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Economic and Financial Analysis of Essential Air Service Subsidy Program

Description:

The Essential Air Service (“EAS”) program provides subsidy support for scheduled air service to small rural and isolated communities. The EAS program was created in the legislation deregulating the domestic airline industry in 1978 and was intended to provide a more cost effective and efficient subsidy program than the local service air carrier subsidy program it replaced. It was also intended to be temporary, with a 10 year authorization. The EAS program continues to this day with approximately 100 communities receiving subsidized air service. Subsidy is reported to range from under $10 per passenger to over $5,000. Currently, the cost of the program is approximately $200 million per year. Over time, there have been repeated efforts to repeal or substantially curtail the program, but only modest adjustments have been made. Typically the program and subsidized air service are defended as vital to the economic health of the community benefiting from the service. However, it appears that a systematic, rigorous quantitative analysis of the impacts of the program has not been previously attempted. Likewise an analysis of alternative methods of providing EAS communities with links to the national air transportation system has not been undertaken. With renewed calls to repeal or curtail the EAS subsidy program in the name of fiscal responsibility in the news and with the program again being defended to preserve and enhance local economies, the time is ripe for a systematic analysis of the program.

Objective:

The objective of the research will be a thorough, well supported economic and financial analysis of the EAS subsidy program. The analysis will include three elements. The first is a benefit-cost analysis model that can be applied to individual EAS communities or categories of communities. The objective is a model that can be easily applied by individual communities or policy makers to compare the benefits and costs of maintaining subsidized scheduled air service at individual communities. The model should also permit the aggregation of communities along multiple criteria, e.g. traffic volume or distance from hub airports, to assist policy makers in reviewing changes to eligibility criteria.

The second element is a model that can be applied to assess the economic impact of the EAS subsidy program for individual communities or group of communities. Continuation of EAS is also justified on the grounds of its positive economic impact in the community. The objective of this element is a model that can be easily applied by individual communities or policy makers to determine the economic impact of maintaining (or conversely eliminating) subsidized scheduled air service at individual communities. The model should also permit the aggregation of communities along multiple criteria, e.g. traffic volume or distance from hub airports, to assist policy makers in reviewing changes to eligibility criteria. The third element is an assessment of alternative means to provide access to the national air transportation system to communities with subsidized EAS. Alternatives might include changes to the minimum standards for EAS, consolidation of service for communities in close proximity, charter, rather than scheduled air service, or ground transportation services. The objective of this element is to assess the ;potential cost savings of alternative means of providing access and to assess the effectiveness of these alternatives in meeting the goal of providing connectivity to the national air transportation system.

Sponsoring Committee:AV020, Aviation System Planning
Research Period:12 - 24 months
Date Posted:12/13/2015
Date Modified:03/09/2016
Index Terms:Rural areas, Subsidies, Airport operations, Airlines, Economic benefits, Regional planning, Essential Air Service program,
Cosponsoring Committees: 
Subjects    
Aviation
Planning and Forecasting
Economics
Policy

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