The Essential Air Service (EAS) program gets some press every now and then and the views are mixed, generally depending on if someone lives in a small city or a big one. The program costs taxpayers ~$100MM a year (it was recently cut to $50MM, I think) and provides subsidies to airlines to operate service to cities that probably would otherwise have lost service following the deregulation of airlines in the late 70s. There was an article last week about Cape Air, a small-plane carrier that works in very limited markets, many on EAS subsidies. And they are actually growing and making money, which is rather surprising these days as most airlines haven’t been as successful.
So why is Cape Air successful on the EAS routes? The Boston – Rutland, VT route is a pretty interesting study. The route draws a subsidy of just over $1MM annually. They fly it 3x daily each way, which breaks down to a bit under $500 per flight in subsidies. The costs to operate the flight are hard to pin down exactly, but it is blocked at one hour and the hard costs for operating a Cessna 402 for a flight that long appear to be about $200. That doesn’t include the costs for the infrastructure, the plane, pilots, etc., but figure that the flights in total probably aren’t costing much more than $750 to operate. When $500 of that is covered by federal subsidies, they don’t need to sell too many seats to make the service profitable to operate. And they are selling those seats – 143% more than were sold on the route a year ago when the route was operated on a larger plane with higher costs and commensurately higher fares.
So there you have it – a route that actually makes money when subsidized by the federal government. Go figure. I still don’t like the EAS service subsidies as a tax expense, but they are such a small component of the budget that I’ll pick bigger fish to fry for a while.
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