[Senate Hearing 110-1160]
[From the U.S. Government Publishing Office]
S. Hrg. 110-1160
IMPROVING AIR SERVICES TO SMALL
AND RURAL COMMUNITIES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY
OF THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JULY 17, 2007
__________
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 TENTH CONGRESS
FIRST SESSION
DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska, Vice Chairman
Virginia JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
BYRON L. DORGAN, North Dakota KAY BAILEY HUTCHISON, Texas
BARBARA BOXER, California OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida GORDON H. SMITH, Oregon
MARIA CANTWELL, Washington JOHN ENSIGN, Nevada
FRANK R. LAUTENBERG, New Jersey JOHN E. SUNUNU, New Hampshire
MARK PRYOR, Arkansas JIM DeMINT, South Carolina
THOMAS R. CARPER, Delaware DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota
Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
Christine D. Kurth, Republican Staff Director, and General Counsel
Kenneth R. Nahigian, Republican Deputy Staff Director, and Chief
Counsel
------
SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY
JOHN D. ROCKEFELLER IV, West TRENT LOTT, Mississippi, Ranking
Virginia, Chairman JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California GORDON H. SMITH, Oregon
BILL NELSON, Florida JOHN ENSIGN, Nevada
MARIA CANTWELL, Washington JOHN E. SUNUNU, New Hampshire
FRANK R. LAUTENBERG, New Jersey JIM DeMINT, South Carolina
MARK PRYOR, Arkansas DAVID VITTER, Louisiana
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
CLAIRE McCASKILL, Missouri
AMY KLOBUCHAR, Minnesota
C O N T E N T S
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Page
Hearing held on July 17, 2007.................................... 1
Statement of Senator Dorgan...................................... 28
Statement of Senator Pryor....................................... 40
Statement of Senator Snowe....................................... 33
Statement of Senator Stevens..................................... 1
Statement of Senator Thune....................................... 36
Statement of Senator Vitter...................................... 30
Witnesses
Courtney, A.A.E., Mark F., Airport Director, Lynchburg Regional
Airport........................................................ 14
Prepared statement........................................... 16
Malarkey, Faye, Vice President, Legislative Affairs, Regional
Airline Association............................................ 19
Prepared statement........................................... 21
Miller, Hon. Karen, Commissioner, Boone County, Missouri; on
behalf of the National Association of Counties................. 10
Prepared statement........................................... 12
Steinberg, Hon. Andrew B., Assistant Secretary for Aviation and
International Affairs, U.S. Department of Transportation....... 2
Prepared statement........................................... 4
Torgerson, John, Deputy Commissioner of Aviation, Alaska
Department of Transportation and Public Facilities............. 7
Prepared statement........................................... 9
Appendix
Response to written questions submitted by Hon. John D.
Rockefeller IV to:
Mark F. Courtney, A.A.E...................................... 48
Faye Malarkey................................................ 48
Hon. Karen Miller............................................ 47
Hon. Andrew B. Steinberg..................................... 46
Regional Aviation Partners, prepared statement................... 44
Rockefeller IV, Hon. John D., U.S. Senator from West Virginia,
prepared statement............................................. 43
IMPROVING AIR SERVICES TO SMALL
AND RURAL COMMUNITIES
----------
TUESDAY, JULY 17, 2007
U.S. Senate,
Subcommittee on Aviation Operations, Safety, and
Security,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:04 a.m., in
room SR-253, Senate Russell Office Building, Hon. Ted Stevens,
Vice Chairman of the full Committee, presiding.
OPENING STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
Senator Stevens. Other Senators are caught in traffic and
there was sort of a traffic jam coming in here. I don't know if
you know if there is something going on in the street out
there. I had to come around, come up Pennsylvania Avenue
instead of the regular way.
But I do thank you all for coming and at Senator
Rockefeller's request, the Chairman's request, I'm going to
start this hearing. I do thank them both for holding this
hearing at my request and I extend a special welcome to my
great friend, John Torgerson, who is here from Alaska. He is
the Deputy Commissioner of Aviation for our state and we
appreciate him coming to testify and his interest in this
subject.
Rural air services are a vital component of our
transportation system in Alaska. We depend upon aviation more
than any other state. Seventy percent of our cities can be
reached only by air year-round. Sometimes they can get summer
travel on rivers but to have transportation on a steady basis,
year-round, you have to use air to 70 percent of our cities and
many of the villages can be only reached by air, period. Some
of them are not on rivers. Instead of cars and buses, we have
airplanes.
Maintaining air service to these small and rural
communities through Essential Air Service is a key product of
deregulation of the old CAB. This Committee created Essential
Air Service. In Alaska, we now have 41 communities that are
served by Essential Air Service. They rely on Essential Air
Service for access to hospitals, mail service, food, basic
supplies and to transport teams back and forth to play
basketball.
So rural air service funding and reform is an annual
challenge for the Congress. In addition to finding a solution
for this funding for the Next Generation Air Traffic Control
System, the Committee is also looking at innovative reforms to
the overall Rural Air Service Program. New innovation in the
marketplace may hold great promise for rural air service and
there is great interest in the emergence of very light jets.
These new aircraft may prove to be a unique opportunity for
small communities of Alaska to maintain and improve access.
I do thank you all for coming. It is my hope that you will
help us remain vigilant in funding the Essential Air Service
Program. It's literally our lifeline and a healthy Essential
Air Service Program nationally will obviously support a good
system for our cities.
Now, we have a series of witnesses today. The first is
Andrew Steinberg, the Assistant Secretary for Aviation and
International Affairs at the Department of Transportation and
let me call on you first, sir.
STATEMENT OF HON. ANDREW B. STEINBERG, ASSISTANT
SECRETARY FOR AVIATION AND INTERNATIONAL AFFAIRS, U.S.
DEPARTMENT OF TRANSPORTATION
Mr. Steinberg. Thank you, Mr. Co-Chairman. I appreciate
being invited to the hearing. I'd like to ask that my written
statement be made part of the record.
Senator Stevens. Well, thank you for reminding me. All your
statements will appear in the record as so read and we're not
limiting your testimony but we hope you'll make it short but
I'm sure the other Senators will be along and we'll be happy to
have your statement. But all of your statements will be printed
in full in the record.
Mr. Steinberg. Thank you, Senator. In light of that, I'd
like to just focus on three key points, if I could, over the
next 5 minutes. First, why smaller communities in the U.S. have
difficulty attracting and retaining commercial airline service;
second, whether our existing programs, specifically the
Essential Air Service Program and Small Community Air Service
Development Program, SCASDP, offer the right approach; and
third, going to the point you just made, Senator Stevens, how
can we improve the situation per new, creative solutions?
So first, the nature of the problem, I think, is actually
relatively clear. Scheduled air transportation depends on
predictable demand that produces enough traffic to achieve
break-even passenger loads on each flight and because point-to-
point service typically does best on a scheduled basis only in
very large markets, scheduled airlines can serve smaller
communities economically, usually only as part of an overall
network, such as a hub-and-spoke system.
These systems work because what they do is aggregate demand
from many spoke cities, if you will and connect passengers at a
hub to various destinations. What this means is that the most
profitable hub is the one that can--the most profitable spoke
city, excuse me, is the one that contributes the most to the
overall network. In general, cities with fewer passengers are
the least profitable spokes and importantly I think they are,
the first to be eliminated when network carriers downsize their
hubs.
Cost trends right now for service to smaller airports are
not favorable. With the shift of regional airlines to larger
aircraft, the increase in fuel costs and equipage requirements
created by the FAA's Commuter Safety Rule, service to smaller
communities has only gotten more expensive. So as legacy
carriers, particularly in the lower 48, lost some $35 billion
from 2001 to 2007. They eliminated spokes that contributed the
least to their networks, many in smaller communities. And as
you know, as a result of all that, the EAS Program,
particularly in the lower 48, grew significantly.
So my first point is really an observation, which is that
we won't ever have the kind of comprehensive scheduled service
we'd like to smaller communities unless we have healthy network
airlines that are growing their systems to go to new places
rather than shrinking their domestic capacity.
Second, as to our existing programs, EAS and SCASDP--let me
say at the outset, whatever should happen with reauthorization,
we will always administer these programs as effectively as
possible, recognizing that we're dealing with important
transportation needs of real people. In fact, the vast majority
of my staff that works on domestic aviation is already devoted
to administering these two programs.
Despite this commitment, I think it's hard to argue that
certainly outside of places like Alaska, which has special
circumstances that these programs have been effective in
addressing the needs of small communities. As you probably
know, the EAS Program has not changed in a fundamental way for
three decades, even as the industry, of course, has changed
quite significantly. So what we have today is an EAS Program
that really is more of a safety net, if you will, for smaller
communities and what history tells us is that once a community
receives a subsidy for air service, it's relatively unusual for
an air carrier to come in and provide service on an
unsubsidized basis.
As to SCASDP, I think it's probably too early to pass a
final judgment. As you know, we're waiting on a report from our
Inspector General about its effectiveness. I would note that
the GAO has found that improvements from SCASDP grants have
not--have been self-sustaining less than half of the time,
which is not encouraging.
The third point I wanted to cover is the issue of whether
there are solutions that can help improve the level and quality
of service, and I think any solution has to deal with the
fundamental problem that I mentioned at the outset and that is
insufficient demand to support scheduled service purely on
market terms. As you mentioned, Senator, recent technological
advances with very light jets represent a breakthrough. They
are important because they represent a radial reduction in
aircraft operating economics over the long term.
Equally important is information technology that allows
carriers to aggregate demand on a non-scheduled basis over the
Internet and if you combine the two, you can have, potentially
a very powerful, on-demand air taxi service developing in some
of these smaller communities. It's already beginning to happen,
not with very light jets because those have yet to be
delivered. But there is a company I'd point out called SATS
Air, which is based in Greenville, South Carolina and is
already making air taxi services available across much of the
southeast U.S. with comfortable, safe turboprop aircraft and
rates that are quite competitive, certainly with coach, full
coach fares.
So let me wrap up there and just say that we are absolutely
committed to working with this Committee and your staff on ways
to improve small community service. Thank you.
[The prepared statement of Mr. Steinberg follows:]
Prepared Statement of Hon. Andrew B. Steinberg, Assistant Secretary for
Aviation and International Affairs, U.S. Department of Transportation
Mr. Chairman, thank you for inviting me to this hearing. I
appreciate the opportunity to discuss with you and the Subcommittee two
programs administered by the Department of Transportation that affect
air service to small communities, namely the Essential Air Service
(EAS) program and the Small Community Air Service Development Program.
I can assure you that the Department is committed to implementing its
small community air service programs in the best and most efficient
manner and thereby help smaller communities meet the challenges that
they face in obtaining and retaining air service.
It is clear that air service in this country has changed
dramatically over the past several years. Many of these changes have
been very positive. The growth of low-fare carriers, for example, has
made affordable air transportation available to millions of people
across the country. The number of air travelers has expanded
dramatically, as hundreds of passengers have taken advantage of the low
fares that have become more widely available. While this is a good
development overall for consumers, we recognize that it can create new
challenges for some small communities. With a greater number of service
choices available, particularly those involving lower fares, many
consumers are willing to drive to places with a broader array of air
service options, making it more difficult for some individual airports
to sustain their own traffic levels. There are, for example, some
communities receiving EAS assistance within ready driving distance of
two or three major airports. This can result in a struggling community
airport, but not necessarily consumers who lack access to the national
air transportation system. Let me give you an example, just a few years
ago Utica, New York generated about 24,000 passengers a year and was
served profitably without EAS subsidy. Then Southwest began flying to
Albany and JetBlue started service to Syracuse--both of which are near
to Utica. The number of passengers using Utica airport fell to 3,500,
and the Federal Government was paying over $1 million in EAS subsidy in
attempt to compete with low-fare, jet service in nearby cities. The
subsidy per passenger finally exceeded the $200 statutorily-determined
ceiling thus ending the community's eligibility for EAS.
Another challenge is the change in aircraft used by carriers that
serve small communities. Many commuter carriers have been replacing
their 19-seat aircraft with 30-seat aircraft, due to the increased
costs of operating the smaller planes and larger carriers' reluctance
to offer code sharing on 19-seaters. This trend began at least 10 years
ago and has continued. There are now fewer and fewer 19-seat aircraft
in operation as many carriers have upgauged to 30-seat aircraft, and,
in some cases, even regional jets. As a result, many small communities
that cannot support this larger size of aircraft are being left without
air service. Additionally, the rise in the cost of aviation fuel has
made all carriers more cost-conscious and more selective in initiating
new service and maintaining service where yields and traffic are low.
Also, some changes have occurred in response to the terrorist attacks
of September 11, 2001. Many consumers, leisure and business, have
changed their travel patterns and carriers have altered the structure
of their airline services in both large and small markets.
The recent financial difficulties of the network carriers have
contributed to the dearth of air service to small communities. As
network-airlines have worked hard to cut costs and become more
efficient in order to weather very difficult economic conditions, they
have resorted to canceling service on their thinnest routes--many of
which are small communities. Thus in the long-term, an important factor
for comprehensive air transportation in the United States is the sound
financial health of network airlines.
The challenge that we face is one of adjusting the programs, to the
extent we are able, to account for these changes in an efficient and
effective manner, giving appropriate and balanced recognition to the
reasonable needs of the communities, the carriers, the consumers, and
the taxpaying public at large. Mr. Chairman, I do not use the word
``challenge'' lightly. All of us--the Federal Government that manages
programs affecting service at small communities, as well as the states
and the communities themselves--need to reexamine the way we approach
small community air service.
We at the Department of Transportation have recognized for a while
now that the way the Federal Government helps small communities has not
kept pace with the changes in the industry and the way service is now
provided in this country. For that reason, we have initiated some
important reevaluations of the programs that we manage. I want to share
with you today what we have done and are doing to address this issue.
As you know, the Department administers two programs dealing with
air service at small communities. The EAS program provides subsidies to
air carriers to provide air service at certain statutorily-mandated
communities. The Small Community Air Service Development Program, which
was established by Congress in 2000 under the AIR-21 legislation,
provides Federal grants-in-aid to help small communities address their
air service and airfare issues. While initially established as a pilot
program, it was reauthorized through FY 2008 in Vision 100.
Essential Air Service Program
Let me first address the EAS program. The laws governing our
administration of the EAS program have not changed significantly since
its inception 28 years ago, notwithstanding the dramatic changes that
have taken place in the airline industry. As currently structured, the
EAS program acts only as a safety net for small communities receiving
subsidized air service by providing threshold levels of air service.
While ensuring some service, this approach does little to help
communities attract self-sustaining unsubsidized air service, as
evidenced by the fact that once a community receives subsidized air
service it is rare for an air carrier to come in offering to provide
unsubsidized air service.
The goal of our proposed changes to the EAS program is to focus the
program's resources on the most isolated communities, i.e., those with
the fewest driving alternatives. Our current proposal to accomplish
this is quite different from those made in past years. The first change
we propose is to cap EAS communities at those that currently receive
subsidized air service. Second, we would rank all the subsidized
communities by isolation, i.e., by driving miles to the nearest large
or medium hub airport, with the most isolated getting service first.
Last, we are proposing a maximum $50 million funding level.
Congress has also recognized the need for reform and created a few
pilot programs in Vision 100. One program is the Community Flexibility
Pilot Program. It allows up to ten communities to receive a grant equal
to 2 years' worth of subsidy in exchange for their forgoing their EAS
for 10 years. The funds would have to be used for a project on the
airport property or to improve the facilities for general aviation, but
no communities have volunteered for that program. Another program is
the Alternate Essential Air Service Program. The thrust of this program
is that, instead of paying an air carrier to serve a community as we
typically do under EAS, communities could apply to receive the funds
directly--provided that they have a plan as to exactly how they would
use the funds to the benefit of the communities' access to air service.
The law gives great flexibility in that regard. For example, funds
could be used for smaller aircraft but more frequent service, for on-
demand air taxi service, for on-demand surface transportation, for
regionalized service, or to purchase an aircraft to be used to serve
the community. The Department issued an order establishing that program
in the summer of 2004, but to date no communities have applied. I
cannot tell you for sure why, but my guess is that part of it is that
it is just human nature to resist both risk and change.
With regard to the EAS program, it is important to note the
continued growth of the program's size and cost to taxpayers over time.
