"EAS: Subsidies keep small-airport flights in the air"

Sunday, December 30, 2007

Subsidies keep small-airport flights in the air

By Thomas Frank

USA TODAY




Rep. Jim Oberstar, chairman of the House Transportation and Infrastructure Committee, wrote the law enacting the program in 1978 to prevent airlines from abandoning small communities. "This is a compact of rural America with urban America," he says.




Patsy Mitchell, front, and Holly Deuser have plenty of room to stretch out on a nearly empty flight from Macon, Ga., to Atlanta Hartsfield-Jackson International Airport.

Imagine an aviation system in which planes fly two-thirds empty, fares are as low as $46 and the government pays up to 93% of the cost of a flight.

You don't have to look far. That system exists in the USA — and quietly is expanding even as most of the nation's 2 million daily air travelers see fares tick upward for increasingly crowded flights.

Each day, about 3,000 passengers enjoy mostly empty, heavily subsidized flights, financed by a 30-year-old program that requires the government to guarantee commercial air service to scores of small communities that can't support it themselves.

LOOK BACK: How subsidies worked in 2006

The Department of Transportation (DOT) pays a few small airlines $110 million a year total so they can profitably carry as few as four passengers per day to nearby hubs, often for rock-bottom fares. For example, a round-trip in Montana from Miles City to Billings — a two-hour drive away — costs passengers just $88 with a 30-day advance purchase on Big Sky Airlines because the government kicks in $779.

Flying round-trip from Lewistown, Mont., to Billings — also a two-hour-drive — costs $88 as well on Big Sky. The government cost: $1,343 per passenger. Just two people a day took the Lewistown-to-Billings flights on average in 2006, according to the DOT.

The subsidy program has drawn steady criticism — namely from DOT administrators, who say it wastes money by providing what amounts to luxury travel to people within driving distance of a larger airport. But the subsidies have expanded in recent years, thanks to strong backing from Congress, airlines and airports.

Two weeks ago, lawmakers allocated another $110 million for 2008, rejecting proposed DOT cuts. They also blocked the department from requiring 10 communities to pick up a small portion of the cost as part of an effort to prod local officials to better promote flights and draw more passengers.

Supporters say the Essential Air Service program helps economic development by providing "airline access to rural and isolated rural communities," as Congress wrote in a 1996 act boosting funding.

"This is a compact of rural America with urban America," says Rep. Jim Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee. He wrote the law enacting the program in 1978 to prevent airlines from abandoning small communities when deregulation lifted controls over where carriers could fly.

But as Congress has escalated subsidies through the years, the program has increasingly paid for flights between major airports and places that are neither rural nor isolated. Twenty-four communities with subsidized air service are within 90 miles of an airport that had at least 1 million passengers in 2006. Those subsidies cost $22 million a year.

In October, the DOT agreed to one of the program's largest subsidies ever — $2 million a year to Atlantic Southeast Airlines. That pays 60% of ASA's cost to fly two round-trips a day between Macon, Ga., and Atlanta's Hartsfield-Jackson International Airport, 81 miles away.

The airline projects that passengers will pay an average of $78 for a one-way ticket — and that flights, typically on planes with fewer than 70 seats, will run 83% empty. That means the DOT will pay $145 per passenger for the 19-minute flight.

"That's a tremendous waste of money," aviation consultant Michael Boyd says, noting that Macon residents can easily drive or take a bus to Atlanta. Groome Transportation, for example, runs hourly vans from Macon to the Atlanta airport. Cost: $31 a ticket.

The nearly $1 billion that Congress has poured into the program since 1999 has helped increase the number of communities with subsidized flights this year to 147 from 100, including 45 in Alaska. That's 28% of the nation's commercial airports.

The increased funding means the government pays an average of $87 per passenger on subsidized flights outside of Alaska, where planes often carry few passengers but deliver mail and supplies to the state's remote islands. The subsidy in 1995 was $49 per passenger.

