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A closer look at the Federal Aviation Administration imbroglio

28-Jul-2011

As CAPA has reported, there was no reconciliation between the House and Senate versions of the Federal Aviation Administration funding extension and non-essential staff, as well as those employed on FAA-funded airport projects, have been furloughed.

While in politics there are few simple truths, the ostensible cause of this stand-off was the insistence of the House that Essential Air Service (EAS) subsidies be suspended to a number of small towns, beginning with those receiving a subsidy in excess of $1000 per passenger.

Department of Transportation Secretary Ray LaHood has been making points by on the news rounds touting how many jobs and how much economic activity is being lost by congressional diddling. The estimate is 4000 FAA staff and up to 90,000 private sector construction jobs.

The flaws of EAS

The EAS programme has been an ongoing source of political angst but the politicians have always won the day. The Bush Administration wanted to kill the programme and did everything possible to do just that. Indeed, it became known as the death-by-a-thousand-cuts programme. 

The sad thing is that it has never lived up to its potential simply because of the way it was administered — in two-year contracts which forestalled long-term, less-expensive aircraft leases. The entire idea was to pay regionals enough to develop the service but there was no way to do that with the minimal frequencies and usually below-cost remuneration. Add the two-year time limit and you have a perfect formula that was doomed to failure. It was a good idea badly administered.

The question then becomes how far EAS communities are from alternative air service. Most people – metropolitan or rural – have to drive at least an hour to get to the airport whether because of traffic, roads or distance. However, the DOT put arbitrary mileage requirements on EAS and then used as-the-crow-flies metrics to determine whether a point was within the radius required. That did not work, as distance is only one component of viability.

All of these factors came together in the recent reauthorisation bill and, as is the wont of politicians, the opposition chose to showcase some points where the system has gone badly wrong.

Exhibit A in this lineup was Ely, Nevada, where Great Lakes Aviation receives USD1.8 million per year to operate a daily Beechcraft 1900 to Las Vegas as a United Express/Sky West connection. The 19 passenger aircraft has a scheduled operational time of 1h15m to cover the 222 miles which is well outside the reasonable range for driving.

According to documentation produced by the bill’s sponsors, the cost per passenger for this access was USD3720 in the last fiscal year, though passengers using the service only pay between USD70 and USD150 for a one-way flight.

A call to the airport revealed 227 to be the number of enplaned passengers at ELY for all of 2010 — less than one per day. The airport spokesperson did not have a figure for total passengers, but a doubling of the 227 outbound to around 460 is probably a reasonable figure.

Ely is located near the eastern border of Nevada, roughly halfway along that long north-south line. Ely is located in White Pine County, with a 2010 census population of 4255, not quite half of the county’s 10,000 residents. According to the statistics available online, the city has grown by about 2% each year in the 21st century.

Statistical picture

In 2009, the median household income was USD43,764 with a per capita income of USD22,945. Its population is 75% white with over 50% of the residents tracing their heritage to Europe. From 2008 to 2010, there were two new residential housing construction permits issued and the population density of 568 per square mile is very low.

Its unemployment rate is about the national average at roughly 9.3%. Nearly 30% of its workers are employed in public administration, with 12% engaged in law enforcement. A bit more than 30% work in either construction or natural resources (mining, gas, oil) extraction.

There are three hospitals “nearby”, the closest being 122 miles and the furthest 129 miles. While there are elementary and high schools in the city, the nearest college or university is in Utah, almost 150 miles away.

The median home value is below the Nevada State average, as are the black population, foreign-born population and number of residents with a college degree. The median age (40.7) is above the state average (35).

The city is located between Las Vegas and Salt Lake City, each about a 4-hour drive away. Driving to LA takes about 8.5 hours.