As a point of reference, before the terrorist attacks of September 11,
the Department was paying subsidy for 107 communities (including 32 in
Alaska). We are now subsidizing service at 145 communities (including
41 in Alaska). Further, EAS is often viewed as an absolute entitlement
whether the communities invest any time and effort in supporting the
service or not. We have proposed reforms to EAS to better focus its
resources on the most isolated communities.
Small Community Air Service Development Program
The Department is now in its sixth year of administering the Small
Community Air Service Development Program (Small Community Program).
Under the law, the Department can make a maximum of 40 grants in each
fiscal year to address air service and airfare issues, although no more
than four grants each year can be in any one state. Until 2006,
Congress had provided $20 million in each year for this program. In
2006, the funding for the program was $10 million, and the Revised
Continuing Appropriations Resolution, 2007 (Pub. L. 110-5), provides
the Department with $10 million in Fiscal Year 2007 to administer the
Small Community Program. On February 26, the Department issued a
Request for Proposals for 2007 applications and proposals are due April
27.
Given the many and varying priorities facing the Department, this
program was not accommodated within the President's 2008 budget.
Nonetheless, it is important to note the extensive support that the
Department provides for small airports in terms of supporting the
infrastructure that make any service possible. In the last 2 years (FY
2005 and FY 2006), the FAA has provided over $4 billion in grants for
small airports, or nearly \2/3\ of the Airport Improvement Program
(AIP). Furthermore, the Department's reauthorization proposal would
continue to direct AIP to small airports. The reauthorization proposal
would also add new AIP eligibility for ADS-B ground stations and
expanded eligibility for revenue producing projects at small airports
that will help their financial stability.
With respect to the Small Community Program, the Department has
made many awards to communities throughout the country and authorized a
wide variety of projects, seeking to address the diverse types of
problems presented and test different ideas about how to solve them.
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 airports, and revenue
guarantees, subsidies, and other financial incentives to reduce the
risk to airlines of initiating or expanding service at a community. For
the most part, these projects extend over a period of two to 4 years.
This program differs from the traditional EAS program in a number
of respects. First, the funds go to the communities rather than
directly to an airline serving the community. Second, the financial
assistance is not limited to air 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 airfare problems and seek financial assistance under the
program to help them implement their plans.
Over the past 5 years, the Department has made more than 180 grant
awards. Overall, more than 90 percent of the grant recipients have
implemented their authorized projects.
For example, new services have been inaugurated at many
communities; others have received increased frequencies or service with
larger aircraft. Several communities have begun targeted and
comprehensive marketing campaigns to increase use of the service at the
local airport and to attract additional air carrier service. We have
been monitoring the progress of all of the communities as they proceed
with the implementation of their projects. However, because the
majority of the projects involve activities over a two-to-four-year
period, and many communities have sought and received extensions for
their grants, only now are some of them at the point of completion.
As you know, the Government Accountability Office (GAO) concluded a
review of the Small Community Program in 2005. GAO too recognized that
it is difficult to draw any firm conclusions as to the effectiveness of
the Small Community Program in helping communities address their
service issues because many grant projects are still in process. Of the
grant projects that had been completed, the GAO concluded that the
results were mixed because not all of the grants resulted in
improvements that were achieved and sustained after the grant funding
was exhausted.
In this regard, since the end of March 2007, the Department's
Inspector General (IG) has been reviewing the outcomes of the limited
number of projects that have been completed to date. Evaluation of the
program will consist of two phases including a quantitative and
qualitative analysis of a selected sample of all completed projects.
The Federal Government, however, is only one piece of the equation.
States and communities will also need to review their air service in
the context of the changed industry structure and service patterns to
seek fresh, new solutions to maximize their air service potential,
including regional and intermodal approaches and expansion of public-
private partnerships to meet these challenges.
The fundamental problem with air service to many small communities
is insufficient demand to justify scheduled service purely on market
terms. However, recent technological advances may offer a new market
solution to the problems of small community air service. The most
dramatic innovation is the Very Light Jet (or VLJ) which represents a
breakthrough in jet aircraft operating economics. Another very
important innovation is information technology that allows demand for
air service to be aggregated over the Internet. The combination of VLJ
with Internet-enabled information technology could potentially
facilitate the provision of on-demand, jet air taxi service at these
small communities. Companies such as DayJet have already begun
operations employing these technologies.
In that regard, our office looks forward to continuing discussions
with your staff on finding ways to better enable the marketplace to
supply air service to small communities. We have discussed a range of
ideas that carriers could consider, including new per-seat, on-demand
service business models using the new generation of very light jets
(VLJ) as well as alternative ways to create market-based incentives for
airlines to add and sustain service to small communities.
In closing, Mr. Chairman, let me reaffirm the Department's
commitment to implementing the DOT's small community air service
programs in the best and most efficient manner. 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 prepared statement. I will be happy to answer
any of your questions.
Senator Stevens. We'll get back and do some questions
before we conclude. Mr. Torgerson, if I may have your
statement, please?
STATEMENT OF JOHN TORGERSON, DEPUTY COMMISSIONER OF AVIATION,
ALASKA DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES
Mr. Torgerson. Thank you, Senator Stevens. It's always
great to see again. You have requested testimony on the U.S.
Department of Transportation Essential Air Service and its
effects on Alaska.
My name is John Torgerson, Deputy Commissioner of Aviation
for the state. I'd like to first place the size of Alaska in
perspective. If you were to fly from Washington, D.C. to San
Diego, California and then from Minneapolis, Minnesota to
Houston, Texas, that distance crisscrossing America is actually
less than if you flew in Alaska east to west and north to
south. Our capital City of Juneau is the only capital city in
the United States accessible only by plane or boat.
Twenty-five percent of all Alaskans and 46 percent of all
Alaskan Natives live in communities of less than 1,000 people.
To cover this area, we only have 4,732 miles of paved road.
The State of Alaska owns and operates 258 airports, ranging
in class from the large international to the small rural
community class. Of the airports, 47 are paved, 173 are gravel
of which 72 are less than 3,000 feet. Thirty-seven are seaplane
facilities and one a heliport.
I'd like to direct the balance of my testimony to the last
GAO report on Essential Air Service. The GAO acknowledged that
the need to make difficult decisions to sustain the Essential
Air Service Program at the current funding levels. The report
outlined four recommendations and I'd like to address each of
those separately.
Alaskan communities receiving Essential Air Service are the
most remote in the Nation. Alaska has 40 communities receiving
EAS. Of those 40, only 6 are connected to a road system. Of
that 6 on the road system, all are more than 100 miles from a
hub airport. These 100 miles to the nearest hub airport are not
on an interstate highway or even a paved two-lane highway but
mainly narrow gravel roads.
Thirty-four of the communities receiving the Essential Air
Service subsidies in Alaska do not even have a gravel road.
They are completely isolated from the road system and rely on
air travel as the primary means of transportation and access to
basic services. In many of our rural communities, air
transportation is the only viable method of connecting to the
outside world. Alaska meets and exceeds the remoteness
recommendations of the GAO report.
The concept of matching aircraft capacity with community
use is exemplified in the type of aircraft utilized in Alaska.
A seven-passenger Grumman Goose, an aircraft last manufactured
in 1947, provides residents of Akutan in the eastern Aleutian
Islands with regular Essential Air Service. Other communities
rely on smaller aircraft, such as the Cessna 185s and the
Cessna 206s, capable of carrying just three to five passengers.
Only 6 of the 40 Alaska communities qualifying for EAS are
served by jets. In these cases, jet service is justified by
population, freight needs and the distance from medium-sized
hubs. For example, the island community of Adak has jet service
to Anchorage, 1,300 miles away. Not one of the six airports
receiving jet service is connected to the road system. As
already stated, the remaining communities are served by the
smallest aircraft in commercial service. Alaska is already
conforming to this recommendation of matching aircraft capacity
to communities.
In Alaska, the idea of consolidating at regional airports
and using the spoke and hub system is already in place. One
half of the EAS communities in Alaska are small, remote
communities with populations of less than 100 residents.
Alaska's Essential Air Service subsidy already utilizes small
carrier flying light transport--I lost a page. Pardon me. I
thought I lost it completely.
In Alaska, the idea of consolidating these into regional
spoke and hub methods is already in place. Alaska's Essential
Air Service subsidy already utilizes small aircraft to
transport passengers from small, rural communities to regional
hub airports where passengers can access basic services and
links to the national transportation system.
The fourth recommendation is to change carrier subsidies
through local grants. Of the 40 Alaskan communities currently
receiving the Essential Air Service, only 11 have formed a
municipal government. The majority of our communities receiving
this service have not formed an entity that could apply for,
administer or provide a local match, making this recommendation
difficult.
Alaskans believe the program is working well and request no
changes of the current funding method. We believe the current
program is well administered by USDOT and works effectively in
Alaska.
Mr. Chairman, the Essential Air Service Program has been
very successful in our state. Over the last 3 years, the funds
allocated under this program to air carriers has increased less
than the general rate of inflation, despite higher fuel costs,
insurance rates and personnel costs.
During this same period of time, the total number of
passengers usually in the EAS in Alaska has increased. I
believe this is because the Alaska Program already utilizes the
cost saving measures recommended in the 2002 GAO report. The
Essential Air Service Program provides a vital link to many
Alaskan communities that would otherwise not receive air
service.
Thank you, Mr. Chairman, for the opportunity to testify and
I look forward to any questions you might have.
[The prepared statement of Mr. Torgerson follows:]
Prepared Statement of John Torgerson, Deputy Commissioner of Aviation,
Alaska Department of Transportation and Public Facilities
Good morning, Mr. Chairman and Committee members.
You have requested testimony on the U.S. Department of
Transportation's Essential Air Service program and its effects on
Alaska.
My name is John Torgerson, Deputy Commissioner of Aviation for the
Alaska Department of Transportation. I have resided in Alaska since
1950 as a homesteader, rural resident, businessman, State Senator and
now as the Deputy Commissioner of Aviation.
The size of Alaska is better understood if you were to fly from
Washington, D.C., to San Diego, California, and then from Minneapolis,
Minnesota, to Houston, Texas.
That distance crisscrossing America is actually less than if you
flew across Alaska from east to west and north to south.
Our capital Juneau is the only capital city in the United
States accessible only by plane or boat.
Twenty-five percent of all Alaskans and 46 percent of
Alaskan Natives live in communities of less than 1,000 people.
One-quarter of all Alaskans live in communities accessible
only by boat or aircraft.
There are only 4,732 miles of paved road in Alaska.
The State of Alaska owns and operates 258 airports ranging in class
from the large international to the small rural community class. Of the
airports, 47 are paved, 173 are gravel (or which 72 runways are less
than 3,000 feet), 37 are seaplane facilities and 1 is a heliport. The
airports operated by the state are truly essential because air travel
is the primary means of transportation to these communities. Air travel
is not a luxury in Alaska or a convenience; it is a critical
transportation mode that provides basic day-to-day necessities.
GAO Findings
I would like to direct the balance of my testimony to the last GAO
report on the Essential Air Service program. The GAO acknowledged the
need to make ``difficult decisions'' to sustain the Essential Air
Service program at current funding levels. The report outlined four
specific recommendations, and I will address each of these
recommendations separately.
1. Targeting More Remote Communities
Alaskan communities receiving Essential Air Service are the most
remote in the Nation. Alaska has 40 communities receiving EAS. Of those
40, only six are connected to a road system. Of the six that are on the
road system, all are more than 100 miles from a hub airport. Those 100
miles to the nearest hub airport are not on an interstate highway or
even a paved two-lane highway, but mainly narrow gravel roads.
Thirty-four of the communities receiving Essential Air Service
subsidies in Alaska do not even have a gravel road. They are completely
isolated from the road system, and rely on air travel as their primary
means of transportation and access to basic services. In many of our
rural communities, air transportation is the only viable method of
connecting to the outside world. Alaska meets and exceeds the
remoteness recommendations of the GAO report.
2. Match Capacity (Aircraft Size) With Community Use
The concept of matching aircraft capacity with community use is
exemplified in the type of aircraft utilized in Alaska. A 7-passenger
Grumman Goose, an aircraft last manufactured in 1947, provides
residents of Akutan in the eastern Aleutian Islands with regular
Essential Air Service. Other communities rely on smaller aircraft such
as Cessna 185s and Cessna 206s, capable of carrying just three to five
passengers.
Only six of the 40 Alaskan communities qualifying for EAS are
served by jet aircraft. In these cases, jet service is justified by
population, freight needs and the distance from medium-size hubs. For
example, the island community of Adak has jet service to Anchorage
1,300 miles away. Not one of the six airports receiving jet service is
connected to a road system. As already stated, the remaining
communities are served by some of the smallest aircraft in commercial
service. Alaska is already conforming to this recommendation of
matching aircraft capacity to community use.
3. Consolidate Multiple Communities Into Regional Airports
In Alaska, the idea of consolidating at regional airports or using
the spoke-and-hub system is already in place. One-half of the EAS
communities in Alaska are small, remote communities, with populations
of less than 100 residents. Alaska's Essential Air Service subsidy
already utilizes small carriers flying light aircraft to transport
passengers from these small rural communities to regional hub airports,
where passengers can access basic services and links to the national
transportation system.
4. Change to Local Grant Program
The fourth recommendation is to change carrier subsidies to local
grants. Of the 40 Alaskan communities currently receiving Essential Air
Service funding, only 11 have formed a municipal government. The
majority of our communities receiving this service are not incorporated
as a municipal entity that could apply for, administer or provide a
local match, making this recommendation difficult to implement.
Alaskans believe the program is working well and request no change to
the current funding method. We believe the current program is well
administered by the United States Department of Transportation and
works efficiently in Alaska.
Conclusion
Mr. Chairman, the Essential Air Service program has been very
successful in Alaska. Over the past 3 years the funds allocated under
this program to Alaska air carriers has increased less that the general
rate of inflation--despite much higher fuel costs, insurance rates and
personnel costs. During this same period of time, the total number of
passengers utilizing EAS in Alaska has increased. I believe this is
because the Alaska program already utilizes the cost-saving measures
recommended in the 2002 GAO report.
The Essential Air Service program provides a vital link to many
Alaskan communities that would otherwise not receive air service.
Thank you for allowing me to testify, and I would be happy to
answer any questions that the Committee might have.
Senator Stevens. Thank you--next witness is Karen Miller,
the Boone County Commissioner of Aviation, representing the
National Association of Counties from Columbia, Missouri,
please.
STATEMENT OF HON. KAREN MILLER, COMMISSIONER, BOONE COUNTY,
MISSOURI; ON BEHALF OF THE NATIONAL
ASSOCIATION OF COUNTIES
Ms. Miller. Good morning, Senator Stevens. My name is Karen
Miller and I am a County Commissioner in Boone County,
Missouri. I am here representing the National Association of
Counties known as NACo. I want to thank you for the invitation
to testify on improving air service to small and rural
communities.
Essential Air Service is extremely important to NACo
members in small and rural communities, to Boone County,
Missouri and to the approximately 143 other rural communities
served by EAS in 36 states.
Columbia Regional Airport, located in Boone County,
Missouri began receiving Essential Air Service in October 2006
when Trans States Airlines pulled out of the market. Senator
Stevens, please note that this occurred not because of a
decrease in enplanements but because Trans States decided to
change from turboprop planes to regional, making Columbia not
economically viable to serve. We have a strong business
community that is always looking for more employers. Believe
when I say, one of the first questions we get from businesses
looking to relocate in our area is, ``how far are you from a
commercial airport?'' It dramatically improves our
competitiveness to say 10 miles versus 115 miles to St. Louis
or 135 miles to Kansas City.
While having EAS service has been important to our region,
the result of the change from non-subsidized to subsidized
service has not been without challenges and we have seen a
reduction in enplanements--from almost 20,000 in 2005 to 13,673
in 2006 to a projected level of less than 10,000 in 2007. Until
July 7, 2007, Columbia received four EAS flights per day during
the week and two flights per day on the weekends, all provided
by Air Midwest. The flights were evenly split between Kansas
City and St. Louis.
Due to the unreliability of the flights and the schedule,
we agreed to a change in service. Effective July 8th, all these
flights now go to Kansas City where Air Midwest has its own
gate and maintenance operation. We are hopeful that moving all
flights to Kansas City will improve reliability, making our
service more attractive and increase enplanements.
NACo has a number of suggestions for improving the
Essential Air Service Program. The goal of a number of these
recommendations is to build up the enplanements in a community
so that carriers can offer service without an EAS subsidy.
