Essential Air Service (EAS): Frequently Asked Questions Rachel Tang Analyst in Transportation and Industry October 3, 2012 Congressional Research Service 7-5700 www.crs.gov R41666 CRS Report for Congress Prepared for Members and Committees of Congress Essential Air Service (EAS): Frequently Asked Questions Contents Introduction...................................................................................................................................... 1 What Is Essential Air Service?......................................................................................................... 1 What Are the Eligibility Requirements?.......................................................................................... 2 How Is EAS Funded? ...................................................................................................................... 3 How Does DOT Select EAS Carriers? ............................................................................................ 4 What Is EAS Hold-In Authority?..................................................................................................... 4 How Many Communities Are Receiving EAS Subsidies? .............................................................. 5 Tables Table 1. Essential Air Service Funding (FY2011-FY2015)............................................................. 3 Table 2. List of Subsidized EAS Outside of Alaska ........................................................................ 5 Table 3. List of Subsidized EAS in Alaska ...................................................................................... 9 Contacts Author Contact Information........................................................................................................... 10 Congressional Research Service Essential Air Service (EAS): Frequently Asked Questions Introduction On February 14, 2012, President Obama signed into law a four-year reauthorization of Federal Aviation Administration (FAA) programs, the FAA Modernization and Reform Act of 2012 (P.L. 112-95; hereinafter referred to as the 2012 FAA Reauthorization Act). The act is the first longterm authorization for federal civil aviation programs since 2007, and was enacted following 23 short-term extensions. The Essential Air Service (EAS) program was a focus of controversy during this legislative process. The final legislation included policy reforms and changes to the funding of the EAS program. This report provides an overview of the EAS program and discusses the changes introduced by the FAA reauthorization bill.1 What Is Essential Air Service? The Airline Deregulation Act of 1978 (P.L. 95-504) gave airlines almost total freedom to determine which domestic markets to serve and what airfares to charge. This raised the concern that communities with relatively low passenger levels would lose service as carriers shifted their operations to serve larger and often more-profitable markets. To address this concern, Congress added Section 419 to the Federal Aviation Act,2 which established the Essential Air Service (EAS) program to ensure that smaller communities could retain a link to the national air transportation system. The purpose of the EAS program was to provide a continuation of service to those small communities that were served by certificated air carriers before deregulation, with subsidies if necessary. It continues to ensure at least a minimum level of air service to small communities which would otherwise be unprofitable for commercial airlines. The EAS program is administered by the Department of Transportation (DOT),3 which determines the minimum level of service required at each eligible community by specifying • a hub through which the community is linked to the national network; • a minimum number of round trips and available seats that must be provided to that hub; • certain characteristics of the aircraft to be used; and • the maximum permissible number of intermediate stops to the hub. 1 The major source used for this report is information and data of the Essential Air Service Program provided by the U.S. Department of Transportation (DOT), Office of Aviation Analysis, http://ostpxweb.dot.gov/aviation/X50%20Role_files/essentialairservice.htm, as viewed on September 20, 2012. 