Can Lessons from Successful Grants Salvage the Essential Air Service Program from the Dismal Waste that it is?

Cranky Flier wants to learn lessons from the handful of government grants to subsidize air service that haven’t been total failures (but hardly represent the best possible uses of funds in a world of tradeoffs, hunger and homelessness and whatnot). His post is titled, When Airports Should Subsidize Airlines.

The short answer, though, is that they shouldn’t. And Cranky almost understands that:

As a general rule, if you as an airport think there’s some insanely large untapped market that nobody knows about, you’re probably wrong. The airlines do this for a living, and if there’s a missed opportunity, they’re likely to find it. In nearly all cases, it’s best to just work on lowering your operating costs as much as possible to try to attract service for the long run. Otherwise, you’ll just end up paying for service for a couple years and then end up with nothing.

But even a stopped clock is right twice a day, and Cranky want to learn how to make noon and midnight happen more often in a 24 hour period.

Brett points to three supposed successes — getting Delta to keep flying from Portland to Tokyo during the flight’s off-season (what’s the real public benefit in that?), guaranteeing a few months’ of minimum revenue to encourage Horizon to start serving Santa Rosa, and Southwest’s service to Panama City, Florida where major development is underway (and this one is hardly a fair argument for the government’s program, since it’s actually subsidized by the developer and not by the government… and what’s more, Southwest’s CEO says he doesn’t think the experience is replicable.).

It’s absolutely true that there are occasional grants that will lead to continuing air service. It’s very difficult to pick ex ante which those are going to be. If you make 100 grants, and 5 turn out well, and you don’t know up front which those five will be, you shouldn’t make any in the first place. Your portfolio will be operating at a huge loss.

And those that are obvious enough up front that they might turn out successful are projects that an airline might liekly undertake without the subsidy.. but might as well wait on to see whether they can obtain the subsidy first before starting service. The better investments that the government might make are ones they’re unlikely to be able to influence one way or the other, and the worse ones will pretty clearly turn out badly.

And on the whole, don’t forget what these programs usually wind up paying for.

It’s not really reasonable to say, “great, let’s keep having the program but make only the good investments.” That’s simply not how it works, or could ever work.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. So, how can we get rid of this wasteful program? There are two groups that lobby for it – regional airlines that profit from the subsidies, and airports in communities that get more service with subsidies.

    Here’s an example from personal experience. Last year, Skywest discontinued flights from St. George UT (SGU) to LAX because they weren’t profitable. They continue to offer flights from SGU to SLC. They also started up new flights from Cedar City UT (CDC) to SLC. CDC is about 50 miles from SGU, and maybe 3 hours by car from SLC. I was surprised by that choice, so I asked Skywest about the economics of that flight. Skywest told me the reason the new CDC flights worked (for Skywest) was because it was subsidized by EAS. Yet, they really aren’t serving any purpose whatsoever – most people who are headed to SLC are going to drive, and it is only 3 hours. There is also Greyhound service to SLC. For people who want a connecting flight, they already had service at SGU available, so these subsidized flights aren’t going to attract a lot of new flyers or create much business, they are just going to maintain some flying the market doesn’t want/need and won’t pay for, and as soon as the subsidies end, they’ll be gone again.

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