There needs to be more funding. We applaud the Commerce
Committee for increasing EAS funding to $133 million.
Like any other product or service, EAS has to be attractive
to the customer. Hopefully with more funds, the issues often
raised by EAS communities concerning frequency, convenience and
type of aircraft can be addressed.
We also ask this Subcommittee to help identify an
additional dedicated or guaranteed source of revenue for the
EAS program. While the international over flight fee generates
$50 million annually for EAS, the remainder currently has to
come from the General Fund and this creates an uncertainty for
the communities and the air carriers. An additional dependable
source, such as the Airport and Airway Trust Fund would assures
communities and air carriers that the program will be fully
funded, making EAS a stronger program.
Another option would be to require the Trust Fund to help
fund EAS to the extent that the over flight fee and General
Fund contributions failed to reach the fully authorized level.
We believe the Local Participation Program, currently in
law but never implemented, which requires a 10 percent match
requirement in ten communities should be repealed. Many of the
small and rural communities that would be required to provide a
local match are not able to find the tens of thousands of
dollars the match would require.
Additionally, the $200 subsidy cap should be increased and
indexed. It has been in place since 1989 and while we are not
opposed to the concept of a cap, one that hasn't been changed
in 18 years needs adjustment.
We believe that there needs to be either an incentive for
improved service or a penalty for those air carriers who
provide unreliable service. Section 405 of Senate bill 1300
moves in the right direction but we would recommend requiring
the Secretary of Transportation to provide incentives for
carriers to improve air service, as opposed to this being
discretionary, and include penalties for poor service.
There needs to be more marketing of EAS service to the
community. NACo supports the provision now included in Senate
bill 1300 requiring airlines who are bidding on EAS service to
include a funded marketing plan in their proposal.
One final suggestion to improve EAS service is that we need
to study approaches to encouraging more airlines to bid on
providing EAS service. More competition may result in better
service.
As I conclude, let me also indicate NACo's support for the
Small Community Air Service Development Program. This program
needs to be funded at a level that comes close to meeting the
demand and the $35 million annual authorized level in Senate
bill 1300 is a positive step.
This concludes my testimony and I would be happy to answer
any questions you may have.
[The prepared statement of Ms. Miller follows:]
Prepared Statement of Hon. Karen Miller, Commissioner, Boone County,
Missouri; on Behalf of the National Association of Counties
Good morning, Chairman Rockefeller, Senator Lott and members of the
Subcommittee on Aviation. My name is Karen Miller and I am a County
Commissioner in Boone County, Missouri. I am here representing the
National Association of Counties (NACo). I want to thank you for the
invitation to testify on improving air service to small and rural
communities.
Essential Air Service (EAS) is extremely important to NACo members
in small and rural communities, to Boone County, Missouri and to
approximately 143 other rural communities served by EAS in 36 states.
The other EAS communities in Missouri include Fort Leonard Wood,
Joplin, Kirksville and Cape Girardeau.
In a nutshell, EAS keeps all these communities connected to the
rest of America. It provides a link for citizens to travel to the
larger communities plus a link to the Nation and world through the hub
airports to which EAS connects. EAS plays a key role in local
communities by attracting and retaining businesses that depend on
commercial air service and in healthcare by enabling our citizens to
more easily access sophisticated healthcare that is often absent in
rural communities. NACo hopes that the final aviation reauthorization
legislation will extend EAS and provide an authorized level of funding
and dedicated source of funding that is adequate for meeting the
demands and costs of the program and make a number of reforms to the
program.
Columbia Regional Airport, located in Boone County, Missouri began
receiving EAS service in October 2006 when Trans States Airlines pulled
out of the market. Mr. Chairman, please note that this occurred not
because of a decrease in enplanements but because Trans States decided
to change from turbo prop planes to regional jets and that made
Columbia uneconomic to serve. Columbia Regional Airport serves an area
of about 428,000 people and includes the University of Missouri and the
state capital in Jefferson City. We also have a strong business
community that is always looking for more employers. Believe when I say
one of the first questions we get from businesses looking to relocate
to our area is, ``How far are you from a commercial airport.'' It
dramatically improves our competitiveness to say 10 miles rather than
115 miles to St. Louis or 135 miles to Kansas City.
While having EAS has been important to our region, the result of
the change from non-subsidized to subsidized service has not been
without challenges and we have seen a reduction in enplanements--from
almost 20,000 in 2005 to 13,673 in 2006 to a projected level of less
than 10,000 in 2007. Until July 7, 2007, Columbia received four EAS
flights per day during the week and two flight per day on the weekend,
all provided by Air Midwest. The flights were split evenly between
Kansas City and St. Louis. Due to the unreliability of the flights and
the schedule, we agreed to a change in service. Many of Air Midwest's
flights were leaving 1-3 hours late and this lack of reliability was
driving away passengers. Furthermore, the ability of business travelers
to complete a one-day return trip was not very practical. The first
flights out of Columbia to St. Louis left too late for the first round
of connecting flights from St. Louis and the last flight back to
Colombia from St. Louis left too early for the connecting returning
flights, and the last flight from Kansas City created a long wait for
returning travelers. Effective July 8, all these flights will go to
Kansas City where Air Midwest has its own gate and maintenance
operation. We hope moving all flights to Kansas City will improve
reliability, make our service more attractive and increase
enplanements.
NACo has a number of suggestions for improving the Essential Air
Service Program. The goal of a number of these recommendations is to
build up the enplanements in a community so that air carriers can offer
service without an EAS subsidy. There needs to be more funding. It is
certainly fair to say that the cost of fuel, equipment and operations
of air service has increased. We applaud the Commerce Committee for
increasing EAS funding to $133 million. Certainly, the Administration's
proposal to reduce the program to $50 million and limit EAS to 78
communities makes little sense as does proposing limiting eligibility
for EAS to those communities currently in the program. We also need
more funds so we can subsidize better service. Like any other product
or service, EAS has to be attractive to the customer. Hopefully with
more funds, the issues often raised by EAS communities concerning
frequency, convenience, and type of aircraft can be better addressed.
In the last Congress, both the House and Senate recognized the
increasing needs and funded EAS at $117 million only to have the final
funding reduced to $109 million, the same figure as FY 2006.
We also ask this subcommittee to help identify an additional
dedicated or guaranteed source of revenue for the EAS program. The
Airport Improvement Program has it, the highway program and transit
program both have it. While the international over flight fee generates
$50 million annually for EAS, the remainder currently has to come from
the General Fund and this creates an uncertainty for the communities
and the air carriers. An additional dependable source, such as the
Airport and Airway Trust Fund, which assures communities and air
carriers that the program will be fully funded, would make EAS a
stronger program. Another option would be to require the Trust Fund to
help fund EAS to the extent that the over flight fee and General Fund
contribution failed to reach the fully authorized level.
We believe the Local Participation Program, currently in law but
never implemented, which requires a 10 percent match requirement in ten
communities should be repealed. Many of the small and rural communities
that would be required to provide a local match are not able to find
the tens of thousands of dollars the match would require.
The $200 subsidy cap should be increased and indexed. It has been
in place since 1989 and while we are not opposed to the concept of a
cap, one that hasn't been changed in 18 years needs adjustment.
We believe that there needs to be either an incentive for improved
service or a penalty for those air carriers who provide unreliable
service. Carriers get paid for completed service, whether on time or 3
hours late. Section 405 of S. 1300 moves in the right direction but we
would recommend requiring the Secretary of Transportation to provide
incentives for carriers to improve air service, as opposed to this
being discretionary, and include penalties for poor service.
There needs to be more marketing of EAS service to the community.
Marketing funding should be provided directly through the EAS program.
NACo supports the provision now included in S. 1300 requiring airlines
who are bidding on EAS service to include a funded marketing plan in
their proposal.
One final suggestion to improve EAS service is that we need to
study approaches to encouraging more airlines to bid on providing EAS
service. More competition may result in better service.
As I conclude, let me also indicate NACo's support for the Small
Community Air Service Development Program. This program needs to be
funded at a level that comes close to meeting the demand and the $35
million annual authorized level in S. 1300 is a positive step. Every
year grant applications exceed the available funding by a substantial
margin and the $10 million appropriated for FY 2007 is inadequate. In
particular, small communities need marketing dollars to help them get
the word out to their residents that airline service is available. We
also believe the match requirement for this program needs to be
modified, perhaps to reflect community size.
This concludes my testimony and I would be happy to answer any
questions subcommittee members may have.
Senator Stevens. Thank you very much, Ms. Miller. Our next
witness is Mark F. Courtney, the Airport Director of
Lynchburg's Regional Airport in Lynchburg, Virginia. Mr.
Courtney?
STATEMENT OF MARK F. COURTNEY, A.A.E., AIRPORT DIRECTOR,
LYNCHBURG REGIONAL AIRPORT
Mr. Courtney. Thank you, Senator Stevens. On behalf of the
City of Lynchburg and the Lynchburg Regional Airport
Commission, I would like to thank you for this invitation to
appear before your Subcommittee to speak on the topic of the
Small Community Air Service Development Program.
Now, Lynchburg Regional Airport is classified as a non-hub
airport and is the primary commercial service airport serving a
four-county area in central Virginia surrounding Lynchburg,
Virginia.
Prior to September 11, Lynchburg enjoyed daily airline
service by affiliates of three airlines: Delta, United and US
Airways, with a total of 19 daily departures to four different
major hub airports. Following the events of September 11th,
however, Lynchburg, as did many similar sized airports,
suffered a disproportionate reduction in airline service and
seat capacity as airlines reduced flight schedules.
Then, in the Fall of 2001, our United Express affiliate
announced that it would be withdrawing all service from
Lynchburg and close its station. Suddenly, Lynchburg was left
with just 12 scheduled airline departures while suffering a 38
percent loss of daily seat capacity compared to September 2000.
The number of local air travelers driving to other airports for
their air travel needs reached nearly 60 percent. By the end of
calendar year 2001, Lynchburg's total passenger traffic had
dropped 42 percent from the prior year.
In 2002, Lynchburg was fortunate to receive its first grant
under the Small Community Air Service Development Program in
the amount of $500,000 that, when combined with $100,000 in
local funds, made possible a revenue guarantee form of
incentive for the purpose of upgrading our existing turboprop
service to regional jets. Delta Airlines subsequently accepted
our proposal and new service began May 4, 2003 for a 1-year
period.
With the introduction of the new jet service and Delta's
agreement to offer a new, more competitive pricing structure,
Delta's passenger load factors at Lynchburg jumped from 49
percent in August of 2003 to nearly 64 percent by October. Even
more encouraging, Delta's passenger revenues actually went up
under the new lower pricing structure, despite this decrease in
airfares.
By the Winter of 2004, it was evident that the new service
was a complete success and it was exceeding expectations. By
April, Delta officials confirmed that they would continue the
service after the 1-year revenue guarantee period ended.
Of course, a lot has happened in the airline industry since
that time. With multiple legacy airline bankruptcies over the
past few years, further reductions in both domestic flights and
seat capacity have become the norm. But as our new service
continued to perform well and grow, the response wasn't to
increase service, but to increase fares. In fact, from an
average roundtrip leisure fare of $270 in January 2005,
Lynchburg's average published fares to our most popular
destinations have increased an alarming 58 percent. And,
despite passenger traffic levels that remain amazingly stable,
fares have continued to escalate, while service has diminished.
Over the last couple of years, it seems that every time
that we have seen our load factors improve, the airlines have
responded not by increasing service to meet the increased
demand, but by increasing fares. Compared to the same month
last year, our current leisure fares are up 30 percent and just
last week Delta Connection announced that it was eliminating
one of its three daily RJ flights in September. When combined
with an earlier flight reduction by US Airways, by September,
Lynchburg will have lost over 19 percent of our daily seat
capacity just since the beginning of the year.
In fact, our September seat count will represent the lowest
number of airline seats offered at this airport in decades. And
yet, through all this, our passenger enplanements year-to-date
are actually off just 4.3 percent compared to last year.
With the past success of our 2002 grant, Lynchburg was once
again successful in being awarded a similar but smaller DOT
grant in 2006 to be used to help attract a third carrier back
to the airport, as well as the return of a northern connecting
city, particularly a hub city. With nearly a year behind us
under the new grant, we continue to struggle to gain an airline
commitment. With regional airline fleets continuing to face
pressure, high fuel prices and hub and air traffic capacity
issues placing limitations on flights, our current $405,000
total incentive package has failed to get much attention from
an airline. While we are hopeful that we will eventually be
successful, current airline economics and fleet trends seem to
be conspiring against small non-hub airports like Lynchburg.
Now, without a doubt, the current airline operating
environment has made service to smaller communities even more
problematic, with the airlines showing very little interest in
our pleas for better air service and more competitive airfares.
The airlines' revolving door of raising fares every time our
load factors improve has created a Catch-22 that keeps us from
performing to our potential and provides an ongoing excuse to
reduce service levels further.
The Small Community Air Service Development Program is
clearly needed and represents one source that smaller airports
have to provide airline incentives that would otherwise not be
possible. But to me, it also seems apparent that higher
individual grant amounts have become necessary in order to gain
the attention of an airline. In our case, cash incentives that
can be offered to offset a new airline's startup costs during
the first 6 months or so seem to be the most effective but it
also seems obvious that's only if the incentive is high enough.
This becomes even more compelling when you consider that the
mainline carriers are controlling more and more of the regional
fleet seat capacity directly. The days of independent, code-
sharing regional partners who make the service and scheduling
decisions themselves appear to be gone.
When looked at in the context of 5 years ago, it is clear
that for Lynchburg Regional Airport, our Fiscal Year 2002 grant
was a complete success. More recently, however, it has also
been clear that ongoing challenges in the domestic airline
industry have created even greater challenges for small
communities like Lynchburg.
It just seems that for smaller, non-hub airports like
Lynchburg Regional Airport that have viable, self-sustaining
air travel markets, airline deregulation hasn't worked in a
long time and I fear it's just getting worse.
I encourage Congress and this Committee to continue
programs such as this that have a proven record and to focus on
more attractive financial incentives for those non-hub airports
that have the greatest monetary need and the greatest chance of
success. Thank you.
[The prepared statement of Mr. Courtney follows:]
Prepared Statement of Mark F. Courtney, A.A.E., Airport Director,
Lynchburg Regional Airport
Chairman Rockefeller, Ranking Member Lott and members of the Senate
Commerce Committee's Aviation Subcommittee, on behalf of the City of
Lynchburg and the Lynchburg Regional Airport Commission, I would like
to thank you for your invitation to appear before your subcommittee to
speak on the topic of the Small Community Air Service Development
Program. Lynchburg Regional Airport (LYH) has had the opportunity to
participate in this program through two separate grants, and today I
would like to focus on our experiences with this program.
Background
Lynchburg Regional Airport (LYH) is classified as a non-hub airport
and is the primary commercial service airport serving a four-county
area in central Virginia surrounding Lynchburg, Virginia. With a
service area population of 221,000, LYH is currently served by the
regional affiliates of two airlines, Delta and US Airways, and today
offers a total of seven daily departures to airline hubs in Atlanta and
Charlotte.
Lynchburg Regional Airport, like many similar-sized airports, was
particularly hard hit by the events of September 11, 2001. Prior to
September 11, LYH enjoyed daily scheduled airline service by three
airlines (Delta, United and US Airways) with a total of 19 daily
departures to four different major hub airports. Lynchburg's total
passenger traffic during a ten-year period preceding September 11
averaged approximately 180,000 passengers annually, with the local
market easily supporting daily airline seat capacity in the 500-seat
range.
In the immediate days following September 11, LYH, like most
airports throughout the country, experienced a dramatic decline in
passenger demand. Then, in the Fall of 2001, United Express carrier
Atlantic Coast Airlines, one of our three airlines, announced that it
would be withdrawing all service from LYH and close its station. But,
unlike many larger airports, LYH suffered a disproportionate reduction
in airline service and seat capacity as flight schedules were reduced.
Air Travelers Turn to Other Airports
Suddenly, LYH was left with just 12 scheduled airline departures
daily, down from 19, while suffering a 38 percent loss of daily seat
capacity compared to September 2000. The result was an increase in the
number of local air travelers who opted to drive to other near-by
airports to accommodate their travel needs, reaching a point that the
number of local air travelers driving to other airports reached nearly
60 percent. As a result, by the end of CY 2001, Lynchburg's total
passenger traffic had dropped 42 percent from the prior year.
