    Commercial Aviation: Programs and Options for Providing Air
    Service to Small Communities (25-APR-07, GAO-07-793T).

    Congress established two key programs to help support air service
    to small communities--the Essential Air Service (EAS) providing
    about $100 million in subsidies per year and the Small Community
    Air Service Development Program (SCASDP) that provides about $20
    million per year in grants. As part of its reauthorization of the
    Federal Aviation Administration (FAA), the Congress is examining
    the status and outcomes of these programs. This testimony
    discusses (1) the history and challenges of the EAS program, (2)
    the implementation and outcomes of the SCASDP and (3) options for
    reforming EAS and SCASDP. The testimony is based on previous GAO
    reports, interviews with Department of Transportation officials
    and industry representatives as well as program updates.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-793T
        ACCNO:   A68745
      TITLE:     Commercial Aviation: Programs and Options for Providing
    Air Service to Small Communities
         DATE:   04/25/2007
      SUBJECT:   Aircraft
    	     Airports
    	     Commercial aviation
    	     Federal aid programs
    	     Federal grants
    	     Future budget projections
    	     Grants to local governments
    	     Locally administered programs
    	     Passengers
    	     Program evaluation
    	     Program management
    	     Strategic planning
    	     Subsidies
    	     Community Flexibility Pilot Program
    	     Essential Air Service Program
    	     Small Community Air Service Development
    	     Program

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    GAO-07-793T

         * [1]Background
         * [2]The EAS Program Provides Service to Small Communities While

              * [3]EAS Provides Service to Many Communities Where Certain Facto
              * [4]Demand for EAS Subsidies Has Grown Over the Past Decade
              * [5]EAS Subsidies Vary In Relation to Numbers of Passengers
              * [6]Future Approach to EAS Service Uncertain Due to Changes in A

         * [7]The Small Community Grant Program Has Funded Some Successful

              * [8]SCASDP Grants Show Promise and Warrant Further Evaluation
              * [9]Grantees Used Many Strategies to Improve Air Service in Thei
              * [10]The Number of Grant Applications Has Declined

         * [11]Options Exist for Reforming EAS and Evaluating SCASDP

              * [12]Examine Options for Enhancing EAS

                   * [13]Targeting Subsidized Service to More Remote Communities
                   * [14]Better Matching Capacity with Community Use
                   * [15]Consolidating Subsidized Service Provided to Multiple
                     Commun
                   * [16]Changing Carrier Subsidies to Local Grants

              * [17]Vision-100 Small Community Pilot Programs and Initiatives Ha
              * [18]Recently Started DOT Evaluation of the Effectiveness of SCAS

         * [19]Contact Information
         * [20]GAO's Mission
         * [21]Obtaining Copies of GAO Reports and Testimony

              * [22]Order by Mail or Phone

         * [23]To Report Fraud, Waste, and Abuse in Federal Programs
         * [24]Congressional Relations
         * [25]Public Affairs

    Testimony

    Before the Subcommittee on Aviation, Committee on Transportation and
    Infrastructure, U.S. House of Representatives

    United States Government Accountability Office

    GAO

    For Release on Delivery
    Expected at 2:00 p.m. EDT
    Wednesday, April 25, 2007

    COMMERCIAL AVIATION

    Programs and Options for Providing Air Service to Small Communities

    Statement of Gerald L. Dillingham, Ph.D., Director
    Physical Infrastructure Issues

    GAO-07-793T

    Mr. Chairman and Members of the Subcommittee:

    We appreciate the opportunity to testify today on issues related to the
    Essential Air Service (EAS) and Small Community Air Service Development
    (SCASDP) programs. These are the principal federal programs that have been
    established to provide air service to small and underserved communities.
    Congressional deliberations on the reauthorization of the Federal Aviation
    Administration (FAA) are an opportune time to examine the status of
    federal air service to small and rural communities. As you know, small
    community air service helps connect small communities to other parts of
    the country and the world. However, such service has struggled over the
    past decade. The aviation industry has experienced financial losses in the
    last few years, though some airlines improved their financial conditions
    in 2006. However, the improvement in profitability of some airlines has
    not benefited small communities that face decreases in the number of
    available seats and scheduled flights. According to a key industry
    association, flights to small communities are the first flights to be
    eliminated due to their limited profitability. Specifically, in July 2006
    scheduled flights for small communities were 26 percent below the number
    of scheduled flights in July 2000. This has challenged small communities
    to obtain adequate commercial air service at reasonable prices.

