Commercial Aviation: Programs and Options for the Federal	 
Approach to Providing and Improving Air Service to Small	 
Communities (14-SEP-06, GAO-06-398T).				 
                                                                 
Over the last decade, significant changes have occurred in the	 
airline industry. Network carriers are facing challenging	 
financial conditions and low-cost carriers are attracting	 
passengers away from some small community airports. These	 
changes, and others, have challenged the ability of small	 
communities to attract adequate commercial air service. In	 
response to these challenges, Congress has established two key	 
funding programs--the Essential Air Service (EAS) and the Small  
Community Air Service Development Program (SCASDP)--to help small
communities retain or attract air service. However, the 	 
sustainability of such funding could be affected by the federal  
government's fiscal imbalance. In addition, GAO reports have	 
raised questions about how these programs support commercial air 
service to small communities. Given this environment, this	 
testimony discusses (1) the development and impact of EAS, (2)	 
the status of SCASDP and (3) options for reforming EAS and	 
evaluating SCASDP. The testimony is based on previous GAO	 
research and interviews related to these programs, along with	 
program updates.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-398T					        
    ACCNO:   A60924						        
  TITLE:     Commercial Aviation: Programs and Options for the Federal
Approach to Providing and Improving Air Service to Small	 
Communities							 
     DATE:   09/14/2006 
  SUBJECT:   Airlines						 
	     Commercial aviation				 
	     Cost analysis					 
	     Federal aid for transportation			 
	     Financial analysis 				 
	     Grants to local governments			 
	     Program evaluation 				 
	     Strategic planning 				 
	     Subsidies						 
	     Transportation costs				 
	     Essential Air Service Program			 
	     Small Community Air Service Development		 
	     Program						 
                                                                 

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GAO-06-398T

     

     * Background
     * Number of Airports and Amount of EAS Subsidies Has Been Grow
     * The Small Community Grant Program Has Had Mixed Results
     * Options Exist for Reforming EAS and Evaluating SCASDP
          * Examine Options for Enhancing EAS
               * Targeting Subsidized Service to More Remote Communities
               * Better Matching Capacity with Community Use
               * Consolidating Subsidized Service Provided to Multiple Commun
               * Changing Carrier Subsidies to Local Grants
          * Vision-100 Small Community Programs Have Not Progressed
          * Evaluate the Effectiveness of SCASDP before Reauthorization
     * Contact Information
     * Appendix I: Additional Department of Transportation Selectio
     * Appendix II: Essential Air Service Airports and Small Commun
     * Appendix III: Status of SCASDP Grants Awarded, 2002 - 2006
     * Appendix IV: Essential Air Service Communities and Subsidies
     * Related GAO Products
          * Order by Mail or Phone

Testimony

Before the Subcommittee on Aviation, Committee on Commerce, Science and
Transportation, U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EDT

Thursday, September 14, 2006

COMMERCIAL AVIATION

Programs and Options for the Federal Approach to Providing and Improving
Air Service to Small Communities

Statement of Gerald L. Dillingham, Director Physical Infrastructure Issues

GAO-06-398T

Mr. Chairman and Members of the Subcommittee:

We appreciate the opportunity to testify today on issues related to the
federal approach to providing air service to small and underserved
communities. Over the last decade, significant changes have occurred in
the airline industry that have affected service to small communities.
Service to small communities decreased as a result of the weak financial
condition of the airline industry that was exacerbated by the events of
September 11, 2001. Some network carriers are still facing challenging
financial conditions which can negatively affect small community air
service.1 For example, small communities may become cost-cutting targets
because they are often the carrier's least profitable operation. This, as
well as other changes, have challenged small communities to obtain
adequate commercial air service at reasonable prices.2

Two key federal programs help support air service to small communities-the
Essential Air Service (EAS) program and the Small Community Air Service
Development Program (SCASDP).3 EAS, established after airline deregulation
in 1978, is designed to ensure that small communities that received
scheduled passenger air service before deregulation continue to have
access to the nation's air transportation system. In fiscal year 2006,
Congress appropriated about $109 million to the Department of
Transportation (DOT) for EAS. For fiscal year 2007, the administration
requested that $50 million be allocated for the program and paid for by
overflight fees,4 while both the House and Senate Appropriations
Committees are proposing $117 million for the program. Congress
established SCASDP in 2000 and has appropriated $20 million annually from
2002 through 2005 for DOT to award up to 40 grants each year to
communities that have demonstrated air-service deficiencies or
higher-than-average fares. However, in fiscal year 2005, DOT transferred
$5 million of these funds from SCASDP to EAS.5 For fiscal year 2006,
Congress authorized $10 million. For fiscal year 2007, the administration
proposed no funding for SCASDP while the House and Senate Appropriations
Committees are proposing $20 million and $10 million, respectively. In
addition, we have reported that it was too early to assess the
effectiveness of SCASDP and have raised questions about the current
structure of EAS.

1The U.S. network carriers are Alaska Airlines, American Airlines,
Continental Airlines, Delta Air Lines, Northwest Airlines, United
Airlines, and US Airways.

2The nation's commercial airports are categorized into four main groups
based on annual passenger enplanements-large hubs, medium hubs, small
hubs, and nonhubs. The 30 large hubs and 37 medium-hub airports together
enplaned about 89 percent of the almost 703 million U.S. passengers in
2004. In contrast, the 69 small hubs enplaned about 8 percent, and the 374
nonhub airports enplaned about 3 percent of U.S. passengers.

3Small community airports also receive other financial support from the
federal government. For example, under the Airport Improvement Program
small airports receive certain funds for addressing capital improvement
needs-such as for runway or taxiway improvements.

4 Overflight fees are user fees for air traffic control services provided
by the Federal Aviation Administration (FAA) to aircraft that fly over,
but do not land in the United States, as authorized by the Federal
Aviation Reauthorization Act of 1996 (P.L. 104-264).

While the airline industry has been facing fiscal challenges, the federal
government's financial condition and long-term fiscal outlook also
deteriorated. We have reported on the nation's long-term fiscal imbalances
and the need for a fundamental and periodic reexamination of the base of
government, ultimately covering discretionary and mandatory programs as
well as the revenue side of the budget.6 In light of these challenges, we
have identified some options for reforming EAS and recommended that DOT
evaluate SCASDP.

My testimony today will discuss (1) the development and impact of EAS, (2)
the status of SCASDP, and (3) options for reforming EAS and evaluating
SCASDP. My statement is based primarily on the body of research that we
have conducted related to these programs, program updates, and recent
interviews with (and data from) key stakeholders. We obtained information
on the status of projects from the Office of the Secretary (OST). Based on
assessments conducted during previous reviews, we concluded that the data
are reliable for the purposes of this report. Appendix V contains a list
of our related testimonies and reports. We conducted our work on EAS from
March through December 2002 and our work on SCASDP from September 2004
through October 2005 in accordance with generally accepted government
auditing standards.

5The Emergency Supplemental Appropriations Act for Defense, the Global War
on Terror, and Tsunami Relief, 2005, Pub. L. No. 109-13, recognized that
the funds appropriated for EAS may not be sufficient to meet the service
needs of communities encompassed by that program. The Emergency
Supplemental Appropriations Act provided that the Secretary of
Transportation could transfer "such sums as may be necessary to carry out
the essential air service program from any available amounts appropriated
to or directly administered by the Office of the Secretary."

6GAO, 21st Century Challenges: Reexamining the Base of Federal Government.
GAO-05-325SP . (Washington, DC: 2005). February 2005.