LYH and the 2002 SCASD Pilot Program
In 2002 LYH received its first grant under the Small Community Air
Service Development Program (SCASDP) in the amount of $500,000 that,
when combined with $100,000 in local funds, made possible a revenue
guarantee to utilize as an airline incentive to upgrade our existing
turboprop aircraft to regional jets. Delta Airlines subsequently
accepted our proposal and new service began May 4, 2003 for a one-year
period under a revenue guarantee arrangement.
With the introduction of the new jet service and Delta's agreement
to offer a new, more competitive pricing structure, Delta's passenger
load factors at LYH jumped from 49 percent in August 2003 to nearly 64
percent by October. Even more encouraging, Delta's passenger revenues
actually went up under the new pricing structure, despite the slight
decrease in airfares. Overall, Delta's passenger traffic went from
2,111 total passengers in April 2002, the month before the new CRJ
service started, to 4,735 by October 2003.
By the Winter of 2004, it was evident that the new service was a
complete success, and that it was exceeding expectations. In fact,
under the formula for the revenue guarantee, in February 2004 total
revenues actually exceeded the target under the agreement for the first
time. By April, we exceeded the revenue target by approximately $20,000
and received confirmation from Delta officials that they deemed the
program a success and would be continuing the service after it expired
in May 2004.
Then and Now
Of course, a lot has happened since then and much has changed in
the airline operating environment. With multiple legacy airline
bankruptcies in the intervening years, further reductions in both
flights and seat capacity have become the norm. But as our new service
continued to perform well, the response wasn't to increase service, but
to increase fares. In fact, from an average roundtrip leisure fare of
$270 in January 2005, LYH's average published fares to our most popular
destinations have increased an alarming 58 percent.
And, despite passenger traffic levels that remain amazingly stable,
fares have continued to escalate, while service has diminished. In our
case, over the last couple of years, it seems that every time that we
have seen our load factors improve, the airlines have responded not by
increasing service, but by increasing fares. Compared to the same month
last year, our lowest leisure fares are up 30 percent, and just last
week Delta Connection announced that it was eliminating one of its
three daily RJ flights in September. When combined with an earlier
flight reduction by US Airways, by September LYH will have lost over 19
percent of our daily seat capacity just since the beginning of this
year. In fact, our September seat count will represent the lowest
number of airline seats offered at this airport in decades. And yet,
through all this, our passenger enplanements year-to-date are off just
4.3 percent compared to the same period last year.
Lynchburg's 2006 SCASD Program Grant
With the past success of our 2002 grant, LYH was once again
successful in being awarded a similar, but smaller, grant in 2006 to be
used to help attract a third carrier back to the airport, as well as
the return of a northern connecting hub city. With nearly a year behind
us under the new grant, we continue to struggle to gain an airline
commitment. With regional airline fleets continuing to face pressure,
high fuel prices and hub and air traffic capacity issues placing
limitations on flights, our current $405,000 incentive package has
failed to get much attention from an airline. While we are hopeful that
we will eventually be successful, current airline economics and fleet
trends seem to be conspiring against small non-hub airports like LYH.
Conclusion
Without a doubt, the current airline operating environment has made
service to smaller communities even more problematic, with the airlines
showing little interest in our pleas for better air service and more
competitive airfares. The airlines' revolving door of raising fares
every time our load factors improve has created a ``Catch 22'' that
keeps us from performing to our potential, and provides an ongoing
excuse to reduce service levels further.
The Small Community Air Service Development Program is clearly
needed and represents one source smaller airports have to provide
airline incentives that would otherwise not be possible. But it also
seems apparent that higher grant amounts have become necessary in order
to gain the attention of an airline. In our case, cash incentives that
can be offered to offset a new airline's start-up costs during the
first 6 months or so seem to be the most effective, if the incentive is
high enough. This becomes even more compelling when you consider that
the mainline carriers are controlling more and more of the regional
fleet seat capacity directly. The days of independent, code-sharing
regional partners who make the service and scheduling decisions
themselves appear to be all but gone.
When looked at in the context of 5 years ago, it is clear that for
LYH our FY 2002 grant was a complete success. The program was
instituted at a very opportune time for our airport, and the timing for
execution of our proposal was perfect. At the time of the grant offer,
the airport was significantly underserved, which was compounded by
inordinately high airfares.
The implementation of a revenue guarantee program was exactly the
best way to address our particular program at the time in that it
provided compensation to the airline during the critical market
development phase of new service introduction. The result was a steady
decrease in revenue guarantee payments to the airline, culminating at
the end of the program in revenues that exceeded goals.
More recently, however, it has become clear that recent changes in
the domestic airline industry have created even greater challenges for
small communities like Lynchburg. For smaller non-hub airports that
have viable, self-sustaining air travel markets, it seems that airline
deregulation hasn't worked in a long time, and I fear that it is just
getting worse. I would encourage Congress to continue programs such as
this that have a proven record, and to focus on more attractive
financial incentives for those non-hub airports that have the greatest
monetary need and the greatest chance of success.
Senator Stevens. Thank you, Mr. Courtney. Senator Dorgan,
do you have an opening statement you want to make at this time?
Senator Dorgan. Mr. Chairman, I'll wait until your
witnesses have completed their statements.
Senator Stevens. Senator, do you feel the same way?
Senator Vitter. Yes, I have questions for the witnesses.
Senator Stevens. Ms. Malarkey, you are--Faye Malarkey is
Vice President of Legislative Affairs for the Regional Airline
Association stationed here in Washington. Ms. Malarkey?
STATEMENT OF FAYE MALARKEY, VICE PRESIDENT, LEGISLATIVE
AFFAIRS, REGIONAL AIRLINE ASSOCIATION
Ms. Malarkey. Thank you, Senator Stevens. Thank you for the
opportunity to testify today and for holding this important
hearing. RAA represents 41 regional airlines that link together
600 communities in the United States. At more than 70 percent
of these communities, regional airlines are, as you know,
providing the only source of scheduled airline service. Nowhere
is the importance of regional airline service more apparent
than at the over 140 communities across the country that
receive air service through EAS.
As this Committee knows, continuing financial challenges in
the aviation industry have made air service to smaller
communities significantly more expensive. In the past 5 years
alone, 40 communities have been forced onto the EAS roles and
17 communities have been dropped from the program. The smallest
airports have seen a 21 percent decline in daily departures.
Airports with between 3 and 6 daily flights have experienced a
33 percent decline in departures. Many communities have lost
air service all together.
A promise was made to small communities back in 1978 that
deregulation would not leave them behind. The vehicle for this
promise has been EAS. We applaud this Committee for upholding
that promise, for resisting proposals that would dismantle the
program and for choosing instead to increase funding for the
EAS Program as part of its reauthorization package.
One of the greatest factors contributing to small community
air service reductions is the recent and staggering increases
in fuel costs. To put this into perspective, EAS contracts
currently have a 2-year lifespan. A carrier that negotiated a
competitive contract a year ago would have based cost
projections on then-current fuel rates of $1.80 a gallon. That
same carrier would be providing the service today with fuel
costs of nearly $3.00 a gallon. In other words, climbing fuel
costs can quickly turn once profitable routes into losses.
Unfortunately, EAS carriers lack a mechanism to renegotiate
rates and must instead file 90-day service termination notices
in order to adjust. Even after filing such notices, as you
know, carriers are held in at loss rates for 180 days. This
Committee included a rate index mechanism provision in Vision
100 that would allow the DOT to make real-time rate adjustments
in cases of such increased costs. Unfortunately, DOT has been
unwilling to implement the program.
RAA therefore respectfully asks this Committee to include
language in its present FAA bill to require implementation.
Recently, DOT has stated that the EAS Program is not facing any
crisis in funding. RAA holds our colleagues at the DOT in the
highest esteem but we do not agree with this assessment. The
demonstrability of funding needs and expenditures related to
the program is closely tied to its management.
When DOT cuts service levels or eliminates points in order
to lower program expenditures without reinvesting in the
program, it generates cash in the EAS coffers. The results of
this practice are balance sheets that suggest the program is
over-funded. In order to fully explore this issue, RAA requests
that Congress require an audit on unspent, obligated funds
currently retained on the EAS balance sheets.
As I've mentioned previously, DOT contracts have a 2-year
life span. Unfortunately, airlines' ability to commit aircraft
in a diminishing market has grown more difficult. In fact, one
reason there are so few new-entrant EAS carriers may be
attributed to the lack of financing for aircraft with short-
term commitment levels.
We are therefore pleased that this Committee has expressed
interest in upgrading EAS contract terms beyond their current
2-year lengths. By upgrading the EAS contract terms to four or
5 year service commitments, existing carriers would be better
able to renew current contracts, a significant barrier to
market entry would be removed and all carriers would be better
able to finance aircraft.
RAA believes the FAA's own reauthorization proposal
discriminates against passengers from smaller communities.
Regional airlines provide 14,000 flights daily. To dismiss
regional airline flights and our passengers as a mere blip on a
radar screen is to ignore the crucial service we provide in
smaller communities.
We share an important goal with this Committee. That goal
is advancing an FAA reauthorization bill that makes
modernization of the ATC system a priority. We applaud this
Committee for its work on the shared objective. As you know, we
do have concerns about policy impacts stemming from the
proposed user fee element. We are therefore truly appreciative
of this Committee's invitation to work with us further to
address those concerns. We pledge to work hard to find common
ground. We're willing to pay our fair share for the extremely
important objective of modernizing our ATC system. We simply
seek a modest adjustment to the user fee language to ensure it
treats passengers equally regardless of the point at which they
access the system.
We are confident that together with this Committee, we can
address these specific concerns while moving forward with an
FAA reauthorization this year.
Mr. Chairman, thank you for your attention to this
important issue and for the opportunity to testify today. I
look forward to responding to your questions at the conclusion
of the panel.
[The prepared statement of Ms. Malarkey follows:]
Prepared Statement of Faye Malarkey, Vice President, Legislative
Affairs, Regional Airline Association
Chairman Rockefeller, Senator Lott, and Members of the
Subcommittee, thank you for the opportunity to testify before you
today. I am pleased to testify on behalf of the Regional Airline
Association. We thank you for holding this important hearing.
RAA represents 41 U.S. regional airlines transporting 97 percent of
regional airline passengers. Our member airlines operate 9 to 68-seat
turboprop aircraft and 30 to 108-seat regional jets and link together
more than 600 communities in the United States.
At more than 70 percent of these communities, regional airlines
provide the only source of scheduled airline service. Nowhere is the
importance of regional airline service more apparent than at the more
than 140 rural communities across the country that receive scheduled
air service through the Department of Transportation's Essential Air
Service Program (EAS).
Background
Because of continuing financial pressures in the post-9/11 aviation
industry, at least 40 additional communities have been forced onto the
EAS roles and 17 EAS communities have been dropped from the program
altogether in the past 5 years. The smallest airports--those with
between one and three daily departures--have seen a 21 percent decline
in daily departures between September 2001 and September 2006. Thirteen
of these airports have lost service altogether. Airports with between
three and six daily flights in September 2001 have experienced a 33
percent decline in departures since then, with eight such airports
losing service altogether.
As Members of this Subcommittee know, EAS was initially created as
part of the Airline Deregulation Act of 1978. The program has been in
effect each year since under various funding proposals. Many members of
this Subcommittee will remember that, in 1999, DOT issued several
service termination orders, triggering broad opposition from
communities and air carriers. This highlighted the need for a
sufficient and stable funding stream for EAS.
Thanks in large part to the strong leadership of this Committee,
EAS has received funding increases which have helped it keep pace with
changing market realities.
Department of Transportation and Federal Aviation Administration
Proposals
Unfortunately, the proposal contained in the FAA's own
reauthorization bill this year would severely cut and potentially
dismantle the EAS program as funding would fall by $59 million from
current enacted levels, effectively forcing out a third or more of the
communities that now use the program. The proposal further caps EAS
subsidies at current levels and prohibits the addition of new EAS
points for communities that lose air service in the future, telling
residents of these communities that convenient, reliable air service is
a luxury, and one they can't have. For the others, DOT would set up a
tiered system to grant reduced subsidies to communities in descending
order of distance from nearby hub airports, starting in Alaska and
continuing until the funding runs out, which is sure to happen long
before DOT's obligation to EAS communities has been met.
If enacted, this proposal would jeopardize rural air service in an
unprecedented way because it fails to reflect the fact that, of 140
current EAS communities, 85--36 in Alaska alone--are further than 210
miles away from a medium or large hub airport. Dozens more are further
than 150 miles away from the nearest medium or large hub airport. Yet,
under the DOT's proposal, even many remote communities would lose air
service as the funding level proposed by DOT is simply too low to
continue the program in any meaningful way.
Congress promised small communities, back in 1978, that
deregulation would not leave them behind; rather, communities receiving
scheduled air service before deregulation would continue to receive
scheduled air service after deregulation. The vehicle for this promise
has been EAS, and while we recognize the usefulness of reform, we urge
Congress to reject proposals that significantly cut, eliminate, or
undermine this important program.
Rather than accept proposals to cut the program in half, this
Committee has elected instead to increase funding by $6 million per
year in its FAA proposal, bringing authorized appropriations to $133
million next year. We are deeply grateful for your leadership.
Carrier Costs and Real-Time Rate Indexing
One of the greatest factors contributing to diminishing small
community air service is the continuous and staggering effect of fuel
cost increases. Turboprop aircraft are among the most fuel efficient
aircraft for short-haul routes and, like our major airline
counterparts, regional airlines have sought to minimize fuel burn by
tankering fuel, lowering cruise speeds, safely altering approach
procedures, and reducing onboard weight. We are making every effort to
manage escalating fuel costs with an eye toward conservation.
Nonetheless, fuel is now the highest cost for many regional airlines.
As part of the competitive EAS application process, carriers
negotiate in good faith with DOT on subsidy rates that remain in effect
for 2 years. In doing so, EAS carriers must project revenues and costs
over this same two-year time-frame--no easy task in today's volatile
cost environment. In cases of unexpected cost increases, EAS carriers
lack a mechanism to renegotiate rates and must instead enter into the
unpalatable process of filing 90 day service termination notices in
order to begin the convoluted process of seeking rates that cover
increased costs. This inevitably causes ill-will between the airline
and community and fosters a sense of unreliability that undermines
community trust in and use of the air service.
One of the fundamental tenets of the EAS program held that no
carrier should be expected to serve any market at a loss. Yet, in cases
of unexpected cost increases, carriers are unable to provoke rate
changes without filing such service termination notices, after which
each carrier must continue to provide the service, at a loss, for 180
days while DOT undertakes the competitive bidding process.
In recent months, crude oil has risen dramatically. For example,
one EAS carrier, Great Lakes Aviation, has experienced annualized,
system-wide fuel cost increases of over $4 million. To put these
numbers into perspective, please consider this: EAS contracts currently
have a two-year lifetime. A winning carrier who negotiated a
competitive contract 1 year ago would have based cost projections on
then-current fuel rates of $1.80 per gallon. That same carrier would
now be providing the service with fuel costs at nearly $3 per gallon.
Because EAS carriers are strictly limited to 5 percent profit margins,
climbing fuel costs can quickly turn once-profitable routes into
losses.
Congress has already addressed this issue. In Section 402 of Vision
100, this Committee worked to include a rate-indexing mechanism where
DOT could make real-time rate adjustments during periods of
significantly increased carrier costs. In order to prevent deliberate
cost underestimation, Congress required carriers to demonstrate
``significant increases,'' and defined these as 10 percent increases in
unit costs persisting for two or more consecutive months.
DOT has been unwilling to implement the program to date, citing a
lack of funds. RAA therefore respectfully asks this Committee to
include language in its FAA bill to require DOT to make these real-time
rate adjustments.
Program Management
Recently, DOT has stated that the Essential Air Service program is
not facing any crisis in funding. RAA respectfully disagrees. The
demonstrability of funding needs and expenditures related to the EAS
program is closely tied to management of the program. When DOT cuts
service levels or eliminates points in order to lower programmatic
expenditures without reinvesting in the program, it generates excess
cash in the EAS coffers. This practice produces balance sheets that
suggest the program is over-funded. In order to fully explore these
issues, RAA requests that Congress require an audit on unspent,
obligated EAS funds currently retained on the EAS balance sheets.
Further, RAA requests that leftover funds be reinvested in the EAS
program to raise service levels at more viable routes, thereby allowing
passengers to best utilize service that has been granted.