    Although both EAS and SCASDP are designed to help support air service to
    small communities, the programs have several differences.^1 EAS,
    established as part of 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 2007, Congress appropriated about
    $109.4 million for the Department of Transportation (DOT) for EAS. These
    funds are essentially used to provide subsidies to air carriers who
    provide service to small communities. For fiscal year 2008, the
    administration, as part of its reauthorization proposal, requested $50
    million for the program. Congress established SCASDP in 2000 and has
    appropriated $20 million annually from 2002 through 2005 and $10 million
    for 2006 and 2007 for DOT to award up to 40 grants each year to
    communities that have demonstrated air-service deficiencies or
    higher-than-average fares.^2 For fiscal year 2008, the administration did
    not request funds for SCASDP.

    ^1Small 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.

    While federal programs to support air service to small communities face
    increasing financial expenditures, the federal government's financial
    condition and long-term fiscal outlook have 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.^3 Furthermore, in January 2007, we identified the challenges
    federal aviation programs are facing meeting growing infrastructure
    demands and constrained resources as part of one of GAO's high risk
    areas--namely, financing the nation's transportation system. These federal
    fiscal constraints lead to difficult policy choices for the best use of
    scarce resources.

    In light of these challenges, part of my testimony today will discuss
    options for reforming small community air service. But first, I will
    address (1) the history and challenges of the EAS program and (2) the
    implementation and outcomes of SCASDP. Then I will highlight (3) options
    for reforming EAS and SCASDP. My statement is based in part on the reports
    that we have issued related to these programs, in addition to recent
    interviews with and data from key stakeholders. We obtained information on
    the status of projects from the Office of the Secretary of the Department
    of Transportation (OST) and obtained information on the current issues in
    providing service to small communities from DOT and industry
    representatives. Based on assessments conducted during previous reviews,
    we concluded that the data are reliable for the purposes of this
    testimony. Appendix IV 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 and updated
    information in April 2007 in accordance with generally accepted government
    auditing standards.

    ^2In fiscal year 2005, DOT transferred $5 million of these funds from
    SCASDP to EAS. The 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 the 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."

    ^3GAO, 21st Century Challenges: Reexamining the Base of Federal
    Government. [26]GAO-05-325SP (Washington, DC: February 2005).

    In summary:

               o EAS provides service to many communities that would otherwise
               not receive air service. Without these subsidies, air service for
               many EAS communities would likely end, since EAS air carriers have
               to prove that they cannot serve EAS communities at a profit to be
               eligible for EAS payments. However, costs and other concerns about
               the program exist. In recent years, a growing number of
               communities have received subsidies under EAS--expanding from 95
               communities in fiscal year 1997 to 145 in fiscal year 2007.
               Similarly, funding for EAS has risen over this 10-year
               period--from $25.9 million in fiscal year 1997 to $109.4 million
               in fiscal year 2007. The median expenditure per passenger is about
               $98; subsidies to communities range from about $13 to $677 per
               passenger. While the total number of communities has risen,
               communities do drop out of the EAS program--some because their
               costs exceeded the program cap on costs per passenger.
               Furthermore, industry and DOT officials have raised concerns about
               the effect of the potential decrease in the number of air carriers
               and smaller aircraft suitable for EAS communities on the future
               EAS program. The limits on the federal budget, the increased costs
               along with concerns about the future of air carriers and planes to
               serve small communities, raise questions about ways to improve the
               program.
               o DOT has awarded 182 grants in the 5 years of the SCASDP
               program--74 of these are currently completed. In our review of the
               23 grants completed in 2005, we found that SCASDP grantees pursued
               a variety of goals and strategies for supporting air service, and
               some completed grants have been successful; however, the number of
               SCASDP grant requests has been declining. 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 include offering subsidies or
               revenue guarantees to airlines, marketing, and hiring personnel.
               We could not assess the overall effectiveness of the program,
               since few projects had been completed at the time; however, we
               found a little less than half had resulted in a self-sustaining
               improvement to air service. In response to our 2005
               recommendation, the Department of Transportation's Inspector
               General (DOT IG) began a review of completed grants in March 2007
               at DOT's request. The results of this review should provide
               further information on successful grants. Finally, although a
               number of communities found the grants helpful in attaining
               self-sustaining service, the number of applications for SCASDP has
               declined--from 179 in 2002 to 75 in 2006.^4 According to officials
               we interviewed, fewer communities might be applying due to a
               number of factors, including the fact that DOT's selection process
               favors communities that provide some matching funds that some
               communities might not be able to fund.

               o We have reported on options for changing EAS to potentially make
               it more efficient, including (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. Although these
               options might make the program more efficient and less costly,
               they could also reduce service to some areas. In addition, the
               2003 Vision 100-Century of Aviation Reauthorization Act
               (Vision-100) provided for a number of initiatives for the EAS
               program including marketing grants and an initiative whereby
               communities who forego their EAS subsidy for 10 years can get a
               grant for twice the amount of one year's EAS subsidy. These
               initiatives have not been implemented due partly to a lack of
               interest from EAS communities and a lack of dedicated funding. The
               administration's FAA reauthorization proposal would repeal some of
               these programs and initiatives. Regarding SCASDP, as we
               recommended, the DOT IG is conducting an evaluation of completed
               projects. The results of such an evaluation will be useful as
               Congress is considering the reauthorization of this program 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 the EAS and SCASDP programs.