In summary:

           o  In recent years, a growing number of communities have received
           subsidies under EAS-expanding from 95 communities in fiscal year
           1997 to 152 in fiscal year 2006. Similarly, funding for EAS has
           risen more than four-fold over this 10-year period-from $25.9
           million in fiscal year 1997 to $109.4 million in fiscal year 2006.
           In addition, EAS funds were used to subsidize about 1 million
           passenger enplanements in 2004-about 0.15 percent of the nation's
           706 million annual passenger enplanements.7 It is possible that
           air service might end at many of these communities, if these
           subsidies were removed.
           o  Our recent review of SCASDP found that the number of grant
           applications was declining, grantees were pursuing a variety of
           goals and strategies for supporting air service, and completed
           grants had mixed results. Specifically, we found that the number
           of applications for SCASDP has declined-from 179 in 2002 to 75 in
           2006. We also found that the goals grantees are pursuing include
           trying to add flights and destinations, or trying to obtain lower
           fares. The different strategies grantees are employing to improve
           air service in their communities include offering subsidies or
           revenue guarantees to airlines, marketing, hiring personnel, and
           conducting studies. Finally, although we could not assess the
           effectiveness of the program, since few projects-23 of 157-had
           been completed at the time of our review, we found the results of
           the completed projects were mixed. Of the 23 projects, 11 had
           implemented a self-sustaining improvement to air service, while
           the remaining 12 had not.
           o  To ensure the effective use of scarce resources, these programs
           need to be examined and options for program improvement need to be
           addressed. We have previously reported on some options for
           changing EAS to potentially make it more cost-effective. These
           options include (1) targeting subsidized service to more remote
           communities, (2) better matching capacity with community use, (3)
           consolidating service to multiple communities into regional
           airports, and (4) changing the form of the federal assistance from
           carrier subsidies to local grants. These changes require
           legislative action. Although these options might make EAS more
           cost-effective, they could also reduce service to some areas. In
           2003, the Vision 100-Century of Aviation Reauthorization Act,
           (Vision-100) provided for several alternative programs for EAS
           communities. However, these programs have not progressed due, in
           part, to a lack of response from EAS communities. Regarding
           SCASDP, as we recommended, DOT plans to conduct a comprehensive
           evaluation of completed projects after fiscal year 2006. The
           results of such an evaluation will be useful when Congress
           considers the reauthorization of this program in 2008 and could
           result in identifying "lessons learned" from successful projects.
           These lessons could be shared with other small communities that
           are trying to improve air service, and, if needed, to reform and
           refocus the program.

           Background
			  
			  Before I discuss these issues in detail, let me sketch the
           background of air service to small communities and these programs.
           Air service to many small communities has declined in recent
           years, particularly after the September 11, 2001 attacks. As of
           2005, scheduled departures at small-, medium-, and large-hub
           airports had largely returned to 2000 levels. However, departures
           from nonhub airports continued to decline-the number of departures
           declined 17 percent at nonhub airports between July 2000 and July
           2005. Small-hub airports actually had more scheduled departures in
           July 2005 than in July 2000, a fact that clearly distinguishes
           them from nonhub airports.

           Several factors may help explain why some small communities,
           especially nonhubs, face relatively limited air service. First,
           small communities can become cost-cutting targets of air carriers
           because they are often a carrier's least profitable operation.
           Consequently, many network carriers have cut service to small
           communities and regional carriers now operate at many small
           communities where the network carriers have withdrawn.8 Second,
           the "Commuter Rule" that FAA enacted in 1995 brought small
           commuter aircraft under the same safety standards as larger
           aircraft-a change that made it more difficult to economically
           operate smaller aircraft, such as 19-seat turboprops.9 For
           example, the Commuter Rule required commuter air carriers who flew
           aircraft equipped with 10 or more seats to improve ground deicing
           programs and carry additional passenger safety equipment.
           Additionally, the 2001 Aviation and Transportation Security Act
           instituted the same security requirements for screening passengers
           at smaller airports as it did for larger airports, sometimes
           making travel from small airports less convenient than it had
           been.10 Third, regional carriers had reduced the use of turboprops
           in favor of regional jets, which had a negative effect on small
           communities that have not generated the passenger levels needed to
           support regional jet service. Finally, many small communities
           experience passenger "leakage"-that is, passengers choosing to
           drive longer distances to larger airports instead of using closer
           small airports. Low-cost carriers have generally avoided flying to
           small communities but have offered low fares that encourage
           passengers to drive longer distances to take advantage of them.11

           Mr. Chairman, as you know, Congress established EAS as part of the
           Airline Deregulation Act of 1978 to help areas that face limited
           service. The act guaranteed that communities served by air
           carriers before deregulation would continue to receive a certain
           level of scheduled air service.12 In general, the act guaranteed
           continued service by authorizing DOT to require carriers to
           continue providing service at these communities. If an air carrier
           could not continue that service without incurring a loss, DOT
           could then use EAS funds to award that carrier a subsidy.13 Under
           the Airline Deregulation Act, EAS was scheduled to sunset, or end,
           after 10 years. In 1987, Congress extended the program for another
           10 years, and in 1998, it eliminated the sunset provision, thereby
           permanently authorizing EAS.

           Funding for EAS comes from a combination of permanent and annual
           appropriations. The Federal Aviation Reauthorization Act of 1996
           (P.L. 104-264) permanently appropriated the first $50 million of
           such funding-for EAS and safety projects at rural airports-from
           the collection of overflight fees. Congress can appropriate
           additional funds from the general fund on an annual basis.

           To be eligible for this subsidized service, communities must meet
           three general requirements. They (1) must have received scheduled
           commercial passenger service as of October 1978, (2) may be no
           closer than 70 highway miles to a medium- or large-hub airport,
           and (3) must require a subsidy of less than $200 per person
           (unless the community is more than 210 highway miles from the
           nearest medium- or large-hub airport, in which case no average
           per-passenger dollar limit applies).14 Federal law also defines
           the service that subsidized communities are to receive under
           EAS.15 For example, carriers providing EAS flights are required to
           use aircraft with at least 15 seats unless the community seeks a
           waiver. In addition, flights are to occur at "reasonable times"
           and at prices that are "not excessive." EAS operations to
           communities in Alaska are subject to different requirements (e.g.,
           carriers may use smaller aircraft).

           Air carriers apply directly to DOT for EAS subsidies. Air carriers
           set the subsidy application process in motion when they file a
           90-day notice of intent to suspend or terminate service. If no air
           carrier is willing to or able to profitably provide replacement
           air service without a subsidy, DOT solicits proposals from
           carriers who are willing to provide service with a subsidy. DOT
           requires that air carriers submit historical and projected
           financial data, such as projected operating expenses and revenues,
           sufficient to support a subsidy calculation. DOT then reviews
           these data in light of the aviation industry's pricing structure,
           the size of aircraft required, the amount of service required, and
           the number of projected passengers who would use this service in
           the community.16 Finally, DOT selects a carrier and sets a subsidy
           amount to cover the difference between the carrier's projected
           cost of operation and its expected passenger revenues, while
           providing the carrier with a profit element equal to 5 percent of
           total operating expenses, according to statute.17

           Turning now to SCASDP, Congress authorized SCASDP as a pilot
           program in the Wendell H. Ford Aviation Investment and Reform Act
           for the 21st Century (AIR-21),18 to help small communities enhance
           their air service. AIR-21 authorized the program for fiscal years
           2002 and 2003, and subsequent legislation19 reauthorized the
           program through fiscal year 2008 and eliminated the "pilot" status
           of the program.

           The Office of Aviation Analysis in DOT's Office of the Secretary
           is responsible for administering the program. The law establishing
           SCASDP allows DOT considerable flexibility in implementing the
           program and selecting projects to be funded. The law defines basic
           eligibility criteria and statutory priority factors, but meeting a
           given number of priority factors does not automatically mean DOT
           will select a project. DOT also considers many other relevant
           factors in making decisions on projects, and the final selection
           of projects is at the discretion of the Secretary of
           Transportation.20 (See app. I for a list of the factors used in
           DOT selections.)

           SCASDP grants may be made to single communities or a consortium of
           communities, although no more than four grants each year may be in
           the same state. Consortiums are considered one project for the
           purpose of this program. Inclusion of small hubs for eligibility
           means that some relatively large airports qualify for this
           program. For example, Buffalo Niagara International Airport in
           Buffalo, New York, and Norfolk International Airport in Norfolk,
           Virginia, are eligible for the program; these airports enplaned
           over 2.4 million and over 1.9 million passengers in 2005,
           respectively. In contrast, small nonhub airports, such as those in
           Moab, Utah (with about 2,600 enplanements) or Owensboro, Kentucky
           (with about 3,600 enplanements) are also eligible. SCASDP grants
           are also available in the 50 states, the District of Columbia,
           Puerto Rico, and U.S. territories and possessions. As shown in
           appendix II, DOT's awards have been geographically spread
           out-covering all states except Delaware, Hawaii, Maryland, New
           Jersey, and Rhode Island. To date, no communities in Delaware or
           Rhode Island have applied for a grant. Appendix III includes
           information on all SCASDP grants awarded as of August 31, 2006.

           Number of Airports and Amount of EAS Subsidies Has Been Growing
			  
			  Mr. Chairman, demand for EAS subsidies has been growing over the
           past 10 years, as has the amount of funds appropriated for the
           program. As shown in table 1, for fiscal year 2006, EAS is
           providing subsidies to air carriers to serve 154 communities-an
           increase of 57 communities over the 1997 low point.21 The funding
           for EAS has also grown from $25.9 million in 1997 to $109.4
           million in 2006. This amounts to an average of about $720,000 per
           EAS community in fiscal year 2006. Appendix II includes a map
           showing the locations of current EAS communities and appendix IV
           lists EAS communities and their current subsidy amounts.

