average daily departures came almost exclusively on turboprop flights. In October 2000, 67 of the 202 communities had some jet service. Airlines tended not to reduce jet flights in those locations where they already were in place. Overall, there were slightly more jet departures in October 2001 than in October 2000. As table 3 shows, median daily turboprop departures dropped from 8 to 6 before September 11 and from 6 to 5 afterward. On other service measures—number of airlines providing service and number of nonstop departures—the median for these communities remained the same.

Communities Saw Net Decline in Number of Airlines Providing Service

While the typical small community had the same number of airlines— two—providing service both in October 2000 and October 2001, a number of communities gained or lost a carrier. In the aggregate, the movement was downward, with 36 communities experiencing a net decline in the number of airlines providing service and 14 communities experiencing a net increase. For the 36 communities that lost airlines, most lost them as a result of airline decisions made prior to September 11. Likewise, communities that experienced net gains in the number of carriers did so primarily as a result of airline decisions made before September 11. Among communities that lost airlines, two (Cumberland, Maryland, and Rockford, Illinois) lost service altogether.

The overall effect of these gains and losses was a decrease in the number of communities served by four, three, and two airlines and an increase in the number of communities served by only one airline (see fig. 5). In all, the number of communities served by only one airline increased from 83 (41 percent) to 95 (47 percent) of the 202 communities in our review.

At a minimum, communities that lost an airline were at risk of losing connecting service to some destinations. Of the 36 communities that lost service from an airline, 5 lost the services of a carrier but did not lose access to other destinations, but 31 lost connecting service to other destinations. For example, when Abilene, Texas, lost its service from one of the two airlines that had been providing service, it lost one-stop connections to 14 destinations. Excluding the 2 communities that lost all service, the other 34 communities lost an average of 12 one-stop connections when one of the carriers discontinued flight operations there.

Service changes at Lake Charles, Louisiana, illustrate what happens when an airline withdraws from a market. In October 2000, Continental Express and American Eagle both served Lake Charles Regional Airport. Continental Express was the dominant carrier, providing 40 weekly flights (57 percent of the total capacity, as measured by the number of available seats on departing flights). After September 11, American Eagle discontinued its 27 weekly flights from Lake Charles to Dallas-Fort Worth. Continental Express continued to fly, offering 38 weekly flights (2 fewer) to Houston. The loss of American Eagle’s service also meant that Lake Charles’s passengers could no longer reach 13 other destinations via one- stop connections at Dallas—destinations that Continental did not serve.

It is difficult to assess the effect of losing a carrier on competition at a particular community. For one thing, the number of carriers providing service to a small community is an imperfect measure of competition. In the airline industry, competition is normally defined in terms of the number of different carriers serving the same city-pair market—that is, the route between the same two cities. Most small communities that received service from two or more carriers had nonstop flights to two or more airlines’ hubs. In the nonstop markets between the small community and those hubs, there was probably little direct competition initially; passengers, therefore, experienced little if any loss of competition on those routes if one of the carriers discontinued service. However, if the passenger’s final destination was not an airline hub city, then different airlines may compete directly in offering connecting service to the same destination city but through their different respective hubs. In such cases, the loss of an airline’s service at a small community means the loss of a competitive choice. Where competition is lost, the risk that consumers may be subject to higher airfares increases.

National Economic Decline and September 11 Attacks, Along with Airlines’ Strategic Decisions, Underlie Shifts in Air Service

Two primary external events that occurred since October 2000—the economic decline that began in early 2001 and the collapse of airline passenger traffic after September 11—significantly affected carriers’ financial conditions and thus influenced decisions about service throughout their networks, including service to small communities. As the nation’s economic performance declined, fewer passengers opted to fly. Consequently, airline revenues dropped, and airlines sought ways to control costs. They did so, in part, by reducing scheduled operations. In many small communities, they reduced the number of flights they were providing, and in some communities where they had a small portion of the market, they pulled out altogether. After September 11, passenger traffic and revenue plummeted, exacerbating the situation. Beyond their reactions to the economic slowdown and the events of September 11, airlines also made some changes on the basis of long-range decisions about the composition and deployment of their fleets—decisions, generally, to reduce turboprop operations and increase regional jet service. Some communities lost service as carriers retired certain types of small aircraft.