               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 for 10 years communities served
               by air carriers before deregulation would continue to receive a
               certain level of scheduled air service^5 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.^6 In 1987, Congress extended the program
               for another 10 years, and in 1998, it eliminated the sunset
               provision, thereby permanently authorizing EAS.

    ^4The last SCASDP grants DOT granted were in 2006.

    ^5Special provisions guaranteed service to Alaskan communities.

    ^6Subsidies are used to cover the difference between a carrier's projected
    revenues and expenses and to provide a minimum amount of profit.

               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).^7 Air carriers apply to DOT
               for EAS subsidies. 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.^8

               Funding for EAS has come 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. ^9 Congress has
               appropriated additional funds from the general fund on an annual
               basis. The Department of Transportation's reauthorization proposal
               suggests changing the source of program funding to a mandatory
               appropriation of $50 million per year from the Airport and Airway
               Trust Fund. A new, small aviation fuel tax would be used to
               generate this $50 million. Furthermore, according to DOT
               officials, since $50 million would not sufficiently support all
               currently subsidized service, communities would be ranked in order
               of isolation, with Alaskan communities at the top of the list.
               Thus, some of the EAS communities currently receiving EAS
               subsidies under the roughly $100 million Congress has appropriated
               in recent years, might no longer receive air service.

    ^7The 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.

    ^8At 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.

    ^9Overflight 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).

               Turning now to SCASDP, Congress authorized it as a pilot program
               in the Wendell H. Ford Aviation Investment and Reform Act for the
               21st Century (AIR-21),^10 to help small communities enhance their
               air service. AIR-21 authorized the program for fiscal years 2002
               and 2003, and subsequent legislation^11 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. 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. Both small hubs
               and non hubs are eligible for this program. Thus, small hubs, such
               as Buffalo Niagara International Airport in Buffalo, New York,
               which enplaned over 2.4 million passengers in 2005, and small,
               nonhub airports, such in Moab, Utah (with about 2,600
               enplanements) are eligible. SCASDP grants are available in the 50
               states, the District of Columbia, Puerto Rico, and U.S.
               territories and possessions. DOT's SCASDP awards have been
               geographically dispersed.

               Figure 1 shows the location of all SCASDP grants awarded as of
               August 31, 2006, as well as communities receiving EAS subsidies as
               of April 1, 2007.

    ^10P.L. 106-181.

    ^11Vision 100, P.L. 108-176.

    Figure 1: Airports Receiving Essential Air Service as of April 2007 and
    All Small Community Air Service Development Program Grantees, through
    August 2006

    Source: GAO map of DOT data.

    The EAS Program Provides Service to Small Communities While Increasing EAS
    Subsidies Raise Concerns about the Cost and Efficiency of the EAS Program and
    Its Service Providers

    Mr. Chairman, as you know EAS provides service to many communities that
    otherwise would not receive air service. However, the increase in the
    number of communities receiving subsidies and the cost of these subsidies
    raise concerns over the funding needed to provide this service in an
    environment of federal deficits. For example, the funding for EAS has
    grown from $25.9 million in 1997 to $109.4 million in 2007. Furthermore,
    the federal median subsidy for providing air service to EAS communities is
    about $98 per passenger; the subsidies varied among communities from about
    $13 to over $677 per passenger in 2006. Finally, the number of air
    carriers flying smaller aircraft suitable for EAS communities may decrease
    and some industry officials are beginning to voice concerns about the
    availability of appropriate planes to provide small community air service
    in the future.

    EAS Provides Service to Many Communities Where Certain Factors Make Maintaining
    Service in Small Communities Difficult

    In fiscal year 2007, EAS provided subsidies to 145 communities. In fiscal
    year 2005, the most recent year for which passenger data is available, the
    EAS program supported over 1 million passengers. As we have noted in past
    reports, if EAS subsidies were removed, air service might end at many
    small communities. Since air carriers have to show financial data to
    support a subsidy calculation--proving the service is not profitable to
    run--it is likely that if the subsidy is no longer available commercial
    air service would end.

    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, replaced by regional carriers.^12
    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.^13 For example, the Commuter Rule
    required commuter air carriers that 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.^14
    Third, regional carriers have used fewer 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.^15

    12A 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.

    ^13Code 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.

    ^14Aviation and Transportation Security Act, Section 110 of P.L. 107-71,
    115 Stat. 597 (2001).