           Table 1: EAS Program Appropriations and Communities Served, Fiscal
           Years 1992-2006
			  
Fiscal year Number of communities Total EAS appropriations (in millions) 
1992                          130                                  $38.6 
1993                          126                                   38.6 
1994                          112                                   33.4 
1995                          107                                   33.4 
1996                           97                                   22.6 
1997                           95                                   25.9 
1998                          101                                   50.0 
1999                          100                                   50.0 
2000                          106                                   50.0 
2001                          115                                   50.0 
2002                          123                                  113.0 
2003                          126                                  101.8 
2004                          140                                  101.7 
2005                          146                                  101.6 
2006                          154                                  109.4 

           Source: DOT.

           In addition, in recent years, the number of communities and states
           receiving EAS funding has increased. Since 1998, when a $50
           million funding level was established, eight additional states now
           have EAS communities. These states include Alabama, Georgia,
           Kentucky, Maryland, Mississippi, Oregon, Tennessee and Virginia.
           Excluding Alaska, where different program rules apply, four states
           now have had significant increases in the total number of
           communities served by EAS, compared to 1998. The number of EAS
           communities in Pennsylvania increased by five, West Virginia and
           Wyoming increased by four, and New York increased by three. These
           states are now among the largest participants in the program, in
           terms of the number of communities served.

           In 2004, slightly more than 1 million passengers enplaned at
           airports that received EAS-subsidized service-about 0.15 percent
           of the more than 706 million passenger enplanements in the United
           States that year.22 As of May 1, 2006, 13 regional air carriers
           served the subsidized communities in the continental United
           States, and 15 served those in Alaska, Hawaii, and Puerto Rico.
           The carriers serving the communities in the continental United
           States typically used turboprop aircraft seating 19 passengers,
           whereas in Alaska, Hawaii, and Puerto Rico, the most commonly used
           aircraft seated 4 to 9 passengers.

           If EAS subsidies were removed, air service may end at many small
           communities. EAS subsidies have helped communities that were
           served by air carriers before deregulation continue to receive
           scheduled air service. Since air carriers have to show financial
           data to support a subsidy calculation, it is likely that if the
           subsidy is no longer available commercial air service would also
           end. Furthermore, according to a DOT official, once a community
           receives subsidized air service it is rare for an air carrier to
           offer to provide unsubsidized air service. Finally, in previous
           work, we reported that subsidies paid directly to air carriers
           have not provided an effective transportation solution for
           passengers in many small communities.23

           The Small Community Grant Program Has Had Mixed Results
			  
			  Mr. Chairman, our previous work was not able to evaluate the
           overall effectiveness of SCASDP; however, we found that SCASDP
           grantees pursued several goals and strategies to improve air
           service, and that the projects have obtained mixed results. In
           addition, the number of applications for SCASDP has declined each
           year.

           As shown in figure 1, in 2002 (the first year SCASDP was funded)
           DOT received 179 applications for grants; and by 2006 the number
           of applications had declined to 75. DOT officials said that this
           decline was, in part, a consequence of several factors, including:
           (1) many eligible airport communities had received a grant and
           were still implementing projects at the time; (2) the airport
           community as a whole was coming to understand the importance DOT
           places on a fulfilling the local contribution commitment part of
           the grant proposal; and (3) legislative changes in 2003 that
           prohibited communities or consortiums from receiving more than one
           grant for the same project, and that established the timely use of
           funds as a priority factor in awarding grants.24 There have been
           182 grant awards made in the 5 years of the program. Of these, 56
           grants are now completed-34 from 2002, 15 from 2003, and seven
           from 2004.25 Finally, as of August 31, 2006, DOT had terminated
           seven grants it initially awarded.26

           Figure 1: SCASDP Grant Proposals, Awards, Terminations, and
           Completions, 2002 - 2006

           Note: DOT granted 6 grants in 2004, from reallocated program
           funds.

           Although at the time of our review it was too soon to determine
           the overall effectiveness of the program, our review of the 23
           projects completed by September 30, 2005, found mixed results. The
           kinds of improvements in service that resulted from the grants
           included adding an additional air carrier, destination, or
           flights; or changing the type of aircraft serving the community.
           In terms of numbers, airport officials reported that 19 of the 23
           grants resulted in service or fare improvements during the life of
           the grant. In addition, during the course of the grant,
           enplanements rose at 19 of the 23 airports. However, after the 23
           SCASDP grants were completed, 11 grants resulted in improvements
           that were self-sustaining. Three additional improvements were
           still in place, although not self-sustaining; thus 14 improvements
           were in place after the grants were completed. (See fig. 2.)

           Charleston, West Virginia provides an example of a successful
           project. With the aid of a SCASDP grant, Charleston was able to
           add a new carrier and new nonstop service to a major market,
           Houston. At the time of our review, and after the grant was
           completed, this service was continuing at the level the grant
           provided.

           Figure 2: Air Service Improvement during the Course of 23 Grants
           and after Project Completion

           Finally, for SCASDP grants awarded from 2002 though 2004, we
           surveyed airport officials to identify the types of project goals
           they had for their grants. We found that grantees had identified a
           variety of project goals to improve air service to their
           community. These goals included adding flights, airlines, and
           destinations; lowering fares; upgrading the aircraft serving the
           community; obtaining better data for planning and marketing air
           service; increasing enplanements; and curbing the loss of
           passengers to other airports. (See fig. 3 for the number and types
           of project goals identified by airport directors.)

           Figure 3: Project Goals as Identified by Airport Directors for
           Grants Awarded 2002 - 2004

           Note: The number of airport directors surveyed may exceed the
           number of grants in a year because grants are sometimes awarded to
           consortiums of airports. We surveyed all grantee airports.

           To achieve these goals, grantees have used many strategies,
           including subsidies and revenue guarantees to the airlines,
           marketing, hiring personnel and consultants, and establishing
           travel banks in which a community guarantees to buy a certain
           number of tickets. (See fig. 4.) In addition, grantees have
           subsidized the start-up of an airline, taken over ground station
           operations for an airline, and subsidized a bus to transport
           passengers from their airport to a hub airport. Incorporating
           marketing as part of the project was the most common strategy used
           by airports. Some airline officials said that marketing efforts
           are important for the success of the projects. Airline officials
           also told us that projects that provide direct benefits to an
           airline, such as revenue guarantees and financial subsidies, have
           the greatest chance of success. According to these officials, such
           projects allow the airline to test the real market for air service
           in a community without enduring the typical financial losses that
           occur when new air service is introduced. They further noted that,
           in the current aviation economic environment, carriers cannot
           afford to sustain losses while they build up passenger demand in a
           market. The outcomes of the grants may be affected by broader
           industry factors that are independent of the grant itself, such as
           a decision on the part of an airline to reduce the number of
           flights at a hub.

           Figure 4: Strategies Included in Grant Projects

           Note: Since grant agreements were not available at the time of
           this analysis, 2006 figures are based solely on proposals.

           Options Exist for Reforming EAS and Evaluating SCASDP
			  
			  Mr. Chairman, let me now turn to a discussion of options both for
           the reform of EAS and the evaluation of SCASDP. I raise these
           options, in part, because they link to our previous report on the
           challenges facing the federal government in the 21st century,
           which notes that the federal government's long-term fiscal
           imbalance presents enormous challenges to the nation's ability to
           respond to emerging forces reshaping American society, the United
           States' place in the world, and the future role of the federal
           government.27 In our previous report, we call for a more
           fundamental and periodic reexamination of the base of government,
           ultimately covering discretionary and mandatory programs as well
           as the revenue side of the budget. In light of these challenges,
           Congress may wish to weigh options for reforming EAS and obtaining
           additional information about SCASDP's effectiveness-information
           that could be obtained if DOT follows our recommendation to
           evaluate the program's effectiveness once more grant projects have
           been completed.