EAS in concept

The Essential Air Service concept is based on the proven economic benefits provided by aviation. As noted, the rationale has been that communities lacking air links become isolated and cannot grow their economic base. Against that presumption, the government provides the USD1.8 million annual subsidy for Ely’s sole flight, which operates on the following schedule:

Ely daily flight schedule

LAS

ELY

LAS

1450

1605/1615

1730

Anyone in the regional airline business knows that the minimum requirement for viable air service is three flights a day – morning, noon and night. What built the US regional airline industry was five flights daily.

According to the plan, this air link provides Ely access to the broader world and its opportunities. The next table presents the cost and enroute times to three US destinations. Because there is but one daily connection possibility at Las Vegas, the onwards possibilities are somewhat limited and require multiple connections.

Also shown are the non-stop timings and fares available by driving four hours to either LAS or SLC. The contrasts are stunning. Including driving and check in times of about six hours, one can travel to LAX in seven hours for USD75 as opposed to the 40-hour, USD627 journey applicable to a “direct” flight. In eight hours, a passenger can drive the full distance to LA. Similar negative comparisons exist to New York and Seattle.

Round trip 8/02-8/16

ELY to

Travel time*

Fare

LAX

40H/22H

$627

NYC

17H/9H

$790

SEA

19H/9H

$888

LAS to

   

LAX

1H

$75

NYC

5H

$587

SEA

2H

$318

SLC to

   

LAX

2H

$309

NYC

5H

$449

SEA

2H

$398

If the goal of the EAS is to provide air links to major business and population centres, the USD1.8 million spent on Ely’s flight is falling far short of the goal. But, the Senate Majority Leader, Harry Reid, is from Nevada and that might do more to explain the continued service than an economic and/or operational investigation.

We are theoretically in a deregulated time, when government and regulators have less influence in the marketplace. In many places that is true, but even in the US, homeland of deregulation, there continue to be numerous example of ongoing market interference.

As usual, the story is bigger than the example

So, like Washington, the EAS issue is messed up, mired in a political, rather than an economic, world. What is needed is a complete revamp of the programme, with better guidelines and a better offer for those points included in the programme.

As in the case with Ely, a single daily service, poorly timed for connections and uncompetitively priced, is doomed to failure by any measure. A “service” that requires 40 hours and USD600 to cover a journey accomplished in eight hours by car demonstrates that subsidies alone are not the answer.

And yet, there must be a way to keep points connected in the lower 48. Congress would exempt Hawaii and Alaska from the death of the EAS program due to lack of roads. But those states have each coped in a different way. Hawaii has low, inter-island fares that make travel practical and support the state’s primary industry, tourism. And Alaska has, over decades, patched together a weird but functional system of air support for remote communities.

But on the mainland, no such system has evolved and it is clear that the current structure of the EAS has failed to create an efficient and affordable program for places like Ely.

While it is easy to take a cheap shot at a USD200 million programme, especially using outlandish statistics of per-passenger subsidies such as those at Ely – everyone’s poster child for government waste – the issue is far more complex. Especially when one considers the entire programme is equal to what can be considered governmental chump change. But even if a small expenditure in the greater fiscal scheme, if it doesn’t work, it is wasted capital.

Some are now calling for regionalism for community air service, which can best be described by quoting Boyd Group International President Mike Boyd. “Muskegon has great air service,” he said. “It’s called Grand Rapids.”

He further stated an airport that is 50-minutes away really is local and noted that the viability of Muskegon (MKG) was determined by the passengers who now fly out of Grand Rapids. MKG’s 100 outbound seats cannot compete with the choices offered by the 65 departures and 4700 outbound seats at its neighbouring airport.

Compounding this is the fact the current airline economics just don’t fly for many small airports where regional aircraft are saddled with high maintenance costs and even higher fuel costs that is driving the 50-seat jet to extinction.  

Even more costly

As the fulcrum in this particular dispute, Ely has drawn attention to a well-intentioned programme that has gone awry not only because of the of EAS mismanagement but also because airline industry economics have changed. In this case, its problems formed the nexus for a much more damaging outcome. The FAA budget was sacrificed for lack of agreement and thousands of employees across the nation are part of the escalating cost.


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