    Demand for EAS Subsidies Has Grown Over the Past Decade

    Mr. Chairman, although less than the 405 communities served with the help
    of EAS subsidies in 1980, the number of communities served by EAS has
    grown over the past 10 years, as has the amount of funds appropriated for
    the program. As shown in table 1, for fiscal year 2007, EAS is providing
    subsidies to air carriers to serve 145 communities--an increase of 50
    communities over the 1997 low point. The funding for EAS has also grown
    from $25.9 million in 1997 to $109.4 million in 2007. Excluding Alaska,
    this amounts to an average of about $754,500 per EAS community in fiscal
    year 2007. Appendix I lists EAS communities and their current subsidy
    amounts.

    Table 1: EAS Program Appropriations and Communities Served, Fiscal Years
    1993 through 2007

    ^a As of April 1, 2007

    Source: DOT.

    ^15 Low-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.

    While the total number of communities receiving service through EAS
    subsidies has generally increased, some communities have dropped from the
    program. For example, according to DOT officials 11 communities that had
    EAS subsidized service in 2006 were no longer in the program in 2007. Four
    of these were terminated by DOT because their subsidy rose above the EAS
    cap--Bluefield, WV; Enid, OK; Moses Lake, WA; and Ponca City, OK. Seven
    communities secured non-subsidized service. These communities included
    Hana, HI; Kalaupapa, HI; Kamuela, HI; Pierre, SD; Riverton, WY; Rock
    Springs, WY; and Sheridan, WY.

    EAS Subsidies Vary In Relation to Numbers of Passengers

    The level of subsidy per passenger at EAS communities varies greatly.^16
    At some locations, the level of subsidy per passenger is modest. For
    example, in 2006, of the 110 airports receiving EAS service for which data
    were available, 30 communities had subsidies of less than $50 per
    passenger. Some communities with relatively low subsidies per passenger
    included Escanaba, MI ($12.96) and Morgantown, WV ($13.68) both with
    almost 36 passengers per day. In contrast, 30 communities also had
    subsidies per passenger greater than $200. The highest subsidy at that
    time was $677 for Brookings, SD, and Lewistown, MT had an average subsidy
    of almost $473. These two areas had fewer than 3 passengers per day.
    Airports may maintain EAS service when subsidies exceed $200 dollars if
    they are more than 210 highway miles from a large or medium hub.

    As would be expected, a low number of passengers are associated with high
    subsidies. Of the 110 airports receiving EAS service for which data were
    available, 17 airports had fewer than 5 passengers per day. Such airports
    typically have a subsidy per passenger greater than $200--15 of the 17
    exceed the $200 threshold. Communities with less than 5 passengers per day
    also constitute half those with subsidies exceeding $200 (15 of 30). In
    contrast, 47 communities had at least 20 passengers per day, more than the
    capacity of a single 19-seat aircraft flight. All 47 of these airports had
    subsidies of less than $100 per passenger. See Appendix II for EAS
    Subsidies per Enplanement.

    ^16We are referring to average daily "enplanements" per day as passengers
    per day.

    Future Approach to EAS Service Uncertain Due to Changes in Air Carriers and
    Equipment

    DOT and industry officials we interviewed raised questions about the
    future of the EAS service as currently provided. As of April 1, 2007, 12
    regional air carriers served the subsidized communities in the continental
    United States. The carriers serving the communities in the continental
    United States typically used turboprop aircraft seating 19 passengers,
    whereas in Alaska and Puerto Rico, the most commonly used aircraft seated
    4 to 9 passengers.

    DOT and industry officials pointed out that 19-seat aircraft are no longer
    being manufactured, and some of the current EAS carriers appear to be
    migrating to the use of larger aircraft. DOT officials noted that EAS
    carriers are getting out of the business that uses 19-seat aircraft, and
    are moving into larger aircraft. In addition, industry consultants noted
    that as the current fleet of 19-seat aircraft ages, maintenance costs will
    likely rise, which will make operating 19-seat aircraft more expensive.
    Because 19-seat aircraft are the backbone of EAS service in the contiguous
    48 states, their aging or discontinuation would significantly affect the
    program. Figure 2 shows an example of a 19-seat Turbo Prop aircraft
    commonly used to provide EAS service.

    Figure 2: Picture of 19-Seat Turbo Prop Aircraft

    Finally, DOT and industry officials with whom we spoke were not convinced
    that the emerging technology of Very Light Jets (VLJs) could fill this
    gap, especially in the short term.^17 They noted that current business
    models discussed for VLJs did not anticipate their use for the kind of
    small communities served by EAS. DOT did provide a SCASDP grant to
    Bismarck, ND for developing a business model for point to point,
    reservation responsive air service using VLJs. The grantee has developed
    the business plan; however, given the lack of operating VLJs, they changed
    the type of aircraft the business would use until the aircraft become more
    available. We will be completing a more comprehensive report on VLJs for
    the subcommittee later this year.

