[Senate Hearing 108-823]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-823

                 SMALL AND RURAL COMMUNITY AIR SERVICE

=======================================================================

                                HEARING

                               before the

                        SUBCOMMITTEE ON AVIATION

                                 OF THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 11, 2003

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon                 BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois        RON WYDEN, Oregon
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
                                     FRANK LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel
                                 ------                                

                        SUBCOMMITTEE ON AVIATION

                   TRENT LOTT, Mississippi, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              DANIEL K. INOUYE, Hawaii
SAM BROWNBACK, Kansas                JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon                 BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois        RON WYDEN, Oregon
JOHN ENSIGN, Nevada                  BILL NELSON, Florida
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
                                     FRANK LAUTENBERG, New Jersey


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 11, 2003...................................     1
Statement of Senator Brownback...................................    40
Statement of Senator Burns.......................................    21
Statement of Senator Dorgan......................................    23
Statement of Senator Inouye......................................    35
Statement of Senator Lautenberg..................................    29
    Prepared statement...........................................    29
Statement of Senator Lott........................................     1
Statement of Senator Rockefeller.................................    27
Statement of Senator Snowe.......................................    31
    Prepared statement...........................................    34
Statement of Senator Stevens.....................................    19

                               Witnesses

Elliott, Bryan O., Former Co-Chairman, Airline Service and 
  Competition Committee, American Association of Airport 
  Executives.....................................................    15
    Prepared statement...........................................    17
Hecker, JayEtta Z., Director, Physical Infrastructure Issues, 
  U.S. General Accounting Office.................................     6
    Prepared statement...........................................     8
Van de Water, Read, Assistant Secretary for Aviation and 
  International Affairs, Department of Transportation............     1
    Prepared statement...........................................     4

                                Appendix

Response to written questions submitted by Hon. John McCain to:
    Bryan O. Elliott.............................................    44
    JayEtta Z. Hecker............................................    43
    Read Van de Water............................................    45

 
                 SMALL AND RURAL COMMUNITY AIR SERVICE

                              ----------                              


                        TUESDAY, MARCH 11, 2003

                               U.S. Senate,
                          Subcommittee on Aviation,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m. in room 
SR-253, Russell Senate Office Building, Hon. Trent Lott, 
Chairman of the Subcommittee, presiding.

             OPENING STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. The Committee will come to order, and I want 
to thank our panel for being here this morning. We will 
dispense with opening statements from us so that we can go 
ahead and hear the witnesses testify. Then we will give 
senators extra time to make statements when they have their 
question-and-answer period. And we are glad to see Senator 
Burns here this morning.
    Obviously, this is a very important hearing for those of us 
from States with a lot of rural and small community services 
being needed--Senator Burns, obviously, in Montana, Senator 
Rockefeller, from West Virginia, Senator Stevens, from Alaska, 
as well as my own State of Mississippi. This is a very 
important hearing on small and rural community air service. It 
is a part of our process to hear from all interested segments 
of the aviation industry as we move toward developing the 
Federal aviation reauthorization bill this year.
    With that said, we would like to go to our panel of 
witnesses. First, we have Read Van de Water, assistant 
secretary of Aviation and International Affairs at U.S. DOT, 
JayEtta Z. Hecker, director of Physical Infrastructure Issues 
of GAO, and Bryan Elliott, former co-chair, Airline Service and 
Competition Committee of the American Association of Airport 
Executives.
    We will begin with Read Van de Water.

    STATEMENT OF Read Van de Water, ASSISTANT SECRETARY FOR 
              AVIATION AND INTERNATIONAL AFFAIRS, 
                  DEPARTMENT OF TRANSPORTATION

    Ms. Van de Water. Thank you, Mr. Chairman.
    Thank you for inviting me to this hearing. I appreciate the 
opportunity to discuss with your service to small communities 
in general and the Essential Air Service Program, and the Small 
Community Air Service Development Pilot Program, specifically.
    I would just like to point our for the record that I am not 
Mr. Van de Water.
    [Laughter.]
    Ms. Van de Water. I can assure you that the Department is 
committed to serving the needs of small communities. What has 
become abundantly clear over the years, however, is that the 
way that we help these communities has not kept pace with the 
changes in the airline industry and the way that air service is 
provided in this country. As a result, in many cases the 
service under the EAS program is generally not responsive to 
the communities' needs, is a disappointment to the community, 
which I hear time and time again, is often not used or 
supported locally, and it is not the most effective or 
efficient use of taxpayer dollars.
    At the direction of Secretary Mineta, who has spent quite a 
few years looking at this program, we have spent considerable 
time reviewing our own experiences in dealing with the 
communities and the carriers involved, as well as 
recommendations from the participant groups and studies by the 
GAO and other groups that were geared towards finding what the 
right answer is for successful service in small communities.
    While there is no magic solution, two themes are 
consistently repeated. First, we need greater participation by 
the communities in addressing their air-service issues and the 
desire for greater flexibility in doing so to give the 
communities a chance to say what might work with them rather 
than Washington saying what might work for them.
    It is with these considerations in mind that we have 
reexamined the EAS program and proposed fundamental changes. I 
am confident that the program changes proposed by the 
Department will better serve the small communities by giving 
them better choices and more effectively direct very limited 
Federal funds.
    The Administration has proposed major revisions to EAS for 
FY04 that will, for the first time since the program was 
established in 1978, require communities to be stakeholders in 
the air service they will receive and, thus, have a vested 
interest. And the degree of their stakeholder will depend on 
their location.
    Under the Administration's proposal, eligible communities 
will have an array of transportation options available to them 
for access to the national air transportation systems. In 
addition to the traditional scheduled EAS service now in 
existence, we want to offer communities the alternative of 
charter flights, air taxis, ground transportation links, or 
even regionalized air service where several communities could 
be served through one airport, but with larger aircraft or 
better frequency of flights.
    The amount of required community participation would be 
determined by their degree of isolation. The most remote 
communities, those greater than 210 miles from the nearest hub 
airport, will be required to provide a 10 percent match; and 
the rest, a 25 percent match.
    Our primary standard for establishing isolation would be 
the driving distance to a nearest medium- or large-hub airport, 
but we also take into consideration the distance to a small-hub 
airport. We recognize, however, that there is great variance in 
service levels at small hubs, and, therefore, we would consider 
each community's situation individually before making distance 
determinations. We believe that this approach will allow the 
Department to provide the most isolated communities with air 
service that is tailored to their individual needs. And 
importantly, it provides communities in the program greater 
participation, control, and flexibility over how to meet their 
air-service needs.
    Our experience with the Small Community Pilot Program to 
date lends further support to our conclusions that reforms to 
the service are needed. In FY02, Congress appropriated 20 
million to the pilot program for the first time, a new 
experimental grant and aid program authorized under AIR-21. 
Under the statute, the Department can provide financial 
assistance to up to 40 communities, which we have done at this 
point.
    The program differs from the existing EAS program in a 
number of respects. First, the funds go to the communities 
rather than to the airline. Second, the financial assistance is 
not limited to carrier subsidy, but can be used for a number of 
other efforts to enhance the community service, including 
advertising, promotional activities, studies, and ground-
service initiatives. And third, and in my opinion certainly the 
most important, communities design their own solutions to their 
air-service needs and their air-fare problems, and then they 
seek financial assistance to help with those solutions.
    The Department received 180 applications from almost every 
State for grants under this program. But as I said, we were 
only limited to 40. The total sum requested was 143 million. We 
had 20.
    These communities provided extensive information regarding 
services to their communities, and nearly all were to 
contribute financially--some, a great deal of financial 
participation; some, at over a hundred percent.
    The Department made the maximum number of grants permitted. 
We made awards to communities throughout the country, and it 
authorized as many different types of projects as we could in 
order to address as many solutions as possible and to test the 
communities' proposals.
    Some of the projects included a new business model to 
provide ground handling for carriers at an airport to reduce 
station costs, seed money for a new airline to provide regional 
service, expansion of low-fare service, a ground-service 
transportation alternative, aggressive marketing and 
promotional campaigns to increase ridership, and revenue 
guarantees.
    Many of the grant recipients are contributing significantly 
to the projects. Some contributions locally are over a million 
dollars. Several have already benefitted from the grant awards. 
We have seen some early success from Fort Smith, Arkansas; 
Daytona Beach, Florida; Augusta, Georgia; Haley, Idaho; Rapid 
City, South Dakota; Meridian, Mississippi and Charleston, West 
Virginia. We are monitoring the progress of all these 
communities. The funds just went out in the fall, so we have 
not gotten a tremendous amount of reporting back yet, but we 
have key progress reports due early summer.
    In addition to addressing the needs in the individual 
communities, a goal of the pilot program was to find solutions 
to air-service and air-fare problems that could serve as models 
for other communities. Our experience in the pilot program 
demonstrates both the benefit and the willingness of small 
communities to participate, including financially, in 
addressing their air-service issues, particularly when they 
have a voice in how they are addressed.
    In closing, Mr. Chairman, let me reaffirm the 
Administration's and the Secretary's commitment to small 
community air service. With this proposal, we build on a record 
of sustaining and improving the access of small communities to 
the national air transportation system. We look forward to 
working with you and other Members of the Subcommittee as we 
continue to work towards these objectives.
    Thank you, again, and I would be happy to answer any 
questions you might have.
    [The statement of Ms. Van de Water follows:]

   Prepared Statement of Read Van de Water, Assistant Secretary for 
    Aviation and International Affairs, Department of Transportation

    Mr. Chairman, thank you for inviting me to this hearing. I 
appreciate the opportunity to discuss with you service to small 
communities in general and the Essential Air Service (EAS) program and 
the Small Community Air Service Development Pilot Program specifically. 
I can assure you that the Department is committed to serving the needs 
of small communities. What has become abundantly clear over the years, 
however, is that the way we help these communities has not kept pace 
with the changes in the airline industry and the way that air service 
is provided in this country. As a result, in many cases, the service 
under the EAS program is generally not responsive to the community's 
needs, is often not used or supported, and taxpayer dollars are often 
not directed in either the most effective or efficient manner. We have 
spent considerable time reviewing our own experiences in dealing with 
the communities and the carriers involved, as well as recommendations 
from both of these participant groups and studies by the General 
Accounting Office that were geared toward finding ``the answer'' to 
successful service at small communities. While there is no magic 
solution, two major themes are consistently repeated--the need for 
greater participation by the communities in addressing their air 
service issues, and the desire for greater flexibility in doing so. It 
is with these considerations in mind that we have reexamined the EAS 
program and proposed fundamental changes. I am confident, the program 
changes proposed by the Department will better serve small communities 
and more effectively direct Federal funds to where they are most 
needed.
    The administration proposes major revisions to the Essential Air 
Service Program for fiscal year 2004 that will, for the first time 
since the program was established in 1978, require communities to be 
stakeholders in the air service they will receive and thus have a 
vested interest in its success. With our proposed reforms, the 
Department will also ensure that the most needy small communities will 
be able to maintain access to the national air transportation system.
    In the past, communities' eligibility for inclusion in the EAS 
program has been based only on whether they were listed on a carrier's 
certificate on the date the program was enacted. Once subsidized 
service had been established, there was virtually no incentive for 
active community involvement to help ensure that the service being 
subsidized would ultimately be successful.
    Under the administration's proposal, currently eligible communities 
would remain eligible, and would now have an array of transportation 
options available to them for access to the national air transportation 
system. In addition to the traditional, scheduled EAS air service now 
in existence, the communities would have the alternatives of charter 
flights or air taxi service, ground transportation links, or even 
regionalized air service, where several communities could be served 
through one airport, but with larger aircraft or more frequent flights.
    The amount of required community participation would be determined 
by the degree of isolation. The most remote communities (those greater 
than 210 miles from the nearest hub airport) would be required to 
provide 10 percent of the EAS subsidy, and the remaining would have to 
supply 25 percent of the subsidy. Our primary standard for establishing 
isolation would be the driving distance to the nearest medium or large 
hub airport, but we would also take into consideration the distance of 
the community to a small hub airport. We recognize, however, that there 
is a great variance in service levels at small hubs. Therefore, we 
would consider each community's situation individually before making 
distance determinations.
    We believe that this approach would allow the Department to provide 
the most isolated communities with air service that is tailored to 
their individual needs. Importantly, it provides communities in the 
program greater participation, control, and flexibility over how to 
meet their air service needs.
    Our experience to date with the Small Community Air Service 
Development Pilot Program (Pilot Program) lends further support to our 
conclusions that reforms to small community air service are needed. In 
fiscal year 2002, Congress appropriated $20 million to the Pilot 
Program, a new, experimental grant-in-aid program, authorized under 
AIR-21, to assist small communities in addressing problems related to 
their air service and air fares. Under the statute, the Department can 
provide financial assistance to up to 40 communities, with no more than 
four grant awards to any one state. This program differs from the 
existing EAS program in a number of respects. First, the funds go to 
the communities rather than directly to the airline serving the 
community. Second, the financial assistance is not limited to carrier 
subsidy, but can be used for a number of other efforts to enhance a 
community's service, including advertising and promotional activities, 
studies, and ground service initiatives. Third, communities design 
their own solutions to their air service and air fare problems and seek 
financial assistance under the program to help them implement their 
plans.
    The Department received 180 applications for grants under this 
program in fiscal year 2002, seeking $143 million. These communities 
provided extensive information regarding service to their communities 
and nearly all were to contribute financially to their proposed 
projects. The Department has made grant awards to the maximum number of 
communities permitted under the statute, using the full $20 million 
available. We made awards to communities throughout the country and 
authorized as many different types of projects as possible in order to 
address as many problems as we could and to test the communities' 
proposed solutions. Some of these projects include a new business model 
to provide ground handling for carriers at the airport to reduce 
station costs, seed money for a new airline to provide regional 
service, expansion of low-fare services, a ground service 
transportation alternative for access to the Nation's air 
transportation system, aggressive marketing and promotional campaigns 
to increase ridership at the airport, and revenue guarantees to reduce 
the risk to airlines for initiating or expanding service at the 
community.
    Many of the grant recipients are contributing significantly to the 
authorized projects, with some contributions well over $1 million. 
Several have already benefited from the grant awards with new services 
inaugurated at Fort Smith, Arkansas; Daytona Beach, Florida; Augusta, 
Georgia; Hailey, Idaho; Lake Charles, Louisiana; Meridian, Mississippi; 
Rapid City, South Dakota; Charleston, West Virginia; and Rhinelander, 
Wisconsin. We are monitoring the progress of all of the communities as 
they proceed with the implementation of their projects. In addition to 
addressing the needs of individual communities, an overarching goal of 
the Pilot Program is to find solutions to air service and air-fare 
problems that could serve as models for other small communities. Our 
experience in the Pilot Program process demonstrates both the benefit 
and the willingness of small communities to participate, including 
financially, in addressing their air service issues.
    In closing, Mr. Chairman, let me reaffirm the Administration's 
commitment to small community air service. With this proposal, we build 
on a record of sustaining and improving the access of small communities 
to the national air transportation system. We look forward to working 
with you and the Members of this Subcommittee and the full Committee as 
we continue to work toward these objectives. Thank you again. This 
concludes my statement. I will be happy to answer any of your 
questions.

    Senator Lott. With your permission, Ms. Van de Water, we 
will go ahead with the other two witnesses----
    Ms. Van de Water. Of course.
    Senator Lott.--and ask questions----
    Ms. Van de Water. Thank you.
    Senator Lott.--of the panel as a group.
    And Ms. Hecker?