           Examine Options for Enhancing EAS
			  
			  In previous work, we have identified options for enhancing the
           effectiveness of EAS and controlling cost increases. These options
           include targeting subsidized service on more remote communities
           than is currently the case, improving the matching of capacity
           with community use, consolidating service to multiple communities
           into regional airports, and changing the form of federal
           assistance from carrier subsidies to local grants; all of these
           options would require legislative changes. Several of these
           options formed the basis for reforms passed as part of Vision-100.
           For various reasons these pilot programs have not progressed, so
           it is premature to assess their impact. Let me now briefly discuss
           each option, stressing at the outset that each presents potential
           negative, as well as positive, effects. The positive effects might
           include lowered federal costs, increased passenger traffic at
           subsidized communities, and enhanced community choice of
           transportation options. Potential negative effects might include
           increased passenger inconvenience and an adverse effect on local
           economies that may lose scheduled airline service.

           The first option would be to target subsidized service to more
           remote communities. This would mean increasing the highway
           distance criteria between EAS-eligible communities and the nearest
           qualifying airport, and expanding the definition of qualifying
           nearby airports to include small hubs. Currently, to be eligible
           for EAS-subsidized service, a community must be more than 70
           highway miles from the nearest medium- or large-hub airport. We
           found that, if the distance criterion was increased to 125 highway
           miles and the qualifying airports were expanded to include
           small-hub airport with jet service, 55 EAS-subsidized communities
           would no longer qualify for subsidies-and travelers at those
           communities would need to drive to the nearby larger airport to
           access air service.28

           Limiting subsidized service to more remote communities could
           potentially save federal subsidies. For example, we found that
           about $24 million annually could be saved if service were
           terminated at 30 EAS airports that were within 125 miles of
           medium- or large-hub airports. This estimate assumed that the
           total subsidies in effect in 2006 at the communities that might
           lose their eligibility would not be obligated to other communities
           and that those amounts would not change over time. On the other
           hand, the passengers who now use subsidized service at such
           terminated airports would be inconvenienced because of the
           increased driving required to access air service at the nearest
           hub airport. In addition, implementing this option could
           potentially negatively impact the economy of the affected
           communities. For instance, officials from some communities, such
           as Brookings, South Dakota, told us that they are able to attract
           and retain local businesses because of several factors relating to
           the quality of life there-with one important factor being its
           scheduled air service.

           Better Matching Capacity with Community Use
			  
			  Another option is to better match capacity with community use. Our
           past analysis of passenger enplanement data indicated that
           relatively few passengers fly in many EAS markets, and that, on
           average, most EAS flights operate with aircraft that are largely
           empty. To better match capacity with community use, air carriers
           could reduce unused capacity-either by using smaller aircraft or
           by reducing the number of flights. Carriers could use smaller
           aircraft. For example, we reported that from 1995 to 2002, total
           passenger traffic dropped at 9 of 24 EAS communities where
           carriers added flight frequencies.

           Better matching capacity with community use could save federal
           subsidies. For instance, reducing the number of required daily
           subsidized departures could save federal subsidies by reducing
           carrier costs in some locations. Federal subsidies could also be
           lowered at communities where carriers used smaller-and hence less
           costly-aircraft. On the other hand, there are a number of
           potential disadvantages. For example, passenger acceptance is
           uncertain. Representatives from some communities, like Beckley and
           Bluefield, West Virginia, told us that passengers who are already
           somewhat reluctant to fly on 19-seat turboprops would be even less
           willing to fly on smaller aircraft. Such negative passenger
           reaction may cause more people to drive to larger airports-or
           simply drive to their destinations. Additionally, the loss of some
           daily departures at certain communities would likely further
           inconvenience some passengers. Lastly, reduced capacity may have a
           negative impact on the economy of the affected community.29

           Consolidating Subsidized Service Provided to Multiple Communities
			  into Service at Regional Airports
			  
			  Another option is to consolidate subsidized service at multiple
           communities into service at regional airports. As of July 1, 2002,
           21 EAS subsidized communities were located within 70 highway miles
           of at least one other subsidized community. We reported that if
           subsidized service to each of these communities were regionalized,
           10 regional airports could serve those 21 communities.

           Regionalizing service to some communities could generate federal
           savings. However, those savings may be marginal, because the total
           costs to serve a single regional airport may be only slightly less
           than the cost to serve two or three neighboring airports. For
           example, in 2002, DOT provided $1.9 million in annual subsidies to
           Air Midwest, Inc., to serve Ogdensburg and Massena, New York, with
           stops at another EAS-subsidized community (Watertown, New York)
           before arriving at its final destination of Pittsburgh,
           Pennsylvania. According to an official with Air Midwest, the
           marginal cost of operating the flight segments to Massena and
           Ogdensburg are small in relation to the cost of operating the
           flight from Pittsburgh to Watertown. Another potential positive
           effect is that passenger levels at the proposed regional airports
           could grow because the airline(s) would be drawing from a larger
           geographic area, which could prompt the airline(s) to provide
           better service (i.e., larger aircraft or more frequent
           departures).

           There are also a number of disadvantages to implementing this
           option. First, local passengers would be inconvenienced, since
           they would likely have to drive longer distances to obtain local
           air service. Moreover, the passenger response to regionalizing
           local air service is unknown. Passengers faced with driving longer
           distances may decide that driving to an altogether different
           airport is worthwhile, if it offers better service and air fares.
           Additionally, as with other options, the potential impact on the
           economy of the affected communities is unknown. Regionalizing air
           service has sometimes proven controversial at the local level, in
           part because regionalizing air service would require some
           communities to give up their own local service for the
           hypothetical benefits of a less convenient regional facility. Even
           in situations where one airport is larger and better equipped than
           others (e.g., where one airport has longer runways, a superior
           terminal facility, and better safety equipment on site), it is
           likely to be difficult for the other communities to recognize and
           accept surrendering their local control and benefits.

           Changing Carrier Subsidies to Local Grants
			  
			  Another option is to change carrier subsidies into local grants.
           We have noted that local grants could enable communities to match
           their transportation needs with individually tailored
           transportation options to connect them to the national air service
           system. As we previously discussed, DOT provides grants to help
           small communities to enhance their air service via SCASDP.

           Our work on SCASDP identified some positive aspects of the program
           that could be beneficial for EAS communities. First, in order for
           communities to receive a Small Community grant, they had to
           develop a proposal that was directed at improving air service
           locally. In our discussion with some of these communities, it was
           noted that this required them to take a closer look at their air
           service and better understand the market they serve-a benefit that
           they did not foresee. In addition, in one case developing the
           proposal caused the airport to build a stronger relationship with
           the community. SCASDP also allows for flexibility in the strategy
           a local community can choose to improve air service, recognizing
           that local facts and circumstances affect the chance of a
           successful outcome. In contrast, EAS has one approach-a subsidy to
           an air carrier.

           However, there are also differences between the two programs that
           make the grant approach problematic for some EAS communities;
           these differences should be considered. First, because the grants
           are provided on a one-time basis, their purpose is to create
           self-sustaining air service improvements. The grant approach is
           therefore best applicable where a viable air service market can be
           developed. This could be difficult for EAS communities to achieve
           because, currently, the service they receive is not profitable
           unless there is a subsidy. While some EAS communities might be
           able to transition to self-sustaining air service through use of
           one of the grants, for some communities this would not be the
           case. In addition, the grant program normally includes a local
           cash match, which may be difficult for some EAS communities to
           provide. This could systematically eliminate the poorest
           communities, unless other sources of funds-such as state support
           or local industry support-could be found.

           Vision-100 Small Community Programs Have Not Progressed
			  
			  In Vision-100, Congress authorized several programs relevant to
           small communities. These programs have not progressed for various
           reasons. The Alternate Essential Air Service Pilot Program allows
           the Secretary of Transportation to provide assistance directly to
           a community, rather than paying compensation to an air carrier.
           Under the pilot program, communities could provide assistance to
           air carriers using smaller aircraft, fund on-demand air taxi
           service, provide transportation services to and from several EAS
           communities to a single regional airport or other transportation
           center, and purchase aircraft. Vision-100 also authorized the
           Community Flexibility Pilot Program, which requires the Secretary
           of Transportation to establish a program for up to 10 communities
           that agree to forgo their EAS subsidy for 10 years in exchange for
           a grant twice the amount of the EAS subsidy. The funds may be used
           to improve airport facilities. (The grants can be used for things
           other than general aviation.) DOT has solicited proposals for
           projects in both of these programs. However, according to a DOT
           official, no communities expressed any interest in participating
           in these programs. Finally, the EAS Local Participation Program
           allows the Secretary of Transportation to select no more than 10
           designated EAS communities within 100 miles, by road, of a small
           hub (and within the contiguous states) to assume 10 percent of
           their EAS subsidy costs for a 4-year period. However, Congress has
           prohibited DOT from obligating or expending any funds to implement
           this program since Vision-100 was enacted.