    The Small Community Grant Program Has Funded Some Successful Projects

    Mr. Chairman, we found that SCASDP grantees pursued several goals and
    strategies to improve air service, and that air service was sustained
    after the grant expired in a little less than half of the 23 completed
    projects in 2005--the time of our initial review. The DOT IG's office
    began reviewing completed grants in March 2007 which should provide more
    information on the results of completed grants. Although the program has
    seen some success, the number of applications for SCASDP grants has
    declined for a variety of reasons.

    SCASDP Grants Show Promise and Warrant Further Evaluation

    At the time of our initial review of SCASDP, in 2005, it was too soon to
    determine the overall effectiveness of the program because there was not
    much information available about the "post" grant period. Once awarded, it
    may take several years for grants to be implemented and completed. There
    have been 182 grant awards made in the 5 years of the program. Of these,
    74 grants are completed as of April 1, 2007--34 from 2002, 19 from 2003,
    and 21 from 2004. No grants from 2005 or 2006 are yet completed. In
    addition, as of April 4, 2007, DOT had terminated seven grants it
    initially awarded.^18 See Appendix III for a list of all SCASDP grants
    from 2002 through 2006.

    ^17Very Light Jets are new small, lightweight, jet aircraft equipped with
    advanced avionics and priced below other business jets.

    ^18According to DOT officials, the agency initiated only one
    termination--for the grant awarded to Casper/Gillette, Wyoming. The
    communities awarded the other grants requested the termination of the
    grants.

    Our review of the 23 projects completed by September 30, 2005, found some
    successful 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 (see fig.3).
    In addition, during the course of the grant, enplanements rose at 19 of
    the 23 airports. After the 23 SCASDP grants were completed, 14 resulted in
    improvements that were still in place. Three of these improvements were
    not self-sustaining; thus 11 self-sustaining improvements were in place
    after the grants were completed.

    Since our review of the 23 completed projects, 51 more have been completed
    for a total of 74. We reviewed the fifty-nine available final reports. A
    review of the grantees' final reports for these projects indicated that 48
    increased enplanements as a result of their SCASDP grant.

    Figure 3: Air Service Improvement during the Course of 23 Grants and after
    Project Completion

    For SCASDP grants DOT awarded from 2002 though 2004, we surveyed airport
    officials to identify the 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. 4 for the number and types of project goals identified
    by airport directors.)

    Figure 4: 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.

    Finally, in our 2005 report, we recommended DOT evaluate the SCASDP grants
    after more were completed to identify promising approaches and evaluate
    the effectiveness of the program. DOT officials told us that they asked
    the DOT IG to conduct such a study, which the IG began in March 2007. DOT
    expects to have preliminary observations available by the middle of May.
    Results from this work may help identify potential improvements and
    "lessons learned."

    Grantees Used Many Strategies to Improve Air Service in Their Communities

    To achieve their 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. 5.) In
    addition, other strategies that grantees have used are subsidizing the
    start-up of an airline, taking over ground station operations for an
    airline, and subsidizing 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 5: 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.

    The Number of Grant Applications Has Declined

    Since the inception of the program, there has been a steady decline in the
    number of applications. 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. Grant applications for 2007 are not due
    until April 27, 2007. According to a DOT official, almost all applications
    arrive on the last day, so the number of 2007 applications cannot be
    estimated at this time. DOT officials said that the past 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 fulfilling the local contribution
    commitment part of the grant proposal; and (3) statutory 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.^19 According to DOT officials,
    DOT has interpreted that a project is the "same project" if it employs the
    same strategy. For example, once a community has used a revenue guarantee,
    it cannot use a revenue guarantee on another project.

    A DOT official noted that, with many communities now completing their
    grants, they may choose to apply for another grant. Some communities have
    received second grants; however DOT officials indicate first time
    applicants get more weight in the grant selection process. Revisiting
    selection criteria may increase the access to SCASDP grants and increase
    service to small communities.

    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 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.^20 In that 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 other
    words, Congress will need to make difficult decisions including defining
    the role of the federal government in various sectors of our economy and
    identifying who will benefit from its allocation of resources.
    Furthermore, given that we have reported that subsidies paid directly to
    air carriers have not provided an effective transportation solution for
    passengers in many small communities,^21 these programs may be ones for
    which Congress may wish to weigh options for reforming EAS and assess
    SCASDP's effectiveness once DOT completes its review of the program.

    ^19The authorizing statute 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 statute 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.

    ^20 [27]GAO-05-325SP.