2 Effective June 1994, the Federal Aviation Act was recodified as subtitles II, III, and V-X of 49 U.S.C., “Transportation.” The former Section 419 of the Federal Aviation Act is now 49 U.S.C. Sections 41731-41742. 3 The EAS program is administered by the Office of the Secretary of Transportation. Congressional Research Service 1 Essential Air Service (EAS): Frequently Asked Questions Where necessary, DOT provides federal subsidies to a carrier to ensure that the specified level of service is provided. What Are the Eligibility Requirements? The Airline Deregulation Act of 1978 made communities receiving scheduled air service from a certificated carrier on October 24, 1978, eligible for EAS benefits. At that time, there were 746 eligible communities, including approximately 200 in Alaska. Over the years, Congress and DOT have worked to streamline the program and make it more efficient, mostly by eliminating subsidy support for communities within a reasonable driving distance from a major hub airport. The 2012 FAA Reauthorization Act adopted additional EAS reform measures, including Section 421, which amends the definition of an “EAS eligible place”4 to require a minimum number of daily enplanements. Under the act, for locations to remain EAS-eligible they must have participated in the EAS program at any time between September 30, 2010, and September 30, 2011. An EAS-eligible place is now defined as a community that, during this period, either received EAS for which compensation was paid under the EAS program or received from the incumbent carrier a 90-day notice of intent to terminate EAS following which DOT required it to continue providing service to the community (known as “holding in” the carrier). Starting October 1, 2012, no new communities can enter the program should they lose their unsubsidized service. This change limits EAS subsidies to those already receiving them and, in effect, eliminates the eligibility of airports that were formerly eligible but did not receive subsidies at any time between September 30, 2010, and September 30, 2011. These EAS communities from FY2011 remain eligible for EAS subsidy if5 • they are located more than 70 miles from the nearest large or medium hub airport; • they require a rate of subsidy per passenger of $200 or less, unless the community is more than 210 miles from the nearest hub airport; • the average rate of subsidy per passenger is less than $1,000 during the most recent fiscal year at the end of each EAS contract, regardless of the distance from hub airport; • the communities have an average of 10 or more enplanements per service day during the most recent fiscal year beginning after September 30, 2012,6 unless these locations are more than 175 driving miles from their nearest medium or 4 49 U.S.C. §41731. The Department of Transportation Appropriations Act of 2000 (P.L. 106-69) Section 332 enacted the 70-mile rule and the $200-per-passenger subsidy rule. 6 In effect, it would push the implementation of these criteria into FY2014. 5 Congressional Research Service 2 Essential Air Service (EAS): Frequently Asked Questions large hub airport or if DOT is satisfied that any decline below 10 enplanements is temporary.7 These limitations apply only to the contiguous 48 states and Puerto Rico. EAS communities in Alaska and Hawaii are exempt from these requirements. How Is EAS Funded? The EAS program is funded through annual transfers of fees paid to FAA by foreign aircraft overflying the United States, supplemented by annual appropriations of varying size. In FY2011, the total EAS authorization was $200 million, including $50 million in annual mandatory funding from FAA overflight fees, along