           Evaluate the Effectiveness of SCASDP before Reauthorization
			  
			  We recently recommended that DOT examine the effectiveness of this
           program when more projects are complete.30 Such an evaluation
           would provide DOT and Congress with information about whether
           additional or improved air service was not only obtained, but
           whether it continues after the grant support has ended. This may
           be particularly important since our work on the limited number of
           completed projects found that, 11 of 23 grantees reported that the
           improvements were self-sustaining after the grant was complete. In
           addition, our prior work on the air service to small communities
           found that once financial incentives are removed, additional air
           service may be difficult to maintain. Since our report, an
           additional 33 grants have been completed and DOT's plans to
           examine the results from these completed grants should provide a
           clearer and more complete picture of the value of this program.
           Any improved service achieved from this program could then be
           weighed against the cost to achieve those gains. This information
           will be important as Congress considers the reauthorization of
           this program in 2008.

           In addition to the benefit of providing Congress with information
           upon which to evaluate the merits of SCASDP, the evaluation would
           likely have additional benefits. In conducting this evaluation,
           DOT could potentially find that certain strategies the communities
           used were more effective than others. For example, during our
           work, we found some opposing views on the usefulness of travel
           banks31 and some marketing strategies as incentives for attracting
           improved service. As DOT officials identify strategies that have
           been effective in starting self-sustaining improvements in air
           service, they could share this information with other small
           community airports and, perhaps, consider such factors in its
           grant award process. In addition, DOT might find some best
           practices and could develop some lessons learned from which all
           small community airports could benefit. For example, one airport
           used the approach of assuming airline ground operations such as
           baggage handling and staffing ticket counters. This approach
           served to maintain airline service of one airline and to attract
           additional service from another airline. Sharing information on
           approaches like this that worked (and approaches that did not) may
           help other small communities improve their air service, perhaps
           even without federal assistance.

           In conclusion, Mr. Chairman, Congress is faced with many difficult
           choices as it tries to help improve air service to small
           communities, especially given the fiscal challenges the nation
           faces. Regarding EAS, I think it is important to recognize that
           for many of the communities, air service is not-and might never
           be-commercially viable and there are limited alternative
           transportation means for nearby residents to connect to the
           national air system. In these cases, continued subsidies will be
           needed to maintain that capability. In some other cases, current
           EAS communities are within reasonable driving distances to
           alternative airports that can provide that connection to the air
           system. It will be Congress' weighing of priorities that will
           ultimately decide whether this service will continue or whether
           other, less costly options will be pursued. In looking at SCASDP,
           I would emphasize that we have seen some instances in which the
           grant funds provided additional service, and some in which the
           funds did not work. When enough experience has been gained with
           this program, the Congress will be in a position to determine if
           the air service gains that are made are worth the overall cost of
           the program. I would be pleased to answer any questions that you
           or other Members of the Subcommittee may have at this time.

           Contact Information
			  
			  For further information on this testimony, please contact Gerald
           L. Dillingham at (202) 512-2834 or [email protected] .
           Individuals making key contributions to this testimony and related
           work include Robert Ciszewski, Catherine Colwell, Daniel
           Concepcion, Brandon Haller, Dave Hooper, Stuart Kaufman, Alex
           Lawrence, Bonnie Pignatiello Leer, Maureen Luna-Long, John Mingus,
           and Glen Trochelman.

7The analysis is based on 2004 national enplanement data-the most recent
data available.

8A network carrier operates a significant portion of its flights using at
least one hub where connections are made for flights on a spoke system.
Regional carriers provide service from small communities primarily using
regional jets to connect the network carriers' hub-and-spoke system.

9 Code of Federal Regulations Title 14 Part 121 (14 CFR Part 121) provides
details on aircraft certification requirements for aircraft that operate
scheduled service with 10 or more seats. The Commuter Rule was instituted
with 60 Fed. Reg. 65832, December 20, 1995.

10Aviation and Transportation Security Act, Section 110 of P.L. 107-71,
115 Stat. 597 (2001).

11Low-cost carriers follow a business model that may include
point-to-point service between high-density city pairs, a standardized
fleet with high aircraft utilization, low fares, and minimal onboard
service.

12Special provisions guaranteed service to Alaskan communities.

13Subsidies are used to cover the difference between a carrier's projected
revenues and expenses and to provide a minimum amount of profit.

14The average subsidy per passenger does not equate to a specific portion
of a passenger's ticket price paid for by EAS funds. Ticket pricing
involves a complex variety of factors relating to the demand for travel
between two points, the supply of available seats along that route,
competition in the market, and how air carriers choose to manage and price
their available seating capacity.

1549 USC 41732.

16DOT officials said that they check the reasonableness of the cost and
revenue information received from the air carriers against other data
reported to DOT and in documents filed with the Securities and Exchange
Commission.

17At any time throughout the year, an air carrier providing unsubsidized
service to an EAS-eligible community can file a notice to suspend service
if the carrier determines that it can no longer provide profitable
service, thus triggering a carrier selection case. In addition, after DOT
selects an air carrier to provide subsidized service, that agreement is
subject to renewal, generally every 2 years, at which time other air
carriers are permitted to submit proposals to serve that community with or
without a subsidy.

18P.L. 106-181.

19Vision-100, P.L. 108-176

20DOT must give priority consideration to communities that (1) have air
fares higher than average for all communities, (2) provide a portion of
the cost of the project from local sources other than airport revenues,
(3) have-or plan to establish-a public-private partnership to facilitate
air carrier service to the public, (4) will provide material benefits to a
broad segment of the public that has limited access to the national air
transportation system, and (5) will use the assistance in a timely manner.

21The highest number of communities served during the program's history
was 405 in 1980.

22DOT did not have ridership data available for all EAS communities.

23GAO, Commercial Aviation: Factors Affecting Efforts to Improve Air
Service at Small Community Airports, GAO-03-330 (Washington, D.C.: 2003).
January 17, 2003.

24The authorizing legislation provides one limitation on the timing of
expenditures. If funds are used to subsidize air service, the subsidy
cannot last more than 3 years. However, the time needed to obtain the
service is not included in the subsidy time limit. The legislation does
not limit the timing of expenditures for other purposes. In fiscal year
2005, DOT issued an order specifying that in general, grant funds should
be expended within 3 years.

25We considered a grant to be complete when the activities associated with
the grant were finished and FAA had made final reimbursements of allowable
costs.

26According to DOT officials, the agency only initiated the termination
for the grant awarded to Casper/Gillette, Wyoming. The communities awarded
the other six grants requested the termination of the grants.

27 GAO-05-325SP

28This information was current as of January 2006.

29As we reported in our 2002 report, although scheduled commercial air
service is positively correlated with local economic activity, we were
unable to locate reliable studies that describe the extent to which
scheduled commercial air service is directly responsible for economic
development in small communities in the United States (i.e., whether air
service precedes, follows, or develops simultaneously with local economic
activity).

30GAO, Initial Small Community Air Service Development Projects Have
Achieved Mixed Results, GAO-06-21 (Washington, D.C.: Nov. 2005).

31Businesses or individuals deposit or promise future travel funds to a
carrier providing new or expanded service. Contributing businesses and
individuals can then draw down from this account.

Appendix I: Additional Department of Transportation Selection Factors for
SCASDP Grants

                         
      1.                        e serving the community?                      
      2.                        s are served?                                 
      3.                        of flights?                                   
      4.                        ice the community?                            
      5.                        e been increasing or decreasing over the past 
                                3 years?n increasing or decreasi              
      7.                        atistical Area population increasing or       
                                decreasing?                                   
      8.                        e increasing or decreasing? esses in the area 
      10.                       to larger air service centers?                
      11.                       road access to other air service centers? k   
                                service in identifi                           
      13.                       ed to provide:                                
ice,                         
      o  More frequent flig     
      If this is an air service 
      proje                     
      willing and committed     
      If his is an air service  
      would serve?              
      Source: G                 

Project-related Factors

ess the stated problem?         
      4.                           have a firm plan for promoting the         
                                   service?                                   
      5.                           e a definitive plan for monitoring,        
                                   modifying, and t, if necessary?            
      6.                           have a plan for continued support of the   
                                   project                                    
on is not attained after the    
grant expires? proposal,        
n place? ating consortium?      
      10.                          unique geographical traits or other        
                                   considerations? requested reasonable       
                                   compared with the total                    
ilable? easonable compared with 
the amount requestedeted duri   
      14.                          ll hub now?                                
      15.                          e nonhub now?                              
      16.                          ll nonhub now?                             
      17. 18.                      bsidized through Essential Air Service?    
                                   eting only? y?                             
      20.                          ve intermodal services?                    
      21. 22.                      er incentive? air fare focused?            
      23.                          ve a low-fare service provider?            
      24.                          ft costs from the local or state level to  
                                   t                                          
      25.                          ow that proximity to other service would   
                                   detract from it?                           
      26.                          aphically close to a past grant recipient? 

