Do small cities deserve taxpayer subsidies to sustain air service?

Posted by: Dean Foust on August 18, 2009

Some media organizations have ordered their staff to cancel their subscriptions to other publications, but I’m glad to see that the New York Times is still getting their copies of BusinessWeek. Okay, I’m just having a lil’ fun here, but the Grey Lady devoted almost a full page (in the form of this article by Elizabeth Olson, and this column by Joe Sharkey) to a topic I wrote about a couple of weeks ago: The lengths to which small cities are going to sustain air service—which include lobbying for federal subsidies to effectively bribe carriers into flying into their increasingly desolate airports. Are these subsidies good policy? I say no, but more on that in a minute.

Let me take a step back here: When oil prices spiked, many commercial carriers began paring back their route structure--consolidating flights as well as canceling routes where they were losing money. A disproportionate share of the cuts came in small markets like White Sulphur Springs, West Virginia and Springfield, Massachusetts, which left some of these markets without commercial service for at least a short period.

With the major U.S. airlines--which are expected to lose another $1 billion this year from the falloff in demand--poised for another round of service cutbacks this fall, many small cities have stampeded to Washington to lobby for federal subsidies that would keep the commercial carriers flying into their airports. After the airline industry was deregulated in 1978, Congress created the Essential Air Service program to provide subsidies to airlines to ensure they kept flying into small markets they might otherwise pull out of.

Given the outcry from small cities--who, in some cases, have been warned by carriers that they'll pull out unless the cities can rustle up EAS funding for the airline--Congress is expected to boost funding for EAS by $39 million, to $175 million this year. That's the short version, and you can read the story I wrote for the print edition of BusinessWeek here.

So today's topic for discussion is: Should Congress be providing these subsidies to ensure that the airlines keep flying into places like Ely, Nev. (pictured)? I'm sympathetic to these small cities, but I question whether taxpayers should be subsidizing flights into these markets. In some instances, I think there's more civic pride at stake than anything else--these cities believe that commercial air service is critical to recruiting, or simply maintaining, big employers. How can you recruit a manufacturing plant if you have no commercial service?

But the truth is, many companies already manage their own air service into small markets. (Lest we forget, Midwest Air was actually founded in 1948 by Kimberly-Clark, to provide transportation for its executives and engineers between the company's Neenah, Wisc., headquarters and its factories around the country.) As for individual traffic, the reality is many fliers in small towns have already shown a willingness to drive up to two hours to a larger airport if they can save hundreds of dollars on their airfare. (Interestingly, Continental Airlines now provides bus service to its hub in Newark, N.J. from some of the small airports it's pulled out of in Pennsylvania. So passengers in these cities drive to the airport to...catch a Continental bus to Newark.)

In the end, I think the salvation for these small markets will be the new breed of "Very Light Jet" services that fly the new generation of microjets seating 4-5 passengers. They won't have scheduled service, necessarily, but will operate on a subscription basis or on demand. The technology exists (though manufacturers still need to get costs down to a price where operators can make a profit) though I'm told one of the big wrinkles is that the scheduling software doesn't exist yet.

So let's get a discussion going here: How vital is service to the small markets abandoned by the big carriers?