Broad National Economic Decline and September 11 Attacks ad Significant Effects on Airline Service Levels Nationwide

Nationally, the U.S. economy slowed down during 2001 and moved into its first recession (as defined by the National Bureau of Economic Research) since 1991. This change in the national economy is reflected in airline passenger and revenue data. In the latter parts of 2000, monthly airline passenger traffic and revenue were still growing compared with the same periods in 1999. But beginning in February 2001, passenger traffic generally declined. Additionally, reflecting a drop in high-yield business traffic, total passenger revenues decreased at a steeper rate than passenger traffic, as shown in figure 6. For the U.S. airline industry as a whole, data from the Bureau of Transportation Statistics (BTS) indicate that airlines’ net income turned negative in the second quarter of 2001. Simultaneously across the industry, airline costs were rising. Carriers began efforts to control costs, in part by reducing service. As the economy slowed down, industry analysts projected that U.S. commercial airlines would lose over $2 billion in 2001.

The events of September 11 accelerated and aggravated negative financial trends already evident in the airline industry. In response to significant losses experienced by the carriers stemming from the temporary shutdown of the nation’s airspace and the drop in passenger traffic, the president signed the Air Transportation Safety and Stabilization Act, which provided up to $4.5 billion in emergency assistance to compensate the nation’s passenger air carriers for these losses. The change in the airlines’ financial condition may be attributable to both the continued deterioration of passenger revenues and the inability of airlines to cut their expenses proportionately. Figure 7 shows the significant drop in passenger traffic after September 11. Data from BTS indicate that passenger enplanements between September 2000 and September 2001 on large air carriers dropped by over 34 percent nationally.

As passenger traffic and revenues plummeted, carriers’ efforts to control costs included significant reductions in total capacity—in other words, service reductions. These reductions were dramatic. According to data from BTS, carriers flew 20 percent fewer departures in September 2001 than in September 2000. Different airlines approached such cost-cutting in different ways. For example, US Airways retired 111 older aircraft from its fleet, eliminating its Boeing 737-200s, MD-80s, and Fokker F-100s. Some carriers also replaced service from their large mainline jets with smaller aircraft operated by regional affiliates to better match capacity with passenger demand, as United did in some markets. In addition, United reduced the total number of departures in its system from about 2,400 before September 11 to 1,654 by October 31, in part by reducing early morning and late evening flights. Service to smaller communities was affected as part of the overall decrease in operations.

Service Decisions for Small Communities Reflect Airlines’ Attempts to Adjust to the National Downturn

These two factors—the economic downturn and aftermath of September 11—played out in small communities as well as in larger markets. As with the nation as a whole, small communities saw dramatic decreases in passenger traffic. According to our survey of airport officials, passenger traffic at small communities fell by 32 percent between September 2000 and September 2001—about the same percentage that, according to BTS data, passenger traffic decreased throughout the country. Over 80 percent of the airport managers we surveyed reported that passenger fear (that is, general apprehension related to the events of September 11, 2001) was a key factor in decreased enplanements at their airport since September 11. Airport directors also reported that passenger enplanements dropped because of air carrier service changes (e.g., fewer departures, smaller aircraft, or fewer carriers). In addition, managers indicated that basic economic conditions and post-September 11 airport security requirements reduced enplanements. Thus, the general reductions in service that occurred at small communities can be seen as reflecting airlines’ overall response to these factors.

Another way that these factors can be seen at work in small communities is in the decisions airlines made to withdraw from a community. In most cases, when an airline withdrew entirely from a community, it was a community in which the airline was competing with other airlines and had only a limited market share. More specifically, of the 36 small communities that lost a carrier between October 2000 and October 2001, there were only six instances in which the carrier that discontinued operations was the largest service provider at the community.

The effect of these decisions to withdraw from multiple-carrier markets can be seen in one characteristic we observed in the airline schedule data we analyzed: Among the 202 communities we analyzed, service reductions tended to be greater in those communities with populations above 100,000 than in communities with populations below 100,000. This was true across several types of service indicators, such as number of carriers, total number of daily departures, and number of nonstop flights to more than one destination. Across all these indicators, communities with populations below 100,000 typically had lower levels of service than their larger counterparts both in October 2000 and October 2001, but compared with these larger communities, they lost less of that service during the 1-year period we measured. One reason may be that over half of small communities with populations less than 100,000 were served by only one airline, both in October 2000 and in October 2001. Thus, airlines’ decisions to withdraw from multiple-carrier markets had little effect on them.

Internal Airline Strategies Dictated Other Schedule Changes

While the economic downturn and the events of September 11 were potent factors in shaping airline service to small communities, some of the changes that were occurring reflected airline efforts on other fronts. The number of departures or available seating capacity at some small community airports changed when some major airlines directed their regional affiliates to shift some of their aircraft fleets to operate at different hubs in their systems. Similarly, changes in the number of departures or available seating capacity at some small community airports reflected strategic decisions that carriers had made about the composition and deployment of their fleets—decisions to replace their turboprop aircraft with regional jet aircraft. These decisions were made with the concurrence of the regional carriers’ mainline partners. Three examples illustrate how such restructurings often affected service to some small communities.