      STATEMENT OF JayEtta Z. HECKER, DIRECTOR, PHYSICAL 
        INFRASTRUCTURE ISSUES, U.S. GENERAL ACCOUNTING 
                             OFFICE

    Ms. Hecker. Good morning, Mr. Chairman and Members of the 
Committee.
    We are very pleased to be here today to focus on this 
critical issue. The topics I will cover today, which is built 
on a large body of work, include a survey of the major efforts 
of communities all across the country to try to improve their 
service, a review of the two key Federal programs that Ms. Van 
de Water has already discussed, and then our distillation of 
some of the key issues and challenges the Congress faces in 
reauthorization and looking at the future of these programs.
    A quick background point, though, is, What is a small 
community? That is often very relative. A relatively large city 
can actually think of themselves as small relative to a really 
large hub. But basically, the definition that DOT uses includes 
469 airports which is made up of ``small hubs and non-hubs.'' 
There are 69 small buds and those basically average about 700 
or so enplanements a day, or about 8 percent of total annual 
passengers. Non-hubs are really the very small communities. 
There are 400 of them. On average, they have less than five 
flights a day, and they make up less than 3 percent of the 
total passengers. So whether you are talking here about the 
small hubs or the non-hubs, we are looking at about 10 percent 
of total passenger enplanements.
    The points I want to cover, then, turn to the initiatives 
communities have undertaken. Basically, we surveyed nationwide. 
We looked at State efforts, local efforts, cross-community 
efforts, and we identified over 300. Then we concentrated and 
focused on about a hundred that were the most active, those 
that really had undertaken some serious initiatives. And then, 
in fact, beyond that, we did about 12 in-depth case studies of 
those initiatives.
    Of all the initiatives we uncovered, we found there are 
three basic things that communities do. They do studies, 
basically looking at the potential demand. They do marketing, 
either to the passengers or to carriers to try to improve 
service. And then, most significantly, they provide different 
types of financial incentives. It could be reduced airport 
fees, a subsidy directly to a carrier, revenue guarantees, or 
these travel banks.
    The analysis we did of all these initiatives shows that 
really only one thing mattered. Not surprisingly, it was money. 
It was the financial incentives that had the most potential to 
have some real effect. Obviously, a study does not lead to new 
service. Marketing has some potential, but the one that really 
matters is money.
    But the other concern we found is that often the money 
matters or makes a difference only as long as it lasts, that 
many of these initiatives do not build sustained service or a 
viable network, for basically two reasons. First there is a 
small demand, and there is a tremendous amount of passenger 
leakage at these airports, so the size of the communities is 
such that they cannot build a sustainable service. Second, the 
costs of the service are just higher than that kind of demand 
can support.
    So that is the first point. The communities have done a 
lot. But at the end, the money is really the thing that 
matters. That is kind of a backdrop for our review based on a 
couple of comprehensive reports of both the EAS program and the 
pilot program.
    The EAS program has been very troubled in recent years. The 
costs have tripled since 1995. The average cost per community 
has doubled. But at the same time, passenger loads are down. 
The average load factor of an EAS flight is about 15 percent, 
and there is an average about three passengers per flight. That 
is on a 19-seat carrier.
    The conclusion we have--and we have visited a number of 
these communities, we are familiar with them--is that the 
program is broken. It is not providing a viable transportation 
service to most of the travelers in these communities. Some of 
the studies show that up to 90 percent of the travelers in 
these communities are either choosing to drive to their 
destination or are driving to a larger airport--maybe a non-
hub, maybe a small hub, maybe a medium hub--to get better 
service and lower fares. They have more choices. These 
carriers, these airports, usually offer only two to five 
flights a day, and it goes maybe one or two places, and the 
fares are high. So the use of these airports is extremely low. 
Not only are the numbers low, in absolute terms, but so is the 
relative use of EAS by the traveling public in those 
communities.
    The pilot program, I have the same data in terms of DOT 
having received seven times the request for funds that was made 
available, the $20 million.
    Now, what we have done is, we reviewed these 180 
applications. A lot of those were from communities in our 
survey of all these communities. And unfortunately, we found 
that while the program's objective was to foster innovation, 
there were not that many innovative ideas being proposed. Many 
communities were just looking for a subsidy.
    Now, it is true, DOT received proposals to fund marketing 
studies, and a marketing study can be important, and a study of 
potential service can be important. But at the end of the day, 
air service again, we fear, will last only as long as the 
financial subsidy program works. So it raises an issue of what 
the objectives of this program are and what the effects will 
be. Obviously, most of these grants were just given a few 
months ago. But the fact that we have analyzed many of these 
programs leads to questions about their effectiveness and also 
about what budgetary impact would be if, in fact, the pilot 
program was made more broadly available.
    Closing points about the implications for future Federal 
efforts: EAS, while it is being administered in accordance with 
the statutory directive of providing the service guaranteed, is 
not providing an effective transportation solution, as 
evidenced by the use of it. Travelers are using alternatives. 
What is more, the option of trying to sustain it as it exists 
today is going to cost more. The $113 million appropriated this 
year will not be sufficient. All the evidence is that more 
communities are becoming eligible, the costs are increasing, 
and, again, the use is stable or going down.
    We propose some options. A number of them are reflected in 
the Administration's proposal, but that does not necessarily 
represent an endorsement of that proposal. Those were options.
    With the pilot program, as I said, the question is whether 
we are creating another subsidy program, what the congressional 
objective really is, and how it should be focused to obtain the 
maximum transportation benefit to those living in these 
relatively isolated communities.
    That concludes my statement. I would be happy to provide 
answers to any questions you may have.
    [The statement of Ms. Hecker follows:]

      Prepared Statement of JayEtta Z. Hecker, Director, Physical 
         Infrastructure Issues, U.S. General Accounting Office"

    Mr. Chairman and Members of the Subcommittee:
    Thank you for inviting us to testify today on the issue of air 
service at small communities. These communities have long faced 
challenges in obtaining or retaining the commercial air service they 
desire. These challenges are increasing as many U.S. airlines try to 
stem unprecedented financial losses through numerous cost-cutting 
measures including reducing or eliminating service in some markets. 
Small communities feel such losses disproportionately because they may 
have service from only one or two airlines. For them, reductions can 
mean no air service at all.
    Over the past several years, we have issued a number of products 
examining air service provided to small communities. These reports have 
examined the use of regional jets, changes in the amount and type of 
service that small communities receive, options to enhance the long-
term viability of the federal Essential Air Service (EAS) program, and 
efforts to improve air service at small communities.\1\ In light of 
continuing concerns about small community air service and upcoming 
opportunities for the Congress to reauthorize federal assistance 
programs for small communities, we would like to summarize some key 
elements of our recent work. Today, my testimony addresses three 
topics: (1) the kinds of efforts that states and local communities have 
taken to enhance air service at small communities; (2) federal programs 
for enhancing air service to small communities; and (3) issues 
regarding the type and extent of federal assistance to enhance air 
service to small communities.
---------------------------------------------------------------------------
    \1\ See list of related GAO products attached to this statement.
---------------------------------------------------------------------------
    In summary:

    In recent years, states and local communities have 
        undertaken a variety of efforts to enhance their air service. 
        Our analysis of these efforts at nearly 100 small communities 
        found that they comprise three main types: studies to evaluate 
        potential markets, marketing efforts to increase consumer 
        demand, and financial incentives to encourage airlines to 
        either start or enhance air service. Financial incentives 
        tended to offer the most promise for attracting new or 
        additional air service. However, once the incentives ended, the 
        additional service often ended as well. Longer-term 
        sustainability of these air service improvements appears to 
        depend on the community's size and its ability to demonstrate a 
        commitment to that air service, either by providing a 
        profitable passenger base or through direct financial 
        assistance.

    The two key federal programs for helping small communities 
        with air service face increasing budgetary pressures and 
        questions about their effectiveness.

    The EAS program, authorized under the Airline Deregulation 
        Act of 1978, guarantees that small communities served before 
        deregulation continue to receive a certain level of scheduled 
        air service. Its costs have more than tripled since fiscal year 
        1995, and indications are that without changes to the program, 
        the demand for EAS subsidies may soon exceed its $113 million 
        appropriation. At the same time, aggregate passenger levels at 
        EASsubsidized airports continue to fall. Often less than 10 
        percent of a community's potential passengers use the 
        subsidized local service; the rest choose to drive to their 
        destination or drive to a larger airport that offers lower 
        fares and more frequent service to more destinations. In 2000, 
        the median number of passengers on each EAS-subsidized flight 
        was just three.

    The Small Community Air Service Development Pilot Program 
        (``Pilot Program''), authorized as part of the Wendell H. Ford 
        Aviation Investment and Reform Act for the 21st Century (AIR-
        21), Pub.L. 106-181, provides grants to communities to enhance 
        local air service. In fiscal year 2002, 180 communities (or 
        consortia of communities) requested over $142.5 million in air 
        service development grants--more than seven times the $20 
        million appropriated. The program funded some innovative 
        approaches, but the majority of the grants funded the same 
        types of projects noted earlier--studies, marketing activities, 
        and financial incentives. If these communities experience the 
        same results as the other state and local efforts we 
        identified, their efforts are unlikely to attract new or 
        enhanced service, or if they do, the service will last only as 
        long as these funds are available. However, it is too early to 
        evaluate the long-term effectiveness of these efforts.

    Questions about the efficacy of the two federal programs 
        highlight issues regarding the type and extent of federal 
        assistance for small community air service. The EAS program 
        appears to be meeting its statutory objectives of ensuring air 
        service to eligible communities, yet the program has not 
        provided an effective transportation solution to most travelers 
        to or from those communities. The Pilot Program also appears to 
        have met its statutory objective of assisting communities in 
        developing projects to enhance their access to the national air 
        transportation system. Yet whether any of the projects funded 
        will prove to be effective at developing sustainable air 
        service is uncertain. Reauthorization provides an opportunity 
        for the Congress to clarify the federal strategy for assisting 
        small communities with commercial air service.

    The nation's small community airports, while large in number, serve 
only a small portion of the nation's air travelers and face issues very 
different from those of larger airports. Airports that are served by 
commercial airlines in the United States are categorized into four main 
groups based on the annual number of passenger enplanements--large 
hubs, medium hubs, small hubs and nonhubs. In 2001, the 31 large hub 
airports and 36 medium hub airports (representing about 13 percent of 
commercial service airports) enplaned the vast majority -89 percent--of 
the more than 660 million U.S. passengers. In contrast, those normally 
defined as small community airports \2\--the 69 small hub airports and 
400 nonhub airports--enplaned about 8 percent and 3 percent of U.S. 
passengers, respectively. There are significant differences in both the 
relative size and type of service among these communities, as shown in 
Figure 1.
---------------------------------------------------------------------------
    \2\ The Wendell H. Ford Aviation Investment and Reform Act for the 
21st Century (AIR-21), Pub.L. 106-181, defines small communities as 
including both nonhub and small hub community airports.



    Officials from small communities served by small hub and nonhub 
airports reported that limited air service is a long-standing problem. 
This problem has been exacerbated by the economic downturn and events 
of September 11. Fundamental economic principles help explain the 
situation small communities face. Essentially, these communities have a 
smaller population base from which to draw passengers, which in turn 
means they have limited potential to generate a profit for the 
airlines. Relatively limited passenger demand, coupled with the fact 
that air service is an inherently expensive service to provide, make it 
difficult for many such communities to attract and keep air service.
    The recent economic downturn and events of September 11 dealt a 
severe financial blow to many major airlines, and the results of these 
losses can be felt in even the smallest communities. United Airlines 
and US Airways are in bankruptcy proceedings, and one Wall Street 
analyst is projecting industry losses of $6.5 billion for 2003, the 
third straight year of multi-billion dollar losses. While major 
airlines often do not serve small communities directly, many have 
agreements with smaller regional airlines to provide air service to 
small communities. This provides feeder traffic into the larger 
network. Consequently, financial problems for major airlines and their 
resulting cost-cutting efforts may ultimately affect the air service a 
small community receives.
    Complicating the financial situation for both major and regional 
airlines is the growing presence of low-fare airlines, such as 
Southwest Airlines. Low-fare airlines' business model of serving major 
markets, not small communities, has helped these airlines better 
weather the economic downturn. Airport officials have reported that 
these airlines' low fares attract passengers from a large geographic 
area, and many small airports face significant ``leakage'' of potential 
local passengers to airports served by low-fare airlines. In a January 
2003 report,\3\ we found that almost half of the nonhub airports 
studied were within 100 miles of a major airline hub or an airport 
served by a low-fare airline, as illustrated in Figure 2. Further, over 
half of the 207 small community airport officials we surveyed said they 
believed local residents drove to another airport for airline service 
to a great or very great extent. Eighty-one percent of them attributed 
the leakage to the availability of lower fares from a major airline at 
the alternative airport.
---------------------------------------------------------------------------
    \3\ U.S. General Accounting Office, Commercial Aviation: Factors 
Affecting Efforts to Improve Air Service at Small Community Airports, 
GAO-03-330 (Washington, DC: January 17, 2003).



    Local, state, and federal governmental units all play roles in 
developing and maintaining air service for small communities. Air 
service is a local issue because commercial airports in the United 
States are publicly-owned facilities, serving both local and regional 
economies. Many state and local governments provide funding and other 
assistance to help communities develop or maintain local air service. 
The Federal Government has assisted in developing air service both 
through the EAS program, which subsidizes air service to eligible 
communities and the Pilot Program, which provided grants to foster 
effective approaches to improving air service to small communities.\4\ 
The assumption underlying these efforts is that connecting small 
communities to the national air transportation system is both 
fundamental for local economic vitality and is in the national 
interest.
---------------------------------------------------------------------------
    \4\ Beyond these programs, the Federal Government has also played a 
key role in providing funding critical to building and improving 
airport infrastructure through its Airport Improvement Program. In 
fiscal year 2002 alone, this program provided $3.2 billion to airports, 
over $1 billion of which went to small hub and nonhub airports.
---------------------------------------------------------------------------
    The Administration's budget proposal for fiscal year 2004 
substantially reduces funding for small community air service. The 
budget would reduce EAS funding from $113 million in 2003 to $50 
million in 2004 and changes the program's structure by altering 
eligibility criteria and requiring nonfederal matching funds. The 2004 
budget proposal does not include funds for the Pilot Program.
    Local and State Air Service Improvement Efforts Fall Into Three 
Main Categories, but Financial Assistance Has Proven Most Effective
    Our recent review of nearly 100 small community air service 
improvement efforts undertaken by states and local governments or 
airports \5\ showed that communities attempted three main categories of 
efforts (see Table 1):
---------------------------------------------------------------------------
    \5\ To identify these airports, we reviewed all 180 applications 
for the Pilot Program, which included information on previous efforts 
to improve air service. We also spoke with airline industry officials 
and transportation officials each of the 50 states and reviewed other 
available data. We then interviewed airport or community officials from 
98 small communities that had undertaken some air service development 
efforts. For more information, see GAO-03-330.

    studies, like those used by communities in Texas and New 
        Mexico, to determine the potential demand for new or enhanced 
---------------------------------------------------------------------------
        air service;

    marketing, like Paducah, Kentucky's ``Buy Local, Fly 
        Local'' advertising campaign, used to educate the public about 
        the air service available or Olympia, Washington's, 
        presentations to airlines to inform them about the potential 
        for new or expanded service opportunities; and

    financial incentives, such as the ``travel bank'' program 
        implemented by Eugene, Oregon, in which local businesses 
        pledged future travel funds to encourage an airline to provide 
        new or additional service.


Table 1: Types of Air Service Development Efforts Undertaken by 98 Communities with Small Hub or Nonhub Airports
----------------------------------------------------------------------------------------------------------------
                          Nonhub airports (81 airports)     Small hub airports (17        Combined total (98
                       ----------------------------------          airports)                   airports)
    Type of effort                                       -------------------------------------------------------
                             Number         Percent of                   Percent of                  Percent of
                                              total          Number         total        Number         total
----------------------------------------------------------------------------------------------------------------
Studies                 60               74%                       15           88%            75           77%
Marketing               60               74%                       16           94%            76           78%
Financial incentives    33               41%                       11           65%            44           45%
Other                   15               19%                        0            0%            15           15%
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis.
Notes: Columns will not add to total number of airports shown because some airports undertook multiple efforts.

    Studies by themselves have no direct effect on the demand for or 
supply of air service, but they can help communities determine if there 
is adequate potential passenger demand to support new or improved air 
service. Marketing can have a more direct effect on demand for air 
service if it convinces passengers to use the local air service rather 
than driving or flying from another airport. While the specific effect 
is difficult to ascertain, an airport official from Shenandoah Valley, 
Virginia, pointed out that his airport's annual enplanements more than 
doubled--from 8,000 to 20,000--after a marketing and public relations 
campaign. Marketing the airport to airlines may also have a direct 
effect on the supply of air service if the efforts succeed in 
attracting new airlines or more service from existing airlines.
    Financial incentives most directly affected the level of air 
service provided in the communities we studied. Financial incentives 
mitigate some of the airline's financial risk by providing some 
assurance about the financial viability of the service. The incentives 
take a number of different forms, as shown in Table 2. Some programs 
provided subsidies to airlines willing to supply service. Some provided 
revenue guarantees, under which the community and airline established 
revenue targets and the airline received payments only if actual 
revenues did not meet targets.

