Small Communities Face Challenges in Sustaining Desired Levels of Air Service

The challenges now faced by small communities in obtaining or enhancing air service center on two main issues—(1) limitations created by having a small population base from which to draw passengers and (2) an airline industry that, for the most part, is losing money and seeking ways to return to profitability. A small population base may not generate sufficient demand to attract or retain competitive air service because the demand may be too low to generate a profit for airlines. Ironwood, Michigan, illustrates the effect of declining population and lowered economic activity on a community’s passenger enplanements. ATA also reported that average domestic fares in September 2002 were almost 18 percent below September 2000 fares. Some communities made presentations to airlines to try to obtain new or additional service. Analysis of 12 Projects Indicates Financial Incentives Are Key to Increasing Service, but No Guarantee of Success

We studied 12 communities that had taken a variety of actions to improve air service; all but 1of the 12 communities instituted some form of financial incentive program for the carrier to attract additional service.All of these communities had undertaken some combination of studies or marketing in the past. Many network air carriers, experiencing unprecedented financial losses, are taking steps to minimize losses such as cutting unprofitable service. Appendix I: Objectives, Scope, and Methodology

The objectives of this project were to identify (1) challenges that small communities face in obtaining or retaining commercial passenger air service; (2) what actions state and local governmental units or small communities have taken to enhance air service and how successful they have been; (3) what factors, if any, affect the likelihood of success; and (4) what implications this analysis has for federal efforts to assist small community airports. We also selected them because they varied in population, level of economic activity, and geographic location. Ultimately, however, some communities may not have the sheer size or level of economic activity or be able to compete with the lower fares and/or better service of a nearby airport, to maintain the necessary demand for air service. As a result, more passengers may choose to use this service rather than driving elsewhere, so demand increases due to a reduction in passenger leakage. Big Sky discontinued service to these communities in March 2001. 20.)
Why GAO Did This Study

The airline industry, facing unprecedented financial losses as a result of the economic downturn and the terrorist attacks, has taken steps to minimize losses, including reducing or eliminating service to some small communities. In March 2002, GAO reported that small communities had almost 20 percent fewer departures in October 2001, as compared to October 2000. GAO was asked to follow up on that work by examining the challenges small communities face in attracting and keeping the air service they desire and what steps they have taken to overcome these challenges.

What GAO Found

Small communities face a range of fundamental economic challenges in obtaining and retaining commercial passenger air service. The smallest of these communities typically lack the population base and level of economic activity that would generate sufficient passenger demand to make them profitable to air carriers. While larger communities in this group may have less difficulty in sustaining a base level of service, they may not be able to attract additional carriers to provide greater choice and lower fares. Smaller communities located near larger airports may also face reduced demand because passengers choose to use the larger airport with lower fares or more choices for flights. These communities also have difficulty because the airline industry is in turmoil, making less profitable operations increasingly vulnerable. Communities have taken a variety of steps to try to obtain or improve air service, such as marketing to increase passengers' demand for local service or offering financial incentives to airlines to attract new or enhanced service. At communities GAO studied in depth, financial incentives were most effective in attracting new service. However, the additional service often ceased when incentives ended. Longer-term sustainability may rest on a community's commitment to making air service a priority.