Northwest’s Restructuring with Regional Affiliates

According to a Northwest official, the carrier began restructuring parts of its Northwest Airlink regional fleet in 2002. Northwest began retiring turboprops at its wholly-owned affiliate, Express Airlines I, while increasing the number of regional jets in that carrier’s fleet and deploying them at all three of its hubs—Detroit, Minneapolis/St. Paul, and Memphis. Northwest decided that its other regional carrier, Mesaba Airlines, would become the sole operator of turboprops at its hubs beginning in February 2002. Mesaba also operates 69-seat regional jets.

According to our analysis, between October 2000 and October 2001, Express Airlines I and Mesaba altered service at 60 small communities. Overall, more small communities lost service than gained service from these carriers during this period. A total of 49 small communities lost some capacity (e.g., through a reduction in flight frequency or use of smaller aircraft) from these carriers, with four of them losing service from Express Airlines I and Mesaba entirely because, according to a Northwest official, they were no longer profitable. On the other hand, 11 communities gained service—9 of them gaining additional flights or extra capacity through larger aircraft, and 2 gaining start-up service from the two airlines. Appendix VI provides more information about the small community service changes made by Express Airlines I and Mesaba between 2000 and 2001.

United’s Contract Renegotiation with One of Its Regional Affiliates

Service changed at some communities when United renegotiated the contract with one of its regional carriers—Great Lakes Aviation. In 2000, both Great Lakes and Air Wisconsin served as United Express carriers operating between United’s Chicago and Denver hubs. However, beginning in May 2001 under a revised contract, Great Lakes no longer operated as a United Express carrier and instead continued in a “codesharing”relationship with United. Under this new arrangement, Great Lakes could decide which markets it served, but United was free to decide whether or not to codeshare on those routes. Furthermore, United expanded the amount of service Air Wisconsin (as a United Express carrier) provided to many of these communities.

Of the 202 communities in our study, 16 were served by Great Lakes, 15 by Air Wisconsin, and 9 by both. Between October 2000 and October 2001, United’s changes altered air service between 39 of the 40 communities served by one of these carriers. Of the 39 communities with service changes, Great Lakes pulled out completely from 4. Either Great Lakes or Air Wisconsin decreased capacity at another 30 communities. Five communities gained new service or additional capacity. Appendix VII provides more information about the communities and how they were affected.

Some Regional Carriers Adopt “All-Jet” Strategies

According to industry sources, some of the decline in turboprop flights and gain in jet flights can be attributed to strategies that some carriers adopted in recent years to phase out turboprop aircraft and replace them with regional jets.

For example, Atlantic Coast Airlines, Inc., which operates as a United Express and as a Delta Connection carrier, is planning to become an “all-jet” carrier by the end of 2003. In October 2000, Atlantic Coast operated 87 aircraft, including 34 regional jets and 53 turboprops, to 51 destinations from Washington Dulles and Chicago O’Hare. Of those 51 markets, 21 were served exclusively with turboprops. In October 2001, Atlantic Coast operated 117 aircraft, including 81 regional jets and 36 turboprops, to 60 destinations. Of those 60 markets, 15 were served exclusively with turboprops. By December 2001, Atlantic Coast had retired all of its 19-seat turboprop aircraft and ended service to two small communities—Lynchburg and Shenandoah Valley, Virginia—when it did so. Other regional carriers, such as American Eagle and Continental Express, have also decided to become “all-jet” carriers.

Concluding Observations

It is not surprising that most small communities have fewer carrier options and less competition than larger communities. The economics of airline operations—that is, the need to cover the cost of operating turboprop or jet service with sufficient passenger revenue—mean that small communities that generate relatively little passenger traffic make profitable operations difficult. Because small communities generate relatively little passenger traffic (especially high-fare business traffic), they tend to have more limited air service than larger communities. As a result, passengers who use these communities’ airports often have less service: fewer nonstop flights to fewer destinations.

The declines in air service at small communities in 2001 generally paralleled declines at larger airports. However, because small community airports had much more limited service initially, such decreases may subject passengers to or from those communities to significant effects. For example, when small communities lose a competitive air carrier choice, they may lose access to many destinations through one-stop connecting service. Similarly, although we were unable to analyze how airfares changed when the number of carriers serving a community changed, travelers to or from those communities that lost service from one or more carriers may be more vulnerable to noncompetitive pricing and service patterns.

The number of communities subject to this vulnerability increased during 2001. Because of the relationship between economic activity and air service, airlines may restore some air service at small communities when local economic conditions improve. However, trends in the industry— such as the replacement of some turboprop aircraft with regional jets— may make it increasingly difficult for air carriers to operate competitive and profitable air service to some small communities.

