Communities getting lost in Essential Air Service shuffle

 - August 28, 2007, 11:44 AM

Each year the Bush Administration tries to slash funding for the Essential Air Service (EAS) program, and each year it fails, thanks in no small part to advocates for small community air service such as the Regional Airline Association. But no amount of lobbying can change the basic rules of supply and demand, and when the airlines willing to fly EAS routes fail to find enough airplanes and pilots to meet their obligations, they only lend aid and comfort to the free-market purists bent on dismantling the program.

No fewer than five EAS communities last served in March by the defunct RegionsAir remain without any scheduled airline service due to equipment and staff shortages at Great Lakes Aviation and Big Sky Airlines. Three others have seen all connecting code-share service shut down. At the time, commerce officials from Marion, Quincy and Decatur, Ill.; Fort Leonard Wood, Mo.; and Burlington, Iowa, expected Great Lakes to resume American Connection service from St. Louis within two or three months. Jackson, Tenn.; Cape Girardeau, Mo.; and Owensboro, Ky., planned for a similar wait for service to Cincinnati from Delta Connection carrier Big Sky Airlines.

Short of qualified pilots and, in at least Great Lakes’ case, airplanes, neither of those airlines looks likely to launch service to any of those markets until next month at the earliest. For Fort Leonard Wood, Burlington, Jackson, Cape Girardeau and Owensboro, that would mean no access to the national air transportation system for at least six months. Slight consolation for the three Illinois cities lay in the fact that Mesa Air Group’s Air Midwest unit continues to fly independent, nonconnecting service to Chicago Midway and, in Quincy’s case, to Kansas City. However, in late July Mesa served notice to the DOT that it planned to exit Marion, Quincy and Decatur on October 22.

Normally, DOT rules protect EAS cities from losing service altogether by requiring that incumbent carriers give 90 days’ notice before abandoning the route in question and essentially forcing it to continue service– even at the end of the 90-day period–under the department’s so-called hold-in authority. Unfortunately for the five cities left without service, the FAA’s March 9 closure of Smyrna, Tenn.-based RegionsAir for inadequacies in its line check airman and certification program means no incumbent airline exists. And because Great Lakes and Big Sky faced no competing bidders for the cities in question, the DOT can do nothing but wait for them to train enough pilots and secure enough airplanes to launch service.

Big Sky’s Northeast Bid
Asked for a status report, a DOT spokes- man deferred to the airlines, neither of which responded to requests for comment. Big Sky, meanwhile, continues to bid for new EAS business, most recently issuing a proposal to assume responsibility for Rutland, Vt.; Saranac Lake and Plattsburgh, N.Y., from incumbent carrier CommutAir.

In the process of disposing of its 19-seat Beech 1900s in favor of 37-seat Bombardier Q200s, CommutAir has opted to pursue nonsubsidized flying from Cleveland as a Continental Connection carrier and abandon its EAS flying from Boston and Albany. To that end, it agreed to sell eight of its Beech 1900s to Big Sky, which in turn plans to fly the airplanes to some of the same EAS cities CommutAir wants to leave.

The first of the ex-CommutAir 1900s went to Big Sky in early July, increasing the size of its fleet of the 19-seat turboprops to 11. Once it takes the final seven–by the end of the year, it hopes–its fleet will reach 19, including a spare it plans to lease. Meanwhile, Big Sky holds a right of first refusal to buy from CommutAir another four, giving it apparent ready access to the equipment it needs for more expansion. But for Big Sky, a more immediate concern lies with training enough pilots to meet the staffing demands its new EAS obligations will place on it.

No doubt sensitive to the fact that his application for the Northeast routes would raise questions about the delay in launching EAS service in the Midwest, Big Sky president Fred deLeeuw expressed confidence to the DOT that the staffing shortages wouldn’t reach the airline’s Boston base. “Big Sky is aware that it has a pending award for service to several Midwest communities, and it looks forward to initiating that service in a timely manner,” he wrote in his response to the RFP for Plattsburgh, Saranac Lake and Rutland.

“Big Sky is doing everything in its power to recruit and train qualified pilots for its operations. Efficiencies of scale…and reserve coverage, however, will result in our ability to cross utilize [airplanes] that are already based in Boston; [therefore,] Big Sky will be in a position to begin the service proposed herein within 60 to 90 days,” he continued.

Pilots, Airplanes Scarce
The fact that the pilot shortage has become an industry-wide phenomenon must come as little comfort to Jackson, Cape Girardeau and Owensboro. In fact, the smallest communities might well feel the biggest effects, as major airlines, stretched by a booming global demand for experienced pilots, drain the supply of flight crews from regional jet operators, who in turn raid the small-turboprop outfits of their first officers.