As Congress considers potential eligibility criteria changes, we
also ask that the same standard is applied. Reforms to the program
should be aimed at enhancing the program and protecting rural air
service; not gutting the program.
Date Certain for Market Exit
Part of the nature of the Essential Air Service program, as you
know, is that carriers compete rigorously for contracts. Even in cases
where an incumbent carrier desires to continue serving a given market,
DOT has the right to select another carrier. In cases where DOT awards
service to a new carrier, RAA believes DOT should be required to give
the incumbent carrier a date certain when it may exit the market,
without exception.
The current practice, where DOT holds the carrier in markets in 30
day increments, is untenable. This practice means a carrier cannot sell
tickets in the EAS market beyond 30 days, nor can it make plans to
utilize its aircraft elsewhere. We urge Congress to end this unfair
situation by mandating that DOT adopt a date certain component for
incumbent carrier market exits when it selects an alternate carrier to
serve the market.
DOT Term Length Upgrade
As you know, DOT contracts have a two-year lifespan. Post 9/11,
carriers possessed excess aircraft inventory sufficient to facilitate
competitive bidding on new EAS routes. With more and more turboprop
aircraft being sold overseas, there are fewer aircraft available in the
United States for this type of service.
Unfortunately, airlines' ability to commit aircraft in a
diminishing market has likewise grown more difficult. Aircraft
financing models are ill-suited to short, 2 year-year commitments. In
fact, one reason there are so few new-entrant EAS carriers, may be
attributed to the lack of financing for aircraft with short-term
commitment levels.
We are pleased that this Committee has expressed interest in
upgrading EAS contract terms beyond the current, two-year program. By
upgrading the EAS contract terms to four or five-year service
commitments, existing carriers would be better able to renew current
contracts, a significant barrier to market-entry would be removed, and
all carriers would better able to finance aircraft for longer-term
obligations.
Smaller Aircraft and Very Light Jets
There has been some recent discussion about the use of Very Light
Jets as rising operating costs of current EAS carriers have translated
to higher program costs. Ironically, the rising costs in question have
occurred as a result of compliance with single-level-of safety
standards imposed on the industry in 1997. While RAA does not advocate
a return to separate regulatory standards for 19 seat operators, the
government should not forget that the bulk of increased operating costs
on these aircraft have resulted from this regulatory change.
Further, the business models of those smaller aircraft remain
unproven. The VLJ business models that do exist promise direct, non-
stop service to destinations that would bypass the hub-and-spoke
system. They would therefore fail to connect passengers to the existing
air transportation system in favor of limited service. The fares for
VLJs are another great unknown, with most advocates acknowledging that
they are fairly expensive.
We strongly caution the Congress against advancing this unproven
technology as a solution to EAS shortfalls. The Congressional
commitment to rural communities during deregulation was a continuation
of scheduled air service. It is inappropriate to place the burden on
passengers and communities to secure air service through expensive,
untested, and potentially unreliable sources.
FAA Reauthorization and User Fee Proposals
The FAA proposal, which treats commercial airline passengers
differently based on size or type of aircraft, discriminates against
passengers from smaller communities. Further, the proposal undermines
the notion of a national system of commercial aviation. Regional
airlines provide 14,000 flights daily. To ignore the crucial service
regional airlines provide in smaller communities by dismissing regional
airline flights and passengers as a mere ``blip'' on a radar screen
represents more than an oversimplification. With respect to commercial
air service, one blip can contain 250 cost bearing sources while
another contains only 19.
Looking beyond EAS, we share an important goal with this Committee.
That goal is advancing an FAA Reauthorization bill that makes
modernization of the ATC system a priority. We applaud this Committee
for its work on this shared objective.
As you know, we do have concerns about policy impacts stemming from
the proposed user fee element, which we believe will prove harmful to
small and medium-sized communities if not adjusted.
We are therefore truly appreciative of this Committee's invitation
to work with us further on those issues and we pledge to work hard to
find common ground. We are willing to pay our fair share for the
extremely important objective of modernizing our ATC system. We simply
seek an adjustment to the user fee language to ensure it treats
passengers equally, regardless of the point at which they access the
system. We are confident that, together with this Committee, we can
address these specific concerns while moving forward with FAA
reauthorization this year.
Conclusion
Mr. Chairman, thank you for the opportunity to testify on this
important issue today. I look forward to responding to your questions
at the conclusion of the panel.
Senator Stevens. Well, thank you very much, Ms. Malarkey.
You said you wanted to talk about requiring a limitation on
whom? On the Department of the Treasury or what limitation did
you mention?
Ms. Malarkey. I'm sorry, I'm not sure that I understand--
the limitation that I--I mentioned that we would like to have
an audit on the unspent funds in the EAS coffers.
Senator Stevens. Yes, I heard that but you also said
something about requiring a limitation on the funds? Look over
your statement and I'll come back to you, OK?
Ms. Malarkey. OK.
Senator Stevens. Mr. Secretary, we're delighted to have you
here. Have you been to Alaska?
Mr. Steinberg. Yes, I was there about 2 years ago and I got
a chance to see----
Senator Stevens. Did you go see some of the places that are
served by Essential Air Service?
Mr. Steinberg. I did not see places served by Essential Air
Service specifically but did have a chance to understand
personally some of the remote cities and what they have to do.
Senator Stevens. Well, let me extend to you an invitation
to come up in August. We might find a little extracurricular
activity for you in one of the rivers at the same time.
Mr. Steinberg. That sounds good.
Senator Stevens. But there is a necessity to understand
what this is all about. I'm the only surviving Senator now that
was around when we made, at least on this Committee, created
this Essential Air Service Program. It was created by Senator
Cannon of Nevada and me because of the problem in Alaska
primarily and in a few places in Nevada where they were going
to lose air service that had been mandated by CAB, at a great
loss to the industry.
But we devised a system whereby the community had a right
to a subsidy sufficient to give them at least the service that
had been in place before deregulation. In some of our cities
and villages, that was about three times a week. Now, in other
places, I'm sure it was daily. But it has, as its genesis, the
idea of letting the community decide who should continue to
service it in terms of air transportation.
One thing that was missing from your statement was
relevance to cargo. Essential Air Service covers cargo, too,
where you have seat passengers and cargo and I would hope that
you would come take a look at that.
Let me ask the other witnesses--does your Essential Air
Service in Missouri and in Virginia and generally, Ms.
Malarkey, do you include cargo service in your what we call
Con-P planes? Passenger and cargo?
Mr. Torgerson. Lynchburg is not an EAS point but we do
combine, of course, freight in our passenger planes because we
don't have any dedicated cargo except for one carrier.
Senator Stevens. You're not getting any Essential Air
Service assistance now at all?
Mr. Torgerson. No assistance, no. No.
Senator Stevens. Ms. Miller?
Ms. Miller. Senator, I can't tell you that. I don't believe
that we have cargo included in the EAS service that we receive
now.
Senator Stevens. I don't--Ms. Malarkey?
Ms. Malarkey. We do not have all cargo EAS carriers. We
have EAS carriers, obviously, that do some carriage of mail and
will do some carriage of cargo but we do not have all cargo
EAS.
Senator Stevens. We don't have all cargo service covered by
EAS either but the Con-P planes are covered and I think it's an
essential difference between Alaska and what we call the South
48 in terms of Essential Air Service Program.
Mr. Steinberg, you mentioned the problem of the new system
and the way it's growing, particularly now with what I call the
mosquito jets, the very light jets. They probably won't be Con-
P capable, as I understand it. They're going to be 9 to 11
seats, the ones that I've looked at. Have you got any plans at
all to deal with the areas where they still must have cargo? I
mean, we don't have roads so as a consequence, not having any
road money coming to these areas, we provide it through--this
was Senator Cannon's idea and mine, that we would provide
assistance through the Essential Air Service for combined
service of passenger and freight. Now, how is that going to be
sustained after the mosquito fleet arrives?
Mr. Steinberg. Well, after very light jets are introduced
into the system, I think you'll see a couple different things
happen. There is the potential for more service for passengers
but as you point out, these planes are pretty small. Actually,
the ones that are coming on line now, I think, are more like
six passengers. However, there is another use, of course, for
these aircraft and that's to carry cargo by itself and in fact,
one of the things that is encouraging about very light jets is
the ability to provide, say medical equipment and other things
that are needed on a real-time basis.
So ultimately, Senator, it's all a matter of aircraft
economics and if cargo can be carried profitably by very light
jets, I'm sure it will be.
Senator Stevens. Well, I hope you'll come up and take a
look. I'm an old C7 (1947) and (1946) pilot. They would carry
everything, right? These new little jets are not going to carry
everything. You won't be able to get a washing machine in them.
You won't be able to get any kind of a--even a large boat motor
and there is no other way to deliver them now. There's no other
way to get up there at all today. In days gone by, when the
freight went up the river once a year, they didn't have those
motors.
Mr. Steinberg. Well, I think clearly Alaska is a special
situation because you don't have the road infrastructure that
you need to deliver cargo by truck and that distinguishes it
from most other parts of the U.S. so the Essential Air Service
Program will, I think, continue to be very important to your
state.
Senator Stevens. Well, John Torgerson, I hope, Mr.
Commissioner, you'll join me in inviting our Secretary to come
up because the transition of this bill--this is going to be a
transition bill for Essential Air Services, no question about
it. Other states need to redefine it and we need to redefine it
so that we're not left out by these very light jets that will
be primarily supported by Essential Air Services as I see it in
the future.
Ms. Malarkey, you said you would like to sit down with the
staff and talk about changes in this bill?
Ms. Malarkey. Yes. Yes, we would, very much. In fact, we
make ourselves available at any time in the coming weeks to sit
down and discuss. Again, we seek a small, minor adjustment to
the user fee language to ensure----
Senator Stevens. Well, would you mind writing us a little
letter so the members of the Committee will know what you want
to talk to the staff about? I think that would be a good idea
that you talk to them but we'd like to see what amendments you
have in mind.
Ms. Malarkey. Yes. It would be our pleasure.
Senator Stevens. Did anyone else have amendments in mind to
this bill that we should discuss this morning?
[No response.]
Senator Stevens. John, do you have any amendments to the
bill?
Mr. Torgerson. No sir, I do not.
Senator Stevens. Ms. Miller?
Ms. Miller. Senator, I would like to also recommend that
the NACo staff work with your staff on any amendments that may
be forthcoming, as they've reviewed Senator bill 1300. I
personally have not had that opportunity so I can't tell you
exactly all the pieces that we would like to work with the
staff to fine tune. But I want to make them available and I
feel like Bob Fogel will be of big help to your staff in
understanding our issues.
Senator Stevens. Mr. Courtney, I think you sort of
suggested re-regulation, a new CAB. Is that what you're
suggesting?
Mr. Courtney. I didn't mean to really suggest re-regulation
as much as the fact that deregulation does not work for smaller
communities. We are in a unique situation. We're not an
Essential Air Service point. We're larger than that but we're
smaller than many of the smaller airports that have the kind of
financial wherewithal and they have the kind of community
support to be able to provide the kind of incentives necessary
to attract airlines in today's environment. You have to
remember, we are self-sufficient. We are profitable for the
airlines. Our problem is not profitability. Our problem is
competition, high fares and a lack of choices out there among
the legacy carriers. We cannot attract a low fare carrier
because of the economics of it and we need something like the
Small Community Air Service Development Program, even in an
enhanced form, to be able to give us a tool that we need to be
able to attract and get the attention of an airline.
The airline planning staffs today, the mainline carriers
are calling the shots, at least when it comes to most smaller
communities like ours that provide service--line service to the
hub airports. And we need them very, very much and we just
can't survive without that kind of connection and the planning
staffs, we just can't get through to them because we're too
small of a revenue airport or size for the majors who are
facing all these daunting challenges, fighting back the low
fare carriers and the majors at other larger airports. So even
though we're profitable, our frustration remains in not being
able to attract good quality service and keep it.
Senator Stevens. It may interest you to know when we
deregulated the airlines and did away with the CAB, Congress,
at my request, gave the State of Alaska the right to create its
own CAB in trial, in Alaska. But we have never utilized that
authority for the one reason that we prefer to have some
competition and we depend so much on airline transportation to
get out of Alaska that we could not regulate. It would not be
feasible to end up by regulating just in Alaska and not have
the interstate commerce regulated.
I do think that we ought to help you find a way to induce a
little bit more competition into your area and it may be that
Essential Air Service grants of small amounts would enable an
airport like yours to offer a little bit of an incentive to
smaller airlines that are growing to come and grow with your
traffic. That's what's happened in Alaska to a great extent and
I'm sure that Commissioner Torgerson will tell you, we have
sort of vibrant competition now, even in the smaller areas, to
get the Essential Air Service contribution. So it is something
that works and I'd like to work with you along that line.
Mr. Courtney. And Senator Stevens, I might just add that,
as it was alluded to earlier, that is one of the challenges
we're facing right now. We're in an industry that for scheduled
airline service, the domestic route systems of the airlines are
contracting. They are reducing capacity. It's much more
difficult, obviously, to compete for added service or even to
keep what you have when the airlines are continuing to reduce
service. That's the reason we just lost--or we will be losing
one of our regional jets to Atlanta.
Senator Stevens. But--and I'm going to quit here--up our
way, as that happens, they take under their wing a small
commuter that becomes a portion of the major airline and deals
effectively with our local commuter transportation and
particularly, that's where the population base is a little
higher than some of the villages. But I do think it would be
wise to have you all come and take a look and see how it works
in Alaska because it does work in Alaska and that's what John
is here for. He's asking for a continuation of the program.
Senator I've got to go to another meeting. If you would,
I'd be honored to have to take----
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan (presiding]. Mr. Chairman, because I didn't
give an opening statement, let me make a couple of comments.
First of all, I think airline deregulation has imposed an
unbelievable penalty on rural America. I know regulation is a
four-letter word in this town but if we could all walk out to
National Airport this morning and book two flights, one to
North Dakota and one to Los Angeles, you'll find that it will
cost twice as much to go half as far. That's an unbelievable
penalty for people who live in smaller states, smaller
population states.
So airline deregulation, in my judgment, has worked
wonderfully for some. If you are from Chicago or Los Angeles or
New York, you have multiple choices at competitive prices and
good for you, you get a heck of a bargain on the airlines. If
you're from other parts of the country, you're going to be
facing airline fares that are unbelievably high if, in fact,
you get the service. And these days, you're going to be faced
with less service because they're going to reduce frequencies
on you in most cases and bring in smaller aircraft.
Let me make a couple of comments about these issues. Mr.
Steinberg, I've had generally a positive experience working
with you and Mr. Devaney and others in the Department. I've
appreciated working with you on EAS issues. I think the
Essential Air Service Program is very important for many small
communities.
I don't believe that we should have to say to--we should
have a circumstance where a community that has Essential Air
Service and doesn't lift a finger to make it work, I don't
believe we should have to be in a situation where we say, you
can have that service forever. You don't have to do anything.
You can reduce to one or two passengers a day and do nothing to
try to promote that service and by the way, we'll just look the
other way.
So I think all of us that fund the Essential Air Service
Program need to say to communities, this is part of your
responsibility as well. This is not a given forever. If you do
nothing to enhance that service and you basically ignore the
presence of that service, you could end up losing that service.
Having airline service for these small communities is an
important part of their future economic development
opportunities so I think there needs to be a partnership here
between the communities and the Essential Air Service Program.
With respect to the Small Community Air Service Development
Program, I want to understand how that's working and whether
that's working. We had an experience in North Dakota that had a
startup airline. That's now shut down, as I understand it. I've
been seeking information about what happened to the money. I'm
not suggesting we shouldn't be doing all kinds of experiments
to find out what works and how it works but I think it's
important for us, because we've committed a lot of money, to
find out what has been the result of the committing of that
money in this Small Community Air Service Development Program
and if we find out what the results have been then we can
better tailor our future approaches.
I think there is an inherent conflict going on and it's
going to get much worse. The conflict is this: We have the
larger legacy carriers that have a hub-and-spoke system. They
go out to a spoke--Mr. Courtney, they come to your area as a
spoke and carry you into a hub and then move you on in their
system in the hub.
Then we've had the growth of point-to-point carriers and
the hub-and-spoke legacy companies have wanted to change their
business model some and so many of them have gone through
bankruptcy to strip assets and they're now coming out of
bankruptcy and are shrinking capacity. They are, I think, one
of you said that airports with three to six daily flights--
that's a town of 50,000, maybe 100,000 people, three to six
daily flights, a 33 percent decline in departures. We're
experiencing that all across the country with those small
communities. This isn't EAS. These are other communities that
are larger than EAS.