Agency Comments

We provided a copy of the draft report to DOT for review and formal comment. We also provided sections of our draft report for technical comment to Northwest Airlines, United Airlines, Great Lakes Aviation, and Air Wisconsin. Officials with DOT and the airlines offered only technical comments, which we incorporated into the report, as appropriate.

We are sending copies of this report to the Honorable Norman Y. Mineta, secretary of transportation; United Airlines; Northwest Airlines; the Regional Airline Association; and other interested parties. We will also send copies to others upon request.

If you or your staffs have any questions about this report, please contact me, HeckerJ@gao.gov, or Steve Martin at (202) 512-2834, MartinS@gao.gov. Other key contributors to this report are listed in appendix VIII.

Appendix I: Objectives, Scope, and Methodology

This report examines the changing air service conditions in small communities. Our work focused on three objectives: (1) describing the overall level of air service at the nation’s small communities in 2000 and the main factors that contributed to that service level; (2) examining how the nature and extent of air service changed among the nation’s small communities in 2001, including a specific accounting for how service changed after the September 11 terrorist attacks; and (3) identifying key factors that have influenced these air service changes.

To analyze the overall level of service in 2000 and how the nature and extent of air service at small communities changed in 2001, we first defined the universe of small communities. We began by including all nonhub and small hub airports, which various statutes define as small communities. We then narrowed that definition by including only those nonhub and small hub airports included on the Air Carrier Activity Information System (ACAIS) that supports the Federal Aviation Administration’s (FAA) Airport Improvement Program (AIP) entitlement activities. The ACAIS database contains data on cargo volume and passenger enplanements submitted by air carriers to the Department of Transportation (DOT).

The ACAIS database categorizes airports by the number of annual enplanements. According to a DOT official, there are three categories: Primary: Public airports with scheduled, commercial air service with at least 10,000 annual enplanements. These airports are eligible for a minimum entitlement AIP funding of between $650,000 and $1 million.

Nonprimary: Public airports with scheduled, commercial air service with annual enplanements between 2,500 and 9,999. These airports are not eligible for AIP entitlement funds, but are eligible for “commercial service funds,” which are discretionary AIP funds.

Other: Airports that have scheduled service, but not necessarily commercial service and have less than 2,500 enplanements.

To limit the scope of our research, we included only those airports that had more than 2,500 annual enplanements (approximately 7 passengers enplaning per day) in 1999. From this list, we eliminated airports that were located in territories, those at which commercial service was subsidized through DOT’s Essential Air Service (EAS) program as of July, 2001,those for which our data indicated that carriers had scheduled no service at any time between June 2001 and July 2002, and those nonhub airports that were located in metropolitan areas with populations of one million or greater (e.g., Meigs Field in Chicago). We eliminated the latter group of airports because travelers in those metropolitan areas are not limited to air service from the small airport; rather, they have a choice of other larger airports in the immediate area.

We then compared various aspects of air service at the nonhub and small hub airports to see if there was a significant difference between the two. Based on that analysis and agreement with the requesters’ staffs, we defined small communities as those served by nonhub airports that met the above-mentioned conditions. Table 4 summarizes the number of nonhub airports affected by each of these filters.

As part of our analysis, we also grouped the nonhub airports based on the size of the surrounding areas’ populations. Because many of these airports are within metropolitan statistical areas (MSAs), we used those population totals. If an airport was not located within an MSA, we used the county population.

To determine what overall level of service airlines provided at the nation’s small communities in 2000, we examined air service schedules published by the airlines for the week of October 15–21, 2000. As with our previous reports on changes in air fares and service, the types of service we focused our analysis on were: the number of carriers serving the airport, if the airport was dominated by a single carrier, the number of nonstop destinations served out of the airport, the number of hubs served out of the airport, the number of turboprop and jet departures per week out of the airport, and the types of aircraft serving the airport. We determined these air service dimensions using airline flight schedule information submitted by all U.S. airlines that we purchased from the Kiehl Hendrickson Group, an aviation consulting firm. We did not independently assess the reliability of the Kiehl Hendrickson Group’s data, which it purchases from another vendor, Innovata, LLC. According to the Kiehl Hendrickson Group, Innovata employs numerous proprietary quality assurance edit checks to ensure data integrity.