                              Table 2: Major Types of Financial Incentive Programs
----------------------------------------------------------------------------------------------------------------
                                                                     Prevalence among    Prevalence among small
                                                                     nonhub airports      hub airports studied
   Type of financial                                                studied (total=81)         (total=17)
       incentive                        Description               ----------------------------------------------
                                                                              Percent                 Percent of
                                                                    Number    of total     Number       total
----------------------------------------------------------------------------------------------------------------
Subsidies                Financial assistance to a carrier              10        12%            1           6%
                          assists with start-up, operating or
                          other costs. Carrier may receive a set
                          amount per period or reimbursement for
                          expenses incurred sometimes up to a
                          cap.
Revenue  guarantees      Community and carrier officials set             9        11%            3          18%
                          revenue targets and communities pay
                          carriers only if revenue from
                          operations does not meet agreed-upon
                          target. Payments are often capped.
Travel bank              Businesses or individuals pledge future         4         5%            3          18%
                          travel funds to a carrier providing new
                          or expanded air service. Travel funds
                          are deposited in an account,
                          administered by a business entity (such
                          as the Chamber of Commerce) and
                          pledging businesses draw against these
                          funds (often using credit card supplied
                          for this purpose) to purchase tickets.
    Other                                                                6         7%            3          18%
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis.

    Financial incentives can attract new or enhanced air service to a 
community, but incentives do not guarantee that the service will be 
sustained when the incentives end. We studied the efforts of 12 
communities in detail, all but one of which used a financial incentive 
program. Of these, five had completed their program but only Eugene, 
Oregon, was able to sustain the new service after the incentive program 
ended. At the other four--all nonhub airports smaller than Eugene--the 
airline ceased service when the incentives ended.
    However, while a community's size is important, it is largely 
beyond a community's control. We identified two other factors, more 
directly within a community's control, that were also important for 
success. The first, the presence of a catalyst for change, was 
particularly important in getting the program started. The catalyst was 
normally state, community, or airport officials who recognized the air 
service deficiencies and began a program for change. More important to 
the long-term sustainability, however, was a community consensus that 
air service is a priority. This second factor involves recognizing that 
enhanced air service is likely to come at a price and developing a way 
in which the community agrees to participate. At many of the 
communities we studied, there was not a clear demonstration of 
community commitment to air service.
    The two major federal efforts to help small communities attract or 
retain air service are the EAS program and the Pilot Program. The 
Congress established EAS as part of the Airline Deregulation Act of 
1978, due to concern that air service to some small communities would 
suffer in a deregulated environment. The act guaranteed that 
communities served by airlines before deregulation would continue to 
receive a certain level of scheduled air service. If an airline cannot 
provide service to an eligible community without incurring a loss, then 
the Department of Transportation (DOT) can use EAS funds to award that 
airline, or another airline willing to provide service, a subsidy. 
Funding for EAS was $113 million for fiscal years 2002 and 2003. The 
other major program, the Pilot Program, was authorized as part of the 
Wendell H. Ford Aviation Investment and Reform Act for the 21st Century 
(AIR-21). The Pilot Program's mission is to assist communities in 
developing projects to enhance their access to the national air 
transportation system. The Pilot Program differs from EAS because 
communities, not airlines, receive the funds and the communities 
develop the program that they believe will best address their air 
service needs. The Congress appropriated $20 million in both fiscal 
years 2002 and 2003 for this effort.
    The EAS program costs have increased dramatically since 1995, but 
the actual number of passengers using EAS-subsidized air service has 
dropped. Total program funding increased from $37 million in 1995 to 
$113 million in 2002 (2002 constant dollars). Further, during this 
period of time, the subsidy per community nearly doubled, from almost 
$424,000 to over $828,000. However, the total passenger enplanements at 
EAS-subsidized communities decreased about 20 percent (between 1995 and 
2000) falling from 592,000 to 477,000. As a result, the per passenger 
subsidy (for continental U.S. communities) increased from $79 to an 
estimated $229 in 2002, a nearly 200-percent increase. Table 3 provides 
more information.

                   Table 3: EAS Service Changes as of July 1, 2002 (Continental United States)
----------------------------------------------------------------------------------------------------------------
                                                                                                       Percent
             Service elements                          1995                 1999       2002 (est.)     change
----------------------------------------------------------------------------------------------------------------
Number of subsidized                       75                                    68            79          5.3%
communities
Median daily passengers                    11                                     8            10         -9.1%
enplaned per community
Average subsidy per community              $423,803                        $668,448      $828,474         95.5%
Average subsidy per passenger              $79                                 $133          $229        189.9%
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of DOT and FAA data.
Note: Passenger estimates for 2002 are based on passenger enplanements for 2000.
Note: Subsidy figures are in 2002 constant dollars.

    Two key factors will likely continue to increase EAS program costs 
in the future. First, more communities may require subsidized 
service.\6\ As of February 2003, the EAS program served 125 
communities, up from the 114 served only 7 months earlier. Of these, 88 
are in the continental United States and 37 are in Alaska, Hawaii, and 
Puerto Rico. According to DOT officials, more small communities will 
likely lose unsubsidized commercial service in the future--especially 
those served by one airline. Some of these communities could be 
eligible to receive an EAS subsidy. In October 2001, there were 98 
small communities being served by one carrier. Of the 98, 25 have 
smaller populations and lower levels of employment than the typical 
EAS-subsidized community, 21 have lower levels of income per capita, 
and 35 have lower levels of manufacturing earnings. Second, EAS-
subsidized communities tend to generate limited passenger revenue 
because surrounding populations are small and the few travelers 
generated in each community tend to drive to their destinations or fly 
from other, larger airports for lower airfares and improved service 
options.\7\ EAS community airports may serve less than 10 percent of 
the local passenger traffic; over half of the subsidized communities in 
the continental U.S. are within 125 miles of a larger airport. This low 
demand and ``passenger leakage'' to other airports depress the revenue 
carriers can make from EAS routes, making the program less attractive 
to airlines and increasing subsidy costs.
---------------------------------------------------------------------------
    \6\ Increases in program costs may be restrained as some 
communities lose their eligibility. They may lose their eligibility 
because the combination of decreased passenger traffic and increased 
subsidy levels means that some may exceed the statutory maximum of $200 
per passenger for communities within 210 miles of a medium or large hub 
airport. However, DOT has not always dropped communities from the 
program because they no longer meet eligibility requirements. We 
reported in 2000 that DOT considers extenuating circumstances that may 
have caused a temporary decline in passenger traffic.
    \7\ It is important to note that EAS-subsidized airlines typically 
do not set the airfares charged for the major markets for EAS 
travelers. Instead, fares are set by the major network airlines with 
which EAS airlines usually have contractual agreements. Depending upon 
the exact agreement, the EAS airline usually sets fares for travel only 
in ``local'' markets (i.e., between the EAS community and the 
connecting hub), while the major airline sets the fares for travel 
between the EAS community and the key destinations beyond the 
connecting hub.
---------------------------------------------------------------------------
    There are clear questions about the EAS program's effectiveness. In 
a recent report on the EAS program, we outlined a number of options 
that the Congress could consider to enhance the long-term viability of 
the program.\8\ For example, one option was to target subsidized 
service to more remote communities with fewer other transportation 
options. Another option was to restructure or replace subsidies to 
airlines with local grants. This could enable communities to better 
match their transportation needs with locally available options. Some 
of the options discussed in our report were incorporated in the 
Administration's fiscal year 2004 budget proposal.
---------------------------------------------------------------------------
    \8\ U.S. General Accounting Office, Options to Enhance the Long-
term Viability of the Essential Air Service Program, GAO-02-997R 
(Washington, DC: August 30, 2002).
---------------------------------------------------------------------------
    In its first year of operation, small communities demonstrated an 
extraordinary demand for air service development funds. DOT received 
180 applications requesting over $142.5 million--more than 7 times the 
funds available--from communities in 47 states. By December 2002, DOT 
had awarded nearly $20 million in grants to 40 small communities (or 
consortia of communities). The grants ranged in amount from $44,000 to 
over $1.5 million. Some of the grants are being used for such 
innovative ideas as the following:

    Mobile, Alabama, a small hub, received a grant of $457,137 
        to continue providing ground handling service for one of its 
        airlines. While this is a common practice in Europe, a Mobile 
        official told us that he is only aware of one other airport in 
        the United States that provides these services for an airline.

    Baker City, Oregon, received a grant of $300,000 to invest 
        in an air taxi franchise. Baker City has a small population and 
        is in a fairly remote part of Oregon that does not have 
        scheduled airline service. The community decided to pursue an 
        alternative to scheduled service and purchased an air taxi 
        franchise from SkyTaxi, a company that provides on-demand air 
        service.

    Casper, Wyoming, received a grant of $500,000 to purchase 
        and lease back an aircraft to an airline to ensure that the 
        airline serves the community. It is fairly unusual for a 
        community to approach air service development by purchasing an 
        aircraft to help defray some of the airline's costs and 
        mitigate some of the airline's risk in providing the service.

    However, the majority of these grants funded the same types of 
projects discussed earlier--studies of a community's potential market, 
marketing activities to stimulate demand for service or to lure an 
airline, and financial incentives such as subsidies to airlines for 
providing service. If these communities experience the same results as 
the other state and local efforts we identified, their efforts are 
unlikely to attract new or enhanced service for the small communities 
using them, or if they do, the service will only last as long as these 
funds are available.
    Since final grant agreements were signed in December 2002, it is 
too early to determine how effective the various types of initiatives 
might prove to be. Additionally, some of the funded projects contain 
multiple components and some are scheduled to be implemented over 
several years. Therefore, it might be some time before DOT is able to 
evaluate the initial group of projects to determine which have been 
effective in initiating or enhancing small community air service over 
the long-term.
    As air service to small communities becomes increasingly limited 
and as the national economy continues to struggle, questions about the 
efficacy of those programs highlight issues regarding the type and 
extent of federal assistance for small community air service.
    The EAS program appears to be meeting its statutory objectives of 
ensuring air service to eligible communities, yet the program clearly 
has not provided an effective transportation solution to most travelers 
to or from those communities. Subsidies paid directly to carriers 
support limited air service, but not the quality of service that 
passengers desire, and not at fares that attract local passenger 
traffic. As a result, relatively few people who travel to or from some 
of these communities use the federally-subsidized air service. Many 
travelers' decisions to use alternatives--whether another larger 
airport or simply the highway system--are economically and financially 
rational.
    Several factors--including increasing carrier costs, limited 
passenger revenue, and increasing number of eligible communities 
requiring subsidized service--are likely to affect future demands on 
the EAS program. The number of communities that are eligible for EAS-
subsidized service is likely to increase in the near term, creating a 
subsidy burden that could exceed current appropriations. Should the EAS 
program be fully funded so that no eligible community loses its direct 
connection to the national air transportation network? Should the EAS 
program be fundamentally changed in an attempt to create a more 
effective transportation option for travelers? In August 2002, we 
identified various options to revise the program to enhance its long-
term viability, along with some of the associated potential effect.
    The Pilot Program also appears to have met its statutory objective 
of extending federal assistance to 40 nonhub and small hub communities 
to assist communities in developing projects to enhance their access to 
the national air transportation system. Yet whether any of the projects 
funded will prove to be effective at developing sustainable air service 
is uncertain. Relatively few communities offered innovative approaches 
to developing or enhancing air service. Most of the initiatives that 
received federal grants resembled other state or local efforts that we 
had already identified. Evidence from those efforts indicated that some 
communities could develop sustainable air service--but likely only 
small hub communities that have a relatively large population and 
economic base. Among smaller, nonhub communities, direct financial 
assistance to carriers was most effective at attracting air service, 
but only as long as the financing existed. If the Pilot Program is 
extended, will it essentially become another subsidy program?
    Reauthorization provides an opportunity for the Congress to clarify 
the federal strategy for assisting small communities with commercial 
air service. We believe that there may be a number of questions that 
need to be addressed including the following. What amount of assistance 
would be needed to maintain the current federal commitment to both 
small and nonhub airports? Would federal assistance be better targeted 
at nonhub or small hub communities, but not both? Rather than providing 
subsidies directly to carriers, should federal assistance be directed 
to states or local communities to allow them to determine the most 
effective local strategy? What role should state and local governments 
play in helping small communities secure air service?
    Mr. Chairman and Members of the Subcommittee, this concludes my 
statement. I would be pleased to answer any questions you or other 
Members of the Subcommittee might have.

                          Related GAO Products

    Commercial Aviation: Factors Affecting Efforts to Improve Air 
Service at Small Community Airports. GAO-03-330. Washington, DC: 
January 17, 2003.
    Commercial Aviation: Financial Condition and Industry Responses 
Affect Competition. GAO-03-171T. Washington, DC: October 2, 2002.
    Options to Enhance the Long-term Viability of the Essential Air 
Service Program. GAO-02-997R. Washington, DC: August 30, 2002.
    Commercial Aviation: Air Service Trends at Small Communities Since 
October 2000. GAO-02-432. Washington, DC: March 29, 2002.
    ``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, DC: October 5, 2001.
    Commercial Aviation: A Framework for Considering Federal Financial 
Assistance. GAO-01-1163T. Washington, DC: September 20, 2001.
    Aviation Competition: Restricting Airline Ticketing Rules Unlikely 
to Help Consumers. GAO-01-832. Washington, DC: July 31, 2001.
    Aviation Competition: Challenges in Enhancing Competition in 
Dominated Markets. GAO-01-518T. Washington, DC: March 13, 2001.
    Aviation Competition: Regional Jet Service Yet to Reach Many Small 
Communities. GAO-01-344. Washington, DC: February 14, 2001.
    Airline Competition: Issues Raised by Consolidation Proposals. GAO-
01-402T. Washington, DC: February 7, 2001.
    Aviation Competition: Issues Related to the Proposed United 
Airlines-US Airways Merger. GAO-01-212. Washington, DC: December 15, 
2000.
    Essential Air Service: Changes in Subsidy Levels, Air Carrier 
Costs, and Passenger Traffic. RCED-00-34. Washington, DC: April 14, 
2000.
    Aviation Competition: Effects on Consumers From Domestic Airline 
Alliances Vary. RCED-99-37. Washington, DC: January 15, 1999.
    Airline Deregulation: Changes in Airfares, Service Quality, and 
Barriers to Entry. RCED-99-92. Washington, DC: March 4, 1999.

    Senator Lott. We will have questions in a moment, but let 
us go ahead and hear from Mr. Elliott now and then we will go 
to questions.