The DOT's total tab is about 52% of the cost of the 165,000 non-Alaskan subsidized flights scheduled in 2007, according to a USA TODAY analysis of government and airline documents. Many routes began receiving subsidies as airlines faced huge losses after the Sept. 11, 2001, terrorist attacks.

Among the recent additions:

•In Jackson, Tenn., just 85 miles from Memphis International Airport, the DOT has paid Big Sky $906,000 a year for 12 round-trip flights a week to Cincinnati/Northern Kentucky International Airport. The flight takes about 1½ hours. So does driving from Jackson to the Memphis airport.

•In Athens, Ga., Air Midwest gets $1 million a year for 13 weekly round trips to Charlotte-Douglas International Airport. It's a 60- to 65-minute flight. In about 90 minutes, Athens residents could drive 82 miles to Atlanta's airport, the busiest in the world, with twice as many flights a day as Charlotte.

Many travelers who live near major airports skip the subsidized flights because departures are so infrequent — usually two or so a day — that it's more convenient to drive to a larger airport, says Patrick Murphy, a former DOT official who oversaw the subsidy program for 22 years.

•In Jonesboro, Ark., 79 miles from Memphis International Airport, Air Midwest gets $937,000 a year for 12 round-trip flights a week to Dallas/Fort Worth International Airport. The 19-seat planes carried an average of five passengers per flight in 2006, according to a USA TODAY analysis of DOT data.

•In Jamestown, N.Y., and Bradford, Pa., both 77 miles from Buffalo Niagara International Airport, Colgan Air gets $2.4 million a year for 38 weekly round trips between the two cities and Pittsburgh International Airport.

Colgan's 34-seat planes carried an average of four passengers per flight in 2006 — an 89% vacancy rate. Colgan is moving the destination to Washington-Dulles International Airport starting Jan 7.

Mayors and executives in small towns lobby hard to keep subsidies, which often provide the only scheduled flights in and out of their communities.

"It helps the city's image. It helps our possibilities of continuing to recruit Fortune 500 companies," Jackson Mayor Jerry Gist says.

DOT administrators say the program is becoming increasingly hard to justify. They tried unsuccessfully this year to end subsidized flights to about 65 communities, such as Jackson, that are within 230 miles of larger airports.

"Clearly, what we're doing now is not working because the list of cities getting the (subsidized) service is growing," says Andrew Steinberg, the DOT's assistant secretary for aviation and international affairs. "The goal here should be to get sustainable solutions where the marketplace provides service. Unless we change our approach, the cost will go up."

A 'temporary' program

The flight subsidies were conceived in 1978 as a 10-year program to keep flights going to small communities while the newly deregulated industry found a way to serve them or dropped them.

The subsidies, which come from fees and taxes paid by passengers and airlines on non-subsidized flights, fill the gap between an airline's estimate of the flights and its estimate of passenger ticket revenue, plus a 5% add-on for airlines' profits.

"Like many 'temporary' programs in Washington, it's now approaching its 30th year, and it's not going away," former DOT official Murphy says.

Even some airlines have acknowledged that the overall growth of the aviation industry — from 22,000 daily domestic flights in 1997 to 31,000 last year — may make some subsidies unnecessary.

In 1994, Congress barred subsidized flights for communities that are within 70 miles of one of the nation's 70 or so busiest airports.

However, many relatively small airports that are not among the 70 busiest have become significant regional hubs. Subsidized flights continue to serve communities within a one-hour drive of such rapidly growing airports, including those in Little Rock, Des Moines and Colorado Springs.

In Colorado, Great Lakes Airlines gets $781,000 a year in subsidies for round trips between Pueblo and Denver International Airport. Even so, the airline struggles to compete with those at Colorado Springs Municipal Airport, just 43 miles from Pueblo.

From 1992 to 2006, the number of Pueblo-to-Denver passengers plummeted from 77 to 11 per day. Colorado Springs added 36 daily flights and 570,000 yearly passengers. The airport now has 2 million passengers annually and non-stop flights to eight of the nine busiest U.S. airports.