To determine factors associated with those service levels, we reviewed available literature on air service and local economic development, and we interviewed industry officials, consultants, academic experts, and airport officials. Based on that information, we identified a number of factors that relate air service levels with various aspects of small communities. Among the elements identified were the population of those small communities and the proximity of small community airports to other larger airports, many of which served either as a hub for a major airline or which was served by a low-fare carrier. We obtained community population data from the U.S. Bureau of the Census. In addition, we asked the airport directors at the small community airports to estimate the size of their airport’s “catchment area.” An airport’s catchment area is the geographic area from which it draws passengers. For those who did not respond to the survey, we estimated the size of their catchment areas based on the average size of the catchment area for other small community airports in the same geographic region. We then calculated the total population living within the catchment areas using 2000 census tract population data. For each small community airport, we also identified the nearest major airline hub facility and nearest airport served by a low-fare carrier and determined the distance between those airports to the small community airport. We statistically analyzed the extent to which some of the identified factors contributed to overall service levels. That analysis is described in greater detail in appendix V.

To determine how air service has changed at small communities over time, we analyzed changes in scheduled air service for different time periods. We used our analysis of air service for the week of October 15–21, 2000 as a baseline for comparison. To minimize the possible effects of seasonality in air service, we then examined air service schedules for the week of October 15–21, 2001. To identify the service changes at small community airports that might be separately attributable to the 2001 economic downturn and the September 11 terrorist attacks, we examined two different sets of airline schedule data for October 15–21, 2001: those that airlines had published prior to September 11, 2001, and those published by the airlines following September 11, 2001. The first October 2001 schedule dataset reflected the schedule as of August 30, 2001, and is, therefore, not reflective of the airline industry’s reaction to the events of September 11. The second schedule dataset for October 15–21 reflected the schedule as of October 12, 2001. Finally, to determine if airlines continued to make substantial changes to their scheduled service, we also analyzed their schedules for the week of November 1-7, 2001. We recognize that airlines make frequent changes to their service schedules, and that service at these communities may have changed since then. We analyzed the same service elements as for the week of October 15–21, 2000.

To determine factors associated with the changes in service at small community airports, we surveyed airport directors at nonhub and small hub airports. We also interviewed officials from major and commuter airlines, FAA and DOT, and industry experts. The survey responses helped us to identify the individual airport perspectives on how their service has changed and the impact of those changes, as well as the major factors affecting the service changes. We interviewed airline officials to understand how and why the major airlines were reducing and/or transferring small community airport routes to commuter carriers and how the different types of contractual relationships affect the route changes. In addition, airline officials described why many airlines are moving away from turboprop to regional jets. FAA and DOT officials, and industry experts provided further information on the state of the airline industry, particularly the vulnerability of small community airports.

Internet Survey of Airport Directors

To collect information on the operational activities of small and nonhub airports, and the opinions of their managers on a variety of issues, we conducted a Web questionnaire survey of 280 U.S. airports from December 10, 2001, through January 29, 2002.

Using data from the FAA, Kiehl Hendrickson Group, American Association of Airport Executives (AAAE), and the State of Alaska, we developed a sample of 280 small and nonhub airports. We did not survey the airport directors of all nonhub and small hub airports. Because of the special circumstances (e.g., unique remoteness) of smaller Alaska airports, we included another criterion for incorporating them into our database: We only included Alaska small and nonhubs that, in addition to meeting the prior criteria, were Part 139 certified. This additional criterion resulted in a total of 20 Alaska airports being included in our survey.

We developed our survey instrument in consultation with AAAE officials, who reviewed our draft questionnaire and made suggestions about content and format. We also pretested the draft questionnaire at four airports in our study population. These airports were Bellingham International and Spokane International (Washington) and Hagerstown, Maryland, and Richmond, Virginia. We chose these airports because they represented—in terms of annual enplanements, location, and airport type—the kinds of airports that would be asked to complete our final questionnaire. We incorporated changes into our survey instrument as a result of these pretests. The final questionnaire was posted on the World Wide Web for respondents to complete. A complete reproduction of the Web survey can be viewed in Adobe Acrobat pdf format at www.gao.gov/special.pubs/d02432sv.pdf.

We sent e-mail messages or otherwise contacted airports in our survey database in late November 2001 to notify them of our survey. We then sent each airport representative a unique username and password and invited them to fill out an automated questionnaire posted on the World Wide Web in early December of 2001. About 12 percent of the airport representatives completed a paper version of the questionnaire in lieu of completing the survey on-line.

During the survey fieldwork period, we made at least three follow-up contacts with each airport that had not yet responded to ask them to participate. We used all completed responses received by January 29, 2002, in the analysis for this report. We received responses from 207 airports in which the respondent had indicated that they had completed their questionnaire and that GAO could use the data (a 74 percent response rate). Response rates did not vary appreciably across small hub and nonhub airports and results of the follow-up efforts showed no evidence that our survey results were not representative of the actual study population. Some questions in our survey instrument were not answered by all of the airports completing a useable questionnaire, but this rate of item nonresponse was generally low.