Appendix II: Essential Air Service Airports and Small Community Air
Service Development Program Grantees

Figure 5: Airports Receiving Essential Air Service (EAS) as of May 2006
and All Small Community Air Service Development Program (SCASDP) Grantees,
through August 10, 2006

Note: Alaska, Hawaii and Puerto Rico are not to scale.

Appendix III: Status of SCASDP Grants Awarded, 2002 - 2006

2002 Grant Year
                                                           Status as of       
          Location                           Grant amount  August 31, 2006    
      1.  Abilene, TX                             $85,010  Completed          
      2.  Akron/Canton, OH                        950,000  Completed          
      3.  Aleutians East Borough, AK              240,000  Completed          
      4.  Asheville, NC                           500,000  Completed          
      5.  Augusta, GA                             759,004  Terminated         
      6.  Baker City, OR                          300,000  Terminated         
      7.  Beaumont/Port Arthur, TX                500,000  Completed          
      8.  Bellingham, WA                          301,500  Ongoing            
      9.  Binghamton, NY                          500,000  Completed          
      10. Bismarck, ND                          1,557,500  Ongoing            
      11. Brainerd, St Cloud, MN                1,000,000  Completed          
      12. Bristol/Kingsport/Johnson City, TN      615,000  Completed          
      13. Cape Girardeau, MO                      500,000  Completed          
      14. Casper, Gillette, WY                    500,000  Terminated         
      15. Charleston, WV                          500,000  Completed          
      16. Chico, CA                                44,000  Completed          
      17. Daytona Beach, FL                       743,333  Completed          
      18. Fort Smith, AR                          108,520  Completed          
      19. Fort Wayne, IN                          398,000  Completed          
      20. Hailey, ID                              600,000  Completed          
      21. Lake Charles, LA                        500,000  Completed          
      22. Lake Havasu City, AZ                    403,478  Completed          
      23. Lamar, CO                               250,000  Completed          
      24. Lynchburg, VA                           500,000  Completed          
      25. Manhattan, KS                           388,350  Completed          
      26. Marion, IL                              212,694  Completed          
      27. Mason City, IA                          600,000  Terminated         
      28. Meridian, MS                            500,000  Completed          
      29. Moab, UT                                250,000  Completed          
      30. Mobile, AL                              456,137  Completed          
      31. Paducah, KY                             304,000  Completed          
      32. Presque Isle, ME                        500,000  Completed          
      33. Rapid City, SD                        1,400,000  Completed          
      34. Reading, PA                             470,000  Completed          
      35. Rhinelander, WI                         500,000  Completed          
      36. Santa Maria, CA                         217,530  Completed          
      37. Scottsbluff, NE                         950,000  Completed          
      38. Somerset, KY                             95,000  Completed          
      39. Taos/Ruidoso, NM                        500,000  Completed          
      40. Telluride, CO                           300,000  Completed          
          Total                               $19,999,056  

Source: GAO analysis of DOT data.

           2003 Grant Year                           
                                                     Status as of August 31,  
           Location                    Grant amount  2006                     
      1. . Aguadilla, PR                   $626,700  Ongoing                  
      2.   Aleutians East Borough, AK        70,000  Ongoing                  
      3.   AZ Consortium, AZ              1,500,000  Ongoing                  
      4.   Bakersfield, CA                  982,513  Ongoing                  
      5.   Bangor, ME                       310,000  Ongoing                  
      6.   Charleston, SC                 1,000,000  Terminated               
      7.   Cut Bank, MT                      90,000  Completed                
      8.   Dickinson, ND                    750,000  Completed                
      9.   Dothan, AL                       200,000  Completed                
      10.  Dubuque, IA                      610,000  Ongoing                  
      11.  Duluth, MN                     1,000,000  Ongoing                  
      12.  Elmira, NY                       200,000  Ongoing                  
      13.  Erie, PA                         500,000  Completed                
      14.  Fresno, CA                     1,000,000  Ongoing                  
      15.  Friday Harbor, WA                350,000  Completed                
      16.  Gainesville, FL                  660,000  Completed                
      17.  Grand Island, NE                 380,000  Ongoing                  
      18.  Greenville, MS                   400,000  Terminated               
      19.  Gunnison, CO                     200,000  Completed                
      20.  Joplin, MO                       500,000  Ongoing                  
      21.  Knoxville, TN                    500,000  Terminated               
      22.  Laredo, TX                       400,000  Ongoing                  
      23.  Lewiston-Nez Perce, ID           675,000  Ongoing                  
      24.  Mountain Home (Baxter), AR       574,875  Ongoing                  
      25.  Muskegon, MI                     500,000  Completed                
      26.  NC Consortium, NC              1,200,000  Ongoing                  
      27.  Owensboro, KY                    500,000  Ongoing                  
      28.  Parkersburg-Marietta, WV/OH      500,000  Ongoing                  
      29.  Pierre, SD                       150,000  Completed                
      30.  Redmond, OR                      515,000  Completed                
      31.  Savannah, GA                     523,495  Completed                
      32.  Shreveport, LA                   500,000  Completed                
      33.  Staunton, VA                     100,000  Ongoing                  
      34.  Taos Consortium, NM            1,400,000  Completed                
      35.  Tupelo, MS                       475,000  Completed                
      36.  Victoria, TX                      20,000  Completed                
           Total                        $19,862,583  

Source: GAO analysis of DOT data.

            2004 Grant Year                                   
                                                              Status as of    
            Location                            Grant amount  August 31, 2006 
      1.    Albany, GA                              $500,000  Ongoing         
      2.    Alpena, MI                               583,046  Ongoing         
      3.    Beckley/Lewisburg, WV                    300,000  Ongoing         
      4.    Bloomington, IL                          850,000  Ongoing         
      5.    Butte, MT                                360,000  Ongoing         
      6.    Champaign-Urbana, IL                     200,000  Completed       
      7.    Charlottesville, VA                      270,000  Ongoing         
      8.    Chattanooga, TN                          750,000  Ongoing         
      9.    Clarksburg/Morgantown                             Ongoing         
            (reallocation), WV                       372,286  
      10. 0 Columbus, MS                             260,000  Ongoing         
      11.   Del Rio, TX                              318,750  Ongoing         
      12.   Dubois, PA                               400,000  Ongoing         
      13.   Eau Claire, WI                           500,000  Ongoing         
      14.   Elko, NV                                 222,000  Completed       
      15.   Evansville/South Bend, IN              1,000,000  Ongoing         
      16.   Farmington, NM                           650,000  Ongoing         
      17.   Hot Springs (reallocation), AR           195,000  Completed       
      18.   Huntsville, AL                           479,950  Completed       
      19.   Kalamazoo, MI                            500,000  Ongoing         
      20.   Lafayette, LA                            240,000  Ongoing         
      21.   Latrobe, PA                              600,000  Ongoing         
      22.   Lebanon, NH                              500,000  Ongoing         
      23.   Lincoln, NE                            1,200,000  Ongoing         
      24.   Logan City, UT                           530,000  Ongoing         
      25.   Marquette, MI                            700,000  Ongoing         
      26.   McCook/North Platte, NE                  275,000  Ongoing         
      27.   New Haven, CT                            250,000  Ongoing         
      28.   Pocatello, ID                             75,000  Completed       
      29.   Redding/Arcata, CA                       500,000  Ongoing         
      30.   Richmond, VA                             950,000  Ongoing         
      31.   Rutland (reallocation), VT               240,000  Ongoing         
      32.   Salem, OR                                500,000  Ongoing         
      33.   Santa Rosa, CA                           635,000  Ongoing         
      34.   Sarasota, FL                           1,500,000  Ongoing         
      35.   Sioux City, IA                           609,800  Ongoing         
      36.   Sioux Falls, SD                          350,000  Ongoing         
      37.   Steamboat Springs, CO                    500,000  Ongoing         
      38.   Sumter, SC                                50,000  Completed       
      39.   Syracuse (reallocation), NY              480,000  Ongoing         
      40.   Tyler, TX                                 90,000  Ongoing         
      41.   Visalia (reallocation), CA               200,000  Ongoing         
      42.   Walla Walla, WA                          250,000  Ongoing         
      43.   Waterloo, IA                             550,000  Ongoing         
      44.   Wilkes-Barre/Scranton, PA                625,000  Completed       
      45.   Worcester (reallocation), MA             442,615  Ongoing         
      46.   Youngstown, OH                           250,000  Ongoing         
            Total                                $21,803,447  

Source: GAO analysis of DOT data.