That's a serious problem. And the hub-and-spoke and the
point-to-point are in basic conflict and if the legacy carriers
that have created the hub-and-spoke system no longer have a
commitment to the spoke and want to dramatically reduce
departures, downsize the aircraft and so on, we will continue
to see a diminished capability of providing service to smaller
cities in this country and the inevitable result will be an
exacerbated problem of parts of this country having wonderful
air service with great equipment and many different pricing
capabilities of lower prices and more alternatives with respect
to schedules and then we'll see a whole tier of other
communities and I've got them in North Dakota. I mean, Minot
and Bismarck and other communities--Grand Forks, Fargo, where
you will see, I think, diminished airline service.
I know that the carriers will say, no, that's not where
we're headed but look at the facts. I think the airline system
in our country is experiencing serious problems in any event.
This morning, I saw the report that 30 percent of the
departures on airlines in this country were late departures. I
believe that was the past month. Mr. Steinberg, do you know
when that is for?
But at any rate, 30 percent late. The system is being
stretched. Air traffic controllers--we've got lots and lots of
problems and I know that this hearing is about one slice of
that and that is, the Essential Air Service issue, the Small
Community Grant Program and what we do to try to make sure that
continues to work. But I think if we do that in isolation
without understanding the inherent conflict of what's happening
between the hub-and-spoke system created by the legacy carriers
and their need now, to compete with the point-to-point carriers
and what that's going to mean to communities--we, it seems to
me, we're going to end up here with quite a mess on our hands.
So I'm not suggesting I know all of the answers but I certainly
think we need to confront this basic problem.
Mr. Courtney, what--is it Lynchburg, Virginia?
Mr. Courtney. Yes, sir.
Senator Dorgan. And how big is Lynchburg?
Mr. Courtney. Our service area, including the four counties
surrounding Lynchburg is 220,000.
Senator Dorgan. That market--100,000, 200,000 that market
is exactly the market that I think is headed toward trouble.
With increased or I should say, substantially decreased service
with lesser equipment and fewer frequencies and higher prices.
We've done study and after study about the pricing. The
pricing is unbelievable. I've held up charts in this Committee,
a chart of Salem Sue, the biggest cow in America. It sits on a
big hill over Salem, North Dakota and a picture of Mickey Mouse
and said, do you want to go see Mickey Mouse and visit Disney
World? Well, here's the cost. Want to go see the biggest cow on
a hill in New Salem, North Dakota? Half as far? It will cost
you twice as much. I did that just for effect.
But it is a fact that if you're in Lynchburg or you're in
Minot or in dozens and dozens and dozens of places in this
country, in my judgment, you are being cheated with the fare
system in this country with the airlines that's not fair to a
substantial number of the American citizens.
So at any rate, I agree with Senator Stevens. The Essential
Air Service is very important. It's a very important program
and we need to get it right. I was the one that offered the
amendment in this Committee many years ago that provided
funding outside of the yearly appropriations process by
connecting it to over flight fees. So, I mean, I've also paid
my dues in terms of trying to support this program and make
this program work.
This Committee has a lot to do to try to draw a line and
connect the dots between Essential Air Service between those
mid-size markets and between the robust, aggressive competition
that's going on in the major markets in this country that offer
good service at decent prices for people who are fortunate
enough to live in those areas. Senator Vitter?
STATEMENT OF HON. DAVID VITTER,
U.S. SENATOR FROM LOUISIANA
Senator Vitter. Thank you. I want to thank Vice Chairman
Stevens also for this hearing and for all of his interest and
others on the panel for their interest. It certainly affects
Louisiana. We have many small and rural communities. Right now,
as we speak, none of those participate in the EAS program but
that can change monthly. So it certainly will in the future.
I'm a supporter of that program. I voted for the Vision 100
Reauthorization Act and certainly look forward to continue to
work to improve and make that program more robust. I'm also a
big supporter of the Small Community Air Service Development
Program and certainly, several significant Louisiana airports
have participated in that grant program in the past. I think
Lake Charles, Shreveport, Lafayette, Alexandria, Monroe. So
count me in terms of my interest and my commitment to improving
this.
I wanted to ask a very specific question for obvious
reasons and I'll start with Mr. Steinberg. One very specific
situation and interest--this can impact on occasion, is
evacuation during emergencies like hurricanes, like Katrina and
Rita. In the last couple years since Katrina, Homeland Security
has done a lot of additional planning about all sorts of
things, including air evacuation. I think that has been focused
on big airports, like New Orleans, big planes. Has there been
any interaction with you and this program with regard to using
air assets out of smaller facilities?
Mr. Steinberg. Thank you, Senator. The Department of
Transportation, of course, is closely involved with DHS in
preparing for this hurricane season, which so far, of course,
has mercifully been not too bad yet.
We have an ongoing discussion with them about air
evacuation. To my knowledge, we have not discussed smaller
airports and smaller aircraft, if that's where you're going
toward. During the Katrina evacuation, there was sort of a mix
of both large airlines and then sort of on-the-spot smaller
aircraft helping out as well.
What I'd like to do is follow up and see what discussions
have been had with DHS specifically about smaller airports and
get back to you.
Senator Vitter. If you could do that and obviously, it has
to start with big airports and big planes. I'm not begrudging
that. But I do think there needs to be some discussion and
planning with regard to smaller airports as well in terms of
local communities depending on where a particular hurricane,
for instance, may be going.
For the whole panel, does anyone have any reaction to those
sorts of issues with regard to keeping service in smaller
communities viable? I just invite anybody's comments.
Ms. Malarkey. From the air carrier perspective, again, one
of the significant impacts on smaller communities receiving air
service are the costs and it's not just the sort of the labor
costs and the fuel costs but it's also, to some extent, some
government imposed costs. So we always ask that the Congress
bear in mind that when--anytime there is an increased cost on
the carriers that that is something that will drive the fares
up that it makes continuing that small community air service
ever more expensive and so we ask that cost increases be made
with those circumstances in mind.
Senator Vitter. Ms. Malarkey, are you--you may not be aware
of it but are you aware of specific discussions and planning
sessions with regard to your member airlines regarding
evacuation scenarios?
Ms. Malarkey. No, I'm afraid that's an area I don't know
too much about but I will commit to get back to you on that.
Senator Vitter. Right. Thank you very much. Anyone else?
Mr. Courtney. Well, I guess for Lynchburg, the ongoing
issue for us seems to be a downward spiral in terms of service
levels that have been exacerbated by increasingly higher fares.
We clearly have a capture--we have a marketplace that has
little competition and as a result, with the legacy carriers in
particular, with services that are provided by their affiliates
that the mainline carriers control all the seats, the schedule,
the flights. We end up, as I said before, being such a
relatively small revenue piece of the revenue pie for the main
airline that we can't get enough attention from them. But this
spiral that we've had of increasing fares because we tend to
have a high percentage of business travelers but then as we
have performed better--I'll give you one example. A while back,
we had a $60 overall average fare differential between
Lynchburg and Roanoke that was about 50 miles away, about an
hour's drive and we went to the airline to try to get them to
provide some parity. We also, at the same time, were realizing
that our passenger load factors had gone up to 70 percent.
Well, when we went back to the airlines to try to get them
to reduce--to add service because of the response of the
marketplace and increase in service, despite the higher fares,
they just raised their fares even more. We've seen that over
and over again.
And also, I realize there's cost from our standpoint in
dealing with airline planning departments, costs that are
always a factor for the airlines. But when it comes to planning
decisions, I've found that they don't use costs at all when it
comes to making a decision on whether to provide service to my
airport because we already tend to be a very high revenue
airport for them.
This Catch-22 that we're facing right now is what is really
frustrating. When we were told by Delta Airlines, the Delta
Connection that they were going to reduce one of our three
daily departures, our three daily RJs to Atlanta, despite the
loads we were generating, they said that we're not generating a
high enough average of passengers to match what they are doing
system-wide. For instance, they're doing system-wide load
factors of 80 percent. Ours are in the upper 60s. But of
course, we can never attain 80 percent because as soon as we
get into the 70s, they raise fares and it brings the load
factor right down so we're caught in a Catch-22 here that
results in a spiral.
We'll be down to six flights per day. Now granted, after
September 11 or before September 11, we had 19 daily
departures, a lot of 19-seat aircraft. We have RJ service and
we have 37 to 50 seat turboprop aircraft now, so much better
quality. But we'll be down to six flights, six daily departures
as of September. Our seat capacity will be from just under 500
to 267. We've had such tremendous decrease and I just worry
that we're going to get in this downward spiral--we can only
lose so much more before we end up having Delta pull out
completely and then we'll be stuck with one airline.
Then, because of equipment challenges, whatever--that we
may end up going down further. You have to have a basic amount,
level of service to be able to provide a critical mass of
service and we're at the bottom now and that's one of the
reasons I'm here because we need programs like this. We need
some extra oomph to be able to get the attention. We've had a
lot of frustration with United Airlines in trying to get
service to Dulles.
Under our new grant, $405,000 incentive package, an
affiliate RA member, Culligan Airways or Culligan Air, has
expressed interest in taking advantage of that program and to
add service to Dulles but there has not been sufficient parking
space at Washington/Dulles Airport.
And without that space and of course, this is for a 33-
seat, 30-seat turboprop airplane. When they have constraints on
parking, it's not going to go to a 30-seat airplane from
Lynchburg. So we seem to come upon one obstacle after another,
even though we have a strong, viable, profitable market for our
size.
Ms. Miller. Senator, in Columbia, Boone County, Missouri,
our emergency operation plan does not include the airlines as
far as evacuation. I also serve on the Senior State and Local
Advisory Committee for the Department of Homeland Security and
advise the Department from that perspective and I know Herb
Kelleher from Southwest Airlines is on the private sector part
of that. You might want to touch base with him to see what kind
of interactions have been happening with the Department and the
airline industry as far as evacuations.
Senator Vitter. Great. Thank you. OK, thank you. That's all
I have.
Senator Dorgan. Senator Snowe?
STATEMENT OF HON. OLYMPIA J. SNOWE,
U.S. SENATOR FROM MAINE
Senator Snowe. Thank you and I want thank the panel as
well. I'm sorry I wasn't able to listen to your testimony here
this morning because it is a critical issue that we recognize,
those of us who represent small communities in our rural
states, that Essential Air Service is absolutely pivotal to
rural development and to rural economies and even more so
today.
As we see the disparities that exist between urban and
rural areas where we're losing thousands and thousands of jobs
and that's certainly been true in many manufacturing areas
where airports become vital.
We have four Essential Air Service airports in Maine and we
represent four of the 145 communities across this country. I
think frankly, there has to be adjustments in our Federal
policy that's going to make it fairer and reconcile some of the
issues that I think that will give impetus to growth, economic
growth in areas and bolstering these local airports. At a time
in which I think we are seeing a revival in regional jet
service and very light jets. I mean, we're seeing a revival in
small aircraft that is going to be central, I think, to the
economies throughout this country, not just in urban areas.
Another thing, we should be enhancing and expanding upon it.
I know this has been a major struggle for a long time that
as one who has sat on this Committee since I came to the Senate
in 1995 and even before then, serving in the House for 16
years, you know, since deregulation and I certainly lived it
and experienced it since 1978, when I came to the Congress in
1979. But Essential Air Service was designed to help the rural
communities to make that transition and so, I think we have a
responsibility at the Federal level to ensure that we can craft
Federal policy that's going to help to elevate the under-served
regions of the country.
Then as Senator Vitter indicated here today, talking about
those issues that make a difference and how we can enhance that
through various initiatives. That's why I'm supporting
legislation and I'd like to ask you, Mr. Steinberg, because I
think it is important, to get to some of the specifics about
these issues that really have handicapped small communities.
The legislation that I have joined with Senator Bingaman,
Senator Hagel and Senator Ben Nelson, would provide communities
with valuable tools that they need to secure their local
airports. We've seen that the Federal Government has imposed
passenger caps, subsidy caps through questionable formulas that
are constantly changing, imprudent cost sharing requirements,
which we fought consistently. Our bill would eliminate the long
un-enforced cost sharing requirements and also to inject some
reality with the passenger subsidy CAB, indexing it to
inflation, which we think is critical. Recognizing that a $200
passenger CAB really does inhibit small communities because it
doesn't adjust for, for example, aviation fuel growth.
We've seen a lot of the legacy airlines that are
consolidating and merging, losing their profitability because
of the soaring costs in aviation fuel. So that certainly is an
indication to me of the impact it's having even on smaller
aircraft and smaller airports.
Also, to solidify the manner in which we deal with the
communities who must deal with the subsidy cap, with having
more of a sliding scale other than the fact of you--if you come
one under the $10,000 enplanement, you get a $150,000. If you
go $10,000 beyond, you get a million dollar subsidy from the
Federal Government. It seems to me we should have some type of
middle ground.
So, Mr. Steinberg, is the Administration prepared to accept
any of these types of changes to modify existing laws, since
for example, on the subsidy CAB, there has been no change since
1990?
Mr. Steinberg. Thank you, Senator. I'd like to answer the
question this way. First, let me start with what our proposal
was because we, too, have abandoned, if you will, the cost
sharing proposal that was put forward in prior reauthorization
packages and our proposal this year was to limit the program
not by affecting the individual communities through cost
sharing but by capping the program in terms of the cities that
are currently in it would be grandfathered and we wouldn't add
cities. You know, we're 30 years beyond deregulation and so
it's hard to argue that a city that might lose service, say
tomorrow, lost service as a result of deregulation in 1978. So
we think it's appropriate to cap the program.
The other thing that we've proposed is to rank cities in
terms of just how isolated they are from large or medium
airports and to use whatever funds the Congress chooses to
authorize and appropriate to us by working down the list from
the most needy, if you will, to the least needy.
In terms of the idea of indexing the subsidy to inflation,
I think you make a good point about fuel costs and the legacy
carriers. But the fact is that we haven't, as a government,
chosen to subsidize legacy carrier fuel costs and the fuel
costs going up as much as they did and the inability of the
legacy network airlines to pass those costs on to their
customers is--was a major factor in several of the
bankruptcies. So I think we have to be cautious about
subsidizing one part of the airline system versus another. A
lot of subsidies can have unintended consequences.
I'd also note that the subsidy used to be $300 and Congress
lowered it to $200, I think in 1989 and so, obviously there was
some thought at that point that the subsidy did not need to be
higher.
Senator Snowe. But you can understand why it would need to
be changed today?
Mr. Steinberg. Well, you know, it has a--really, all this
gets down to basic airline economics. If it's, clearly if the
subsidy, the cap is increased, our costs will go up. But it's
also important to note that when costs go down, our subsidy
payment doesn't go down. That's not the way the program is
structured. It's a fixed price program. So if fuel were to drop
dramatically tomorrow, we would not be able to go back to the
carriers and say, give us some of that subsidy back. So if you
were going to do that, I think you'd have to really revamp the
program so the government and taxpayers got the benefit of cost
reductions as well as having to, if they had to pay for cost
increases.
Senator Snowe. So is the Administration prepared to accept
some changes in the program?
Mr. Steinberg. I think we clearly indicated our willingness
to do that by--we tried to put forward a proposal this year and
like I said, it did not go down the cost sharing route. We
welcome the opportunity to work with the Congress on something
that works better. Whatever amount you choose to fund the
program, we want to make sure it's as effective as possible and
so, yes. Of course and one other point, if I could, Senator.
I think several of the witnesses today and Senator Dorgan
and others on the Committee have talked about the price
differential between smaller cities and say, Los Angeles, for
example and that's a fact. I mean, there's no doubt about it.
But another fact is that as our network airlines have lost so
much money over the last several years; they had to reduce
service. So the phenomenon that goes on say, at a Lynchburg
can't be looked at just in isolation.
When Congress deregulated the airline industry, it told us
to do a bunch of things at the same time. One was to lower
fares. But another was to ensure comprehensive service to small
communities and a third was to ensure that well managed air
carriers--and this is a direct quote, ``earn adequate profits
and attract capitol.'' Well, those things are all interrelated.
When you have well managed air carriers that don't make
adequate profits and file for bankruptcy, then of course as
they go through that process, they start pulling down the least
profitable service, which very frequently is at smaller
communities.
So these problems need to be looked at in a comprehensive
way. If you just address one part, you're going to inevitably
mess up another.