In addition to any systematic bias or random error in our survey results that may have been caused by our inability to obtain answers from all of the airports in the population on all of our questions (nonresponse error), estimates from questionnaire surveys may be subject to other sources of error. We took steps to limit these errors. We checked our sample list of airports against other sources to help ensure its completeness, we pretested our questionnaire and had experts review it, and we checked our analysis for programming errors. We did not, however, verify the answers reported by airport directors.

Other Data Limitations to Our Work

Other important issues may be relevant to an analysis of the service changes at small community airports. However, a lack of detailed information on these factors limited the scope of this review. For example, we were not able to obtain information on the differences in airfares at small communities and at competing airports. Airfare data for the quarter including October 2001 would not be available from the Bureau of Transportation Statistics until late February or early March 2002. Additionally, there is a lack of complete and representative fare data for small communities, especially for local passengers who do not connect to large carrier services. This is because public data on airfares is developed from a 10 percent sample of tickets collected from large air carriers, which comprises DOT’s “Passenger Origin-Destination Survey” (O&D Survey). Small certificated air carriers and commuter carriers do not participate in the O&D Survey. Thus, there are inherent statistical sampling limitations in the O&D Survey data. In addition, airlines’ decisions about profitability of operations in certain markets are proprietary confidential.

We conducted our work from April 2001 through March 2002 in accordance with generally accepted government auditing standards.

Appendix II: Small Hub Airports Tend to Have More Commercial Air Service and Were Less Affected by Airline Service Reductions

Small hub airports, the closest point of comparison to nonhubs, tend to serve somewhat larger communities and have significantly more commercial air service than do the 202 nonhub airports in the continental United States included in our analysis. The median population for small hub communities included in our analysis was about 417,000. As table 5 shows, only about 2 percent of small hub communities had service from two or fewer major carriers; the other 98 percent had service from more carriers. Additionally, only about 2 percent of small hub communities had service to three or fewer nonstop destinations; the other 98 percent had nonstop service to more locations. In addition, almost two-thirds of their nonstop destinations were into major airline hubs, and the majority of their flights were on jet aircraft (as opposed to turboprop or piston aircraft).

Compared to small communities with nonhub airports, the communities with small hub airports had much greater daily air service. As table 6 shows, on average, small hubs had significantly more carriers, more jet and turboprop flights, and more nonstop destination options. For example, the median small hub airport community was served by six airlines, compared with two airlines for the small communities in our analysis, and the median number of daily departures was 45, compared with 9 for small communities. Table 6 provides additional information regarding small hubs and compares key differences in the scope of air service that airlines scheduled at these two airport categories.

Compared to the experience of small communities, small hub airports saw relatively little change in their airline schedules during the period we analyzed. For example, there was little change in the number of small hubs that had service from three or more carriers (see figs. 8 and 9). In addition, the number of small hubs with service to more than two nonstop destinations did not change, and the number of small hubs dominated by a single carrier declined slightly.

According to other data on changes in daily scheduled seats from U.S. airports, airports of all sizes experienced generally comparable decreases in total service. Small hubs experienced a greater relative decrease in service (-15.5 percent) compared to nonhubs (-13.5 percent). Large hubs had the greatest relative decrease in total available seats (-16.3 percent), and medium hubs had a smaller decrease (-12.4 percent).

Appendix III: Change in Air Service at 202 U.S. Nonhub Airports, October 2000– October 2001

Appendix IV: Changes in Air Service at Small Communities in Alaska and Hawaii

Unique conditions affecting air service in Alaska and Hawaii required us to look at these two states separately from the rest of the United States. Both states have distinctive geographies: they are both located outside the continental United States and both have unique topographies that require air service to be used as a major source of intrastate travel.

We examined air service at 63 nonhub airports in Alaska and 2 in Hawaii. All of the Alaska airports were located in communities with less than 100,000 population; the median population was 7,208. The median passenger enplanements in 1999 was 5,176 (about 14 per day). The two Hawaii airports were located in larger communities; the average population was 128,094. Their median enplanements in 1999 were 108,258 (about 297 per day).

There was little change in air service at the small community airports in Alaska and Hawaii between October 2000 and October 2001 (revised), as the median level of service represented by the indicators below show (see table 9). None of these airports had nonstop service to a major airline network’s hub. (The major U.S. airlines do not operate hubs in either state.) From October 2000 to October 2001 (revised), the number of these airports that were dominated by a single airline increased slightly, from 65 percent to 69 percent.

There are two communities that are categorized as small hubs in Alaska— Juneau and Fairbanks—and three in Hawaii—Hilo, Kailua/Kona, and Lihue. The Alaska airports were all located in communities with populations less than 100,000 and had no service to an airline hub. Hawaii’s small hubs were in communities with populations of less than 250,000. Two of those communities had service to two airline hubs (San Francisco International and Los Angeles International).

