GOOD NEWS FOR MAJOR US AIRLINES IF SUBSIDIES END

Dino D'Amore
By Dino D'Amore February 7, 2011 14:14

GOOD NEWS FOR MAJOR US AIRLINES IF SUBSIDIES END

A program that subsidizes air services to small airports across the USA, often in remote communities, is shaping up as a key testing ground for the newly elected Congress and its aim of shrinking the federal government.

Senator John McCain has proposed an amendment to an aviation bill pending before the Senate in order to eliminate the $200 million essential air service program. The program pays airlines to provide scheduled service to about 150 communities. Subsidies per airline passenger as of summer 2010, ranged as high as $5,223 in Ely, Nevada, to as low as $9.21 in Thief River Falls, Minnesota.

The program was created to ensure that less-profitable routes to small airports wouldn’t be eliminated when airline services were deregulated in 1978. But over many years critics say the airports often serve too few people to merit the amount of money spent in subsidies. In addition growth in rail and bus services have put larger airports within range for many communities since the late 70s. Studies have shown that in a lot of those communities people drive to larger airports to get better service at a lower cost than they can get at the smaller airport, even with subsidized air services. This thinking has lead the Republican Study Committee, a group of conservative lawmakers, to propose ending the program altogether.

Population movements away from small remote towns has lead to just over a third of the seats being filled on subsidized flights. For commercial flights nationwide, the average is around 80%.

The program, far from being cut back over the years has been remarkably resilient, partly because of the protection it receives from lawmakers from rural states and districts. It has been proposed for cuts or elimination many times over the years, but continues to grow to this day.

Supporters say the small airports and their air service are important to the communities’ ability to attract investment and jobs. The Obama administration sought an increase in the program last year. In fact, four Democratic senators, Mark Begich of Alaska, Ben Nelson of Nebraska, Robert Casey of Pennsylvania and Joe Manchin of West Virginia, are circulating a letter among their colleagues for signature. It urges McCain to give up his attempt to kill the program, citing potential economic consequences.

One of the program’s biggest supporters is Senator Jay Rockefeller, D-W.Va., chairman of the Senate Commerce, Science and Transportation Committee and the main sponsor of the pending aviation bill. It would increase rather than decrease funding for the program and give the Transportation Department more flexibility in structuring contracts with airlines to improve it. Rockefeller would also let the department adjust contracts to take into account rising fuel costs. There are five communities in West Virginia with subsidized service.

McCain may not get far with his amendment, but if he were to by some outside chance then it will mark the death of many subsidized operators and the withdrawal of huge numbers of community services across the USA, this in turn will boost the number of passengers traveling through larger gateways using the main route network. Good news then for all major airlines in the USA – Will any be lobbying to support the move behind closed doors? My guess is they will.

Dino D'Amore
By Dino D'Amore February 7, 2011 14:14
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