Rethinking small community air service

In a post several months ago, I wrote that the rigid Essential Air Service crowds out better, more flexible ways of funding credible and realistic service to small communities, such as the Small Community Air Service Development (SCASD) program. A year ago, the Government Accountability Office reported that although it could not sufficiently evaluate SCASD because it was such a young program, but based on the completed grants they did evaluate, “SCASD grants show promise and warrant further evaluation.” Of twenty-three grants they evaluated, fourteen saw improvements through the end of the grant period and eleven saw these improvements become self-sustaining after the end of the grant period. This suggests that a lot of these grants are unworkable from the start, but almost half saw the intended improvements. (Whether these were self-sustaining in the face of spiking jet fuel prices is questionable, but all other things being equal, SCASD wasn’t a total failure.)

In April 2007, the GAO called on the Department of Transportation’s inspector general to conduct a further assessment of SCASD. It has, and the full report is available here. (Thanks to Benet Wilson, whose blog alerted me to it.) The DOT’s picture is more pessimistic. Surveying the stated goals of forty grants, it found that 12.5 percent are canceled before even getting underway, 50 percent fail, 7.5 percent see partial success, and only 30 percent see full success. But while that makes for a nice headline, there are some interesting dynamics in the numbers.

For example, offering revenue guarantees for new service had a 56 percent success rate; marketing grants for existing service (representing 40 percent of all surveyed grants) had a 63 percent failure rate. Subsidies of start-up service had a 100 percent fail rate. “Grants targeting existing service may be less likely to succeed because these mature markets may provide less of a growth opportunity than well-selected new markets or may reflect attempts by communities to resuscitate a failing service.”

How can these communities improve their success rates? First, they can put up their own money to match or complement the grant. “Eleven out of the 33 grants with greater than 10 percent community financial participation succeeded, compared to only one out of the seven grants (14 percent) with 10 percent or less participation,” concludes the report. Second, they should conduct an independent market analysis. Many of these grants should not have been given because their applicants knew too little about their own market and the markets to which they wished to be connected. Third, grants should always include a little marketing money to enhance an otherwise sound application.

Congress does not allow the grants to be repeated; the report finds this too limiting, making it more difficult for communities to keep self-sustaining service going. It recommends that DOT reevaluate this limitation.

The report’s three recommendations are for DOT to give priority to applicants that have prepared a market analysis and demonstrate strong local financial support, to require grant recipients to do marketing, and to revisit the no-repeats policy. The DOT has promised to implement these changes, all of which I think are good, except for the “same project limitation,” which should probably be time-limited to prevent perpetually failing grants.

My worry about this report is that Congress will seize on it as an excuse to raid SCASD and expand the Essential Air Service. EAS is even worse than SCASD since it has no stakeholders: small communities have no marketing, financial, or analysis responsibilities. Furthermore, EAS is not constrained by route failure. If a route is a perpetual money-loser, its congressman will still intervene to save it; this process has left several dozen zombie routes across the country. Indeed, SCASD is young; it has the potential to become a great and useful program. SCASD is flexible — if a grant fails, it can be extended elsewhere. By making local communities real stakeholders, SCASD lays the groundwork for sustainable, market-driven rural and small-town airline service.

Photo credit: Flickr user Cubbie_n_Vegas. Used through a Creative Commons license.