Small hub airports in Alaska and Hawaii have notably more passenger traffic and air service than the states’ nonhubs. The median passenger enplanements in the two Alaska airports in 1999 were 385,470 (about 1,056 per day), and the median passenger enplanements in Hawaii were 1,271,744 (about 3,484 per day). Typically, Alaska and Hawaii small hubs received service from four major or independent carriers with service to seven nonstop destinations. In addition, small hubs typically had 213 jet departures per week (30 jet departures per day) in October 2000.

Generally, the overall amount of service for these small hub airports declined between October 2000 and October 2001. Specifically, airlines scheduled 50 fewer weekly jet departures (eight per day), and added 8 additional weekly turboprop departures (one per day). See table 10.

Appendix V: Economic Factors Affect Air Service in Small Communities

To examine the factors associated with air service in small communities in October 2000, we statistically analyzed certain economic characteristics of these communities. Our process and the outcomes of our analysis are outlined below.

Regression Model

For this study, we used regression analysis to explore which factors, called independent variables, explain differences in the level of service, called the dependent variable, in small communities in October 2000. A regression model is a statistical tool that enables researchers to investigate relationships between the dependent variable and the independent variables.

To examine the factors associated with the level of air service provided to small communities in October 2000, we used an ordinary least squares regression model. We developed several models, looking at the contribution of each independent variable to the predictive ability of the models, and the overall explanatory power of the models as measured by the coefficient of determination, or r-squared. R-squared is a measure of the proportion of the total variation in the dependent variable that can be explained by the independent variables in that particular model.

Economic Principles

Economic principles indicate that as income, market population, and the price of substitute service increase, demand for a service will increase. Under these conditions, within a competitive marketplace, as passenger demand increases, the supply of air service will increase to meet that demand. We, therefore, expect that communities with greater levels of income and gross regional product and larger populations and employment levels will experience more substantial air service. Likewise, we expect that communities that are farther from an airport with a low- fare carrier will realize better service.

Data

We obtained the economic data used in the regression analysis from the Regional Economic Information System database produced by the Bureau of Economic Analysis. The data were collected for October 1999 at the county level. We then created a dataset containing variables for each county, including population, total employment, manufacturing earnings, and per capita income. We merged this dataset with the data on air service and the distance between airports to create a final working dataset for this analysis. Table 11 summarizes the descriptive statistics of the economic variables and other factors for the 202 small communities in our analysis.

Variables Used in the Model

We used employment and population to represent the size of a community and per capita income as a measure of income. We expect that a community with a larger manufacturing sector will have a greater demand for business travel. However, data on business travel and regional exports were unavailable for this study. In addition, it is difficult to obtain data on gross regional product (a measure similar to gross domestic product that is applied at the regional level). Therefore, for the purposes of our analysis, we used manufacturing earnings to represent the level of export activity from a region and, hence, as an indicator of the possible demand for business travel.

Model Specification

Using the regression to explain variation in air service, we focused primarily on modeling the number of weekly departures (jet and turboprop) from a small community. Multiple univariate and multivariate models of jet and turboprop departures were specified as a function of the independent variables to examine the consistency and robustness of the findings. The results of a final model are discussed below, in which jet and turboprop departures are specified as a function of employment (or population), manufacturing earnings, minimum distance to a low-fare carrier, and per capita income.

Results

The results of our regression models indicate that, as expected, employment (or population), manufacturing earnings, minimum distance from a low-fare carrier, and per capita income had a positive effect on the level of air service received by a small community. Below are quantitative statistics from specific models.

After controlling for distance to a low-fare carrier, manufacturing earnings, and population, we found that for every additional $5,000 in per capita income, a community received 3.3 and 12.7 more jet and turbopropdepartures per week, respectively. In other words, if two small communities, A and B, were identical in every way except that Community A had $5,000 more in per capita income than Community B, then Community A had roughly 16 more total departures per week than Community B. This difference in the number of total departures was attributable to the difference in per capita income.

After controlling for distance to a low-fare carrier, manufacturing earnings, and per capita income, we found that a community received 4.3 and 4.8 more jet and turboprop departures per week respectively for every additional 25,000 jobs in the community.

After controlling for distance to a low-fare carrier, population, and per capita income, we found that a community with $250,000 more in manufacturing earnings received 4.8 more jet departures per week than an otherwise similar community.

After controlling for manufacturing earnings, per capita income, and employment, we found that a community received 4.7 more jet departures per week for every additional 50 miles separating the airport from a low- fare carrier.