Senator Snowe. The whole idea of the isolated proposal you
were suggesting with the 210 miles, is it? I mean, that would
basically eliminate three of our four Essential Air Service
airports in Maine. I just think that that is discriminatory,
frankly, in the rural areas. It's in the Federal Government's
interests to ensure that there is viability of these smaller
airports.
Mr. Steinberg. I certainly agree with that.
Senator Snowe. It's far different than where we were 30
years ago and 25 years ago, even 10 years ago that we're seeing
that this service is absolutely crucial to the survival of
rural regions of this country and I think the Federal
Government has to make its mind up and is prepared to support
it. I mean, we're not giving an abundance of support here.
Mr. Steinberg. I think it's a question of how the support
is provided and going to the point you made earlier, which I
thought was very salient. With the smaller aircraft coming
online, this is something I said in my opening statement, I
think there is some promise, frankly, for better non-subsidized
service that meets your needs and the needs of folks that live
in rural America.
Senator Snowe. Well, thank you. Thank you, Mr. Chairman.
Thank you.
Senator Dorgan. Thank you. Senator Thune?
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman and I thank Chairman
Rockefeller and Senator Lott for holding this hearing. I happen
to agree that safe, reliable and affordable air service is
vital for doing business in states all across this country and
in rural states like South Dakota. Our state's aviation
industry shortens the long distances from point to point and
contributes about $52 million annually to our economy and an
integral part of aviation in my state of South Dakota is
Essential Air Service Program. We have four communities that
participate in the EAS Program, Pierre, Huron, Brookings and
Watertown and that EAS Program hasn't seen any major change
since its inception after airline deregulation and I know that
as I said, mine is not the only state that's affected by this
or would be impacted by any proposed changes.
I have a couple of questions that I would like to get at
that are specific to the situation in my state and then maybe a
couple of questions that are more general.
But as you may or may not know, I introduced legislation
earlier this year that was included in the FAA Reauthorization
that passed out of the Committee. It extends the provision,
Section 409 of the 2002 FAA Reauthorization, commonly referred
to as Vision 100. What is does, is the provision ensures that
certain mileage calculations that determine EAS program
eligibility are not simply measured by someone here in
Washington, D.C., but in fact, certified by state Governors.
There are, of course, budgetary strains, as we all know on
the Essential Air Service Program but I believe we should be
focusing on strengthening the program and examining the air
service it is supporting to make sure it's truly essential and
today's hearing, of course, is part of that effort. But we
shouldn't allow people behind a desk in Washington, D.C. to
surreptitiously use mileage determinations to cut the costs of
the program and reduce air service in the process.
The specific example I'm referring to in my state is
Brookings, South Dakota. It's a community that would more than
likely have lost its commercial air service if this provision
was not in place 5 years ago. So I hope that we can get that
provision extended again in this reauthorization process so
communities like Brookings don't lose their air service in this
manner.
I guess the question I have is if any of the witnesses have
any comments on the distances used in the Essential Air Service
Program. As you know, an EAS community must be more than 70
miles from a large or medium hub airport and if they are more
than 210 miles, then the subsidy can be over $200 per
passenger. Do those distances still make sense? Should there be
any changes? And again, I would come back, hearken back to the
way this was constructed 5 years ago and that is that the
Governors would be in a position to certify some of those
mileages because if it's left to the FAA here in Washington,
they will find, somehow using back roads and trails, a shorter
distance from Minneapolis to Brookings to fit under the 210
mile distance.
But that being the case, again, I just pose that question
of our witnesses--comments on the distances, do those distances
still make sense and could you give us your thoughts on that,
I'd appreciate it.
Ms. Malarkey. Senator, I'd like to address your first
comment about the state determined distances versus the FAA
determined distances and just thank you for bringing that to
our attention. You have our support on that. We believe that is
appropriate and we support you in your efforts to continue that
provision.
In terms of the mileage, the distances that determine the
eligibility, we don't have a position on that, other than to
say that we realize that the program has not been re-examined
since its inception and at some point, some redrawing of the
distance criteria may be appropriate. But in doing so, we want
to caution that first off, any point that is eliminated, any
revenues that are saved by that, be put back into the program
to ensure the revenue neutrality so we don't have politically
driven reasons of eliminating routes and then just to cut the
funding for the program.
Second, we would like to have some sort of a setup like a
BRAC or something like that, that would ensure the fairness of
those points.
But again, we would much rather have sort of an informed
process that looks at this rather than having DOT cut the
points by a crisis of funding.
Senator Thune. Anybody else? Here, come on up.
Mr. Steinberg. If I could comment on it. We are, of course,
aware of the situation with Brookings and I just want to point
out a few things. One is that, of course, the legislation that
you referred to covered, in effect, not just Brookings but some
other cities as well and those cities are sometimes held up to
me as examples of the EAS Program perhaps not being as well
focused as it should be.
So for example, Hagerstown, Maryland is covered as a result
of that legislation--you know, when my wife and I drive there
to the shopping outlet mall, so it's not all that far from--
it's a very different situation, if you will, from what you
have in your state. So I think our concern about that
legislation is frankly, more directed to other places.
Generally speaking, we don't actually do this
surreptitiously that the map is simply a calculation of driving
distance, shortest driving distance and you can go to Mapquest
or Google Maps or whatever and it is what it is. It's very
factual. If you go to a system in which you look at the most
commonly traveled route, that to me, becomes much more
subjective and at the end of the day, I think from a consumer
perspective, most people are concerned about their time as
opposed to the number of miles that they travel. So as we've
added new highways and so on and they may be a bit longer but
they may have shorter driving time.
Fundamentally, it's up to Congress to decide ultimately
what the right cutoff should be. By definition, all of these
cutoffs are arbitrary. So if it's 200 miles, you're going to
affect some cities. If it's 210, you're going to affect others.
That really is a--it's a decision that needs to be made by the
Congress. We've put out a proposal that would stick with the
210 but again, we're not trying to do this in a surreptitious
fashion. We've not singled out any specific cities. But
whatever changes we make, I think, need to go to the
fundamental issue of what--how many cities do we want to cover
overall.
Senator Thune. Anybody else have any comments on that? No?
That covers the subject?
Well, I think the concern, of course, that we have is that
the Governor in 2002--the Governors were given discretion to
determine whether or not--whether these distances fell within
the allotted--and I'm not sure how you came up with 210 miles,
what the magic is behind that but in the Act that we passed in
2002 and I was a member of the House at the time, the Governors
had the authority to make judgments about certifying those
distances and I think the concern is that under a scenario
where that's not the case that someone here might decide to
construct a different route between two communities that would
come up with a different mileage. I think that's what the
concern obviously is and so, my hope would be that we at least,
in terms of who makes that determination, would allow the
Governors to continue to be controlling in determining
distances and whether or not a particular community is going to
fall within or outside of the 210 mile limit.
Let me ask just more generally with regard to the EAS
Program. There are a number of communities in that program are
now about 150 and I guess--is that number continuing to grow?
And as we see more communities coming in to the Essential Air
Service Program, are we seeing an increase in the number of air
carriers serving EAS communities? Why or why not and what
changes could we make to the EAS Program that would increase
the attractiveness this program would have toward smaller air
carriers? And I guess Mr. Steinberg, Ms. Malarkey, whoever
would care to comment on that.
Ms. Malarkey. I think it's a certainty that in the coming
years that additional communities will be added to the EAS
roles. Mr. Courtney discussed the situation--at his community--
we don't see his community going into the EAS Program in the
next few years, not to worry. However, his comments did
illuminate the situation and as I said in my opening statement,
not just the EAS communities but the smallest communities are
losing their air service and any community, really, can become
an EAS, as you all know, simply by getting down to one carrier
that wants to exit the market. So yes, to answer your first
question, that is something that we see.
One of the significant market--the barriers to market entry
that I talked about in my statement is the inability to finance
the aircraft. We get a lot of questions from Senators and from
communities that say, why aren't there any new EAS carriers,
new entrant EAS carriers and one of the reasons is, a 2-year
contract is a relatively short contract and when the carriers
are trying to secure financing for aircraft, that is a
significant detriment. So that's why we were pleased with the
initial enthusiasm that this Committee has shown. I think
there's a statement in the FAA reauthorization that would
extend those contracts and we think that's quite important.
Mr. Steinberg. Can I add to that? Senator, it's a good
question and it's something that troubles us a lot, the growth
of the program because clearly, the program was intended to be
a stopgap or safety net after deregulation. It wasn't intended
originally to be a permanent fixture and the hope was that the
marketplace would work better than it has worked for smaller
communities.
If you exclude Alaska and Hawaii, in the last 10 years or
so, the program has grown 50 percent in terms of the number of
cities covered, from about 60 to about 100 and the cost of that
has quadrupled from about $23 million to about $90 to $100
million.
And why has that happened? Again, I think it's the same
phenomenon I spoke of earlier, which is the service to small
communities' works when you have large network airlines that
can profitably serve those spokes, that ultimately what you
want is not a subsidized service. You want good, commercial
service at reasonable rates.
As our network carriers have hemorrhaged money, they've--
it's not that they don't want to serve smaller communities.
They just--they do this on a network basis so they look at
which city contributes the most to the network, which
contributes the least and the fact is, they can make more money
or lose less money serving larger markets.
Probably the single most important thing you could do if
you wanted to increase service to smaller communities is to
have a healthy network airline industry. Today, we don't have
any airline that serves every point in this country, so we
don't have comprehensive network airlines. We have six or so
smaller network airlines. So that, to me, is the nub of the
problem. We'll never get out of this problem that we're in
until we address that.
The program has not grown dramatically in the last year. I
think it's stabilized and we've had several communities
actually come out of EAS, particularly in Hawaii. So right now,
it's still about 145 cities. But again, we're now in a
situation where the airlines are breaking even. Some of them
are making some money. The next downturn, I think you'll see a
return to the same situation. That's the problem that needs to
be addressed.
In terms of the length of the contract terms, we've
actually had carriers tell us that they want the shorter terms
so some of this is driven by what the participants want. The
downside, if you change the contract terms and say, the
Secretary shall have 4 year contract terms, yes, you might get
more bidders on the front end but then if service declines or
your communities are not happy with the service, it makes it
harder for us to get some more competition in there. So there
is a tradeoff if you go to longer-term contracts.
Senator Thune. Thank you.
Ms. Miller. Senator? I'd like to say, I believe that if
there was dedicated funding for this program, guaranteed, it
would help the market also. It would give other carriers the
confidence that should they bid in this market, the EAS market,
that the funding would be there for a long-term program,
whether it's this community or another community, if this
community is able to succeed without EAS service.
I just want to give you an example. When I was President of
the National Association of Counties, I traveled all the time
out of Columbia, Boone County. I got home. I was 10 minutes
from home and now I'm 2 hours from the St. Louis Airport. But--
and it was $60 round trip, connecting to American Airlines.
Today, it's $69 one way and they were trying to go to St. Louis
and it was a different concourse so you had to re-screen to go
back in through to connect to American so consequently, that
hurt our enplanements and we have found that we were having an
hour to 3-hour delay on flights and we're not a destination
airport and they were going to a hub and when you're trying to
connect and you're an hour to 3 hours late, you're going to
lose people that even try to use the service.
That's why in my testimony, I thought, it's very important
that we put some incentives in the program for increasing the
service to those communities so that people can be confident
when they book in an EAS community like my own right now, that
that airline is going to meet the demand, they're going to be
there on time, they're going to get them to their connection.
And there should be penalties. They should not be paid when
they are 3 hours late and they miss all the other flights and
you might even have to spend the night in a lot of places, to
catch the next flight because there might be only one more out
of that hub.
So I think it's really important that we improve the
service but I also think that a dedicated funding source will
enhance the opportunity for maybe more airlines to get involved
in this.
Senator Thune. Just one last question, quickly, if I could
and this would be, I guess, to Mr. Steinberg. What is the on
time, the delay, the cancellation rate for Essential Air
Service providers, carriers relative to the industry as a
whole?
Mr. Steinberg. I don't have that at the tip of my tongue. I
can tell you, because we did look into this in advance of the
hearing that there are relatively more complaints from
passengers on EAS carriers than non-EAS carriers, recognizing
however, that you're dealing with a very small overall number.
So roughly--last year, I think there were roughly 60 complaints
about EAS service, about 8,500 on commercial services. If you
did the math, it's a much higher ratio of complaints. My guess
is that given our experience generally with complaints, most of
them have to do with delays and cancellations. But we can--to
the extent we have that data, we can get you what we have. Some
of the carriers are too small to fall under our reporting
requirements but we do have about five carriers or so that are
covered. But we can take an IOU and get back to you on that.
Senator Thune. I'd be interested in knowing. Thank you.
Thank you, Mr. Chairman.
STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor [presiding]. Thank you. Any other Senators
have any questions? Any follow-ups?
We have some Senators who could not attend today because of
the busy Senate schedule and other committee meetings and other
conflicts, so we'll give Senators 15 days to submit questions
in writing. I may submit a few myself. I was late getting here
but thank you all. I want to thank the witnesses. Your opening
statements will be included as part of the record and I assume
if you have any other documentation you want to include,
without objection, we'll include that as part of the record as
well. But I want to thank you all. Obviously, Essential Air
Service is something that is very important to a lot of
Senators. It's important in my state and you heard just a
little taste of it today. From what we hear from our
constituents and from our colleagues about the value of
Essential Air Service, so I just want to thank you all for
being here and appreciate your patience and your time. Thank
you. The meeting is adjourned.
[Whereupon, at 11:34 a.m., the hearing was adjourned]
A P P E N D I X
Prepared Statement of Hon. John D. Rockefeller IV,
U.S. Senator from West Virginia
As we all know, small and rural communities are the first to bear
the brunt of bad economic times in the aviation industry and the last
to see the benefits of good times. Unfortunately, we all know, the good
times in the commercial airline industry have been infrequent and
short.
The Government Accountability Office has confirmed that despite the
return to pre-September 11th levels of passenger traffic at medium and
large communities small and rural communities have not seen a
corresponding increase in air service levels.
The restructuring of the airline industry over the last 5 years has
forever changed the way we must think about small community air
service.
How to address small community air service needs has been a
pressing question since airline deregulation almost thirty years ago.
West Virginia, like most of the states represented on this Committee,
has far less air service today than it did prior to deregulation.
At present, we rely on two key programs, the Essential Air Service
(EAS) program, which provided subsidized air service to communities
under certain conditions and the Small Community Air Service
Development Program, which I helped create in 2000. This program
provides grants to communities to develop innovative strategies to
improve their air service.
The EAS program has always been a critical air service link for
small communities since its inception, but it has never really met the
true needs and expectations of rural air service. Communities that are
dependent upon EAS have been plagued by high fares and limited service
options, and in Congress it has been threatened by some Members who
look at it is a Federal giveaway.
The Small Community Air Service Development Program has been
successful in helping communities across the country build and expand
their air service options. For example, in my state, Greenbrier Valley
Airport and Raleigh County Airport were able to boost their passenger
levels by 27 percent after using their Small Community Air Service
Development grant to initiate innovative marketing strategies to
attract passengers.
In the 2003 FAA Reauthorization and again in S. 1300, the Aviation
Investment and Modernization Act of 2007, Senator Lott and I have
worked to strengthen our small community air service programs. I am
pleased that in S. 1300 we were able to find a way to increase funding
levels for these programs and actually guarantee some of the funding
increase for the EAS program.
I know that the DOT believes that new models of providing air
services such as on-demand or air taxi services may change the way
small and rural communities receive air service. I know that some of my
own airports believe this as well.
I certainly want to foster as many options as I can for small
community air service and hope that they will transform the way my
communities access the national aviation system, but we must be
realistic.
Right now, these services do not exist for small and rural
communities. They are not a substitute for scheduled passenger services
and will not be for some time to come. We need a strong financial
commitment in the immediate future for our current programs.
Finally, we must not forget that without a Next Generation Air
Traffic Control System that allows for increased capacity at our
Nation's busiest airports, we can never increase access to the Nation's
aviation system for small communities.
I have heard unsubstantiated complaints that the $25 fee that was
included in the FAA Reauthorization bill could hurt small community air
service, but nothing is farther from the truth. Without it, our
communities will not have access to the Nation's aviation system. I am
committed to working with Senator Lott and our colleagues on the
Finance Committee to develop a fair and equitable financing system that
will make air travel less expensive for rural consumers.