with a discretionary appropriation of $150 million. Section 428 of the FAA Modernization and Reform Act authorizes appropriation for the discretionary portion of EAS funding of $143 million for FY2012, followed by gradually decreasing annual funding over the next three years: $118 million for FY2013; $107 million for FY2014; and $93 million for FY2015. However, it also authorizes all overflight fee revenues, rather than just the $50 million provided historically, to be made immediately available to the EAS program. Consequently, while there seem to be annual reductions in spending levels for the program, these discretionary funding cutbacks are expected to be matched by an increase in mandatory funds generated by an increase in the revenues from overflight fees charged on foreign aircraft that fly through U.S. airspace but do not land in the country. As a result, funding of the EAS program is projected to remain at $193 million each year from FY2013 to FY2015 (see Table 1). Table 1. Essential Air Service Funding (FY2011-FY2015) (in Millions) FY2011 FY2012 FY2013 FY2014 FY2015 Discretionary Appropriation $ 150 $ 143 $ 118 $ 107 $ 93 Overflight Fee Collections $ 50 $ 50 $ 75 $ 86 $ 100 Total Funding $ 200 $ 193 $ 193 $ 193 $ 193 Source: U.S. Department of Transportation. Note: Projected overflight fee collections provided by Office of Management and Budget (OMB) Max Database. 7 An April 2000 General Accounting Office (GAO) report, Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs, and Passenger Traffic (GAO/RCED-00-34), provided analysis of EAS passenger traffic and subsidy levels. This minimum-enplanement requirement could affect a small number of EAS communities, based on historical data. Congressional Research Service 3 Essential Air Service (EAS): Frequently Asked Questions How Does DOT Select EAS Carriers? DOT issues a request for proposals (RFP) to all scheduled carriers to provide service to an eligible community and institutes a carrier selection proceeding using a bid system. However, DOT does not automatically select the carrier submitting the lowest bid because DOT is required by the governing statutes to use the following four criteria when selecting air carriers to serve EAS communities: • service reliability; • contractual and marketing arrangements with a larger carrier at the hub; • interline arrangements with a larger carrier at the hub; and • community views. The RFPs from DOT advise air carriers that their proposals for subsidy should be submitted on a sealed bid, “best and final” basis, and set forth the level of service (frequency, aircraft size, and hubs) that would be appropriate for the community given its location and traffic history. Once the carrier proposals are received, DOT formally solicits the views of the communities as to which carrier and option they prefer. After receiving the communities’ input, DOT issues a decision designating the selected air carrier and specifying the specific service pattern (routing, frequency, and type of aircraft), annual subsidy rate, and effective period of the rate. DOT generally establishes a two-year EAS service contract, which allows for the competitive bidding process and gives communities and DOT flexibility to switch carriers. What Is EAS Hold-In Authority? If the last air carrier serving an EAS community wants to discontinue service, it must first file a 90-day notice of its intent to suspend service under the EAS statutes. Hold-in authority prevents the incumbent carrier from suspending service until a replacement carrier begins service. During the 90-day period, DOT will try to find a carrier willing to enter the market on a subsidyfree basis. If unsuccessful, DOT issues an order prohibiting the suspension and requesting proposals for replacement service, either with or without subsidy. The incumbent carrier is eligible for compensation for being held in after the end of its original 90-day notice period, if it was serving a community subsidy-free. If