Appendix VI: Changes in Air Service at Small Communities Made By Express Airlines I and Mesaba Between 2000 and 2001

According to our analysis, between October 2000 and October 2001, Express Airlines I and Mesaba altered service at 60 small communities. Overall, more small communities lost service than gained service from these carriers during this period. A total of 49 small communities lost service, 4 of which (Bismarck, North Dakota; Columbus, Georgia; Dothan, Alabama; and Rockford, Illinois) lost all nonstop service from Express Airlines I and Mesaba. On the other hand, 11 communities gained service. Nine gained additional flights or extra capacity (i.e., number of seats available for purchase) through larger aircraft, and two (Charlottesville, Virginia, and Springfield, Illinois) gained start-up service from the two airlines.

Express Airlines I made service changes at 27 small communities between 2000 and 2001. Of these 27 communities, Express Airlines I reduced service at 13, increased service at 13, and took mixed actions at 1 other (reducing the number of daily departures but adding more available seating capacity by using larger aircraft).

Mesaba altered its weekly service at 44 small communities between 2000 and 2001. Mesaba ended all service to 2 communities. At 37 other communities, Mesaba’s service reductions averaged two departures per day per community. On the other hand, Mesaba increased service at 3 small communities and launched new service at another. At Sioux City, Iowa, Mesaba decreased average daily departures but increased total seating capacity by substituting larger aircraft.

Eleven communities were served by both—Mesaba and Express Airlines I.

Service reductions that Mesaba made at 8 of the 11 were offset by service additions from Express Airlines I, often with new regional jet service.

Table 12 summarizes the small community service changes made by Express Airlines I and Mesaba between October 2000 and October 2001.

Appendix VII: Changes in Air Service at Small Communities Made By Great Lakes Aviation and Air Wisconsin Between 2000 and 2001

Of the 202 small communities in our study, Great Lakes Aviation served 16, Air Wisconsin served 15, and both airlines served 9. Both airlines served United’s Chicago (O’Hare) and Denver hubs. Between October 2000 and October 2001, Great Lakes and Air Wisconsin altered air service in 39 communities. Of the 39 communities with service changes, 4 lost all of their air service (all of which was provided by Great Lakes). A total of 30 communities saw reductions in their service (i.e., capacity, either through a reduction in departures or by using smaller aircraft) by Great Lakes or Air Wisconsin. Five of the communities in our analysis gained either new service or capacity (i.e., number of seats available for purchase).

Great Lakes altered its weekly capacity at 16 small communities between 2000 and 2001. Of these communities, 4 of them (Dubuque, Iowa; Lafayette, Indiana; Rhinelander, Wisconsin; and Salina, Kansas) lost all of their service. Furthermore, Great Lakes reduced service at 11 communities. Only one community—Telluride, Colorado—gained capacity from Great Lakes.

Air Wisconsin reduced service at 11 communities and added either new service or additional capacity in 3 communities.

Great Lakes and Air Wisconsin both served 9 communities in our analysis.

Between October 2000 and October 2001, in 3 of those communities (Traverse City, Michigan; Springfield, Illinois; and Eagle, Colorado), Air Wisconsin replaced Great Lakes service, and in one community (Cody, Wyoming) Great Lakes replaced Air Wisconsin service.

Both Great Lakes and Air Wisconsin provided service to Grand Junction and Durango, Colorado. Great Lakes discontinued service by October 2001.

Casper, Wyoming; Hayden and Gunnison, Colorado all were receiving service from both Great Lakes and Air Wisconsin in 2000. By October 2001, Air Wisconsin had discontinued all of its service.

Table 13 summarizes the changes in service at small communities served by Great Lakes and Air Wisconsin between October 2000 and October 2001.

Appendix VIII: GAO Contacts and Staff Acknowledgments

GAO Contacts

Acknowledgments

In addition to those individuals named above, Triana Bash, Curtis Groves, Dawn Hoff, David Hooper, Sara Ann Moessbauer, John Mingus, Ryan Petitte, Carl Ramirez, Sharon Silas, Stan Stenersen, and Pamela Vines made key contributions to this report.

Related GAO Products

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-01-831. Washington, D.C.: July 31, 2001.

Aviation Competition: Regional Jet Service Yet to Reach Many Small Communities. GAO-01-344. Washington, D.C.: February 14, 2001.

Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs, and Passenger Traffic. GAO/RCED-00-34. Washington, D.C.: April 14, 2000.

Airline Deregulation: Changes in Airfares, Service Quality, and Barriers to Entry. GAO/RCED-99-92. Washington, D.C.: March 4, 1999.

Aviation Competition: Effects on Consumers From Domestic Airline Alliances Vary. GAO/RCED-99-37. Washington, D.C.: January 15, 1999.