Essential Air Service:

Changes in Subsidy Levels, Air Carrier Costs, and Passenger Traffic

RCED-00-34: Published: Apr 14, 2000. Publicly Released: May 10, 2000.

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Pursuant to a congressional request, GAO reviewed the Department of Transportation's (DOT) Essential Air Service (EAS) program, focusing on: (1) how DOT applied criteria to establish which communities would receive subsidized air service; (2) changes in the level of subsidies provided to EAS-eligible communities in fiscal year 1999 relative to that provided in 1995; (3) why the level of subsidies changed between 1995 and 1999; and (4) whether DOT applied any of the increase in program funding to rural air safety projects.

GAO noted that: (1) DOT applied relevant statutory authority when determining which communities would receive air service subsidized by the EAS program; (2) under this authority, communities may receive subsidized air service if they were initially eligible for EAS benefits as a result of the Airline Deregulation Act of 1978 and if they meet additional conditions that Congress first prescribed in 1994; (3) these conditions generally preclude a community from receiving subsidized service if it is located within 70 miles of a larger airport or if the average subsidy per passenger for the community exceeds $200; (4) DOT established a policy that removed subsidized service from communities permanently for operational and budgetary reasons; (5) between fiscal years 1995 and 1999, the level of EAS funding for subsidized service within the continental United States, Hawaii, and Puerto Rico increased by 41 percent, from about $30 million to over $43 million in constant dollars; (6) over this period, the total number of communities receiving subsidized service decreased by 8 and the total number of passengers on EAS-subsidized flights decreased by 4 percent; (7) consequently, the average subsidy per passenger increased by 47 percent; (8) of the 63 communities that received subsidized service in both 1995 and 1999, the vast majority received higher subsidies in 1999 than in 1995; (9) about half of the communities also benefited from an increase in flight frequency or an increase in aircraft size, increasing the overall number of available seats to each community; (10) in general, EAS subsidy costs rose because the increased cost of serving these communities was not offset by a corresponding increase in passenger revenues; (11) the four air carriers that provided service to most EAS passengers in 1999 each reported an increase in operating expenses as a result of complying with more rigorous air safety rules imposed by the Federal Aviation Administration; (12) since the number of passengers at most communities did not significantly increase, passenger revenues generally did not rise sufficiently to offset increases in air carriers' operating costs, requiring DOT to provide larger subsidies to cover the difference in costs and revenues; (13) DOT did not apply any of the increase in program funding to rural air safety projects; and (14) DOT was not authorized to apply the increase in program funding to such projects because EAS funding did not come from the source originally designated by Congress.

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