Note: Program funds from 2002 and 2003 were reallocated to six cities in
2004.

          2005 Grant Year                                 
                                                          Status as of August 
          Location                          Grant amount  31, 2006            
      1.  Aberdeen, SD                          $450,000  Ongoing             
      2.  Alexandria, LA                         500,000  Ongoing             
      3.  Bradford, PA                           220,000  Ongoing             
      4.  CA Consortium, CA                      245,020  Ongoing             
      5.  Cedar City, UT                         155,000  Ongoing             
      6.  Durango, CO                            750,000  Ongoing             
      7.  Fargo, ND                              675,000  Ongoing             
      8.  Florence, SC                           500,000  Ongoing             
      9.  Great Falls, MT                        220,000  Ongoing             
      10. Greenville, NC                         450,000  Ongoing             
      11. Gulfport/Biloxi, MS                    750,000  Ongoing             
      12. Hancock/Houghton, MI                   516,000  Ongoing             
      13. Hibbing, MN                            485,000  Ongoing             
      14. Huntington, WV                         500,000  Ongoing             
      15. Idaho Falls, ID                        500,000  Ongoing             
      16. Ithaca, NY                             500,000  Ongoing             
      17. Jacksonville, NC                       500,000  Ongoing             
      18. Killeen, TX                            280,000  Ongoing             
      19. Knox County, ME                        555,000  Ongoing             
      20. Lawton/Ft. Sill, OK                    570,000  Ongoing             
      21. Macon, GA                              507,691  Ongoing             
      22. Marathon, FL                           750,000  Ongoing             
      23. Marshall, MN                           480,000  Ongoing             
      24. Massena, NY                            400,000  Ongoing             
      25. Modesto, CA                            550,000  Ongoing             
      26. Monterey, CA                           500,000  Ongoing             
      27. Montgomery, AL                         600,000  Ongoing             
      28. Oregon/Washington Consortium,          180,570  Ongoing             
          OR/WA                                           
      29. Rockford, IL                         1,000,000  Ongoing             
      30. Ruidoso, NM                            600,000  Ongoing             
      31. Somerset, KY                           950,000  Ongoing             
      32. Stewart (Newburgh), NY                 250,000  Ongoing             
      33. Vernal, UT                              40,000  Ongoing             
      34. Williamsport, PA                       500,000  Ongoing             
      35. Wyoming Consortium, WY                 800,000  Ongoing             
          Total                              $17,429,281  

Source: GAO analysis of DOT data.

          2006 Grant Year                    
          Location                           Grant amount 
      1.  Abilene, TX                            $465,100 
      2.  Big Sandy Region, KY                     90,000 
      3.  Brunswick, GA                           500,000 
      4.  Cedar Rapids, IA                        200,000 
      5.  Chico, CA                               472,500 
      6.  Fairbanks, AK                           500,000 
      7.  Gallup, NM                              600,000 
      8.  Garden City/Dodge City/Liberal, KS      150,000 
      9.  Gary, IN                                600,000 
      10. Grand Forks, ND                         350,000 
      11. Harrisburg, PA                          400,000 
      12. Jackson, MS                             400,000 
      13. Jamestown, NY                           150,000 
      14. Jamestown/Devil's Lake, ND              100,000 
      15. Kalispell, MT                           450,000 
      16. Longview, TX                            225,000 
      17. Lynchburg, VA                           250,000 
      18. Melbourne, FL                           800,000 
      19. Monroe, LA                               50,000 
      20. Montrose, CO                            450,000 
      21. North Bend, OR                          400,000 
      22. Palmdale, CA                            900,000 
      23. Springfield, IL                         390,000 
      24. Toledo, OH                              400,000 
      25. Tuscaloosa, AL                          400,000 
          Total                                $9,692,600 

Source: DOT data.

Appendix IV: Essential Air Service Communities and Subsidies as of May 1,
2006

Table 2: Essential Air Service (EAS) Communities in the Contiguous United
States, Hawaii, and Puerto Rico

States and communities     May 1, 2006 annual subsidy amounts              
ALABAMA                    
Muscle Shoals                                                   $1,364,697 
ARIZONA                    
Kingman                                                          1,001,989 
Page                                                             1,057,655 
Prescott                                                         1,001,989 
Show Low                                                           779,325 
ARKANSAS                   
El Dorado/Camden                                                   923,456 
Harrison                                                           923,456 
Hot Springs                                                      1,385,183 
Jonesboro                                                          923,456 
CALIFORNIA                 
Crescent City                                                      816,025 
Merced                                                             696,788 
Visalia                                                            450,000 
COLORADO                   
Alamosa                                                          1,083,538 
Cortez                                                             853,587 
Pueblo                                                             780,997 
GEORGIA                    
Athens                                                             392,108 
HAWAII                     
Hana                                                               774,718 
Kamuela                                                            395,053 
Kalaupapa                                                          331,981 
ILLINOIS                   
Decatur                                                            954,404 
Marion/Herrin                                                    1,251,069 
Quincy                                                           1,097,406 
IOWA                       
Burlington                                                       1,077,847 
Fort Dodge                                                       1,080,386 
Mason City                                                       1,080,386 
KANSAS                     
Dodge City                                                       1,379,419 
Garden City                                                      1,733,997 
Great Bend                                                         621,945 
Hays                                                             1,540,392 
Liberal                                                          1,008,582 
Manhattan/ Ft. Riley                                               487,004 
Salina                                                             487,004 
KENTUCKY                   
Owensboro                                                        1,127,453 
MAINE                      
Augusta/Waterville                                               1,065,475 
Bar Harbor                                                       1,065,475 
Presque Isle                                                     1,116,423 
Rockland                                                         1,065,475 
MARYLAND                   
Hagerstown                                                         649,929 
MICHIGAN                   
Escanaba                                                           290,952 
Ironwood/Ashland, WI                                               409,242 
Iron Mountain/Kingsford                                            602,761 
Manistee/Ludington                                                 776,051 
MINNESOTA                  
Chisholm/Hibbing                                                 1,279,329 
Thief River Falls                                                  777,709 
MISSISSIPPI                
Laurel/Hattiesburg                                               1,100,253 
MISSOURI                   
Cape Girardeau                                                   1,147,453 
Columbia/Jefferson City             Order 2006-4-6 requested proposals for 
                                                      Columbia/Jefferson City 
Fort Leonard Wood                                                  683,201 
Joplin                                                             755,762 
Kirksville                                                         840,200 
MONTANA                    
Glasgow                                                            922,103 
Glendive                                                           922,103 
Havre                                                              922,103 
Lewistown                                                          922,103 
Miles City                                                         922,103 
Sidney                                                           1,306,313 
West Yellowstone                                                   247,122 
Wolf Point                                                         922,103 
NEBRASKA                   
Alliance                                                           655,898 
Chadron                                                            655,898 
Grand Island                                                     1,198,396 
Kearney                                                          1,166,849 
McCook                                                           1,502,651 
North Platte                                                       870,504 
Scottsbluff                                                        494,887 
NEVADA                     
Ely                                                                784,463 
NEW HAMPSHIRE              
Lebanon                                                            998,752 
NEW MEXICO                 
Alamogordo/Holloman              Order 2006-3-26 requested proposals on an 
                                                              emergency basis 
Carlsbad                                                           599,671 
Clovis                                                             859,057 
Hobbs                                                              519,614 
Silver City/Hurley/Deming                                          859,057 
NEW YORK                   
Jamestown                                                        1,217,414 
Massena                                                            585,945 
Ogdensburg                                                         585,945 
Plattsburgh                                                        753,964 
Saranac Lake                                                       753,964 
Watertown                                                          585,945 
NORTH DAKOTA               
Devils Lake                                                      1,329,858 
Dickinson                                                        1,697,248 
Jamestown                                                        1,351,677 
OKLAHOMA                   
Enid                                                               636,279 
Ponca City                                                         636,279 
OREGON                     
Pendleton                                                          649,974 
PENNSYLVANIA               
Altoona                                                            893,774 
Bradford                                                         1,217,414 
DuBois                                                             643,818 
Johnstown                                                          464,777 
Lancaster                                                        1,611,707 
Oil City/Franklin                                                  683,636 
PUERTO RICO                
Mayaguez                                                           688,551 
Ponce                                                              622,056 
SOUTH DAKOTA               
Brookings                                                        1,039,364 
Huron                                                            1,039,364 
Pierre                                                             449,912 
Watertown                                                        1,211,589 
TENNESSEE                  
Jackson                                                          1,179,026 
TEXAS                      
Victoria                                                           510,185 
UTAH                       
Cedar City                                                       1,068,608 
Moab                                                               783,608 
Vernal                                                             555,771 
VERMONT                    
Rutland                                                            849,705 
VIRGINIA                   
Staunton                                                           650,123 
WASHINGTON                 
Ephrata/Moses Lake                                               1,698,922 
WEST VIRGINIA              
Beckley                                                            977,858 
Clarksburg/Fairmont                                                306,109 
Greenbrier/Lewisburg/White                                                 
                              
