The Essential Air Service program helps keep flights running to smaller U.S. cities.
As I settled into my seat on my United Express flight from Houston’s George H.W. Bush Intercontinental Airport to the Hattiesburg-Laurel Regional Airport in southern Mississippi, I thought about some of the ways this flight was different from most of the others at the airport—a large hub for United Airlines.
The biggest one is that I knew that the federal government—and by extension U.S. taxpayers—had paid some $6.8 million on an annual basis to subsidize this particular flight. The reason why isn’t widely known, but the story is a fascinating one.
The Essential Air Service Act
Prior to 1939, commercial air transport in the United States was virtually unregulated. In 1939, the Civil Aeronautics Act created the Civil Aeronautics Board (CAB), which was charged with regulating aviation in the United States. The CAB’s main goal was to keep the nascent airline industry going, and it set fares and service levels to ensure that airline competition was spread evenly to all parts of the country, ensuring that smaller, less profitable cities would also get airline service.
It also kept airlines from competing recklessly. The number of airlines in a market was limited by the CAB through the issuance of limited numbers of route authorities. The agency dictated which airlines could fly where, and how much they could charge. They also provided subsidies for markets that weren’t profitable.
Ultimately, the CAB kept competition limited and airfares high. In some large states, airlines such as Pacific Southwest Airlines (PSA) in California could operate outside of the bounds of the CAB’s price-fixing, and served as models for what was possible when airlines, rather than the government, could set fares and service based on the demands of the free market.
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The Airline Deregulation Act, passed by Congress and signed by President Jimmy Carter in 1978, ultimately spelled the end of this system, and of the CAB itself. Airlines could now fly where they wanted and charge whatever the market could bear. But there were still communities that had previously received subsidies who feared they would lose service if left completely exposed to market forces, so the Essential Air Service (EAS) Act was part of the compromise.
How Essential Air Service Works
The major stipulations of the EAS program are a minimum number of passengers per day (to ensure taxpayers aren’t funding empty airplanes) and a $200 cap on the per-passenger subsidy for airports within 210 miles of a large or medium hub airport designated by the FAA. Hattiesburg is 93 miles from Jackson-Medgar Wiley Evers International Airport, which is designated a small hub airport. The closest medium hub airport is New Orleans, 122 miles away.
The Department of Transportation (DOT) regularly calls for proposals from airlines wishing to bid on an EAS contract. The DOT awards give preference to airlines with demonstrated service reliability, interline or marketing agreements with larger airlines at the hub airport, community preference, and air carrier plans to market the flights. All of those being equal, the award typically goes to the lowest bid. Airlines can also propose to operate the service without subsidy, but they remain obligated by the DOT to operate the service. If a second airline enters an EAS market on its own to compete with a subsidized EAS carrier, the subsidy award is withdrawn in the interest of fair competition.
In the most recent round of bids for Hattiesburg, SkyWest Airlines submitted a bid to operate the flight from Houston (IAH) as a United Express carrier with a 50-seat jet. Boutique Air also submitted proposals to operate the flights from New Orleans (MSY), Atlanta (ATL) and Houston (IAH) with 8-9 seat propeller aircraft, offering more weekly flights, but also requesting a higher subsidy amount.
The DOT solicits comments from community members and gives weight to elected officials, who largely supported SkyWest’s bid.
SkyWest estimated that it would carry 23,088 passengers annually, and those passengers would pay an average fare of $120 (this is lower than the average fare between Hattiesburg and Houston because it includes pro-rated portions of fares for passengers continuing to other cities) with estimated annual revenues of $2.7 million. SkyWest projected it would cost them $8.3 million to operate the 12 round-trips per week required by the EAS contract, generating a loss of $5.5 million. The requested subsidy is the projected loss, plus an allowance to generate a 5% profit margin—in this case, $5.9 million for the first year, with annual increases the following three years before the contract goes back up for bid.
There’s a wrinkle here that puts the service at risk. The subsidy amount works out to $259 per passenger—more than the per-passenger subsidy cap. The DOT issued a warning in their route award to SkyWest and the community to work together to lower the subsidy needed on the route, as communities that consistently come in above the cap are in danger of having their EAS eligibility revoked. It’s worth noting that the only airports that lost eligibility for exceeding the subsidy caps were more remote airports exceeding a $1,000 per passenger cap, or airports subject to a $200 cap that also failed to generate the required 10 passengers per day (traffic levels at Hattiesburg are significantly higher).
In fact, the subsidy for Hattiesburg also assumes a load factor (the percentage of seats filled on the aircraft) of around 37%—a number that SkyWest exceeded by a healthy margin most of the last 12 months. The actual subsidy per passenger dilutes the more passengers are actually onboard, so SkyWest may ultimately be in the clear—provided they work the higher traffic amounts into their next bid for the service in 2027.
What’s the Point of All This?
The EAS program isn’t without its critics—particularly cities in the contiguous United States that are relatively close to major airports (nearly a third of eligible communities are in Alaska—which has different eligibility requirements, as most of those communities have no alternative to air travel). Critics might ask, “Is it that bad having to drive a hundred miles to a major airport?” Hattiesburg is connected to a state highway and has Amtrak service (which receives federal subsidies and has never generated a profit). It’s worth noting that the Hattiesburg metro area has a population of 172,000—large enough to benefit from air service, but still too small to sustain it without subsidy. The area is also home to two universities and a U.S. Army training center, so there is national interest in keeping the community connected to the transportation grid.
In addition to educational and government traffic, having air service from a major airline makes the city’s business community more competitive. Thirty-five states and Puerto Rico also have EAS communities, and the program enjoys broad popular support in those states.
The flights also make tourism to Hattiesburg easier and more attractive. I spent my time there browsing antique shops (if anybody needs an Officer Big Mac Climb-In Jail from a 1970s era McDonaldland Playland, you can pick one up at Lucky Rabbit, which also has a replica Golden Girls set). I sampled sherbet, Dole Whip, and Orange Julius-flavored beers at Southern Prohibition Brewing, and toured the African-American Military History Museum at a historic USO—all treasures that might have been missed were the city less accessible than it is now. To learn more about the EAS program, visit the Department of Transportation. All route awards, subsidy amounts, and DOT decisions regarding the program are publicly available at regulations.gov.