The US Government Program That Pays For Your Flights

A quite reasonable question would be why the American government is paying United Airlines $4,780,955 a year to fly from their hub in Newark to the small, northern Maine town of Presque Isle. The question could also be asked for why they pay Boutique Air $3,328,207 a year to fly from Dallas and Houston to the small Texan city Victoria, or why United Airlines is paid $2,317,073 a year to fly from Denver to Pueblo, Colorado. Well, these are subsidies, and in some cases, quite hefty ones. Take that flight from Houston to Victoria, Texas. Boutique will sell one of the seats on their small prop plane for as low as $54 on this route. The government, however, will chip in an additional $380 per passenger through this subsidy. Lastly, for Denver to Pueblo, United sells tickets for $86 but then pockets $282 from the government. Each of these routes and hundreds more around the US are part of a little-known US government program called the Essential Air Service. The premise of the program is simple. For the most part, and of course there are exceptions, flying to small towns is not profitable for commercial airlines. This makes sense. When operating an airline, there are a number of fixed costs for every flight operated. No matter if an aircraft seats six passengers or 600, an airline is going to need to have check-in agents, baggage handlers, gate agents, pilots, dispatchers, sales agents, and more. Since those fixed costs are distributed between fewer passengers with smaller planes, the cost to operate per passenger tends to get higher when you get down to the smallest sizes of planes. Of course, airlines could compensate for this by raising fares on these routes, but, like many countries, the US has a significant economic divide between its rural and urban parts. In general, the more populated a place is, the wealthier its inhabitants are. So, say there’s a city of 1 million and a town of 10,000. Barring any other variables, you would expect the demand for flights in the city of 1 million to be about 100 times greater than in the town of 10,000 since its population is 100 times greater, but when you add the real-world variable of income, knowing that those in the town of 10,000 earn less, demand would go down for flights from the town since its inhabitants are less able to pay. Therefore, considering income, you might expect to have 150 times more demand from the city, even though its population is only 100 times greater. When you then add the variable of price, given that tickets average more expensive from smaller towns, that would further reduce their demand so now, the city might have 200 times more demand, despite having only 100 times higher population. Of course, airlines need demand to make a route viable. Even if they’re only flying a tiny plane to that 10,000 person town daily, they still need seats filled to make it commercially successful. As we’ve just demonstrated, demand decreases exponentially the smaller a town gets so the number of small towns that would actually prove to be commercially viable to airlines in the US is small. That’s not to say they don’t exist, though. For example, let’s look at Colorado’s 13 commercial airports—Grand Junction, Cortez, Durango, Telluride, Montrose, Gunnison, Aspen, Hayden, Eagle County, Alamosa, Pueblo, Colorado Springs, and Denver. Of these, clearly Denver and Colorado Springs, as cities, are not going to be subsidized, but then the remaining 11 airports are all in fairly small towns. However, of these eleven, only the service to Cortez, Alamosa, and Pueblo are subsidized with the Essential Air Service program. Now, this is interesting considering that Gunnison has a smaller population than Cortez, Hayden has a smaller population than Alamosa, and Grand Junction has a smaller population than Pueblo. The difference between these three subsidized airports and all the other small ones is that these are all in the mountains. Cortez, Alamosa, and Pueblo are not. That means that all these other airports are near ski resorts and therefore have strong inbound demand from tourists. This is the major circumstance when service to small towns is commercially viable alone—when it serves tourist hotspots—but in other cases, it’s just extremely rare for these type of routes to make enough money for it to be worth it airlines. So, very simply, the idea of the Essential Air Service program is to close the gap between what it takes for a route to be worth it an airline and how much they’ll earn from operating to a small city. Through a bidding process, airlines will be granted the contract to operate these routes, getting paid anywhere from $144,000 a year—as in the case of Mokulele Airlines’ service from Kahului to Hana, Hawaii—up to $4.7 million a year—as in the case of United’s service from Newark to Presque Isle, Maine. Now, airlines are paid per flight operated, not per passenger, which means that they will happily and regularly operate flights with just a couple or no passengers. Plenty of airlines running EAS routes would be profitable without selling a single ticket—solely through the government’s payment—so a whole industry has arisen around servicing these routes. While the large airlines like United, Delta, and American do bid and operate these routes, the smallest plane they each operate is a 50-seat CRJ-200. Plenty of these routes have far less demand than that, even if there’s just one daily flight. That’s why smaller airlines have evolved. Take the example of Air Choice One. They’re a tiny airline operating a dozen Cessna Grand Caravans from Minneapolis to Ironwood, Mason City, and Fort Dodge; Chicago to Ironwood, Mason City, and Burlington; Mason City to Fort Dodge and Burlington; St Louis to Burlington, Fort