So why should the government subsidize Great Lakes' flights from Pueblo to Denver?

"It's very controversial," says Monica Taylor, Great Lakes' sales and marketing director. She acknowledges that "if the budget is ever cut, Pueblo will be removed" from the subsidy program.

"When this program started," she says, "Colorado Springs was not the size of a hub it is now."

'You don't feel like a sardine'

With rows of empty seats and departures from tiny airports, subsidized flights are an oasis of comfort and convenience in an aviation world of congestion and lines.

On a recent Macon-to-Atlanta flight, Andrew Rudnicki breezed through a security checkpoint where the six Transportation Security Administration screeners nearly outnumbered the travelers.

Rudnicki, an enlistee at nearby Robins Air Force Base, broke into a grin as he climbed the plane's stairs, boarded the flight carrying his 2-year-old daughter and saw just seven passengers scattered among the 50 seats.

"This is comfortable. You don't feel like a sardine packed in a can," said Rudnicki, who was flying home to Pittsburgh.

Many subsidized flights are on smaller planes — 19- or 34-seat turboprops — but even those feel roomy when few are aboard. The typical subsidized flight was just 37% full in 2006, excluding those in Alaska, according to a USA TODAY analysis of DOT and airline data.

That means the Department of Transportation paid for nearly 2.4 million empty seats in 2006, the analysis shows. The overall aviation system ran at 79% capacity in 2006.

"Some of the fares are low, no doubt," says Jonathan Ornstein, CEO of Mesa Air Group, owner of Air Midwest. The airline charges $45 on average for a 50-minute flight between Joplin, Mo., and Kansas City.

"Communities say, 'If you lower fares, we'll do some marketing and try to get people out of their cars,' and it doesn't work," Ornstein says. "A family of six is not going to fly on a 19-seater to Kansas City. They're going to drive."

A huge percentage of passengers on subsidized flights are business travelers who would pay higher fares, Ornstein says, acknowledging some subsidies could be reduced. "Their travel is not discretionary. Whether (a business traveler) pays $90 or $140 is not relevant."

One beneficiary of subsidies has been the airlines the DOT picks in competitive bidding to run the flights. Great Lakes, whose business is largely subsidized flights, went from post-9/11 red ink into the black in 2003, turning a small operating profit three years ahead of the rest of the airline industry.

The subsidies alone, excluding fares from subsidized flights, made up 30% of Great Lakes' operating revenue in 2002-06, company reports show.

In 2001, Mesa formed a lobbying group, Regional Aviation Partners, based in its Phoenix headquarters, to push for more subsidy funding. The company has paid $837,000 to run the group — "a good investment," Ornstein says. Congress' subsidy allocation jumped from $50 million in 2001 to $113 million in 2002 in response to 9/11 and has stayed at roughly that level.

Mesa's subsidy collections also jumped, from an average of $6.3 million in 1999-2001 to $15.4 on average from 2002 to 2006, according to company reports. Even so, Ornstein says his company cannot make money on the program because fuel and maintenance costs are rising faster than the subsidies.

Boyd, the consultant, disagrees.

"It's a hell of a gig," he says. "The government pays me to operate the airplane. I make money regardless. Even if I don't carry passengers, that's fine."

Take a look at how subsidies from the federal Essential Air Service program worked at selected small airports in 2006:

Community	Destination	Annual subsidy	Subsidy per passenger	Average passengers per flight

El Dorado, Ark.	Dallas/Fort Worth	$923,456	$250	3.1

Devils Lake, N.D.	Minneapolis	$1,329,858	$203	5.7

Worland, Wyo.	Denver	$797,844	$187	4.2

Bradford, Pa.	Pittsburgh	$1,217,414	$174	3.6

Jamestown, N.Y.	Pittsburgh	$1,217,414	$135	4.7

Salina, Kan.	Kansas City	$487,004	$131	2.1

Sources: Department of Transportation, USA TODAY analysis of DOT and airline data