  STATEMENT OF BRYAN O. ELLIOTT, FORMER CO-CHAIRMAN, AIRLINE 
              SERVICE AND COMPETITION COMMITTEE, 
           AMERICAN ASSOCIATION OF AIRPORT EXECUTIVES

    Mr. Elliott. Good morning, Mr. Chairman and Members of the 
Subcommittee. It is, indeed, a pleasure and an honor to be 
before you today to present my views on the status of air 
service to our small communities and to outline the need for 
continued Federal assistance on several fronts.
    The Charlottesville-Albemarle Airport is a non-hub airport 
located in the Piedmont region of Virginia. The Charlottesville 
area is home to the University of Virginia, one of the most 
prestigious universities in the United States, as well as a 
diverse base of tourism, manufacturing, and financial service 
entities. Our regional economy requires dependable scheduled 
air service that links our region to the world.
    As you are aware, GAO has recently confirmed that air 
service to small communities has declined by over 20 percent 
since September 11, 2001, and this is much greater than in 
larger metropolitan areas. In contrast, our airport recorded a 
record year last year, in 2002. Over 342,000 passengers used 
our airport during this 12-month period. Charlottesville's 
three regional carriers offered those passengers access to the 
national aviation system via 54 daily arrivals and departures 
at our airport.
    Mr. Chairman, Charlottesville's needs and the needs of all 
small communities is rather simple. We need efficient, 
reliable, and economical scheduled air-service access to our 
national aviation system.
    Now, allow me just to take a few moments to share with you 
several areas that will help protect small communities from 
being cut off from commerce, economic development, and the 
opportunity for further prosperity in their region.
    First of all, the Small Community Air Service Development 
Program. Through the pilot program in AIR-21, Congress did seek 
to help small communities by encouraging creative marketing and 
financial assistance projects to attract and retain new air 
service. Although $27-and-a-half million in annual 
appropriations was authorized for this program, Congress has 
only appropriated $20 million in each of the past two fiscal 
years.
    Small community air service interests in this program has 
been overwhelming, as you have already heard. In the first 
year, 179 communities submitted applications totalling $142 
million, and while we have seen some evidence of some early 
successes in places like Augusta, Georgia, locations like 
Charleston, West Virginia, and Daytona Beach, it is really too 
early to tell whether these programs will be lasting. And while 
Charlottesville did not participate in this program in FY02, we 
are seriously considering applying in FY03 to incentivize our 
carriers to upgrade turboprop equipment for regional jet 
aircraft. And while we did not participate in the program last 
year, we did work cooperatively with Delta Airlines to bring 
new regional jet service in our market through a $100,000 
incentive program for promotion and advertising. And I might 
say that that service has been quite successful in the past 
year that it has been in our market.
    Nonetheless, given the program's immediate apparent 
successes, it is very disappointing that the Administration is 
not including funding for this in FY04 given the apparent 
demand for the dollars that are out there.
    In terms of the Essential Air Service Program, this program 
has helped many rural communities retain their connection to 
the national aviation system. Although Charlottesville is not a 
participant, I am, once again, disappointed that the 
Administration has recommended that funding for this program be 
reduced from $113 million to $50 million in FY04 and is seeking 
to require local communities to generate a matching share in 
order to continue to receive funding.
    Mr. Chairman, I have two recommendations. I believe that it 
is important for DOT to work with small communities and States 
to come up with very creative plans that are flexible and 
responsive to the needs of the individual communities as there 
is not one single silver bullet that will solve this program en 
masse.
    What is occurring today, in many instances, is that this 
EAS service becomes sometimes unreliable. And as a result, 
people that rely on it for business connections opt to drive to 
other airports. Hence, the service is underutilized and becomes 
unprofitable, even with the subsidy. Perhaps it is time to 
bring in some performance-based systems to this program that 
would incentivize carriers to perform and provide reliable 
service, versus just have a financial incentive to do so.
    However, until this program is restructured, it is also 
important at this time to continue the level of funding where 
it is today and not require local communities to come up with a 
matching share, particularly as the amount of red ink in local 
and State governments continues to grow by the day.
    My third point relates to access to high-density airports. 
Small communities also need help from the Federal Government 
that is not financial in nature. Neither Congress, nor the 
executive branch, should allow congested airports in major 
metropolitan areas to charge above-cost pricing in landing fees 
to allow access to those airports. Selling off landing rights 
at airports like LaGuardia to the highest airline bidders, as 
proposed by DOT and FAA, would disproportionately eliminate 
service to small communities such as Charlottesville with our 
smaller aircraft and lower volume of passengers. Unless small 
communities would be exempted from this program, allowing 
congestion pricing would lock small communities into permanent 
second-tier status.
    Fourth, full funding for the AIP program. Finally, Mr. 
Chairman, small communities can also be helped through the 
reauthorization of AIP at least at a level of $4.0 billion in 
FY04, with growth of an additional $100 million per year in 
subsequent years. Moreover, it is vital that you maintain AIP's 
focus on funding aviation capacity, preservation, and safety 
projects, rather than draining the fund for installation of 
security-related equipment. Last year, $500 million in AIP 
funds were used to fund TSA-mandated capital-security 
requirements at our airports, a tenfold increase from the prior 
year. As much as we recognize that TSA must undertake billions 
of dollars of security improvements to fulfill its statutory 
obligations, these needs must be funded from appropriations to 
TSA rather than draining the FAA's AIP program to fulfill this 
obligation.
    Thank you for the opportunity to present my views this 
morning, Mr. Chairman. I would be pleased to attempt to answer 
any of your questions related to small community air service 
either at Charlottesville or nationwide.
    [The statement of Mr. Elliott follows:]

  Prepared Statement of Brian O. Elliot, Former Co-Chairman, Airline 
  Service and Competition Committee, American Association of Airport 
                               Executives

    Good morning, Mr. Chairman and Members of the Subcommittee.
    I am Bryan Elliott, Executive Director of the Charlottesville-
Albemarle Airport Authority, which owns and operates the 
Charlottesville-Albemarle Airport (CHO). It is a pleasure and an honor 
for me to be before you today to present my views on the status of air 
service to our small communities and to outline the need for continued 
Federal assistance on several fronts.
    The Charlottesville-Albemarle Airport is a non-hub commercial 
service facility located in the Piedmont region of Virginia. The 
Charlottesville area is home to the University of Virginia as well as a 
diverse base of tourism, manufacturing, and financial service entities. 
Our regional economy requires dependable scheduled air service that 
links our region to the world.
    As you are aware, the General Accounting Office (GAO) has recently 
confirmed that air service to small communities has declined 20% since 
September 11, 2001, more than in larger metropolitan areas. In 
contrast, the Charlottesville-Albemarle Airport has recently 
experienced passenger growth. 2002 represented a record year for us, 
with approximately 342,000 passengers using our airport. 
Charlottesville's three regional carriers offered those passengers 
access to the national aviation system via 54 daily nonstop flights to 
seven airline hubs.
    Mr. Chairman, Charlottesville's need, and that of other small 
communities, is for efficient, reliable, and economical scheduled air 
service access to our national aviation system. Allow me to take just a 
few moments to discuss how the Federal government can help protect 
small communities from being cut off from commerce, economic 
development, and the potential for prosperity by helping to foster 
basic levels of air service.

1. Small Community Air Service Development Pilot Program
    Through this pilot program in AIR-21, Congress sought to help small 
communities by encouraging creative marketing and financial assistance 
projects to attract and retain new airline service. Although $27.5 
million in annual appropriations was authorized for this program, 
Congress has only appropriated $20 million in each of two fiscal years.
    Small communities' interest in this pilot program has been 
overwhelming. In the first year, 179 communities submitted applications 
totaling $142 million. It's too early to determine how successful the 
40 selected communities will be in obtaining and retaining new air 
service in light of the serious and continuing economic plight of the 
carriers. However, communities such as Charleston (WV), Daytona Beach 
(FL) and Augusta (GA) have attained new service through this program. 
Charlottesville, while it did not apply in FY02, is seriously 
considering applying for FY03 funding to ``incentivize'' incumbent or 
new carriers to provide more regional jet departures in our market.
    Given this program's immediate success, it is very disappointing 
that the Administration is not proposing to extend it, as reflected in 
the fact that the Administration's FY04 budget requests no money for 
this purpose. Because the U.S. needs better air service to small 
communities, I urge the Committee to reauthorize and expand this 
program in your AIR-21 extension legislation.

2. Essential Air Service Program (EAS)
    The EAS program has helped many rural communities retain their 
connection to the national aviation system. With this said, I am 
disappointed, again, that the Administration has recommended that 
funding for this program be reduced from $113 million in FY03 to $50 
million in FY04, and is seeking to require local communities to 
generate a matching share in order to continue to receive funding.
    Mr. Chairman, I have two recommendations. First, I think it's time 
for Congress to require DOT, in conjunction with affected local 
communities and their state governments, to consider some radical 
changes be made to this program to ensure that it will be as effective 
in 2005 as it was at its beginning in 1978. Currently, DOT's 
proposals--developed without state/local participation--are all aimed 
at financial savings rather than at improved air service. As a result, 
in some instances subsidized carriers don't provide dependable service. 
Passengers then bypass the unreliable local service and drive to 
distant alternative airports. As a result, the EAS service is under-
utilized. Perhaps it is time to focus on the issue of improved service 
through establishment of some form of ``performance-based standards'' 
for carriers to meet in order to receive payments.
    Until this program-restructuring project is completed, it is 
important for Congress to fund the EAS program at existing levels 
without instituting program changes requiring localities to match 
federal funding. With state and local governments already facing red 
ink from economic downturn, this is not the year in which to institute 
a financial matching requirement.

3. Access to High-Density Airports
    Small communities also need help from the Federal Government that 
isn't financial in nature. Neither Congress nor the Executive Branch 
should allow congested airports in major metropolitan areas to charge 
above-cost landing fees or ``congestion prices.'' Selling off access 
rights to LaGuardia Airport to the highest airline bidders, as proposed 
by DOT/FAA, would disproportionately eliminate service to small 
communities such as Charlottesville, with our smaller aircraft and 
lower volume of passengers. Unless small communities were to be 
exempted, allowing congestion pricing would lock small communities into 
permanent second-tier status.
    The New York metropolitan area represents the top origin and 
destination (O&D) market for the Charlottesville region. Chicago is 
Charlottesville's second largest O&D destination and, like New York, is 
served primarily through a congested airport. We and other small 
airports oppose ``congestion pricing'' because our communities would be 
disproportionately harmed--and because our financially strapped 
carriers would be pressed even harder by such fee increases.

4. Full Funding for the AIP Program
    Finally, Mr. Chairman, small communities can also be helped through 
the reauthorization of the Airport Improvement Program (AIP) at a level 
of at least $4.0 billion in FY04, with growth of an additional $100 
million per year in subsequent years. Moreover, it is vital that you 
maintain AIP's focus on funding aviation capacity, preservation, and 
safety programs rather than draining the fund for installation of 
security-related equipment. Last year, $500 million in AIP funds were 
used to fund Transportation Security Administration (TSA)-mandated 
capital security expenditures at our airports, a tenfold increase from 
the prior year. As much as we recognize that TSA must undertake 
billions of dollars of security improvements to fulfill its statutory 
obligations, these needs must be funded from appropriations to TSA 
rather than by straining the FAA's AIP program to fill this new funding 
requirement.
    Thank you for the opportunity to present my views. I would be 
pleased to attempt to answer your questions about small community air 
service issues, at Charlottesville and nationwide.

    Senator Lott. Thank you very much, panel. That is very 
interesting testimony.
    Senator Burns has agreed to allow Senator Stevens to ask 
the first question since he does have another Committee 
meeting.
    Senator Stevens?

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Well, I am grateful to my friend from 
Montana and to you, Mr. Chairman.
    I believe that Senator Inouye and I are the only ones who 
were here when we deregulated the airlines and did away with 
the Civil Aeronautics Board. At that time, this concept came 
into being of Essential Air Service for Alaska. It was based on 
a concept of assistance to those areas which had no roads, no 
access other than by air.
    And I listened to you, Ms. Hecker, but I did not hear you 
give any relevance to the fact that some of these essential 
air-service airports are serving places that have no other 
means of access, because we do not build public highways to 
these areas, we have no train service, we have been blocked 
off. As a matter of fact, all land access in those areas is 
permanently now blocked.
    I do not quite understand, Ms. Van de Water, the 
Administration's position that these areas that have no other 
assistance, have no subsidies from roads, no subsidies from 
airlines, should now start contributing to the system that was 
created to assure that they would get air service, which they 
used to get under the Civil Aeronautics Board. Why did you not 
take into account the availability of other means of 
transportation?
    Ms. Van de Water. Senator, we intend to take into account 
the availability of other means of transportation. Alaska, and 
certainly Hawaii, as well, offer very unique challenges to the 
Department and the EAS. There are----
    Senator Stevens. Why should my----
    Ms. Van de Water.--about 30----
    Senator Stevens.--why should these communities contribute 
to this Essential Air Service fund, which originally was about 
$5 million? Last year, we put up $113 million. And they are----
    Ms. Van de Water. Yes, sir.
    Senator Stevens.--they are essentially serving what were 
general aviation airports that were turned into commuter fields 
for convenience. Those people mostly have train service, bus 
service, and automobile capability to go by road.
    Ms. Van de Water. Well, we have proposed----
    Senator Stevens. Why should our cities that have no other 
assistance from the Federal Government contribute to this fund 
which was established for them?
    Ms. Van de Water. I think, Senator, what we have tried to 
do is have buy-in from the communities and the State. We 
recognize Alaska is in a very unique situation; Hawaii, 
somewhat in a unique situation, as well. You have 33 different 
communities and 7 million of the EAS dollars go to your State. 
We are asking a 10 percent match for the Alaskan communities, 
recognizing that there is no highway connection for most of 
them.
    Senator Stevens. Well, why do you want any kind of 
contribution at all? Would you like to build the roads out 
there? They cost about $2 million a mile.
    Ms. Van de Water. No, Senator, we would not want to do the 
roads, but we do have a very tough financial situation where 
our funds are limited and communities very frequently come into 
the EAS program over which we have no control. We have had 
about 25 additional communities come into the program in the 
past year, and there are about 85 out there with single-carrier 
service that could file today, and my office would be 
responsible for paying the carrier for staying in, and we do 
not have the funds to do it.
    Senator Stevens. But why do you put the areas that were 
intended to be served last rather than first? Why should those 
communities contribute at all?
    Ms. Van de Water. Well, they are contributing less under 
our proposal than the communities that are closer, but we have 
also advocated moving some of the communities who are very 
close to jet service into a different pattern of service.
    Senator Stevens. I understand that, and I have read your 
proposition. Thirty-two of the thirty-three essential air-
service airports in Alaska have no other means of access. Have 
you ever been up there?
    Ms. Van de Water. Yes, sir.
    Senator Stevens. Did you visit those areas?
    Ms. Van de Water. I visited Kodiak.
    Senator Stevens. Well, that has no road access. That is 
true. It is an island.
    [Laughter.]
    Ms. Van de Water. I did fly there.
    Senator Stevens. That is the only way you can get there 
unless you want to go on that Dramamine Express that goes over 
twice a week.
    [Laughter.]
    Ms. Van de Water. No, thank you, Senator.
    [Laughter.]
    Senator Stevens. There is a ferry that goes over twice a 
week.
    But again, I am trying to make my point. The program was 
started in Alaska for the areas that had no subsidies, no 
roads, no railroads, no means of access, but were served under 
the old Civil Aeronautics Board. It has been expanded now all 
over the country into areas that have other means of access, 
and I absolutely oppose trying to put costs on these small 
native villages. They have no tax base. Most of them are 
located within large national withdrawals--national parks, 
national wildlife refuges, wild and scenic rivers, national 
forests. They used to have service under the Civil Aeronautics 
Board. Now, why should you want to charge them now?
    Ms. Van de Water. Senator, again, we are just trying to 
provide as much service as we can under the fiscal constraints 
that we have.
    Senator Stevens. Well, I have got to tell you, you have got 
a real opponent in what you are trying to do, in my opinion. I 
think the fees ought to be compared to the access that is 
available to the people that are using the service under other 
means of transportation. If you can get on a railroad and come 
in to Washington, why should you subsidize a general aviation 
field to bring a commuter in?
    Ms. Van de Water. Senator, I have no authority to cut back 
that EAS service unless the Congress gives it to us.
    Senator Stevens. We are going to give you some, if I have 
my way.
    Ms. Van de Water. Thank you.
    Senator Stevens. Thank you very much, Mr. Chairman.
    Senator Lott. Senator Burns?