Sulphur Springs                                                    540,579
Morgantown                                                         306,109 
Parkersburg                                                        439,115 
Princeton/Bluefield                                                977,858 
WYOMING                    
Laramie                                                            397,400 
Riverton                                                           394,046 
Rock Springs                                                       390,488 
Sheridan                                                           336,701 
Worland                                                            797,844 

Source: DOT

Table 3: Alaskan EAS Communities

Community                                       May 1, 2006 annual subsidy 
Adak                                                            $1,617,923 
Akutan                                                             350,381 
Alitak                                                             106,054 
Amook Bay                                                           16,622 
Atka                                                               336,303 
Cape Yakataga                                                       30,920 
Central                                                             61,421 
Chatham                                                              6,433 
Chisana                  Order 2006-4-13 held in 40-Mile Air and Requested 
                                                                    Proposals 
Circle                                                              61,421 
Cordova                                                          1,763,179 
Elfin Cove                                                         108,297 
Excursion Inlet                                                      9,212 
Funter Bay                                                           6,433 
Gulkana                                                            199,839 
Gustavus                                                           732,217 
Healy Lake                                                          51,781 
Hydaburg                                                            54,733 
Icy Bay                                                             30,920 
Karluk                                                              38,880 
Kitoi Bay                                                           16,622 
Manley                                                              24,768 
May Creek                                                           69,759 
McCarthy                                                            69,759 
Minto                                                               24,768 
Moser Bay                                                           16,622 
Nikolski                                                           173,603 
Olga Bay                                                            16,622 
Pelican                                                            108,297 
Petersburg                                                         732,217 
Port Alexander                                                      48,746 
Port Bailey                                                         16,622 
Port William                                                        16,622 
Seal Bay                                                            16,622 
Uganik                                                              15,715 
West Point                                                          16,622 
Wrangell                                                           732,217 
Yakutat                                                          1,763,179 
Zachar Bay                                                          16,622 

Source: DOT.

Related GAO Products

Airline Deregulation: Reregulating the Airline Industry Would Reverse
Consumer Benefits and Not Save Airline Pensions. GAO-06-630 Washington,
D.C.: June 9, 2006.

Commercial Aviation: Initial Small Community Air Service Development
Projects Have Achieved Mixed Results. GAO-06-21 Washington, D.C: November
30, 2005.

Commercial Aviation: Survey of Small Community Air Service Grantees and
Applicants. GAO-06-101SP . Washington, D.C.: November 30, 2005

Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of
Underlying Structural Issues. GAO-05-945 Washington, D.C.: September 30,
2005.

Commercial Aviation: Legacy Airlines Must Further Reduce Costs to Restore
Profitability. GAO-04-836 Washington, D.C.: August 11, 2004

Commercial Aviation: Issues Regarding Federal Assistance for Enhancing Air
Service to Small Communities. GAO-03-540T . Washington, D.C.: March 11,
2003

Federal Aviation Administration: Reauthorization Provides Opportunities to
Address Key Agency Challenges. GAO-03-653T . Washington, D.C.: April l0,
2003.

Commercial Aviation: Factors Affecting Efforts to Improve Air Service at
Small Community Airports. GAO-03-330 Washington, D.C.: January 17, 2003

Commercial Aviation: Financial Condition and Industry Responses Affect
Competition. GAO-03-171T . Washington, D.C.: October 2, 2002.

Options to Enhance the Long-term Viability of the Essential Air Service
Program. GAO-02-997R . Washington, D.C.: August 30, 2002.

Commercial Aviation: Air Service Trends at Small Communities Since October
2000. GAO-02-432 . Washington, D.C.: March 29, 2002.

Proposed Alliance Between American Airlines and British Airways Raises
Competition Concerns and Public Interest Issues. GAO-02-293R . Washington,
D.C.: December 21, 2001.

"State of the U.S. Commercial Airlines Industry and Possible Issues for
Congressional Consideration," Speech by Comptroller General of the United
States David Walker. The International Aviation Club of Washington:
November 28, 2001.

Financial Management: Assessment of the Airline Industry's Estimated
Losses Arising From the Events of September 11. GAO-02-133R . Washington,
D.C.: October 5, 2001.

Commercial Aviation: A Framework for Considering Federal Financial
Assistance. GAO-01-1163T . Washington, D.C.: September 20, 2001.

Aviation Competition: Restricting Airline Ticketing Rules Unlikely to Help
Consumers. GAO-01-832 Washington, D.C.: July 31, 2001.

Aviation Competition: Challenges in Enhancing Competition in Dominated
Markets. GAO-01-518T . Washington, D.C.: March 13, 2001.

Aviation Competition: Regional Jet Service Yet to Reach Many Small
Communities. GAO-01-344 Washington, D.C.: February 14, 2001.

Airline Competition: Issues Raised by Consolidation Proposals. GAO-01-402T
. Washington, D.C.: February 7, 2001.

Aviation Competition: Issues Related to the Proposed United Airlines-US
Airways Merger. GAO-01-212 , Washington, D.C.: December 15, 2000.

Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs, and
Passenger Traffic. RCED-00-34, Washington, D.C.: April 14, 2000.

(540116)

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Highlights of GAO-06-398T , a report to the Subcommittee on Aviation,
Committee on Commerce, Science and Transportation, U.S. Senate

September 14, 2006

COMMERCIAL AVIATION

Programs and Options for the Federal Approach to Providing and Improving
Air Service to Small Communities

Over the last decade, significant changes have occurred in the airline
industry. Network carriers are facing challenging financial conditions and
low-cost carriers are attracting passengers away from some small community
airports. These changes, and others, have challenged the ability of small
communities to attract adequate commercial air service.

In response to these challenges, Congress has established two key funding
programs-the Essential Air Service (EAS) and the Small Community Air
Service Development Program (SCASDP)-to help small communities retain or
attract air service. However, the sustainability of such funding could be
affected by the federal government's fiscal imbalance. In addition, GAO
reports have raised questions about how these programs support commercial
air service to small communities.

Given this environment, this testimony discusses (1) the development and
impact of EAS, (2) the status of SCASDP and (3) options for reforming EAS
and evaluating SCASDP. The testimony is based on previous GAO research and
interviews related to these programs, along with program updates.

The EAS program guarantees that communities that were served by air
carriers before deregulation continue to receive a certain level of
scheduled air service, under certain conditions. A growing number of
communities are receiving subsidies under this program and funding for the
EAS program has risen more than four-fold over the past 10 years. The
federal subsidies have resulted in continued air service to the EAS
communities, but if the subsidies were removed, air service might end at
many of these communities.

SCASDP grantees have used their grants to pursue a variety of goals and
have used a variety of strategies, including marketing and revenue
guarantees, to improve air service. The program has had mixed results: 11
of the 23 projects completed as of September 30, 2005, showed
self-sustaining improvements to air service; while the remaining 12
grantees either discontinued the improvement or the improvement was not
self-sustaining. Finally, the number of applications for SCASDP grants has
declined-from 179 in 2002 to 75 in 2006.

There are options for reforming EAS such as consolidating service into
regional airports, which might make it more cost-effective, but also could
reduce service to some communities. In 2003, Congress established several
programs as alternatives for EAS, but these programs have not progressed.
The Department of Transportation has agreed to evaluate completed SCASDP
projects, an effort that will be useful when Congress considers the
reauthorization of this program in 2008; this could also identify "lessons
learned" from successful projects.

EAS Communities as of May 2006; SCASDP Communities, 2002-2006
*** End of document. ***