    Examine Options for Enhancing EAS

    In previous work, we have identified options for enhancing EAS and
    controlling cost increases. These options include targeting subsidized
    service to 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 not possible to assess
    their impact. Let me now briefly discuss each option, stressing at the
    outset that each presents potential negative, as well as positive,
    impacts. The changes might positively affect the federal government
    through lowered federal costs, and participating communities through
    increased passenger traffic at subsidized communities, and enhanced
    community choice of transportation options. Communities that could be
    negatively affected might include those in which passengers receive less
    service or might lose scheduled airline service.

      Targeting Subsidized Service to More Remote Communities

    One option would be to target subsidized service to more remote
    communities. This option 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. In examining EAS communities, we found that, if the
    distance criterion were increased to 125 highway miles and the qualifying
    airports were expanded to include small-hub airports 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.

    ^21GAO, Commercial Aviation: Factors Affecting Efforts to Improve Air
    Service at Small Community Airports, [28]GAO-03-330 (Washington, D.C.:
    January 2003).

    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.

    The administration's reauthorization proposal also would prioritize
    isolated communities, but in a somewhat different way. Under its approach,
    if insufficient funding for all communities exists, the communities would
    be ranked in terms of driving distance to a medium or large hub, with the
    more isolated communities receiving funding before less isolated
    communities. This change would protect isolated communities, but could
    result in subsidies being terminated for communities with relatively low
    per passenger subsidies.

      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. In 2005, the most recent
    year for which data are available, 17 EAS airports averaged fewer than 5
    passenger boardings per day. 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.

    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, such as Beckley, 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.^22

      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. For example, in 2002 we
    found that 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
    other neighboring airports. The marginal cost of operating the flight
    segments to the other airports may be small in relation to the cost of
    operating the first flight. 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, some 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.

    As with other options, the potential impact of regionalization 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 potentially improved service at 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. Some industry
    officials to whom we spoke indicated regional airports made sense, but
    selecting the airports would be highly controversial.

    ^22As 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).

      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 space 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, for communities to receive
    a SCASDP 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 approach 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 some cases
    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 SCASDP 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 viability 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. Such communities would need a new grant each year. In addition,
    the grant approach normally includes a local cash match, which may be
    difficult for some EAS communities to provide. This approach could
    systematically eliminate the poorest communities, unless other sources of
    funds--such as state support or local industry support--could be found for
    the match, or some provision for economically distressed communities is
    made.

    Vision-100 Small Community Pilot Programs and Initiatives Have Not Progressed

    Congress authorized several pilot programs and initiatives designed to
    improve air service to small communities in Vision-100. These programs and
    initiatives have not progressed for various reasons. In two cases,
    communities have not indicated interest in the programs. In one instance
    Congress decided to prevent DOT from implementing the program. In three
    cases, DOT officials cited a lack of sufficient funds to implement the
    programs.

    Vision-100 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 one year's EAS subsidy. The funds
    may be used to improve airport facilities. DOT has solicited proposals for
    this program; however, according to a DOT official, no communities
    expressed any interest in participating. This is likely because no
    community was willing to risk the loss of EAS subsidies for 10 years in
    exchange for only 2 years of funding. Likewise, the Alternate Essential
    Air Service Pilot Program, which allows the Secretary of Transportation to
    provide assistance directly to a community, rather than paying
    compensation to the air carrier, elicited no interest from communities.
    Under the pilot program, communities could provide assistance to air
    carriers using smaller aircraft, on-demand air taxi service, provide
    transportation services to and from several EAS communities to a single
    regional airport or other transportation center, or purchase aircraft. The
    administration's draft FAA reauthorization bill would repeal these pilot
    programs.

    Another program, 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. The
    administration's draft FAA reauthorization bill would repeal this pilot
    program.

    Three additional initiatives authorized by Vision-100 have not been
    implemented, in part due to a lack of dedicated funding. Section 402 of
    Vision-100 allows DOT to adjust carrier compensation to account for
    significantly increased costs to carriers. For example, an air carrier
    that has a contract to provide air service can apply for an adjustment due
    to an increase in its costs. If this increase is granted, the air carrier
    has increased its revenue without having to competitively bid for the
    contract. The initiative also provided for a reversal of this adjustment
    if the costs subsequently declined. DOT officials indicated that a concern
    they have with this initiative is that an air carrier could win a 2-year
    contract with a low estimate, and open it again to obtain more funds
    without facing competition.

    Also, the Section 410 marketing incentive program, which could provide
    grants up to $50,000 to EAS communities to develop and execute a marketing
    plan to increase passenger boardings and usage of airport facilities, was
    not implemented. DOT officials explained that with the uncertainty of the
    number of communities that would need EAS subsidies and the cost of those
    subsidies, using EAS subsidy funding for this marketing incentive program
    could put the subsidies at risk. One industry group suggested dedicated
    funding might improve the use of this program. The administration's draft
    FAA reauthorization bill would repeal this marketing incentive program.