______
Prepared Statement of Regional Aviation Partners
Small Community Air Service in Crisis
Air Carriers Opting to Abandon Essential Air Service Markets Due to
Unstable and Increasing Jet Fuel Costs and the U.S.
Department's Failure to Implement Key Provisions of Vision 100
to Compensate Carriers for Cost Increases
In 1987, 51 air carriers provided subsidized air service under the
Federal Essential Air Service (EAS) program, by 1995 the number of
participating carriers had dipped dramatically to 17, and by 1999 the
number had been further reduced to 11. While the number of carriers
serving subsidized markets rose to 16 by 2004, the increase was short
lived as participating carriers have steadily been exiting the program
since then, leaving the EAS program with only 8 remaining carriers
today responsible for serving 102 communities in the continental United
States.
The primary reason carriers are choosing to leave the EAS program
or significantly reduce their exposure to the program, and moreover,
the programs inability to draw in new carriers, is rooted in the
inherent risks of serving small markets and the government's failure
thus far to adequately mitigate those risks. Specifically, today's
risks involve jet fuel costs which have risen exponentially and
increased so dramatically that the projected costs used by carriers to
bid on EAS communities are commonly exceeded by the time the carrier
initiates service or shortly thereafter.
Section 402 (Adjustments to Account for Significantly Increased Costs)
of Vision 100
In Vision 100,\1\ Congress established Section 402 (Adjustments to
Account for Significantly Increased Costs) as a means of compensating
EAS carriers during the contract period for unforeseen and significant
increases in operating costs primarily based on fuel costs alone.
However, the DOT has repeatedly stated ``it lacks specific funding and
guidance from Congress'' to implement the provision. And for the few
carriers who did apply for the relief, the eligibility criteria
provided under the provision proved to be illusory, ambiguous and
unattainable.
---------------------------------------------------------------------------
\1\ Vision 100, The Century of Aviation Reauthorization Act (Pub.
L. 108-176)
---------------------------------------------------------------------------
One of Section 402's primary faults lies in the provision's
requirement that carriers demonstrate a [10 percent total unit cost]
increase over a period of at least two consecutive months. This total
unit cost increase is measured against those costs included in the
carrier's bid proposal. While individual unit costs have increased
significantly, jet fuel for example has risen more than 129 percent,
from $0.96 per gallon on January 5, 2004 to $2.20 per gallon on July
31, 2007; \2\ this increase has not translated into an increase in
total unit costs of 10 percent. Thus, while carriers continue to
experience significant losses from individual unit cost increases,
primarily jet fuel costs, the 10 percent total unit cost trigger is not
met based on the DOT model.
---------------------------------------------------------------------------
\2\ Vision 100 was enacted on December 12, 2003. January 2004
represents the first full month after which Vision 100 became law.
January 5, 2004 was the first day in which the U.S. Department of
Energy recorded a spot price for U.S. Gulf Coast kerosene type jet fuel
in 2004.
---------------------------------------------------------------------------
This Situation Is Wholly Unacceptable to Air Service Providers--the
trigger mechanism is virtually unattainable and results in massive
paperwork challenges for the carrier which serves to deter anyone from
applying. It is clear this was not the intent of Congress in passing
the Section 402 language.
As a direct result of the Department's steadfast reluctance to
implement Section 402, 8 carriers such as Scenic Airlines have been
driven from the program. Scenic states in its 90 day termination
notices of May 16, 2006 for Merced and Visalia, CA, and Ely, NV: \3\
---------------------------------------------------------------------------
\3\ DOT Docket numbers: OST-1998-3521, OST-2004-19916, and OST-
1995-361.
``Scenic's need to terminate service at Merced [Visalia; Ely]
stems primarily from fuel cost escalations that have undermined
---------------------------------------------------------------------------
the economic viability of the carrier's EAS operations.''
Allowing DOT to continue its ``discretionary'' authority to
implement vital changes in legislation has a ``0 percent'' success rate
and never results in relief for the impacted community or air carrier.
Ninety-Day Termination Notices as a Means of Seeking Compensation for
Increased Costs Are Disruptive to Air Carriers and Small
Communities
Notwithstanding the passing of Section 402 (Adjustments to Account
for Significantly Increased Costs) legislation in Vision 100, the DOT
has stated publicly they do not have the funds to implement the
provision. Therefore, the only current recourse EAS carriers have in
regards to halting losses from significant increases in jet fuel costs
during the contract period is to file a 90-day notice to terminate air
service at an EAS point. This process is disruptive and burdensome for
several reasons:
1. The process exposes the incumbent carrier to the potential
loss of market(s) as the DOT re-opens the bid process to all
carriers. As many EAS carriers depend solely on revenues
derived from their EAS markets to stay in business, these
carriers are reluctant to file to terminate service even if it
means operating at a loss in these markets to the point of
insolvency or even bankruptcy.
2. The process is lengthy. Once an air carrier files to
terminate service, the DOT initiates a hold in period during
which they do not immediately increase the subsidy amount to
reflect increased costs.
3. Community support for the air service can be diminished.
Residents may see a carrier's 90 day termination filing as a
sign of unreliable air service which could lead them to drive
to other nearby airports. Furthermore, fewer passengers flying
out of the EAS airport leads to higher annual subsidy amounts
and higher per passenger subsidy rates, potentially resulting
in the termination of air service by the DOT.
Prior and Current DOT Policies With Regards to Fuel Cost Increases and
Adjustments
During the 1980s and into the early 1990s, the Department
implemented a policy which recognized the detrimental effects increased
jet fuel cost had on carriers and compensated EAS carriers for these
costs. For example, Civil Aeronautics Board (CAB) Order 82-5130,
Selecting Essential Air Service Carriers for Modesto and Stockton, CA
included the following statement regarding fuel cost adjustments: \4\
---------------------------------------------------------------------------
\4\ The CAB also included in Order 82-5-130 a schedule to be
completed by the EAS carrier providing detailed information on: billed
available miles, gallons of fuel used per month, actual cost per
gallon, rate cost per gallon, monthly fuel costs, and cumulative fuel
costs in order for the carrier to receive compensation for increases in
jet fuel prices.
``The attached schedule should be submitted by Air Chaparral
along with each subsidy billing. The carrier should also submit
a schedule indicating total cost and total gallons used in
Stockton and Modesto service for the same billing periods so
that the actual cost per gallon can be verified. Once the
actual cumulative fuel cost exceeds the cumulative fuel cost
paid for by the mileage rate, the Board's Air Carrier Subsidy
Need Division will arrange reimbursement for 85 percent of the
difference. In the event that the actual cost does not exceed
that provided for in the rate, an appropriate adjustment
reflecting 85 percent of the difference will be made to Air
Chaparral's rate in the last payment of the first and/or second
---------------------------------------------------------------------------
year.''
Following the tragic events of 9/11, the DOT once again reimbursed
EAS carriers for significant cost increases. When expressing their
concern regarding increased costs on EAS carriers, the impact on
participating EAS carriers, and what would occur should EAS carriers
continue to leave the program the Department stated:
``. . . those carriers that participate in the EAS program do
not have the flexibility as non-EAS airlines to adjust their
systems to reflect the shifts in costs, revenue, and traffic.
Because they remain under contract with the Department to
provide a prescribed level of service at EAS communities, they
have very little ability to eliminate service on unprofitable
routes, reduce frequencies, downsize aircraft, or contract out
flight operations in order to reduce loses. . . .
In absence of some immediate reflection of the financial
consequences stemming from the events of September 11th into
these carrier's contracts, we estimate that some could be
forced to cease operations, thereby vitiating the program
itself. If this were to occur, scores of small, isolated
communities could lose all their air service. Moreover, the
loss of service could be permanent for almost all of these
communities, as the pool of potential replacement carriers has
drastically declined owing to their transition to larger
equipment and to service only in large markets.'' \5\
---------------------------------------------------------------------------
\5\ DOT Order 2002-2-13.
By the DOT's own admission, they have demonstrated a complete
understanding of the problem but are now electing to ignore their own
observations, when they have both the legislative and financial tools
to address funding fuel cost adjustment provisions in Vision 100.
Lastly, today, on behalf of the United States Postal Service
(USPS), the DOT has established a mechanism by which subsidized
carriers delivering passengers and mail under the Alaska Mainline and
Bush Mail Program receive quarterly fuel cost adjustments. It is no
less equitable for carriers who provide vital air transportation to
small communities in the lower 48 states to be compensated for
adjustments in fuel costs for which they have no control than it is
fair, equitable and just for air service providers in Alaska.
Where Do We Go From Here?
The future of commercial air service to small, rural communities
unfortunately does not look promising, that is unless Congress acts
immediately to properly address the matter of mitigating risks to air
carriers via fuel cost adjustments. Should Congress choose not to act
and the status quo be allowed to continue, it is our firm belief that
within a short period of time there will be less than a handful of
carriers left in the program. Under such a scenario, Congress can
certainly expect subsidy rates to increase due to little or no
competition for individual markets while communities may become
increasingly dissatisfied with the level and quality of air service but
will have no recourse as there are no other air carriers to turn to.
The EAS program was established to protect small, rural communities
after deregulation. Congress recognized that the benefits of commercial
air service must not be limited only to those in large, urban areas of
the country. However, the program will be hard pressed to continue
without the active participation of financially stable carriers willing
to serve small communities.
To avoid what will otherwise prove to be a disastrous situation for
small communities, Congress must include language in the Fiscal Year
2008 FAA Reauthorization bill which changes the formula by which
carriers can apply for and receive relief under Section 402 to focus on
increases in jet fuel costs, not total unit cost increases and Congress
must also require the DOT to implement this vital provision of the law.
______
Response to Written Questions Submitted by Hon. John D. Rockefeller IV
to Hon. Andrew B. Steinberg
Question 1. Your testimony appears to be predicated on reducing the
Federal Government's financial obligation to small community air
service programs. I know that inadequate and unreliable service and the
use of small turboprop aircraft are two reasons why a lot of people do
not what to fly from EAS communities. Three West Virginia communities
(Parkersburg, Clarksburg, and Morgantown) have faced a serious decline
in traffic due to terrible service from the EAS carrier. DOT has since
rectified that situation, but it will take years for these communities
to recover. Has the DOT ever examined the impact of providing
substantially more in resources to the program so that air service
would be provided on larger aircraft with more frequent service?
Answer. We do not think this would be a wise course of action. As
you know, the typical EAS flight is operated with 19-seat aircraft.
There have been a few situations where the Department has authorized
additional subsidy for communities to receive service with larger
aircraft, including at the three communities that you mention. In that
case, we authorized a half million dollars more for 30-seat aircraft,
which the communities favored instead of the 19-seat option. There are
a few communities where larger (30-seat) aircraft could operate
successfully.
For the most part, even 19-seaters are probably too big. The
average subsidized EAS community generates 6-7 passengers a flight,
resulting in the planes being only about 35 percent full, and many
communities generate far fewer passengers than that. About 30
communities average fewer than 10 enplanements a day. In those cases,
larger aircraft or additional frequencies are clearly not warranted.
Indeed, if larger aircraft became the norm, the subsidy per passenger
might end up exceeding the $200 statutory cap, as airline operating
expenses would go up.
Question 2. You state in your testimony that the EAS demonstration
programs that Senator Lott and I included in the 2003 FAA bill have
been largely unused. You do not have a clear reason why. Could you
please explain how the DOT implemented these programs? Did you one
issue a Federal Register notice? Or did you work with various aviation
associations and local government groups to find communities that may
have benefited from them?
Answer. One of the pilot programs to which you refer is the
Community Flexibility Pilot Program, which allows up to ten communities
to receive a grant equal to 2 years' worth of subsidy in exchange for
their forgoing their EAS for 10 years. The other is the Alternate
Essential Air Service Program under which, instead of paying an air
carrier to serve a community as we typically do under EAS, communities
could apply to receive the funds directly to implement a plan that they
have developed.
In the summer of 2004, the Department issued separate orders
establishing both programs, and published them in the Federal Register
as well. In addition, the programs were covered in the usual trade
journals. While we received a few phone calls asking for information,
no communities have applied. In the case of the Flexibility pilot
program, a community would have to forego 10 years of guaranteed air
service for funds that would equal just 2 years of the cost of EAS.
Most communities evidently would rather retain scheduled air service
for 10 years rather than money to improve their airport's ability to
handle general aviation flights. With respect to the Alternate program,
we believe that some communities are resistant to risk and change.
Question 3. I have heard from my airports and constituents that one
of the reasons passengers do not use airports with EAS service is
because that service is often very unreliable. As you know, these
communities only have three flights a day, and even if one flight is
canceled, it causes significant disruptions for passengers. Unreliable
service also makes it difficult for communities to develop a passenger
loyalty for using a facility. Does the DOT monitor the reliability and
on-time performance of air carriers who provide essential air service?
Does DOT require a certain level of performance from these carriers?
Does DOT sanction carriers who are not providing the level of service
as required by the government contract?
Answer. Reliable service is obviously important for any service to
be successful. When the EAS program was set up at the Civil Aeronautics
Board in 1978, care was taken to put incentives in place to encourage
reliable services. Among those that remain in effect today is the ``no
fly-no pay'' policy. That is, carriers must operate the flight in
conformance with the contract in order to receive the compensation.
(There is a small exception for safety reasons in the case of weather
conditions that are marginal and the pilot in command elects to overfly
the community even though conditions may be legal.)
We have debated penalizing carriers for late flights, but that is a
``double-edged sword.'' On the one hand, it would seem to create an
incentive for carriers to operate their flights on time. On the other
hand, if the EAS carrier lost part of its subsidy it might cancel the
flight altogether--raising the question as to whether a late flight is
better than no flight. In addition, many delays are not the fault of
the EAS carriers. (For example, EAS flights are more likely to be
ground held at the EAS community if the connecting hub is backed up due
to ATC delays because they tend to be short-haul flights, which are the
first to be grounded.) In those situations, it would seem unfair to
penalize the EAS carrier.
From a broader perspective, we have all too few carriers willing to
participate in the EAS program, and further penalties could only
exacerbate that situation.
Question 4. What effects would result from changes in the EAS per
passenger subsidy cap, either increasing or restricting it in some
cases? How would these changes affect the EAS program as a whole?
Answer. Increasing the subsidy-per-passenger cap or having it apply
to fewer communities would result in having more communities in the
program for a longer time and raising the costs of the program, which
is why the Department has opposed such proposed changes. Given airfare
levels, and just generally, $200 per passenger per one-way flight is
still a significant sum for a Federal operating subsidy (the round trip
subsidy for a passenger can be nearly $400). Reducing the level of the
cap or having it apply to more communities would help keep the costs of
the program in check.
______
Response to Written Question Submitted by Hon. John D. Rockefeller IV
to
Hon. Karen Miller
Question. In testimony at an earlier hearing on this issue, the
Government Accountability Office suggested DOT provide Essential Air
Service funding directly to communities so that they would have the
flexibility to secure the air service options that best fit their
needs. What do you think of this idea? Do you believe that most small
communities would be able to negotiate with carriers to develop more
flexible air service plans?
Answer. I think that could be an option for those EAS communities
that believe they have the expertise and legal capacity to negotiate an
agreement with an air carrier. One area that communities may be more
successful in negotiating is that relating to performance or
reliability provisions. Finally, we think it would be important that
even if a community opted to negotiate with an air carrier, the
community would have the additional option in the case of an impasse of
agreeing to let USDOT complete the negotiations.
______
Response to Written Question Submitted by Hon. John D. Rockefeller IV
to
Mark F. Courtney, A.A.E.
Question. In testimony at an earlier hearing on this issue, the
Government Accountability Office suggested DOT provide Essential Air
Service funding directly to communities so that they would have the
flexibility to secure the air service options that best fit their
needs. What do you think of this idea? Do you believe that most small
communities would be able to negotiate with carriers to develop more
flexible air service plans?
Answer. As a non-hub airport serving approximately 120,000
passengers per year, Lynchburg Regional Airport does not qualify for
DOT funding under the Essential Air Service Program, and as such does
not have a position on this specific issue.
______
Response to Written Question Submitted by Hon. John D. Rockefeller IV
to
Faye Malarkey
Question. Do you think these technological advances will lower air
service costs to the extent that it will actually be economically
feasible, if not profitable, for regional airlines to provide service
to small communities without EAS subsidies? Do you think that requiring
large airlines to code-share on EAS flights would help improve air
service to small communities?
Answer. (Witness Failed to Respond).