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. And I like this idea of no statements and we 
just go straight to the witnesses.
    I think Senator Stevens brings up a very good point. It is 
hard to write any kind of a law as ``one size fits all,'' 
because most of the areas of this country has to be considered 
on a case-by-case basis. Take, for instance, in my State of 
Montana, yeah, we have got roads. In fact, a couple of ours in 
three, I guess, of our airports that are under Essential Air 
Service are also on Amtrak, but it only goes east and west, and 
then we doubt what is on the other end of the line both ways.
    We are, remote, a State, from the rest of the country. My 
airports are anywhere from 200 to 300 miles away from a small 
hub, and they are smaller communities. Three of them serve 
Indian reservations, and they have their own needs even though 
the boardings may not be that high.
    I was interested in the statement of Mr. Elliott, what--you 
say you are small; you do not even know what small is. And I am 
like Mr. Stevens. I say, you know, those communities who are 
remote, who have a limited amount of access, was why the 
program was put in place, and I do not know of any kind of a 
formula one could dream up, but I think it has to be dealt with 
on a case-by-case basis. I do not think there is a formula that 
we could write that would be fair. And I would say, to the 10 
percent investment from the local community, you know, a lot of 
these communities, they have a hard time just maintaining the 
facilities of the airport, let alone trying to participate in 
10 percent of whatever the cost is in service to that area.
    So those are the--I look forward to working with you, Madam 
Secretary, and working on this. I know it is too expensive. I 
said on the Budget Committee we are trying to find ways to get 
this budget down to where it serves the people with the most 
needs, and I know there are great challenges ahead of us. But I 
think the ``one size fits all,'' you know, or trying to devise 
some formula, I do not know how you can do it fairly.
    I know that Senator Inouye's needs in Hawaii are different 
than the ones in Montana. And Senator Inouye also understands 
our Essential Air Service when I said we serve three Indian 
reservations that would have no air transportation at all other 
than through general aviation, and that gets pretty expensive.
    So I just want to make the point. I look forward to working 
with you on this, and if you need some changes up here, I think 
it is time we sat down and really talked about it and to work 
out some way that gives maybe your department a little more 
latitude to make some judgement calls.
    I am telling you what, I do not mind--we are paying for 
Essential Air Service to airports from to Baltimore, and I do 
not think that--I do not mind driving to Baltimore if I can get 
a cheaper rate. And we are going to talk about rates one of 
these days, too. Geez, we have got to do something about them.
    But the point I am trying to make, though, I think there is 
no formula that is going to be fair, and we have got to give 
somebody the authority, or somewhere, to look at these case-by-
case basis, because there are unique situations in all of our 
communities that need to be considered.
    And I thank you for coming today.
    Ms. Van de Water. Thank you, Senator. If I may respond to 
that for a moment?
    Senator Lott. Could I get a clarification, too? I thought 
that the DOT proposal for the local community contribution was 
25 percent----
    Ms. Van de Water. If you are----
    Senator Lott.--not 10 percent.
    Ms. Van de Water. It is 10 percent if you are farther than 
210 miles or not accessible by highway. That would cover all 
the communities----
    Senator Lott. 25 percent----
    Ms. Van de Water.--in Montana, Alaska, and there would be 
special circumstances for Hawaii.
    Senator Lott. And then 25 percent----
    Ms. Van de Water. If you were closer than 210 miles.
    Senator Lott. Thank you.
    Senator Burns. Well, if you----
    Ms. Van de Water. Senator, if I could----
    Senator Burns.--want to respond----
    Ms. Van de Water.--respond to your point about ``one size 
fits all,'' I agree with that, and we have tried to build some 
discretion into the program. The problem is, every time that 
the Department has discretion, we are asked to use the 
discretion to give service.
    Let me give you an example of one community that is 68 
miles, right now, from one of the largest east-coast hubs that 
there is. The carrier that served that community filed for EAS 
subsidy shortly after September 11th. We have denied it because 
it is within 68 miles of a large hub, which is within our 
statutory prohibition, again 70 miles. And we are now being 
sued by that community. We are in Federal court right now. It 
is taking up a tremendous amount of Department resources and 
staff time. It has come to the attention of the Secretary, as 
well. And that is a community that is 68 miles from one of the 
largest hubs on the East Coast. So it is a very difficult 
process to go through.
    Senator Burns. It is, and I recognize that. But 
nonetheless, there should be some sort of latitude and some way 
to isolate you away from those kind of lawsuits where 
basically, if you look at it, they are completely unreasonable 
and make work, probably, for some very aggressive young 
attorney.
    So thank you, Mr. Chairman, for this hearing, because it is 
very, very important to our communities in a State like 
Montana, though.
    Thank you very much.
    Senator Lott. Thank you, Senator Burns.
    Senator Dorgan?

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. First, Ms. Van de Water, let me say that I 
like the job you have done. I think you have done good work----
    Ms. Van de Water. Thank you, Senator.
    Senator Dorgan.--in administering this program. And I know 
it is not easy. And I am plenty critical of those whose jobs I 
think have not been done well, but I think your stewardship 
there has been quite good and I appreciate that.
    Ms. Van de Water. Thank you, Senator.
    Senator Dorgan. But having said that, I, of course, have 
great problems with the budget submitted by the Office of 
Management and Budget and the President. Let me ask you a 
couple of questions about them.
    The Essential Air Service Program is cut in half, 
anticipating that cities and other entities will pick up part 
of the cost. It is the case, as you know and the Administration 
knows, that many of these cities are struggling financially. I 
mean, the fact is, you say, and you are quite correct, ``We do 
not have money,'' or, you know, ``We are in debt at this point, 
annual budget deficits, so we have got to cut back.'' But for 
exactly the same reason, because of a struggling economy, those 
cities that you want to assume more of the cost at this point 
would have great difficulty in doing that. Would you not 
concede that?
    Ms. Van de Water. I think that they would, Senator. 
However, through the Small Community Air Service Development 
Pilot Program, in particular, we have seen some expressions of 
interest in your State. In Bismarck, with their regional air 
service proposal, which was linking Billings and Sioux Falls 
and Rapid City, they were offering a very substantial match. 
And in fact, when we did the Devil's Lake renewal of EAS, I had 
a letter from the manager of the Jamestown Airport saying, and 
I quote from his letter, ``I would enthusiastically welcome a 
discussion on a participatory venture concerning guaranteed 
ticket purchases coinciding with service from a larger 
aircraft.''
    So we have seen some expressions of interest from the 
community. If they have a greater say-so in what their service 
is and can tailor it to their needs, they are more willing to 
financially support it, and then there is a vested interest in 
supporting it.
    Senator Dorgan. Well, now, going to the pilot program 
itself, the Administration recommends no additional funding at 
this point for the pilot----
    Ms. Van de Water. That is correct.
    Senator Dorgan.--program. Tell me the purpose of that 
recommendation.
    Ms. Van de Water. The pilot program is an experimental 
pilot program that has allowed 40 communities to participate in 
this program. We fully funded, with $20 million in FY02, 40 
communities. There is one community that did a one-year 
project. The other 39 did a two- or three-year project, 
including the ones in your State. And we do not have any 
discretion to continue the funding at a future time.
    We are maxed at 40 communities. It was not 40 communities 
per year. Our counsel reads it as 40 communities total. Now, 
that was not our original understanding of the program, and we 
have asked Committee staff for clarification on that point, and 
that could perhaps be addressed in future legislation. But 
right now we are limited to 40 communities, and we have spent 
the $20 million to fund those 40----
    Senator Dorgan. It seems to me----
    Ms. Van de Water.--proposals.
    Senator Dorgan.--it seems to me the excitement and the 
energy by local governments and local communities about this 
program is exactly what the Administration would want. That is, 
some of these cities are taking a look at new, innovative, 
creative ways to stimulate and to support commercial air 
service that does not now exist. That is exactly what we would 
want to have happen, and I would hope that we would see 
additional funding for that in the future.
    Ms. Van de Water. Well, we are very hopeful to get very 
good feedback from this program. Again, the money has only been 
out there for about six months, so we do not have a lot of 
feedback yet. But we are hoping that it will create standards 
by which other small communities can use these ideas.
    Senator Dorgan. Let me go back to the Essential Air Service 
Program, because people tend to focus on that part of the 
program that does not work or the edges where you can make a 
case that perhaps this is marginal. Tell me your impression, 
generally, of EAS. Has it been--I assume that you believe it 
has been helpful to a good number of small communities who use 
it effectively for which the service is very important to their 
community.
    Ms. Van de Water. It is very important to many communities. 
Some communities do use it effectively. I have found the vast 
majority of communities whose renewals have come up during my 
time at the Department are not happy with their service. They 
either do not like the size of the aircraft, they do not like 
the frequencies, they do not like the hub that it goes to, and 
they do not like the fares.
    I will say, of all the aviation issues that have come up, 
and I have been in office now since September of 2001, I have 
spent more time on EAS than any one issue out there. So 
communities are really not always happy with their service, and 
that is why we would like to give them a chance to change it 
and do something different--if it suits their needs; not 
because I am telling them they need to, but because they have 
the option to do so.
    Senator Dorgan. Mr. Elliott, with the amount of money for 
the AIP program for airport improvements essentially stable in 
the Administration's request, with no growth, and with the need 
for some of it to have been spent for security purposes in the 
last year or two, is the AIP funding recommendation going to be 
sufficient, in your judgement?
    Mr. Elliott. Again, Senator, we are recommending $4 billion 
in the AIP for reauthorization and then an increase of $100 
million. There is no doubt that the funding of TSA-required 
security-related equipment has had an impact on capacity and 
preservation projects. In Charlottesville alone, we are 
earmarking a portion of our funds to do some security-related 
equipment that otherwise had been dedicated to an airport 
capacity and safety-related project.
    Senator Dorgan. And in your testimony, you expressed 
concern about the recommended funding level for EAS. You heard 
Ms. Van de Water's representation. I mean, Ms. Van de Water is 
here representing the Administration's budget, and she would 
not be in her job very long if she came to the Commerce 
Committee and criticized the budget recommendation that was 
sent to us, so I understood what her answers would be before I 
asked her the question. But tell me your assessment of the 
recommendation, some $50 million plus the local contributions.
    Mr. Elliott. Well, again, in terms of the local 
contribution, and I can only speak for our region, which, 
again, is not an EAS participant--but Charlottesville area is 
one of the most affluent areas in the United States, and yet 
its local budget is only going to be able to glean 1 million 
additional dollars in revenue this year, and the majority of 
that $1 million is going to State-funded mandates. So if a 
community that is as affluent as our region has difficulty 
raising revenue in this tough economic time and most of that 
revenue must go to State mandates, there seems to me to be very 
little revenue left out there that they could scrape together 
to match those EAS requirements.
    Now, in terms of the additional money or keeping the $113 
million appropriation, you have to look at the cost of flying 
one segment mile of an aircraft. Labor costs have certainly 
increased. Fuel costs are at an unprecedented level than they 
have ever been, as high as they have been. Those things 
combined, they just create the additional cost.
    Senator Dorgan. Ms. Van de Water, just two additional 
questions. I was the author of the legislation that connected 
funding from overflights by foreign carriers to help provide 
some stable funding for EAS some years ago. As you know, we 
used to fight in the Appropriations Committee every year about 
that funding. It was somewhere around the $25-27 million level. 
I was able to get it authorized at double that and connect its 
funding to overflights. And then, since that time, we have done 
even better. So I have, you know, some real concern about EAS 
and affection for EAS, for good reason. And so I want the 
Administration to really strongly support it.
    As I indicated when I started, I like your stewardship of 
the program, personally, but it needs to be funded. And in your 
recommendations, you not only propose cuts, but you propose 
local contributions, and then you talk about ground 
transportation as a substitute. Can you describe what you mean 
by that?
    Ms. Van de Water. Absolutely. Let me give you the example 
of Prescott, Arizona, which is about 78 miles from Phoenix, 
which, of course, is a large hub, and hub to America West and 
has a lot of Southwest----
    Senator Dorgan. How many miles----
    Ms. Van de Water.--service.
    Senator Dorgan.--is it?
    Ms. Van de Water. It is about 98 miles, I believe. We have 
two roundtrips a day on a subsidized EAS carrier, morning and 
evening, that carry an average of 25 passengers a day.
    Senator Dorgan. What equipment?
    Ms. Van de Water. Nineteen-seat aircraft, I believe. And 
the Federal subsidy each way is $70, and then there is an 
additional $70, basically, that the airline charges, so it is 
$140 each way. There is a shuttle service that we found online 
called ``ShuttleU,'' and ``ShuttleU'' carries an average of 106 
passengers a day from Prescott to Phoenix. They charge $26 each 
way. They leave 12 different times throughout the day. To me, 
that shows that some communities--and, again, this would be 
community choice--may be better served with a subsidy of $26 
where you are taken from your local town to the airport, the 
hub airport, in perhaps about the same amount of time, with 
times throughout the day which is more convenient for your 
connection. There is clearly a market there. Many times, more 
people go that way than they do on the EAS carrier. So, again, 
that is something we would put back to the communities and let 
Prescott make that kind of choice.
    Senator Dorgan. You would not impose that on them.
    Ms. Van de Water. No, sir, we are not imposing----
    Senator Dorgan. All right.
    Ms. Van de Water.--that on Prescott.
    Senator Dorgan. Thank you for your responses. Mr. Elliott, 
thank you; and Ms. Hecker, thank you.
    Senator Lott. I think that is the kind of innovative thing 
we need to try to do more of.
    Senator Rockefeller?

           STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Rockefeller. Thank you.
    This is just some reflections. One of the things that we 
somehow do not talk about when we are talking about Essential 
Air Service and the airport AIDP program is the fact that the 
world has changed in the last two years and that--I was just 
telling the Chairman of the Subcommittee that in West Virginia, 
there are 14 communities that have over 10,000 people, period. 
Now, most of them have an airport. And in fact, the largest of 
them is around 47,000 people. That does not make an enormous 
tax base.
    Now, one of the things that we never talk about is that 
since 9/11 and since the calling up of the National Guard and 
the emergency-service people, you are finding huge shortages in 
these communities for what you would call other totally 
essential services, like police, fire people, professional 
volunteers, those kinds of folks, so that when a--I was 
visiting with the city of Clarksburg yesterday, and they were 
describing how they had lost four police people and they had 
decided, in a remarkable decision, I think, to keep them on 
salary while they were in service overseas, which I think is a 
remarkable decision for a very small community, and a very 
humane decision, so their families do not starve.
    Now, in the meantime, if they go and hire somebody, in that 
the people going overseas are signed up for a year, obviously 
they have to then pay those people when the person comes back, 
because of Civil Service rules and other things, they cannot 
get rid of the person they hired to take that person's place. 
And so they cannot afford to do it, so they do not. So that in 
fire service and police service and other basic forms of 
protection, which is not the subject of aviation, but which is 
the subject of people's lives in the most strenuous sense, 
these communities are being deprived, for this period of time 
and I think for quite a long period in the foreseeable future, 
of revenues to be able to match. To be able to match. And I 
think that needs to be--to match air service fees of whatever 
sorts.
    That also does not take into account what is going to 
happen when, as I think will happen, there will be attacks on 
this country, what will happen to the airline industry. I am 
about to go to Finance Committee. The Pension and Benefit 
Guaranty Corporation, about 40 percent of all of their losses 
are attributed, so far, to airlines. And that figures to go way 
up if we have more of this, so that airlines then start--they 
are already losing $7 to $10 billion, and to some analysts that 
goes to $15-20 billion. What are we going to do about that? 
Less service. And who is at the end of the food chain? The 
communities in Charleston, West Virginia, and West Virginia and 
Alaska and every place that you see, person that you see, here 
before you sitting around in this Committee table.
    So I want to make that point. AIDP was an extraordinary 
program. You mentioned, Mr. Elliott, Charleston, West Virginia. 
Charleston, West Virginia, in fact, was probably one of the 
leaders in the country because of that program in terms of what 
it did to turn itself around. All of its--15 percent of its 
passengers have been driving to Cincinnati to catch Southwest 
because they had lower fares. That is the question that the 
senator from Montana pointed out. Well, you just cannot say, 
``Do not do it.'' You will have to pay driving and gas and 
overnight and all the rest of it. You have to advertise. You 
have to market. You talked about that. Shenandoah has been 
another airport in your area which has done that and done quite 
well in increasing their passenger load, but there are enormous 
requirements to make this work.
    So I just want to put on notice that we cannot just take 
this program, AIDP or EAS, in the pretension that the world is 
the same as it was when we created it or where we were four or 
five years ago. It is all different, and small communities have 
much less money. In fact, they are all in debt. Many of them 
are in debt. In fact, the States are all in debt, the Federal 
Government is in debt. The Federal Government is in deficit. 
You know, it is just one thing after another, but you cannot 
cut off air service. You cannot do that. I mean, that is like 
cutting off blood supply to hospitals. It is not something that 
we can contemplate having happen.
    And therefore--and I understand the constraints of 
testimony in OMB and the particular nature of the director of 
OMB and how he likes to make life tough for you; but, in the 
meantime, he is killing us and it is killing our futures. So it 
is like the terrorists are getting their way by doing nothing, 
just by being either a presence that might do something or a 
presence which when it does do something will make everything 
much worse.
    Now, that was not Shakespeare, and I admit that. But my 
point is that we have to have this, and I, if nobody else, am 
going to introduce legislation. We need this AIDP to up to $100 
million over a period of three years. There was $140 million 
worth of requests made, or maybe more. Maybe it was 180, 140, I 
think it was.
    Ms. Van de Water. $143 million----
    Senator Rockefeller. Yeah.
    Ms. Van de Water.--was requested for the small community 
pilot program.
    Senator Rockefeller. Yeah. And it is limited to 20. It 
should be--or 40----
    Ms. Van de Water. 20 million for 40 projects.
    Senator Rockefeller.--for 40 projects, okay. And so it 
needs to go up, because the hardship is going to increase 
tremendously.
    So I would just make a full-blooded statement that OMB, to 
the contrary, that this country depends upon a number of things 
in particularly unique ways, and air service is one of them, 
because otherwise things just close down, people get shut off, 
and we all become like Senator Inouye's Hawaii. In fact, we 
become islands of isolation, and particularly when you are in 
the mountains of Appalachia that is likely to happen.
    So I will never yield or give up on this program and will 
introduce legislation, I hope with the support of my 
colleagues, to fight for these small airports which are doing 
everything in the world they can to improve themselves. And 
West Virginia has been a huge--all the airports have made huge 
improvements in the last year and a half, primarily because of 
AIDP.
    Thank you, Mr. Chairman.
    Senator Lott. Thank you, Senator Rockefeller.
    Senator Lautenberg?