    Finally, Section 411 of Vision-100 authorized the creation of a National
    Commission on Small Community Air Service to recommend how to improve
    commercial air service to small communities and the ability of small
    communities to retain and enhance existing air service. This provision was
    likewise not implemented because funds were not specifically appropriated,
    according to DOT officials. Such a commission may have been helpful in
    developing approaches to deal with difficult policy decisions, such as
    regionalizing air service. DOT plans to host a symposium to bring industry
    experts together to identify regulatory barriers and develop ideas for
    improving air service to small communities which may be a step in the
    right direction. DOT officials acknowledge that this symposium should be
    held soon to inform reauthorization deliberations.

    Recently Started DOT Evaluation of the Effectiveness of SCASDP Should Add
    Information on the Effectiveness of SCASDP

    In 2005, we recommended that DOT examine the effectiveness of SCASDP when
    more projects are complete; and the DOT IG recently began this
    evaluation.^23 Since our report, an additional 48 grants have been
    completed and DOT will be able to examine the results from these completed
    grants. Such an evaluation should provide DOT and Congress with additional
    information about not only whether additional or improved air service was
    obtained, but whether it continued after the grant support ended. In
    addition, our prior work on air service to small communities found that
    once financial incentives are removed, additional air service may be
    difficult to maintain. This evaluation 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.

    In conducting this evaluation, DOT could 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 certain strategies
    for attracting improved service. DOT officials could use the results of
    the DOT IG's evaluation to identify strategies that have been effective in
    starting self-sustaining improvements in air service and 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
    a unique 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 in attracting additional service. In
    addition, the SCASDP program has shown that there is a strong demand on
    the part of small community airports to improve enplanements through
    various marketing strategies. Successful marketing efforts could increase
    enplanements, thus driving down the per passenger subsidy. Sharing
    information on approaches like these 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 transportation 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. Enough experience has now been gained
    with this program for a full assessment, and with that information 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.

    ^23GAO, Initial Small Community Air Service Development Projects Have
    Achieved Mixed Results, [29]GAO-06-21 (Washington, D.C.: Nov. 2005).

    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 Dr. Gerald L.
    Dillingham at (202) 512-2834 or dillinghamg@gao.gov . Individuals
    making key contributions to this testimony and related work include Robert
    Ciszewski, Catherine Colwell, Jessica Evans, Colin Fallon, Dave Hooper,
    Alex Lawrence, Bonnie Pignatiello Leer, and Maureen Luna-Long.

    Appendix I: Essential Air Service Communities and Subsidies as of April 1,
    2007 Oklahoma

    Table 2: Essential Air Service (EAS) Communities and Their Subsidies
    Excluding Alaska, April 1, 2007

    Source: DOT officials.

    Table 3: Alaskan EAS Communities and Their Subsidies, April 1, 2007

    Source: DOT officials.

    Appendix II: EAS Subsidies per Enplanement

    Table 4: EAS Subsidies per Enplanment

    Source: DOT officials.

    Notes: Subsidies rates are more recent than enplanement data; however,
    this is the most closely timed data sets available.

    1/ Incomplete traffic data.

    2/ Service hiatus.

    Appendix III: Small Community Air Service Development Program Grantees,
    Year Grant was Awarded, Grant Amounts and Grant Status as of April 1, 2007

    Table 5: SCASDP Grantees and Grant Status

    Source: DOT officials.

    Appendix IV: Related GAO Products

    Airport Finance: Preliminary Analysis Indicates Proposed Changes in the
    Airport Improvement Program May Not Resolve Funding Needs for Smaller
    Airports. [31]GAO-07-617T Washington, D.C.: March 28, 2007.

    Commercial Aviation: Programs and Options for the Federal Approach to
    Providing and Improving Air Service to Small Communities. [32]GAO-06-398T
    Washington, D.C.: September 14, 2006.

    Airline Deregulation: Reregulating the Airline Industry Would Reverse
    Consumer Benefits and Not Save Airline Pensions. [33]GAO-06-630
    Washington, D.C.: June 9, 2006.

