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to small communities and regional carriers now operate at many small communities where the network carriers have withdrawn.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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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? 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. 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. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. 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Summary: 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. 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.