Dodge, Jonesboro, and Jackson; and then finally Atlanta to Jackson. Of Air Choice One’s thirteen routes, every single one is subsidized by the Essential Air Service. The airline earns $15.7 million in revenue yearly through this before actual ticket sales. These sorts of small, regional airlines, of which there are dozens in the US, would likely not exist without the Essential Air Service program as the type of flying they do would certainly not be profitable. Worth mentioning is that a system of subsidies for routes to small towns is not unique to the US. In Europe, they’re known as Public Service Obligation routes, or PSOs. This system is a little more complicated than the US’ with varying terms for when and how airlines get paid, but the amount of compensation varies quite a bit more than in the US. For example, in the UK, the effective per-passenger subsidy ranges all the way from $4.57 for FlyBe’s route from London Heathrow to Newquay, up to, apparently, more than $1,000 per passenger in the case of Airtask’s routes in the Shetland Islands. The US, though, has more federally subsidized routes than the entirety of the European Union because, after all, the geography of the US is quite different. The US is one of the least dense developed countries in the world. If the population of the US lived as densely as that of the UK, it would fit comfortably in just California, Nevada, Utah, and Arizona. Given this spread, it does have an issue with transport. The rural areas of the US are just hard to get to and from, and this can make a bad economic situation worse. As just one example, companies can and have made the decision to move their operations, whether factories or headquarters, from smaller towns to bigger ones in order to be closer to large airports. Outside the US, transport to rural areas is often provided by train and, while part of the reason for the US’ minimal development of passenger railroads is lack of interest, it would also be tough, in many places, to build a financially viable passenger railroad due to the country’s vastness. Without these flights, the only public transportation in or out of much of rural America would be the bus, at best. In the lower 48, this program helps communities. In Alaska, though, there are plenty of communities that quite literally would not exist without these subsidies. 65 of the US’ 179 EAS routes are within the state of Alaska. A big reason for that is that only 14% of Alaska’s municipalities are connected to the outside world by road. The state is just so vast and harsh that building roads to most of these areas wouldn’t make sense. In place of roads, Alaska’s rural towns have airports, meaning that, in many cases, their essential air service subsidized flights are the only ways in or out. So, the way the Essential Air Service works is clear, but is it effective at its goal of elevating the economy of rural areas of America? Well, according to one of the most comprehensive studies done on the matter in recent years, every 1% increase in passenger traffic at a subsidized airport leads to the per-capita income of that community increasing by 0.12%. It’s tough to know exactly how much of a passenger number increase the program leads to, but this at least serves as evidence that the underlying supposition of the program, that air service leads to economic opportunity, is true. What’s also true, though, is that the Essential Air Service program is not as efficient as it could be. For example, for the longest time, Southern Airways Express has been getting $2.3 million a year to fly from Hagerstown, Maryland to Pittsburg and Baltimore. That’s despite the fact that BWI airport is just 67 miles or 108 kilometers away from Hagerstown. In the air, the flight takes about 30 to 40 minutes, given the slow speed of the Cessna Grand Caravan. Driving between the two airports takes about 70 to 80 minutes and, for anyone without a car, there are commercial airport shuttles operating between Hagerstown and BWI. What’s more, Hagerstown is also an hours drive from DC’s National and Dulles Airports, and Hagerstown Airport even has regular, non EAS-subsidized routes to Myrtle Beach, Orlando, and Tampa. It’s safe to say that a town like Hagerstown is benefiting far less from its multi-million dollar subsidy than a town like Adak, Alaska. That’s why, in late-October, 2019, Hagerstown got the axe. It will no longer be subsidized by the Essential Air Service program. Under increased scrutiny, the requirements for this program have gotten stricter and stricter in recent years. Nowadays, to be eligible, a community has to be more than 70 miles or 110 kilometers from the nearest major airport, has to cost the government less than $200 per passenger if its within 210 miles or 340 kilometers of the nearest major airport, and has to average more than 10 passengers per day unless its further than 175 miles or 280 kilometers from the nearest major airport. With these requirements, more and more communities are losing their funding. Some of these are clearly justified. While flights might be nice, nobody’s loosing out on opportunity by having to drive or take the bus an hour from Hagerstown to BWI. There is, and long has been, though, talk of completely eliminating the program. Now, without telling you what to think, I’m just going to present some numbers. It costs the US government about $290 million a year to run the Essential Air Service—a program that connects hundreds of communities to the outside world. For that same amount of money, the government could build about 40 miles or 65 kilometers of highway, it could pay to maintain all of the US government’s empty or disused buildings for 62 days, or it could buy 1/7th of a B-2 Spirit Bomber. In government terms, $290 million just isn’t that much.