Meanwhile, growing worldwide demand has drained inventories of used turboprops suitable for scheduled service. Given the circumstances, one might not blame Great Lakes for its failure to find enough airplanes for the ex-RegionsAir routes by the stipulated June 1 start date. But by press time not only hadn’t Great Lakes taken over those routes, it hadn’t managed to gather the resources to assume responsibility for the four EAS communities in Michigan it planned to start serving, also on June 1. As a result, Skyway Airlines, which served the DOT with its 90-day termination notice in February, at press time continued to fly the routes from Milwaukee as Midwest Connect.

The uncertainty can’t help Great Lakes’ standing among the five Western EAS cities for which it submitted bids in July to fly from Denver and/or Las Vegas. Great Lakes will compete primarily with Mesa Air Group Beech 1900s for Moab and Vernal, Utah, for which newly certified Vision Airlines has also submitted a bid, as well as Merced and Visalia, Calif., and Ely, Nev.

On the other hand, Mesa has submitted 90-day suspension notices for 17 EAS communities over the past four months, raising questions in some minds about the depth of its commitments. Six months into its two-year contracts, Mesa notified the DOT of its desire to end service to the five communities in the Great Lakes bid, as well as Cedar City, Utah, and Roswell and Alamogordo, N.M. Mesa then re-bid on all but Roswell and Alamogordo, for a higher amount. Under EAS rules, once an airline wins a tender to serve routes at a given rate, it cannot renegotiate under any circumstances. So often, as in apparently this case, airlines serve their 90-day notices to abandon the market in question simply to trigger new bids. The common tactic underscores one of the big weaknesses of the EAS system, in the opinion of the RAA and the airlines involved.

RAA Urges Rule Changes
Testifying in July before the Senate subcommittee on commerce, aviation operations, safety and security, RAA legislative affairs vice president Faye Malarkey called on Congress to mandate the DOT to implement a mechanism for real-time cost indexing spelled out in Section 402 of the 2003 FAA reauthorization bill, known as Vision 100. Since passage of the bill, the DOT has claimed that funding shortages haven’t allowed it to carry out the recommendation.

“A winning carrier who negotiated a competitive contract one year ago would have based cost projections on then-current fuel rates of $1.80 per gallon,” said Malarkey. “That same carrier would now be providing the service with fuel costs at nearly $3 per gallon. Because EAS carriers are strictly limited to five percent profit margins, climbing fuel costs can quickly turn once-profitable routes into losses.”

Simultaneously, the RAA has called for an increase in the two-year contract term to five years, ostensibly to help airlines such as Great Lakes gain access to an ever shorter supply of suitable aircraft. “Aircraft financing models are ill-suited to short, two-year commitments,” said Malarkey. “In fact, one reason there are so few new-entrant EAS carriers may be attributed to the lack of financing for aircraft with short-term commitment levels.”

Finally, the RAA advocates abolishing the program’s hold-in provision, under which the DOT forces an airline that wants to exit an EAS market to maintain service for at least 30 days, after which time it can continue to force it to stay for an indefinite number of 30-day periods until another airline starts service.

The system means a carrier cannot sell tickets in that market for more than 30 days in advance, nor can it plan to use its aircraft elsewhere because of the uncertainty associated with the timing of new EAS entrants.

In short, the RAA attributes the relatively minor interest in EAS by the nation’s regional airlines to the program’s failure to provide enough financial incentive, and Malarkey welcomed the Senate committee’s proposal to increase funding this year to $133 million as a move in the right direction.

The Administration, however, attributes the weaknesses of EAS to its very nature as an entitlement program. Testifying in front of the same subcommittee, DOT assistant secretary for aviation and international affairs Andrew Steinberg advocated for the Bush Administration’s desire to cap funding at $50 million, bar any more communities from joining the EAS rolls and base the amount of each remaining subsidy on distance from each nearest hub.

Steinberg said that many EAS airports continue to receive subsidies despite the fact that, with the recent proliferation of low-fare airlines, they lie within “ready” driving distance of two or three major airports. Steinberg called on states and communities to seek “fresh, new solutions to maximize air service potential, including regional and intermodal approaches and expansion of public/private partnerships.

“The fundamental problem with air service to many small communities is insufficient demand to justify scheduled service purely on market terms,” he said.

“However, recent technological advances might offer a new market solution to the problems of small community air service. The most dramatic innovation is the very light jet...”

Malarkey countered with a reminder that with deregulation of the airline industry in 1978, Congress promised a continuation of scheduled air service to rural communities and characterized as “inappropriate” any attempt to place the burden on passengers and communities to secure air service through “expensive, untested and potentially unreliable sources.

“The VLJ business models that do exist promise direct, nonstop service to destinations that would bypass the hub-and-spoke system. They would therefore fail to connect passengers to the existing air transportation system in favor of limited service,” asserted Malarkey. “We strongly caution Congress against advancing this unproven technology as a solution to EAS shortfalls.”