              STATEMENT OF HON. FRANK LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thank you, Mr. Chairman.
    And first, I ask unanimous consent that my full statement 
be included in the record----
    Senator Lott. Without objection, so ordered.
    Senator Lautenberg.--as if read.
    [The statement of Senator Lautenberg follows:]

             Prepared Statement of Hon. Frank Lautenberg, 
                      U.S. Senator from New Jersey

    Mr. Chairman, I feel air service to small and rural communities is 
an important component in our nation's transportation system. Since 
deregulation of the aviation industry, programs like Essential Air 
Service have helped to prevent air carriers from dropping service to 
many small communities altogether and leaving many citizens with very 
few effective transportation options.
    I would like to point out that airports in the State of New Jersey 
are not direct beneficiaries of these federal programs providing air 
service to smaller markets. New Jerseyans have convenient access to 
large hub airports; we and others in the Northeast can even take Amtrak 
to and from Newark International Airport on an rail-air connection. New 
Jersey's transportation system, like that of many states, has problems, 
including congestion, capacity, and pollution concerns. Fortunately, 
lack of air service to rural areas is not a major one for our State.
    I support essential air service. Not because New Jersey needs it, 
but because our national transportation system needs it. People in 
remote communities throughout the country need it. And I am hopeful 
that my colleagues recognize that we must act in the best interests of 
all of our citizens when we consider possible changes to our nation's 
transportation system.
    As a former businessman, I can appreciate the fact that the 
economics don't always justify offering a good or service in a 
particular market and where the private market fails to offer 
sufficient inducements, the Federal Government needs to step in and 
provide a public good--in this case, air service to some small towns. 
The same principle applies to the public good of intercity rail 
service.
    We need to hold carriers to promises made during the deregulation 
era and maintain a truly national public transportation system. We must 
not allow programs like EAS to ``wither on the vine.''
    I look forward to hearing from our witnesses here today.

    Senator Lautenberg. The essence of my statement is to say 
that we support Essential Air Service. I know that it is a 
vital connection for so many communities. And it is 
particularly noteworthy that several of those communities were 
represented by senators who are sitting at the table today.
    The fact is that I consider that this is a national need, 
Essential Air Service, that the remoteness of a community 
should not determine whether or not it has contact with the 
rest of the infrastructure in our country. And it is really 
odd, because when I listen to our friend, Senator Stevens, and 
hear about the remote places that you cannot get to from here, 
I think of the places that are so heavily occupied that you 
cannot get there from here either, and that brings in to a 
discussion another phase, and that is that we need to make sure 
that we have highspeed intercity rail.
    And the senator from West Virginia reminded us that, 9/11, 
everything changed in our world, and they are not going back. 
That is the tragedy. And when you think about it, and you think 
that the whole aviation system could be shut down by a single 
incident, it was something that even the most ambitious fiction 
writer could never have dreamed up and sold off a bookstand.
    And so we are here. And in this Committee, I have heard 
discussions about highspeed rail, Amtrak, and what a cash 
guzzler it is without discussing the service that it renders. 
The service that it renders is essential because you cannot--in 
a country our size and that dynamic, you cannot allow a single 
important mode of transportation not to be reviewed and 
included if it can make a contribution to the ease of movement. 
In the New York Harbor area where we lost almost 3,000 people 
in one day, we pressed into service ferries that were 
nonexistent just 15 years ago. I happen to know the company 
very well who provided that service and realized how important 
it was.
    Amtrak. We had a congressional delegation come up, Mr. 
Chairman, and they had to come up by Amtrak. There was no 
choice. We did not have air service. It was shut down.
    And so when we look at the value compared to the cost, and 
I think that is where Senator Rockefeller was going, you look 
at the essentiality of the service. It is critical. Essential 
Air Service--I have been to Alaska, I have been to Hawaii, and 
I would be interested in going on a review trip very soon.
    [Laughter.]
    Senator Lautenberg. But the fact is that these remote 
places have to be there whether we choose to live there or not. 
That is part of the balance in our society.
    And so when look at the costs, and I think it is essential 
that we try to program things in a way--and, Mr. Elliott, the 
people in Charlotteville may not like the fact that you 
announced their high per-capita income, but the fact of the 
matter is that maybe there ought to be some kind of a means 
test for an area, and that will help you determine what the 
cost for a subsidy ought to be.
    When New Jersey sends down its contribution to the Federal 
Government, be it gas taxes or other things, and we have a 
prosperous State, and our prosperity costs us a lot of money, I 
often get abused because we do not get the share of the gas-tax 
dollar back that we would like to see or other taxes. New 
Jersey is 49th in return on the Federal dollar in terms of 
taxes sent here and returns sent back there.
    And I would love to go, as the Chairman of this Committee, 
distinguished Chairman, has suggested many times, give us a 
hundred cents on the dollar. Boy, New Jersey, they would have 
me as the local hero for ten minutes, I know they would, if we 
could get a hundred cents on the dollar. And I am hoping that 
as we consider this--and I support Essential Air Service. I 
make no bones about it.
    And Ms. Van de Water, I think that your comments and your 
expression indicates that you, too, would like to see it--and 
you represent the Department--also would like to see us furnish 
that kind of grant and opportunity for communities.
    Ms. Van de Water. I think Secretary Mineta has made it very 
clear, Senator, he is a very strong supporter of the EAS 
program, and that is why he has directed us to find a way to 
make EAS continue to work, living under the budget constraints 
that we live under. It has not been substantially reformed 
since 1978.
    Senator Lautenberg. Well, I hope that we can come up with a 
way of financing the program so that it provides the basic 
service that is required. I hope that as we consider 
transportation needs, that we look at all modes and ask 
ourselves what is fair.
    When you look at aviation and the condition of the 
airlines, the financial conditions, it has one scratching one's 
head because the revenue was robust, salaries at the top were 
pretty darn good, and suddenly now there is a $15 billion-or-so 
request for subsidy to save them from going under. The service 
they supply is an essential service, but we have to look at it. 
What is there about the industry that says, ``Buy whatever 
equipment you can and, uh-oh, we have got too much. Now went 
want the taxpayers to bail us out''?
    And so, Mr. Chairman, I am sorry to take up that much time, 
but when I see that 66 million people, 27 percent of the United 
States population, is serviced by the Northeast Corridor, 
serviced from Virginia up into Maine, Senator, all the way to 
Maine, and that we have a real stake in what takes place here. 
And as we look at Essential Air Service, we must look at 
surface transportation, including the railroads, to see what we 
can do with all modes of transportation.
    Thank you very much, Mr. Chairman.
    Senator Lott. Senator Snowe?

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman.
    I think it is unquestionable that there has been a 
diminution of service to small communities since the 
deregulation of the airline industry in 1978. When I think back 
to the kind of air service that existed in the State of Maine 
prior to the deregulatory period, we had, unquestionably, 
superb service, even within the State, let alone connections to 
other parts of the country.
    Essential Air Service, and the name of that program is 
virtually that, it is essential, and I am very concerned about 
the direction that this proposal is moving in, because 
undoubtedly it is going to wreak havoc on those communities 
that depend upon it.
    You may say that there are choices. And every time choices 
are raised, I sometimes think it is a euphemism for ``cuts'' 
and actually very little in terms of services. When you are 
talking about the fact that communities will then be able to 
make choices under these innovative proposals, yes, but not 
exactly.
    In Presque Isle, Maine, for example, the mileage to the 
nearest hub airport in Maine is 276 miles. That would be great 
even in the summertime, in terms of traveling. Talk about 
winter, 276 miles. So the choice is going to be, okay, if you 
want air service, then Presque Isle, Maine, is going to have to 
provide a local match of $246,752. I do not know what choice 
that is.
    Ms. Van de Water. Senator----
    Senator Snowe. Essential Air Service, you know, actually 
moved in in the year 2000 and provided service to Presque Isle, 
Maine, because the last carrier moved out.
    Ms. Van de Water. Right. Right.
    Senator Snowe. I mean, what we are doing by the direction 
and the nature of the Administration's proposal is to further 
isolate communities that depend on Essential Air Service for 
economic development. It is a lifeline for economic 
development. I hear that time and again from my small 
communities.
    We do not have options like trains, other than Amtrak, 
which has come to Portland recently for the first time. Bus 
service? I mean, we are talking about arduous travel, let alone 
in the wintertime--276 miles to Portland, Maine, from Presque 
Isle?
    Ms. Van de Water. No one is trying to take air service 
from----
    Senator Snowe. But you----
    Ms. Van de Water.--Presque Isle, Senator.
    Senator Snowe.--but the point is, they are going to be 
required to pay $246,000. Am I clear in that understanding 
here?
    Ms. Van de Water. Yes, they would be provided----
    Senator Snowe. It is a local----
    Ms. Van de Water.--they would be asked to pay, I believe 10 
percent----
    Senator Snowe. Well----
    Ms. Van de Water.--of their service.
    Senator Snowe. That is right. And so it is not a choice, 
because that is going to wreak hardship on the communities. I 
do not understand, for a proposal that was $113 million, being 
reduced by 50 percent that has served many areas of the country 
well. 300 communities--300 communities, the EAS communities--
have been lost since deregulation, since 1978. We are moving it 
in totally opposite direction. We should be doing all that we 
can to help build air service to these communities wherever and 
whenever it is possible. And we are talking about a very 
limited, small program to help those communities that are in 
the greatest need and that perhaps are in the greatest 
isolation. I do not see it as an option to take a bus.
    Ms. Van de Water. That is not the kind of option we meant.
    Senator Snowe. I mean, you can. I am not saying you cannot. 
But we are dealing in a time where transportation has become 
everything. And when you talk about the cost of the EAS 
program, I say look at the costs overall in the airline 
industry. No question, they are going up all across the Nation. 
But you know, the costs go up in these communities because 
there are no choices and there is no competition. They would 
love to have competition. Even our best airport in Portland 
faces competition, and that is the biggest airport, let alone 
talking about airports in Augusta, Bar Harbor, Presque Isle, or 
Rockland, Maine.
    So, I know that you are representing the Administration's 
proposal on this, but I will tell you that you will face fierce 
opposition from me, because I think it is wrong to heap this 
kind of mandate on communities at this point in time. It was 
bad enough before 2001, September 11th. You can only imagine, 
in the aftermath, these communities desperately need this kind 
of service.
    Now, I also understand, and I would like to have you speak 
to this point about--I hear that the Administration may be 
proposing peak pricing suggestions for congested time periods 
at major airports. Again, that will clearly work against small 
States and small communities, because there is no way they are 
going to compete when it comes to having the more favored 
landing or departure at major airports with larger aircraft and 
with the larger airlines. And so I hope that you do not move in 
that direction, because that is highly discriminatory.
    I know this proposal was raised a number of years ago, and 
many of us in the small communities opposed it because it would 
work adversely against smaller communities in small States. 
There is no way you can compete for access to the bigger 
airports if you move in that direction. So I hope that you will 
not be inclined to make such a proposal, because that would add 
to the further devastation of the quality air service that 
these small communities certainly deserve.
    Ms. Van de Water. If I may speak to both your points----
    Senator Snowe. Yes.
    Ms. Van de Water.--Senator? As far as Presque Isle goes, we 
are not suggesting that Presque Isle folks hop on the bus and 
ride to Portland. That is obviously a very long journey. 
However, Presque Isle did apply and received a Small Community 
Pilot Program grant for which they provided $100,000 local 
match because they wanted to experiment with service to 
Portland, which EAS does not offer. That is the kind of program 
we think is innovative and that the community is in the best 
position to determine. And again, they matched it with, I 
believe, a 20 percent match, $100,000. So now Presque Isle will 
have service to Boston, which is their designated EAS hub and 
to Portland. I know they have gotten off to a slow start, 
because they, I believe, have had a change recently in their--
--
    Senator Snowe. Uh-huh.
    Ms. Van de Water.--airport manager, but we are looking 
forward to hearing the success of that program. But they 
pitched it very aggressively, offered a very substantial local 
buy-in and said that they would do a very aggressive marketing 
campaign to try to increase ridership on this service to make 
it successful. And that is something the EAS program cannot 
offer them.
    Senator Snowe. Yeah, but in--but they may not be able to 
offer them, but that is in addition to the EAS.
    Ms. Van de Water. It is in addition----
    Senator Snowe. Okay, so----
    Ms. Van de Water.--to the EAS.
    Senator Snowe. But under the EAS program, as you are 
proposing, you would be now requiring a local match, depending 
on how close you are to----
    Ms. Van de Water. Yes, they would be----
    Senator Snowe.--a large or medium hub.
    Ms. Van de Water.--in the 10 percent, I believe.
    Senator Snowe. That is right. So that is $246,000.
    Ms. Van de Water. That is.
    Senator Snowe. So that, I think, obviates the ability of 
these communities to have that as an option, potentially. I 
mean, you----
    Ms. Van de Water. But, Senator----
    Senator Snowe.--could say, well, if they need it, they will 
provide it. But you have to understand. We are talking about a 
region that has already been devastated. They had a major 
military installation that was closed ten years ago. We lost 
10,000 people in that county alone--10,000. That is larger than 
most communities in Maine. And now we just saw the closing of a 
major paper industry, more than 1130 jobs, that is just 
adjacent to this town.
    So I guess all I am suggesting is that you may be saying 
you are providing choices, but it is not exactly, because you 
are requiring a local match, and that local match is going to 
be hard to come by----
    Ms. Van de Water. I understand that, Senator. We are 
hoping----
    Senator Snowe.--especially in these difficult economic 
times.
    Ms. Van de Water.--we are hoping States will----
    Senator Snowe. And I just want----
    Ms. Van de Water.--look at their air service as a whole. 
You also have communities in Maine that are only about 55 miles 
from Portland but also received subsidized EAS service. So we 
are hoping that the State DOTs or their equivalent in the State 
government, will take a look at the communities as a whole and 
decide how to best allocate their resources.
    Senator Snowe. Thank you. And I ask unanimous consent to 
include my statement in the record.
    Senator Lott. Without objection, so ordered.
    [The statement of Senator Snowe follows:]

