The “Essential Air Service” (EAS) is back in the news, this time in an article in USA Today, which is being batted around the blogosphere at View from the Wing, Marginal Revolution, and elsewhere. If you’re not familiar with EAS, read the article first; it offers a good overview of the program. In this post, I’m going to throw in a few more reasons (and resources) for why EAS is such a crummy deal, both for taxpayers and for the travelers it is supposed to help.
First, EAS was supposed to be temporary–to smooth the transition during deregulation in 1978, when it was expected that airlines would drop small, less profitable routes. EAS was meant to be phased out in 1988. Of course, it proved popular in Washington: Congressmen liked being able offer subsidies to their home districts. Often, congressmen enjoy the subsidized flights themselves. Soon, an industry developed around the subsidies. Airlines make the subsidized flights their primary business, Raytheon sells planes whose only viable market is the subsidized flights, and small airports sought to maintain and increase their subsidies. (I explore these dynamics in an article here.) Needless to say, this program has never lived up to its “temporary” status. In fact, EAS is frozen in time. No matter the state of the current market for air travel, the same communities that were eligible for subsidies in 1978 are eligible today.
Second, there is very low demand for EAS service. The number of communities served has fluctuated between 100 and 150 since 1993 (it’s currently 145). But the total appropriation has risen from $38.6M to $109.4M. Look at the chart below, based on data from a GAO report: even when the appropriation is more than doubled in 2001-2002, the number of communities served only rises by about ten percent over the next two years.
Data from another GAO report shed more light on the subject. Even though subsidies per passenger increased by more than 66 percent in the late nineties, passenger traffic increased by less than 1 percent!
Finally, increasing EAS subsidies crowd out better ways to fund small community air service–namely, the Small Community Air Service Development (SCASD) grant system. It was created in 2000 as a pilot to fund grant applications from small communities seeking ways to attract, retain, and improve credible air service. Whereas EAS subsidizes flights from nowhere to nowhere (only in the EAS system can Omaha be considered a hub), SCASD operates in the real world. Most people who live a couple hours from an airport with jet service to a major hub are going to use that airport over one that is closer but served by EAS-subsidized turboprops and involves multiple stops on the way to a hub. EAS service keeps small communities in rigid stasis and inhibits them from working with their neighbors on crafting regional air travel strategies that would have a chance at a SCASD grant.
You can see the crowd-out effect in SCASD’s funding: it began with $35M and has gone up to $50M, but SCASD’s planned increases were held up by Congress’s failure to pass an FAA reauthorization bill. So while an effective program’s resources remain limited, EAS subsidies continue to pay for people not to fly where they don’t want to go.
The Essential Air Service promotes rent-seeking and pork-barrel politics, doesn’t serve a real need, and crowds out other ways of providing access to air travel in rural areas. It has outlived any usefulness it might have had.
UPDATE: The Cranky Flier has an in-depth examination of EAS waste.
Photo credit: Flickr user Bill on Capitol Hill. Used through a Creative Commons license.
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EAS was created as part of airline deregulation as a guarantee that small communities would continue to receive air service likely to be otherwise unprofitable under a deregulated market. Since 2000, small communities have seen the greatest number of flight reductions with nearly half of all communities with stage lengths under 500 miles losing all service altogether or falling under the auspices of the EAS program. Without the program, families would be disconnected from relatives, universities from speakers and educators and students, businesses from business travel, and vacationers from vacationing. In some of these communities, even bus travel is a luxury their town does not have. Mr. Sparks, where do you live that you are such an authority on the program? Clearly, you dont’ know much about the SCASD program if you think it works….First, it’s a 1 year grant program so carriers can hardly make equipment decisions based on the money. Second, by and large this program requires a community match that doesn’t work for all communities — some of which are struggling to pay for other essential services, like fire and police departments. Finally, the program is currently and always will be so politically skewed that it’s far from effective…or fair. Take a look at where the grants have gone over the course of the last half decade and you will see a clear political pattern that favors the powerful in Congress. There’s no reason to take aim at this program. It’s not a perfect program, but the carriers involved have actually invested their heart and souls into the program and have done their best to treat their communities with the utmost respect, consistency, and reliability. Unfortunately, some thigns are outside of carriers’ control, and one of the chief problems with the community is the way the carriers are reimbursed. The DOT’s rate making process does not allow any room for adjustment when carriers rates go up. think about it — carriers are allowed a very slim 5 percent profit margin on these routes, and they negotiate in good faith for 2 years at a time — projecting profits and losses over that time period. Imagine if you were the one trying to play that guessing game. Two years ago, fuel was at a then-high of 80 / barrel. Think about what a 50 dollar increase in the cost of fuel per barrel does to a 5 percent profit margin! Unfortunately, carriers can’t just adjust their fares like they can in the free market. instead, they have to file 90 day service termination notices and that’s when all of the communities get up in arms. while it’s the government’s fault that it won’t adapt to the changing costs and challenges carriers serving these markets are facing, some communities just assume the carrier doesn’t care enough to continue serving the routes. But guess what — no carrier wants to file this type of notice. It means losing money — for at least 180 days while the carrier is held in and the route is opened up for another competitive bidmaking process.
you can’t talk credibly about the EAS program without addressing these issues, and it’s not fair to say this program should be discarded when, without it, so many citizens of small town America would find themselves permanently disconnected.