Unfree as a Bird

Picking on outrageous federal entitlements, pork-barrel programs, and regulatory regimes trims the national budget about as much as plucking a straw from a haystack. But one program deserves special commendation for achieving the trifecta of bad governance: regressive transfers, inefficiency, and inhibited innovation. I refer to the Essential Air Service (EAS) program of the Department of Transportation, which subsidizes scheduled air service to rural communities far from major airline hubs.

These routes are the back roads of skies, serving unknown hamlets like Show Low, Arizona; Thief River Falls, Minnesota; and Greenbrier, West Virginia. They are generally poorly traveled, costing American taxpayers millions every year to subsidize. (Environmentalists would point out that the extra flights pump tons of carbon dioxide into the atmosphere.) The New York Times reported in October 2006 that some destinations, such as Brookings, South Dakota, or Kingman, Nevada, serve less than ten passengers daily. Since EAS requires subsidized airlines to fly at least two daily roundtrips to each destination, that means that there can be as many crew members as passengers on the least-trafficked flights. The entire program cost over $110 million last year—$148 for every roundtrip outside Alaska, whose EAS subsidies are documented on a separate balance sheet.

Why are we spending so much to provide service to such hinterland communities? EAS dates back to the Airline Deregulation Act of 1978. Until then, all but a few airlines were limited to particular parts of the country. They also had little choice about which communities they served. Concerned that unprofitable services to small towns would be dropped once they were no longer mandatory, Congress required the Department of Transportation to offer a subsidy to airlines that continued to fly pre-deregulation routes that were not profitable in their own right.

What’s wrong with the EAS program? First, it makes regressive transfers. It benefits people who live in small towns in the West and the Midwest and who can afford air travel on their own. Those who cannot afford air travel end up helping pay for the flights anyway through their taxes. It is also a form of corporate welfare, providing transfers to corporations offering an unprofitable service.

Second, the EAS-subsidized flights are inefficient. Regulation introduced inefficiency into the market in the first place, and the EAS program represents an attempt to preserve the economically inefficient regulatory effect— mandated flights to undesirable destinations. If the flights made economic sense, the program wouldn’t have to subsidize them.

The regional airlines which offer these flights often have little to no choice in the matter. These regional airlines — Big Sky, Air Midwest, Mesaba, and Great Lakes, just to name a few — almost always fly nineteen-seat Beechcraft 1900 turboprop airplanes on the subsidized routes. The regional and commuter market in the United States has been moving toward regional jets, such as those manufactured by Bombardier and Embraer. The jets are larger, faster, and more comfortable. In the emerging aviation market, the older turboprops are no longer the aircraft of choice — the B-1900s ceased production in 2002.

This does not sit well with the airlines that own the two-hundred some B-1900s still in service, nor with their manufacturer, Raytheon, which financed the airlines’ purchases and therefore needs them to stay afloat. (On December 21, Raytheon announced the sale of its civilian aircraft unit to a consortium of buyers led by Goldman Sachs.) Conveniently, Raytheon and several regional airlines are top contributors to Regional Aviation Partners, a Washington, D.C., lobbying group that strives to maintain and expand the EAS program. The EAS subsidies reward the rent-seeking behavior of Raytheon and the regional airlines.

This rigid stasis, brought on by the combined interests of airlines, aircraft manufacturers, and regulators, is the third reason that the EAS subsidies are bad business: they inhibit innovation and preserve a flawed status quo. The first subsidies created incentives for flying otherwise unprofitable routes; their continued existence has locked airlines into these routes, with capital tied up in planes for which no alternate use exists.

The other powerful backer for keeping the subsidies—besides Raytheon and the regional airlines—is a network of small-town chambers of commerce, remote airport agencies, and rural congressmen. They argue that ending the subsidies would disrupt commerce and tourism and hamper the ability to travel in emergencies.

But in practice, many consumers in these markets prefer to drive longer distances to embark on a nonstop jet flight. The Columbia Daily Tribune of Columbia, Missouri, reported in December 2006 that boardings at the local airport have fallen to an all-time low, despite EAS-subsidized flights to both Kansas City and Saint Louis. Airport officials in Columbia urged local businesses, governments, and the Columbia-based University of Missouri to fund seat guarantees for the regional airlines. But if there is insufficient demand, why should anyone pony up the money?

The resources freed up by suspending these subsidies could be used in any number of ways. Travelers might choose to pay for better bus service. Service at larger airports near the small markets might improve as resources were made available. The possibilities, though unpredictable, are bound to be more responsive to the needs of travelers and communities. Furthermore, a state (or a consortium of states) may wish to create an EAS program of their own without burdening taxpayers nationwide.

All politics, alas, is local. Among the Essential Air Service program’s most ardent proponents are Representatives Jerry Moran (R-Kans.) and John Peterson (R-Pa.), whose hometown airports of Hays, Kansas, and Oil City, Pennsylvania, are both served by EAS-subsidized flights. The program’s benefits are concentrated and its costs are diffuse—a classic recipe for public indifference. Such indifference perpetuates government waste, inefficiency, and stifled innovation.

This article was originally published on American.com on January 3, 2007.