  Prepared Statement of Hon. Olympia J. Snowe, U.S. Senator from Maine

    Thank you Mr. Chairman, for holding this hearing on air service to 
small communities, which is of vital importance--especially to those of 
us from rural states.
    Mr. Chairman, I have always believed that adequate, reliable air 
service in our nation's rural areas is not simply a luxury or a 
convenience. It is an imperative. And quite frankly, I have serious 
concerns about the impact deregulation of the airline industry has had 
on small and medium size cities in rural areas, like Maine. That fact 
is, since deregulation, many small and medium-size communities, in 
Maine and elsewhere, have experienced a decrease in flights and size of 
aircraft while seeing an increase in fares. More than 300 have lost air 
service altogether.
    Due to my concern about these troubling trends in air service to 
small communities since deregulation, I asked the General Accounting 
Office (GAO) to conduct an extensive review of the hurdles to regional 
jet service in rural communities. In March 2002, GAO's first report 
showed that small communities had almost 20 percent fewer departures in 
October 2001, as compared to October 2000. In January 2003, GAO issued 
the second part of the study, which shows that small communities are 
facing increasingly difficult challenges not only in attracting new air 
service, but also in retaining their current service. The results of 
the GAO's work are sobering, and provide a clear picture of small 
community air service challenges that we must keep in mind as we work 
to reauthorize AIR-21.
    Given these challenges, I was concerned to learn about the 
President's Fiscal Year 2004 budget proposal for the Essential Air 
Service (EAS) program. EAS assures service to 125 small communities 
throughout the nation, including four airports in Maine--Augusta, Bar 
Harbor, Rockland, and Presque Isle--that might otherwise not have air 
service. The President's budget requests $50 million for the program in 
FY 2004, down from $113 million in the FY 2003 Omnibus Appropriations 
bill. The budget is also proposing significant changes to EAS to target 
subsidies only to the most remote communities, and will require local 
support through matching funds.
    GAO's work has shown that the number of communities eligible for 
the EAS program has increased sharply over the past few years, and may 
continue to grow in the near term. Why, then, are we talking about 
cutting the program's budget by 55 percent? Furthermore, I am 
particularly concerned about the proposed community matching funds, as 
EAS-eligible communities typically have financial problems of their own 
and rely on the program for economic development purposes. I fear that 
if this proposal were enacted, it would mean the end of EAS service in 
Maine.
    GAO's recent work has implications for another federal program 
designed to promote air service to small communities. During the last 
FAA reauthorization bill, I was a strong supporter of the establishment 
of the Small Community Air Service Development Program. These grants 
are targeted at helping small communities like Presque Isle, Maine 
overcome the hurdles they face in attracting reliable, high-quality air 
service. According to the Department of Transportation, they received 
grant applications totaling $140 million for the $20 million available 
for the first round of grants in FY 2002. Given the fact that, 
currently, demand for these grants so far exceeds available funding, I 
believe that we should reauthorize the program and settle on a funding 
figure that reflects small community demand.
    Mr. Chairman, that fact is that many air carriers are experiencing 
an unprecedented financial crisis, and the first routes on the chopping 
block will be those to small- and medium-sized communities. This will 
only increase demand for the two federal forms of assistance, EAS and 
the Small Community Grant Program. Today, we will be considering what 
steps we can take to help small communities maintain their access to 
the national transportation system during these difficult times.
    In closing, the truth is, everyone benefits when our nation is at 
its strongest economically. Most importantly in this case, greater 
prosperity everywhere, including in rural America, will, in the long 
run, mean more passengers for the airlines. Therefore, it is very much 
in our national interests to ensure that every region has at least 
reasonable access to air service. And that's why I strongly believe the 
Federal Government has an obligation to exercise its critical oversight 
responsibility with regard to our air carrier system.
    Thank you, Mr. Chairman.

    Senator Lott. Senator Inouye, you have been very patient. 
Thank you for staying, sir.

              STATEMENT OF HON. DANIEL K. INOUYE, 
                    U.S. SENATOR FROM HAWAII

    Senator Inouye. Thank you very much.
    Madam Secretary, before I proceed, I would like to thank 
you on behalf of the people of Hawaii for your very sensitive 
way in which you have approached our problem. And what I am 
about to relay to the Committee here is not for you, because 
you are well aware of this situation.
    In the early 1800s, about 1830, the Health Department of 
the Kingdom of Hawaii during the time of Kamehameha III noted 
the presence of leprosy. We call it Hansen's disease today. And 
they were so horrified because of the biblical implications and 
such that they wanted to find someplace in Hawaii so isolated, 
so desolate, that no one could ever escape. And they found a 
place, called Kalaupapa, surrounded by huge waves and rocks, a 
cliff on one end. Only a goat could ever traverse up and down. 
And the original patients were brought near the peninsula, 
thrown overboard, and, if they could swim, they would swim to 
shore and live; otherwise, they would die.
    Fortunately, a group of Catholic nuns and priests decided 
to take this as their cause, and today one of the priests will 
become a saint, Father Damien. I am not speaking of economic 
development, because there is no economic development there. 
This is a community made up of patients, doctors, and Federal 
workers, because it is a national park.
    And as you have pointed out, there is no one solution for 
every case, and I would like to work out something with you. 
Because in this situation, the county of Kalawao--incidently, 
that little peninsula is a county, because no other county 
wanted to touch this--and Kalaupapa belongs to that county. And 
any matching fund would be just impossible to meet, because 
there is no income there. And furthermore, in other smaller 
communities you do have competing services, but here no one 
wants to touch that because you will get tainted. And once you 
provide services for the patients, other people do not want to 
ride those planes.
    And so we have this almost impossible situation, Mr. 
Chairman. And if, under this proposal, they are required to 
match, the match would be over $300 per patient there. And with 
a situation where they have no income of their own, something 
has to be done.
    The other place that I am certain you have heard about is 
Hana. It is actually 30 miles from Kahului, an airport there. 
But in order to get from Kahului to Hana, one has to go over 32 
single-lane bridges, crossing 32 streams and rivers. It is so 
treacherous that very few cars ever make it. In fact, daily 
traffic is about five cars. People do not want to take that and 
risk that situation. And so it is almost as isolated as 
Kalaupapa.
    And I am hoping that we can work out something to, well, 
resolve this problem and address the uniqueness of Kalaupapa 
and Hana.
    And I thank you very much.
    Ms. Van de Water. Thank you, Senator. We would like to work 
with you on that.
    Senator Lott. Thank you, Senator Inouye.
    Allow me to ask some questions of each one of you. First of 
all, Ms. Van de Meter--Van de Water--I got the ``Ms.,'' but I 
messed up the last part.
    [Laughter.]
    Ms. Van de Water. ``Read'' is actually a lot easier.
    Senator Lott. All right. Well, thank you. You have done an 
excellent job here today. And obviously----
    Ms. Van de Water. Thank you.
    Senator Lott.--you have worked with a number of these 
senators. You can tell from their comments and your response. 
But you did indicate that EAS has not been reformed since 1978, 
although I understand in the budget there is only one paragraph 
about this issue. Do you plan to have some reform proposals in 
the FAA reauthorization that will be coming from the 
Administration?
    Ms. Van de Water. Yes. Yes, Senator, we do hope to. It will 
embellish somewhat on what we have put in the budget proposal, 
but not be substantially different.
    Senator Lott. So there is not much----
    Ms. Van de Water. Not much.
    Senator Lott.--that you are proposing in reform at this 
time.
    Ms. Van de Water. Well, what we are proposing is the local 
match, which is actually fairly substantial, particularly from 
the communities' point of view. But we are, for the first time, 
which I think is substantial, giving communities an option of 
encouraging different kinds of services that work best for 
their communities. There is no option in the EAS program right 
now, except for Alaska. You basically get two, maybe three, 
roundtrips on a small turboprop airplane to whichever hub the 
airline wants to take you to, and that is a contract they enter 
into with the Department. So there is very little flexibility 
there.
    Senator Lott. Well, I think there should be more 
flexibility. And unlike most of the Senators that have made 
comments or asked questions today, I think that local 
communities do have some responsibility, especially those that 
can perhaps afford some match. Now, that--therein is the 
difficulty. You begin--if my area in Mississippi has to come up 
with a 25 percent match, but somebody in Louisiana or Hawaii or 
Alaska does not, then you, you know, you will be hearing from 
me probably on that.
    But I do think this is a local service. It has economic 
impact. I was shocked recently to see that aviation industry is 
11 percent of the GDP in my State. We only have seven airports 
that are getting significant air service, but when you factor 
in the airports and what it does in terms of being able to 
attract jobs, it has a real impact.
    But I do want to ask this question. Do you have an estimate 
of how many communities would lose service under your new 
proposal?
    Ms. Van de Water. We do not know for sure, Senator, because 
it depends on how communities respond to the idea of paying for 
part of their service, which obviously stretches our Federal 
dollars further.
    We also hope that there will be some regionalization of 
service. For example, there are two communities represented in 
a State that was here earlier which are only about 50 miles 
apart from each other, and yet they each get a stop on EAS, 
that perhaps this State will come together with the communities 
and say, ``It would be less expensive to stop at one of you''--
--
    Senator Lott. Right.
    Ms. Van de Water.--``to have the service,'' which would 
save the State and the community money and still provide access 
to the national air transportation system. The GAO has, what, 
19 or 20 different such groups of communities across the 
country.
    Senator Lott. Okay. Two more questions for you, and then I 
would like to ask the others a couple of questions.
    Let me turn the argument around from what you have already 
heard here. It is my understanding that the Secretary would 
distribute the EAS funds beginning with the most isolated 
community willing to provide the match. Some of the most 
isolated communities are the ones that are being provided the 
highest subsidies. So, you know, my question would be, What 
rationale was used to determine this formula? Would it not make 
more sense to begin with the most effective airports in the 
program?
    Ms. Van de Water. Well, Senator, unfortunately, some of the 
ones that are the most isolated are the ones that cost the most 
to get to. Senator Stevens made an excellent point that that 
would include all of his EAS communities, as well as the ones 
in Hawaii, the ones in Montana, Nebraska, and North Dakota. 
Those are the ones that actually do have the fewest options. It 
is not easy to jump in a car and drive to an airport from those 
communities. So that is why we started with the ones that are 
the most geographically isolated, not the ones that are 
necessarily the most efficient, because their options are truly 
limited.
    Senator Lott. Or they having the greatest effect. I have 
sympathy with the situation in Alaska, for instance. But it 
sounds to me like you are going to cut the money back, you are 
going to wind up, you know, getting through to doing those that 
are the most remote and you are not going to get those that 
maybe really need it the most, in terms of affecting the 
community and doing an efficient job, an effective job. I am a 
little worried about that, especially if we do have a reduction 
in the amount of funds that is available and if Congress, for 
instance, does not go along with the match.
    Now, the other program, the Small Community Pilot Program, 
you indicated, I think, that it worked pretty well, seemed to 
encourage innovative ideas. And I think I understood you to 
infer, ``Well, we are only doing--we are not doing it anymore 
and did not have any more in the budget because we only had 20 
million for 40 of these and we have done that,'' and you even 
indicated that you were looking to the Committee for maybe some 
indication of the legislative history. But I think if it has 
worked and if it has led to some innovative efforts by these 
local communities, that might be something we would want to 
continue.
    Ms. Van de Water. Senator, the early indications are that 
there have been some very innovative ideas. But again, the 
money has only been out there since September and October for 
most communities, so we do not know yet whether it works. We 
certainly hope that it works and it will provide a template for 
other communities, but, you know, the word is just not in on 
that yet. We hope to get some very substantial progress reports 
from the communities in the early summer months, and we will be 
better able to answer that question then.
    Senator Lott. I have one of my communities that did take 
advantage of it, and it seems to be working really great.
    Ms. Van de Water. And they had a very decent local match, 
as well, Senator----
    Senator Lott. Right. Right. Very good.
    Ms. Van de Water.--which shows that they were interested in 
chipping in when they could have some say-so in the service.
    Senator Lott. Ms. Hecker, in a previous GAO report, you 
found that Federal fiscal discipline may require various 
changes in the EAS program. You talked about changing 
eligibility criteria, requiring community matches, 
consolidating service to multiple communities, and changing the 
subsidy to a grant. Do you want to emphasize or focus on any 
one of those that you think would be the most important?
    Ms. Hecker. Well, basically, we think, as has been 
discussed here today, that one size does not fit all, that some 
kinds of flexibility are needed to engender a program that 
would provide more sustainable service over time. So in that 
sense, I think we support and endorse the proposal.
    I think the open issues that we have heard that are 
confronting the Congress here are the issues of funding. If you 
make these changes, what will it cost? What you have been 
presented is a proposal that the net public cost will be $50 
million. One of the issues is what really would it cost with 
these proposed streamlined eligibility requirements that had 
some flexibility, and whether $50 million is really the amount.
    The other issue that has been discussed here today is the 
issue of the local match. Our work clearly showed that some 
kind of local commitment made an absolute difference. But 
whether it is feasible in all communities or what the match 
would be--whether the 10 percent is the best figure. We have 
seen some of these travel banks, where the local contribution 
would not be in terms of a financial commitment like up-front 
cash, but community commitment to use the service.
    So there may be some options that represent a local 
commitment to actually use the service, rather than just this 
flat 10 percent of the subsidy amount.
    Senator Lott. Mr. Elliott, do you want to add anything? You 
look like you were wanting to respond to some of these comments 
or questions.
    Mr. Elliott. Well, I think the point about travel banks is 
certainly a new and creative idea that some communities have 
utilized in terms of the Small Community Air Service 
Development Program.
    I think another key thing that you will find in those 
communities that have had early success is a partnership with 
the airlines, clearly going in with the airline ahead of time 
as part of the application process and receiving some soft 
commitment from the airline that if the funding is received, 
the service will follow. And I think that is what you have seen 
occur in places like Charleston and Daytona Beach. However, I 
think, from the community standpoint, there has to be a sense 
of urgency related to their air service in order to get buy-in 
on a travel bank.
    Senator Lott. Other than continuing EAS and maybe even 
funding it at a higher level, can you think of anything else 
that we can do that would support and promote air service to 
small and rural communities?
    Mr. Elliott. Well, Senator, Mr. Chairman, I am not here 
today, again, to say that one size fits all. In 
Charlottesville, we have been fairly successful in boosting our 
air service since deregulation. In fact, we have been a success 
story. In deregulation, we only had boardings of maybe 50,000 
to 60,000 people a year. Now we are up to 170,000, and we 
connect to over seven hub airports on the East Coast. We have 
regional jet service six times a day to two of Delta's hubs, 
Cincinnati and Atlanta. So we have been very successful.
    However, the dark clouds are still not going away. We lie 
in the shadows of a major international hub at Dulles and a 
very competing small-hub airport in Richmond, and I wish we 
only had a diversion factor of 10 to 15 percent. Unfortunately, 
ours is 35 percent. So there are some lost economies even in 
our market that people are driving to option air service at 
other markets.
    It has to do with the affordability, as I mentioned 
earlier, having access, reliable service, and economical 
service are all important. There is a point at which people 
will decide to get in their cars and drive. And until we can 
get into those pricing mechanisms, which a travel bank does, 
which some forms of subsidy do provide, it is going to be very 
difficult for small communities to compete with larger 
airports.
    Senator Lott. It does sound like you have done a really 
good job. It also sounds like you might be a good case that 
could afford a match.
    Mr. Elliott. Yes, we----
    Senator Lott. You have got a----
    Mr. Elliott. In fact----
    Senator Lott. You know, you said it yourself, you have got 
a highly educated, pretty well-off community, and probably they 
could work with the airline and do other things and could come 
up with some sort of match.
    Mr. Elliott. Our case with Delta's connection with regional 
jet service to Atlanta was just that. We were able to take some 
State funding through the Commonwealth of Virginia and match it 
with airport funds to come up with promotion and advertising 
efforts for about three months that involved print, radio, and 
television to really canvas our community. Those are the kinds 
of things you are also seeing in the applications for the Small 
Community Air Service Development Program. And if we decide to 
apply, would be--in FY03--we would be proposing the same kinds 
of things with other carriers.
    Senator Lott. Senator Brownback, I am going to turn this 
meeting over to you, so feel free to ask questions as long as 
you desire or they would stay and wrap it up when you get 
through if you would not mind.
    Thank you very much, panel, for your testimony.

               STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. Thank you very much. Thank you, Mr. 
Chairman, Senator Lott, for hosting this. This is an important 
hearing, and I apologize for being in and out of the hearing 
for the other hearings that I had going on. Thank the panel for 
being here and their presentations.
    I wanted to make a point about the Essential Air Service 
for my State. This is a program I have been working with for a 
period of years, and so I have got some ideas of its strength 
and some of the difficulties with the program, as well.
    I have got a chart here about the seven communities in my 
State that are supported by Essential Air Service or receive 
some form of subsidy to these communities. Within Kansas, we do 
not have, in the State, a major hub airport in the entire 
State. Wichita has got a small hub facility, but it is one 
where we do not have as competitive an airline situation as 
what we would like to have. Consequently, we are left with a 
number of people in the State commuting substantial distances 
to be able to get to some sort of airport facility.
    We actually have seven Essential Air Service facilities 
within the State. It is a very important service. Without it, 
we would have some people driving several hundred miles to try 
to get to some sort of reasonably competitive airport facility.
    I point that out as an area that we have a strong need in. 
It is a program that has worked to be able to provide 
competitive airport transportation for individuals that 
otherwise would not have access to it.
    Also I want to point out some of these numbers are not huge 
numbers to be able to make this competitive. For instance, 
Manhattan, Kansas, which we refer to as The Little Apple, 
receives 388,000 in the EAS program, less than half a million 
dollars. That does not register on some calculators in 
Washington. In The Little Apple, it makes a huge difference. It 
makes it competitive for us to be able to use this service so 
that people do not have to drive a huge distance to be able to 
get access to an airport facility.
    We have fought with the program over the years in some 
places to keep it open. It really does make a huge difference 
in its opportunities and in its possibilities. I am concerned 
about how some of the restructuring of the program is being 
considered. As I look at it, a number of my Kansas communities 
likely may not qualify in a restructured program, as it is 
being put forward. If that is the case, we are just going to 
lose. We will lose air service in some of those facilities.
    I hope, when looking at restructuring this program, if, 
indeed, that is what takes place, that you consider the 
geographic region, the size, and the distance people would have 
to go to be able to get to some sort of airport. I know that is 
being considered as a factor. I hope it is a primary factor, 
because there are a lot of places where you can drive a hundred 
miles to be able to get to an airport. It is well over 200 
miles in many of those areas.
    Most of these comments I think were probably covered by 
panel members at different points during this testimony. I 
apologize for repeating it. I wanted to make it particular to 
what my State gets of what I think is a very good program which 
would provide quality service to people who otherwise would not 
have access to it.
    I do not know if there are any other thoughts or comments 
that the panelists wanted to make, either about what I said or 
something that was otherwise covered at the hearing. If you 
wanted to comment about this, but did not get a chance, please 
do so at this time?
    If not, I thank you all for being here, for making this 
presentation. The record will remain open the requisite number 
of days.
    And the hearing is adjourned.
    [Whereupon, at 11:00 a.m., the hearing was adjourned.]

                            A P P E N D I X

    Response to Written Questions Submitted by Hon. John McCain to 
                           JayEtta Z. Hecker

    Question 1. Has the GAO done any work on trying to determine the 
economic benefits to communities that receive EAS?
    Answer. Although GAO has done numerous analyses of air service at 
the nation's nonhub and small hub communities, we have not studied the 
relationship between air service and economic development among the 
nation's small communities. We believe that such a relationship is an 
important one to understand, as it represents some of the fundamental 
underpinning of not just air service, but all forms of transportation. 
That being said, we also believe that providing analytically rigorous 
assessments of the effect that air service exerts on local or regional 
economies would be a challenging undertaking. In particular, various 
data limitations (e.g., matching the local area effectively ``served'' 
by a small community's airport with the state, county, or municipal 
boundaries that define economic statistical reporting areas) are likely 
to constrain the reliability and validity of such studies.

    Question 2. To what degree do difficulties for airlines getting 
access to gates at larger airports contribute to reduced service at 
small airports?
    Answer. We understand that some small regional or ``commuter'' air 
carriers have, at times, experienced some difficulty in gaining access 
to airport facilities on what they consider to be reasonable financial 
terms. In today's environment of much air traffic having been reduced 
due to national economic issues, whether some carriers are continuing 
to experience such difficulties is unknown. Major U.S. carriers have 
significantly reduced operations at several large airports (e.g., US 
Airways reducing daily operations at Baltimore and Washington-Dulles).

    Question 3. Are there ways of reducing the cost of EAS by changing 
its rules? In other words, if communities could be served by small 
planes or by air taxis could costs be reduced while service is 
continued? What should Congress be concerned about when considering 
such changes to the program?
    Answer. In our August 2002 report on options to enhance the long-
term viability of the EAS program, GAO identified a number of ways in 
which overall program costs could be reduced. Those included using 
smaller aircraft (which have lower operating costs than larger 19-seat 
turboprop aircraft), allowing communities to arrange for on-demand 
charter or ``air taxi'' operators (as some communities are trying under 
DOT's Small Community Air Service Development Pilot Program), and 
regionalizing service. Implementing any of these options would reduce 
overall EAS program costs at least initially, because air carrier 
operating costs would be lower, thereby reducing the amount of subsidy 
required to cover the difference between operating costs and revenues.
    However, we remain concerned that even such changes may not convert 
EAS into a more effective, viable transportation alternative for 
passengers at many communities. Passengers who prefer larger aircraft 
than the 19-seat turboprops commonly used in EAS markets are certainly 
unlikely to embrace still-smaller aircraft. For other passengers, 
limited flight times and relatively high prices will remain obstacles 
to usage. In addition, the extent to which major U.S. airlines will 
continue to code-share with small operations is unknown.
    Question 4. In August 2002, GAO suggested that, as a possible 
option to consider, the form of EAS assistance be changed from a 
subsidy to the operating carrier to a grant to the local community. How 
would that improve air service in those communities?
    Answer. Local grants could enable communities to match their 
transportation needs with individually tailored transportation options 
to connect them to the national air service system. Depending on the 
option, passenger traffic could grow because, in theory, the community 
could choose the most appropriate way for people in that community to 
access the national air service system. DOT has been pilot testing 
local transportation grants to communities. Through this program, in 
July 2002, DOT awarded $20 million in grants to 40 small communities, 
including 5 EAS-subsidized communities, in part to test whether 
increased flight frequencies, capacity, and/or marketing at those 
communities could improve service and passenger ridership. We are 
curious to learn how effective some of these pilot programs have been.

    Question 5. The Department of Transportation is proposing that 
local communities contribute up to a 25 percent match for the EAS 
program. What will be the effect on the EAS program of such a match 
requirement?
    Answer. We have not looked at this concept in detail, so it would 
be difficult to speculate on the effect. In general, we agree that any 
good or service (whether widgets or air service) that is provided at no 
charge to users will not be used in the most economically effective and 
efficient manner. We also agree that communities that participate in 
the provision of their air service (e.g., through travel banks that 
guarantee a certain amount of passenger traffic) have tended to be more 
successful at obtaining and maintaining air service. However, in light 
of current state and local financial strains, many EAS communities may 
have great difficult in underwriting a portion of EAS costs, given 
other local spending priorities.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
                            Bryan O. Elliott

    Question 1. To what degree do difficulties for airlines getting 
access to gates at larger airports contribute to reduced service at 
small airports?
    Answer. I am not aware of any difficulties small airports encounter 
related to the inability of airline obtaining access to gates at larger 
airports. The more overriding long-term issue for smaller airports 
relates to proposed, ``congestion pricing'' being proposed by U.S. DOT 
and larger airports. Moreover, the current regulations pertaining to 
development of ``Competition Plans'' for larger hub airports should be 
eliminated. As a practical matter, very few, if any, cases exist where 
an airport has turned down an airline for wanting to enter its market.

    Question 2. In August 2002, GAO suggested that, as a possible 
option to consider, the form of EAS assistance be changed from a 
subsidy to the operating carrier to a grant to the local community. How 
would that improve air service in those communities?
    Answer. There appears to be widespread belief that the EAS Program 
is broken. This perception is prevalent throughout Congress and many 
communities currently participating in the EAS Program. Given these 
perceptions, it would seem prudent for policy-makers, program 
participants, and all other stakeholders to make a thorough assessment 
of the existing elements of the program and craft a plan that will once 
and for all address small community access to the nation's commercial 
air transportation system. It seems that this process could prove 
beneficial to understanding what program elements are currently working 
while at the same time assess the merits of issuing grants to local 
communities. In the end, EAS will only work if the service provided is 
reliable, provides meaningful access to the nation's commercial air 
transportation network, and is cost-effective for the consumer. Until 
these objectives are met, the program will not be as successful as it 
can be.

    Question 3. As you may know, the Department of Transportation is 
proposing that local communities contribute up to a 25 percent match 
for the EAS program. What will be the effect on the EAS program of such 
a match requirement?
    Answer. This proposal certainly warrants consideration, as it 
requires a local community to make an investment in the potential 
success of its EAS service; however, this must be weighed against a 
community's ``ability to pay.'' This proposal does not address the 
fundamental issue of generating incentives for the carrier to provide 
reliable, cost effective service. Therefore, while it can be argued 
that such a requirement meets a need to have a community be a financial 
stakeholder in the program, there should still be enough flexibility in 
the ``matching requirement'' to recognize unique economic conditions of 
a region and its ability to provide these resources while at the same 
time placing some mechanisms in place that reward carriers for 
attaining exceptional on-time performance ratings and pricing 
structures for its service.

    Question 4. Other than continuing the EAS program how do you 
believe the Federal Government can support and promote air service to 
small and rural communities?
    Answer. Several initiatives currently exist for the Federal 
Government to undertake to support and promote air service to small and 
rural communities:

        a. Enact legislation establishing the Small Community Air 
        Service Development Pilot Program as a permanent initiative 
        funded at a minimum of $100 million a year.

        b. Allow small and non-hub airports flexibility on the use of 
        Passenger Facility Charge (PFC) revenues to allow for their use 
        in airport marketing activities, acquiring ground support 
        equipment, computers, and other required information technology 
        to help support new or improved airline service.

        c. Modify its arcane and ineffective airport rates and charges 
        policy that places limitations on the use of airport revenues 
        for airport marketing and air service development initiatives.

        d. Become immersed in an effort to truly understand the 
        realities of air service. To this end, I would recommend that 
        Chip Barclay's article entitled: Aviation's Two Crises; One 
        Controllable--The Other Not, published in the March/April 2003 
        edition of ``Airport Magazine'' be a primer for this effort. 
        Beyond this article, it seems wise to then convene a series of 
        meetings with aviation/airport industry leaders, all located 
        outside of Washington, DC, to chart strategies for addressing 
        the long-term viability of air service to small and rural 
        communities.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
                           Read Van de Water

    Question 1. What is the Department's estimate of how much the EAS 
program will cost in fiscal year 2004 if Congress does not make the 
programmatic changes you have proposed?
    Answer. The Department has found itself in the past caught among 
conflicting statutes: (1) communities' entitlements to receive at least 
a minimum level of air service; (2) carriers' rights not to be forced 
by the government serve communities at a loss; and (3) the Department's 
being subject to the Anti-deficiency Act.
    As you know, the EAS subsidy makes up the gap between expenses and 
revenues, and the attacks of 9/11 caused expenses to increase and 
revenues to decrease, thus significantly increasing required subsidy 
levels. More recently, the Iraq war and SARS have depressed airline 
revenues even further. Thus, it is still very unclear how many 
additional non-subsidized EAS communities will require subsidy in FY 
2004 as a result of the sole remaining carrier's filing a notice to 
suspend the last service there. Since 9/11, we have received 50 
suspension notices--27 of them triggering new subsidy. At that rate of 
newly subsidized communities, it appears that $113 million will not be 
sufficient to maintain status-quo service levels.
    Question 2. In August 2002, GAO suggested that, as a possible 
option to consider, the form of EAS assistance be changed from a 
subsidy to the operating carrier to a grant to the local community. How 
would that improve air service in those communities?
    Answer. It is important that changes be made to the Essential Air 
Service program, regardless of the proposed or ultimate funding levels, 
to ensure that we provide the communities the maximum flexibility 
possible to address their air service issues. A ``one size fits all'' 
approach has not proven to be very successful. However, whether we pay 
an airline to provide service or grant funds to communities to do the 
same is less important than having the communities as a partner in the 
process. Requiring communities to contribute even a modest portion of 
the overall costs will result in their more direct involvement and 
increased flexibility in meeting their individual needs, and will 
better ensure that the Federal assistance available will provide the 
communities with service that will be used.
    In the broader context of your question, we should also emphasize 
that the funds do not need to come from the community exclusively, or 
even at all, but can come from a variety of sources, both public and 
private. In fact, we encourage statewide participation by a variety of 
state agencies, including, of course, State departments of 
transportation. Communities could also look to their chambers of 
commerce for additional support.
    Question 3. Your testimony is generally complimentary of the small 
community pilot program. The Department's budget, however, does not 
request any funding for fiscal year 2004--why not?
    Answer. The Pilot Program was authorized for the three-year period 
covering fiscal years 2001, 2002, and 2003. This fiscal year is the 
last year the program has been authorized and the Administration was 
not, therefore, in a position to seek funding for the program for 
fiscal year 2004. However, the Administration's proposal in its 
Reauthorization Bill, Flight-100, includes a provision for small hubs 
and non-hubs to seek federal assistance to improve service at their 
communities. It differs from the current program in that it requires a 
contribution of 25 percent. It also eliminates the restrictions on the 
number of communities that can participate and the state limitations. 
The broad flexibility and the ``grant'' structure have been retained.

    Question 4. Why don't more passengers use EAS-subsidized service?
    Answer. As mentioned above, a ``one size fits all'' approach has 
not proven to be very successful. Providing communities more direct 
involvement and increased flexibility in meeting their individual needs 
will better ensure that the service is more tailored to communities' 
individual needs and, thus, that the maximum number of passengers will 
use the service.

    Question 5. The Administration's proposed budget for FY 2004 caps 
EAS spending at $50 million and modifies the program to include, among 
other requirements, local matching funds. What is the anticipated 
impact of these program changes on air service to small communities?
    Answer. We are proposing a fundamental change in the way that the 
government delivers transportation services to rural America. For too 
long, many communities--there are a few exceptions--have taken 
Essential Air Service for granted as an entitlement and done little or 
nothing to help make the service successful. Requiring a modest 
contribution should energize civic officials and business leaders at 
the local and state levels to encourage use of the service. Communities 
will also have many more service options available to them. Rather than 
the two or three round trips per day to one hub that EAS has 
traditionally provided, we will work with the communities and State 
Departments of Transportation to procure an appropriate level of 
service that is responsive to their needs, whether it is charter 
service, single-engine/single-pilot service, regionalized service, or 
ground transportation. As stakeholders in their service, the 
communities will become key architects in designing their specific 
transportation package.
    Under the administration's FY 2004 budget proposal, for the most 
isolated communities (those farther than 210 miles from the nearest 
large or medium hub airport), we will continue to subsidize air service 
to the extent of 90 percent of the total subsidy required. For the rest 
of the communities, we will pay 25 percent of the total subsidy. We 
made certain refinements to the FY 2004 budget proposal in our Flight-
100 reauthorization proposal. For the most isolated communities, we 
will continue to subsidize air service to the extent of 90 percent of 
the total subsidy required. For the least isolated communities (those 
within 100 miles of a large or medium hub or 75 miles of a small hub or 
50 miles of a non-hub with jet service), we will be willing to pay for 
one-half of the cost of surface transportation. The remaining 
communities would have to contribute 25 percent of the total subsidy 
required.
    Question 6. How many communities and passengers are estimated to 
continue receiving EAS funding under the administration's FY 2004 
budget proposal? How many communities and passengers will likely lose 
subsidized service?
    Answer. We expect that approximately 70-80 communities, generating 
in excess of half a million passengers a year, will retain service, 
while 50-60 communities, generating 350,000-400,000 passengers a year, 
may lose air service.

    Question 7. How will these changes affect the regional carriers 
that currently rely on EAS subsidies?
    Answer. To the extent that not all currently subsidized EAS 
communities will participate in the program, some carriers will lose 
some routes. However, we do not expect that any carriers will be 
materially hurt. In fact, those communities that remain in the program 
should be more aggressive in taking a leadership role in ensuring that 
the air service is successful.

                                  
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