the incumbent was already serving a community with EAS subsidy, that carrier would continue to receive the same subsidy rate for six months, at which time it is eligible for a rate increase.8 8 The six-month period discourages carriers from deliberately submitting below-cost proposals to get selected and immediately coming back to DOT hoping to get a higher subsidy rate. Congressional Research Service 4 Essential Air Service (EAS): Frequently Asked Questions How Many Communities Are Receiving EAS Subsidies? DOT currently subsidizes air service to serve more than 160 communities across the country that otherwise would not receive any scheduled commercial air service. As of May 1, 2012, DOT was subsidizing service at 120 communities in the contiguous 48 states, Hawaii, and Puerto Rico, and 43 communities in Alaska. In general, DOT subsidizes two to four round trips a day with small aircraft from an EAS community to a major hub airport. Table 2 provides a list of the subsidized EAS communities in the contiguous 48 states, Hawaii, and Puerto Rico, together with their annual subsidy rates, as of October 1, 2012. Table 3 lists the subsidized EAS communities in Alaska and their annual subsidy rates (as of October 1, 2012). Table 2. List of Subsidized EAS Outside of Alaska State Number of EAS Communities EAS Community Hub(s) EAS Subsidy Rate as of Oct. 1, 2012 Alabama 1 Muscle Shoals MEM $2,603,365 Arizona 4 Kingman PHX $1,168,390 Arizona Page PHX $1,559,206 Arizona Prescott LAX/DEN $1,832,233 Arizona Show Low PHX $1,719,058 El Dorado/Camden DAL/MEM $2,436,074 Arkansas Harrison MEM/MCI $2,080,318 Arkansas Hot Springs DAL/MEM $1,474,388 Arkansas Jonesboro STL $1,717,781 Crescent City SFO $1,996,959 California El Centro LAX $1,852,091 California Merced LAX $1,698,878 California Visalia LAX $1,697,929 Alamosa DEN $2,078,676 Colorado Cortez DEN $2,240,766 Colorado Pueblo DEN $1,592,276 Athens ATL $1,051,386 Macon ATL $1,946,266 Arkansas California Colorado Georgia 4 4 3 2 Georgia Hawaii 1 Kalaupapa HNL/MKK Illinois 3 Decatur ORD/STL $2,750,435 Illinois Marion/Herrin STL $2,053,783 Illinois Quincy STL $1,946,270 Congressional Research Service $932,772 5 Essential Air Service (EAS): Frequently Asked Questions State Number of EAS Communities Iowa 5 EAS Community Hub(s) EAS Subsidy Rate as of Oct. 1, 2012 Burlington ORD/STL $1,976,872 Iowa Fort Dodge MSP $1,798,693 Iowa Mason City MSP $1,174,468 Iowa Sioux City ORD $1,512,799 Iowa Waterloo ORD $1,541,824 Dodge City DEN $1,688,598 Kansas Garden City DFW $2,919,026 Kansas Great Bend DEN $1,082,020 Kansas Hays DEN $2,164,041 Kansas Liberal/Guymon DEN $2,555,150 Kansas Salina MCI $1,490,479 Owensboro STL $1,529,913 Paducah ORD $1,710,775 Augusta/Waterville BOS $1,362,616 Maine Bar Harbor BOS $1,631,223 Maine Presque Isle/Houlton BOS $4,341,967 Maine Rockland BOS $1,420,545 Kansas Kentucky 6 2 Kentucky Maine 4 Maryland 1 Hagerstown BWI $1,368,273 Michigan 9 Alpena DTW $2,554,977 Michigan Escanaba DTW $2,833,558 Michigan Hancock/Houghton ORD $934,156 Michigan Iron Mountain/Kingsford DTW/MSP $2,512,971 Michigan Ironwood/Ashland MKE $1,747,326 Michigan Manistee MDW $2,143,294 Michigan Muskegon ORD $1,576,067 Michigan Pellston DTW $1,055,322 Michigan Sault Ste. Marie DTW $1,676,136 Bemidji MSP $1,338,293 Minnesota Brainerd MSP $1,356,764 Minnesota Chisholm/Hibbing MSP $2,517,770 Minnesota International Falls MSP $1,107,900 Minnesota Thief River Falls MSP $1,881,815 Greenville MEM $3,522,398 Mississippi Hattiesburg/Laurel MEM $2,965,667 Mississippi Meridian ATL $1,681,857 Mississippi Tupelo MEM $3,522,398 Minnesota Mississippi 5 4 Congressional Research Service 6 Essential Air Service (EAS): Frequently Asked Questions State Missouri Number of EAS Communities Hub(s) Cape Girardeau STL $1,469,715 Missouri Fort Leonard Wood STL $2,437,766 Missouri Joplin DFW $2,778,756 Missouri Kirksville STL $1,648,249 Butte SLC $672,230 Montana Glasgow BIL $1,166,049 Montana Glendive BIL $1,193,391 Montana Havre BIL $1,162,329 Montana Lewistown BIL $1,325,733 Montana Miles City BIL $1,621,821 Montana Sidney BIL $2,932,152 Montana West Yellowstone SLC Montana Wolf Point BIL $1,502,378 Alliance DEN $1,108,701 Nebraska Chadron DEN $1,108,701 Nebraska Grand Island DFW $2,215,582 Nebraska Kearney DEN $1,965,740 Nebraska McCook DEN $1,796,795 Nebraska North Platte DEN $1,871,765 Nebraska Scottsbluff DEN $1,507,185 Montana Nebraska 4 EAS Community EAS Subsidy Rate as of Oct. 1, 2012 9 7 $389,412 Nevada 1 Ely LAS $1,752,067 New Hampshire 1 Lebanon/White River Jct. BOS/HPN $2,347,744 New Mexico 3 Carlsbad ABQ $1,350,253 New Mexico Clovis ABQ $1,592,157 New Mexico Silver City/Hurley/Deming ABQ $1,594,092 Jamestown CLE $1,639,254 New York Massena ALB $1,708,911 New York Ogdensburg ALB $1,702,697 New York Plattsburgh BOS $2,685,207 New York Saranac Lake/Lake Placid BOS $1,366,538 New York Watertown ORD $3,047,972 Devils Lake MSP $2,797,467 North Dakota Dickinson DEN $2,019,177 North Dakota Jamestown MSP $1,987,655 New York North Dakota 6 3 Oregon 1 Pendleton PDX $1,502,521 Pennsylvania 6 Altoona IAD $1,998,594 Congressional Research Service 7 Essential Air Service (EAS): Frequently Asked Questions State Number of EAS Communities EAS Community Hub(s) EAS Subsidy Rate as of Oct. 1, 2012 Pennsylvania Bradford CLE $1,087,306 Pennsylvania DuBois CLE $2,228,996 Pennsylvania Franklin/Oil City CLE $915,101 Pennsylvania Johnstown IAD $1,998,594 Pennsylvania Lancaster BWI $1,647,112 Puerto Rico 1 Mayaguez SJU $1,198,824 South Dakota 3 Aberdeen MSP $1,198,222 South Dakota Huron DEN $1,742,886 South Dakota Watertown MSP $1,710,324 Tennessee 1 Jackson BNA/MEM $1,149,703 Texas 1 Victoria IAH $2,294,036 Utah 3 Cedar City SLC $1,859,403 Utah Moab DEN $1,816,486 Utah Vernal DEN $1,299,194 Vermont 1 Rutland BOS $797,141 Virginia 1 Staunton IAD $3,394,629 West Virginia 5 Beckley IAD $2,512,494 West Virginia Clarksburg IAD $1,728,125 West Virginia Greenbrier/White Sulphur Springs ATL/IAD $3,484,710 West Virginia Morgantown IAD $1,488,219 West Virginia Parkersburg/Marietta CLE $2,642,237 Eau Claire ORD $1,733,576 Rhinelander MSP $1,519,619 Cody SLC $352,058 Wyoming Laramie DEN $1,181,572 Wyoming Worland DEN $1,770,336 Wisconsin 2 Wisconsin Wyoming Total 3 120 $218,344,908 Source: Office of Aviation Analysis, U.S. Department of Transportation (DOT). Note: Information provided in Table 2 is subject to change. Congressional Research Service 8 Essential Air Service (EAS): Frequently Asked Questions Table 3. List of Subsidized EAS in Alaska Alaskan EAS Community Hub(s) EAS Subsidy Rate as of Oct. 1, 2012 Adak ANC $1,675,703 Akutan DUT $710,157 Alitak ADQ $13,179 Amook Bay ADQ $13,179 Angoon JNU $145,734 Atka DUT $492,894 Cape Yakataga YAK $39,000 Central FAI $137,799 Chatham JNU $6,311 Chisana TOK $81,040 Circle FAI Cordova ANC/JNU Elfin Cove JNU $75,391 Excursion Inlet JNU $27,111 Funter Bay JNU $13,273 Gulkana ANC $262,220 Gustavus JNU $538,550 Healy Lake FAI $104,703 Hydaburg KTN $151,773 Icy Bay YAK $39,000 Kake JNU $163,621 Kitoi Bay ADQ $13,179 Lake Minchumina FAI $93,080 Manley FAI $45,534 May Creek GKN $88,346 McCarthy GKN $88,346 Minto FAI $45,534 Moser Bay ADQ $13,179 Nikolski DUT $595,508 Olga Bay ADQ $13,179 Pelican JNU $185,721 Petersburg JNU/KTN Port Alexander SIT $75,293 Port Bailey ADQ $13,179 Port Williams ADQ $13,179 Congressional Research Service $137,799 $2,154,200 $1,707,994 9 Essential Air Service (EAS): Frequently Asked Questions Alaskan EAS Community Hub(s) EAS Subsidy Rate as of Oct. 1, 2012 Rampart FAI $97,679 Seal Bay ADQ $13,179 Tenakee JNU $135,576 Uganik ADQ $13,179 West Point ADQ $13,179 Wrangell JNU/KTN $1,707,994 Yakutat ANC/JNU $2,154,200 Zachar Bay ADQ Total $13,179 $14,122,056 Source: Office of Aviation Analysis, U.S. Department of Transportation (DOT). Note: Information provided in Table 3 is subject to change. Author Contact Information Rachel Tang Analyst in Transportation and Industry rtang@crs.loc.gov, 7-7875 Congressional Research Service 10