EAS is critical for rural air service

I recently read a newsletter article about presumed Republican interest in re-establishing Essential Air Service    http://viewfromthewing.boardingarea.com/2016/04/26/republicans-push-pork-senate-essential-air-service-grants-coming-back/

A factually based report on EAS was issued by the Congressional Research Service in September of 2015. The report outlines the EAS program’s history, program administration options, program costs, issues and options.  https://www.fas.org/sgp/crs/misc/R44176.pdf

History of Essential Air Service:  EAS started as a result of the Airline Deregulation Act of 1978.  It was a program established to continue airline service to small continues because the lower profits these routes were likely to achieve.  In cases where there were actual losses, Essential Air Service could be used to help covering costs.  Before EAS in the pre-1978 world, providing flights to these communities was a cost of business for the airlines in exchange for access to the federal airways and the great investment by United States tax payers.

Originally, the program was an interim measure and was set to expire in 10 years.  The economics did not adjust favorably, however, so the program was extended.  In the beginning, the sole criterion for eligibility was whether the community was receiving scheduled air service on October 24, 1978.  As the years have passed, the criteria have accumulated and now there are multiple limitations and sub qualifications.  Although criteria have been added, expenditures have grown in nominal US dollars from around $50 million in 1985 to more than $250 million in 2013.

This increase has occurred although rules have been enacted to limit cost including:

• 70-Mile Rule to nearest medium or large hub airport
• $200 Subsidy Cap
• $1,000 Subsidy Cap if the nearest hub is more than 210 miles distance
• Minimum enplanements of 10 or more per day

Originally in 1978, the program specified 746 eligible communities.  This has been reduced drastically, and in 2015 159 communities received subsidized EAS service.  Of this total in 2015, forty-four Alaska communities and two Hawaii airports received EAS support.

Narrative written to oppose the program emphasizes EAS contracts for airports located near large or medium hub airports and very high subsidy rates per passenger.  Though some of this exists, a review of the appendices discloses the program is much more balanced and is focused on minimizing subsidies while providing access to communities across the United States of America.

Klamath Falls Case Study:  Klamath Falls, Oregon has never received financial support from  Essential Air Service.  Though air service has been difficult in the market, it never had to take advantage of the support until 2014, when it lost service from SkyWest because of a decision presumably made at their headquarters in St George, Utah.

I was on the telephone when their representative called in April, 2014.  He indicated that in about 60 days, June 5, 2014, the service would end.  No specific reasons were provided except allusions to pilot cost increases as a result of new FAA regulation.  Talking with others afterward, it appeared to be SkyWest or its flag United wanted to close its turbo-prop operation serving Oregon.  As a result, service to both Portland and San Francisco just went away and the community had few options.

The loss of Essential Air Service was a failure in two senses for Klamath.  First, no longer was any Federal support available to maintain a service, and second, there was no review or consideration of the rationale to eliminate the service.  In this regard, there was no transparency nor due process.  My review of Klamath Falls Airport records indicated that this review had been critical in the past.  Service was threatened but the review process created rationales for service to be continued.

If an option had been notice, fact finding and a hearing before an arbitrator with “hold-in” authority being given to a review entity, the process would have been more appropriate in terms of the perceived fairness of a decision having major consequences for the livelihood of the community.

The Klamath Falls Airport had worked consistently to maintain service.  Its load factors (average percentage enplanements) could drop to the low 50% in some months, but could also increase into the 70% range.  The City had just obtained a grant to market the service and feelings were optimistic that the load factor could increase even more.  A well-funded, very positive marketing program had been developed.

The phone call advising service termination was business-like but remote and cold.  We asked if we would obtain a letter defining what was to occur and they advised there would be no such letter except to cancel leases for terminal space.  They also advised that they would not assist in any way to find replacement service.

Because of the FAA Modernization and Reform Act of 2012, no new communities could be added to the program irrespective of any justification.  For locations outside of Alaska and Hawaii to remain EAS-eligible, they must have participated in the EAS program at some time between September 30, 2010, and September 30, 2011.  If a community had preserved it service for many years, but lost it after September 30, 2011, there were absolutely no remedies from either the federal government or the airlines.

For Klamath Falls this was a bitter pill.  Its closest air service was more than 75 miles over the Cascade Mountains in Medford, Oregon.  The services was primary and normally only a feeder to a hub airport.  In terms of hubs which the legislation references, the closest were a small hub in Eugene, about 190 miles away over the Cascades, a medium hub in Sacramento 289 miles distance and a large hub in Portland 298 miles away.  Since service was dropped in Klamath, I have driven the 5.5 hours Portland many times to assure a flight to an important business meeting.  As a testimonial, I can assure you it is not a way to do business and places any rural business in a hinterland community at a significant disadvantage.