    Commercial Aviation: Initial Small Community Air Service Development
    Projects Have Achieved Mixed Results. [34]GAO-06-21 Washington, D.C:
    November 30, 2005

    Commercial Aviation: Survey of Small Community Air Service Grantees and
    Applicants. [35]GAO-06-101SP . Washington, D.C.: November 30, 2005

    Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of
    Underlying Structural Issues. [36]GAO-05-945 Washington, D.C.: September
    30, 2005

    Commercial Aviation: Legacy Airlines Must Further Reduce Costs to Restore
    Profitability. [37]GAO-04-836 Washington, D.C.: August 11, 2004

    Commercial Aviation: Issues Regarding Federal Assistance for Enhancing Air
    Service to Small Communities. [38]GAO-03-540T . Washington, D.C.: March
    11, 2003

    Federal Aviation Administration: Reauthorization Provides Opportunities to
    Address Key Agency Challenges. [39]GAO-03-653T . Washington, D.C.: April
    l0, 2003

    Commercial Aviation: Factors Affecting Efforts to Improve Air Service at
    Small Community Airports. [40]GAO-03-330 Washington, D.C.: January 17,
    2003

    Commercial Aviation: Financial Condition and Industry Responses Affect
    Competition. [41]GAO-03-171T . Washington, D.C.: October 2, 2002.

    Options to Enhance the Long-term Viability of the Essential Air Service
    Program. [42]GAO-02-997R . Washington, D.C.: August 30, 2002.

    Commercial Aviation: Air Service Trends at Small Communities Since October
    2000. [43]GAO-02-432 . Washington, D.C.: March 29, 2002.

    (540148)

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    Highlights of [51]GAO-07-793T , a testimony to the Subcommittee on
    Aviation, Committee on Transportation and Infrastructure, U.S. House of
    Representatives

    April 25, 2007

    COMMERCIAL AVIATION

    Programs and Options for Providing Air Service to Small Communities

    Congress established two key programs to help support air service to small
    communities --the Essential Air Service (EAS) providing about $100 million
    in subsidies per year and the Small Community Air Service Development
    Program (SCASDP) that provides about $20 million per year in grants. As
    part of its reauthorization of the Federal Aviation Administration (FAA),
    the Congress is examining the status and outcomes of these programs.

    This testimony discusses (1) the history and challenges of the EAS
    program, (2) the implementation and outcomes of the SCASDP and (3) options
    for reforming EAS and SCASDP. The testimony is based on previous GAO
    reports, interviews with Department of Transportation officials and
    industry representatives as well as program updates.

    EAS subsidies support air service to many small communities that would
    likely not have service if EAS subsidies are discontinued. Since 1997,
    funding for EAS has increased from $25.9 million in 1997 to $109.4 million
    in 2007 and the number of communities has generally increased. The federal
    government is spending a median of about $98 per passenger, with subsidies
    ranging from about $13 to $677 per passenger. Concerns exist about the
    costs of the program, particularly given the federal government's
    long-term structural fiscal imbalance. In addition, according to industry
    representatives, the number of air carriers flying aircraft suitable for
    EAS communities may decrease, raising concerns about the availability of
    appropriate aircraft to provide small community air service in the future.

    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. Our analysis of the 23 grants
    completed by October 1, 2005, found that air service was sustained after
    the grant expired in a little less than half of the projects. Finally,
    although the program has seen some success, the number of applications for
    SCASDP grants has declined--from 179 in 2002 to 75 in 2006.

    As we have reported, options for reforming EAS, such as consolidating
    service into regional airports might make the program more efficient, but
    also could reduce service to some communities. Further, Congress may be
    able to use some "lessons learned" from marketing and other successful
    SCASDP strategies that may help it make the current programs more
    effective.

    Example of a 19-seat Turbo Prop Aircraft Serving Small Communities

    References

    Visible links
      26. http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP
      27. http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP
      28. http://www.gao.gov/cgi-bin/getrpt?GAO-03-330
      29. http://www.gao.gov/cgi-bin/getrpt?GAO-06-21
      31. http://www.gao.gov/cgi-bin/getrpt?GAO-07-617T
      32. http://www.gao.gov/cgi-bin/getrpt?GAO-06-398T
      33. http://www.gao.gov/cgi-bin/getrpt?GAO-06-630
      34. http://www.gao.gov/cgi-bin/getrpt?GAO-06-21
      35. http://www.gao.gov/cgi-bin/getrpt?GAO-06-101SP
      36. http://www.gao.gov/cgi-bin/getrpt?GAO-05-945
      37. http://www.gao.gov/cgi-bin/getrpt?GAO-04-836
      38. http://www.gao.gov/cgi-bin/getrpt?GAO-03-540T
      39. http://www.gao.gov/cgi-bin/getrpt?GAO-03-653T
      40. http://www.gao.gov/cgi-bin/getrpt?GAO-03-330
      41. http://www.gao.gov/cgi-bin/getrpt?GAO-03-171T
      42. http://www.gao.gov/cgi-bin/getrpt?GAO-02-997R
      43. http://www.gao.gov/cgi-bin/getrpt?GAO-02-432
      51. http://www.gao.gov/cgi-bin/getrpt?GAO-07-793T
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