Questions about Advocacy in Opposition to EAS and Rural Air Service Connectivity:  The newsletter article defines that the $250M a year for service to smaller, rural communities is a waste.  There are really two observations about this.  To define whether it is a waste, one has to establish the value of the service to the nation as a whole.  If an important American governmental value continues to be connecting the country for its democratic and economic network advantages, then some expenditure or regulation may well be justified.  The question with this becomes, how much?

As the responses to the newsletter article state, if one needs to perform business that requires air service connection, they should move closer to metropolitan airports.  I have difficulty understanding this.  It ignores that rural areas remain important resource bases for urban populations and business trips are required as they are in more urbanized areas.  Are we in the United States at a point where rural populations are so diminished and unimportant that they receive no support or concern from the larger economic centers?  Are they to be diminished strictly in the name of efficiency?

Question Regarding the Airline Business Model:  The systems themselves define their costs and work to reduce them.  They have found economies of scale at much higher levels of concentration, so to achieve greater earnings per customer they eliminate less profitable routes, which are often rural routes.  The question is whether their license to operate should depend upon a fair level of service throughout their general route area?  For a business that relies on federal airways, and historically significant financial support to the entirely industry, should there not be some obligations for service levels within their region for connectivity?

Change in Airline Accountability Paradigm:  The flag carriers and their proponents have been successful at changing what used to be an expected cost-of-business in the 1978 era to the image of a Federal subsidy for very few folks.  This change in paradigm disconnects current commercial, community air service from its economic routes which included Federal support for operations and development.

Another consideration are options for rural airport service.  AMTRAK is often presented as is driving.  Potentially, understanding that any system needs to have a reasonable level of efficiency, train and cars are critical.  The issues then become a factual one.  Should airports that are separated by a certain mileage be considered uniformly for service, or should factors about whether the connection is four-lane and subject to significant storms factor in to the consideration?  Is normal drive time a fair criterion for eligibility?  For AMTRAK service, should its connectivity to air service airports be considered?  Should the frequency of the schedule and the time to the air service airport be a key factor?

A CONCEPT FOR  A MORE FULLY DEVELOPED AIR SERVICE NETWORK:  The questions presented relate largely to the general value of maintaining and potentially expanding the air service network.  Relatively remote populated regions either lose airline service or do not have any option to achieve service.  The points below address a conclusion that if a self-funded modification can be used to maintain economic routes to more isolated communities and if, in time, some expansion may be needed, economic integration between metro and rural populations will be improved.  The points below suggest there are two steps.

STEP 1.  The Basic Responsibility for Support:  The 1978 act changed the responsibility for support from the airlines as a cost of business to the Federal government.  With this change, it appears the “game” has become reducing cost and increasing revenues irrespective of its impact on populations (except in Alaska and Hawaii).  The airlines have undertaken this by increasing revenues through congesting seating, reducing amenities on flights and distancing from the distraction of less profitable or non-profitable connecting routes.  Regarding connectivity and the United States air network, this should be addressed by placing the basic responsibility for connecting routes with the airlines under federal government supervision.  The elimination of any route should involve due process guarantees and the ability of the federal arbitrator to “hold-in” service at the airline’s cost for some period of time.

Step 2.  The Airlines Should Be Supported with Support Monies Generated from Airline Users:  Currently, The $250M used to support the program is derived from overflight fees (about $108M) and a general appropriation.  Consistent with a theme that the basic responsibilities rests with the airlines and the general taxpayer should not be burdened, a fee of up to $1.00 per enplanement should be authorized.

Based on about 800,000,000 annual enplanement in the United States, this could raise sufficient monies to support the program.  At current levels, the assessment in additional to overflight fees would be about 20 cents ($.20) per ticket.  The allocation of the subsidy could be established as an aspect of the arbitration to be performed by the US representative with members of the community losing service and the airline dropping service.

The key question is the importance of providing connecting service throughout the United States.  Connection was critical in our history, but the Essential Air Service program has been focused on “shrinking” the support program since its inception.  The value of a fee supported program to maintain and potentially expand an efficient, comprehensive air network would invigorate economic activity within and outside the more metropolitan area and would advance important American values.  The change would empower rural populations and rural businesses.  We would significantly reduce the growing “fly-over” communities in America and work towards one-nation indivisible and assure the communities are not left-behind.