New and Proposed Regulations Will Hurt Small Communities (Guest Post)

Guest Posts, Pinnacle, Republic, SkyWest

I’m still out on leave, but I’ll be back soon. Enjoy this post about small communities . . .

Over 70% of US airports with commercial air service are served exclusively by regional airlines. And almost all of those airports reside in or next to small or midsize communities. Unfortunately, both the communities and regional airlines face head winds in the coming years. New regulations coupled with the potential for additional taxes and reductions in subsidies will hamper the regionals’ ability to grow and operate with sustained profitability. This will have a direct effect on the small communities that regional airlines serve.

Empty Jet Bridge

Most people have never heard of Pinnacle Airlines, ExpressJet Airlines, or Republic Airlines but have flown on them many times. An average regional airline flies turboprop aircraft or jet aircraft with less than 100 seats on a contract basis for mainline carriers such as United or Delta. Although separate companies, the regionals usually fly under the mainline’s brand such as Delta Connection or United Express. In most cases, Delta and United take care of scheduling, promoting, and selling tickets for the flights while the regional takes care of providing the primary product. Now, let’s hop into some of the issues.

One of the bigger impacts to the industry will be felt when new rules regulating pilot duty time kick in. (Cranky did a good job of breaking down this issue in a previous post.) These new rules were introduced to address ongoing concerns about pilot fatigue. Pilots will now work a little less and get more rest. This makes sense. Who doesn’t want a well-rested pilot at the controls?

But there is a flip side. The new rules governing duty and rest periods will force carriers to hire more pilots if they want to run the same schedules they have today. The savvy regionals will work diligently with their mainline partners to reoptimize schedules. But they will not be able to totally avoid higher pilot costs. Regionals will have to pass on the additional costs to their mainline customers to remain at current profitability levels.

Another new upcoming regulation will increase the minimum number of hours of experience a pilot needs to fly for an airline. Currently, a pilot only needs 250 hours along with a Commercial License to get hired with a regional airline. In a couple of years, this will increase to 1,500 hours and require an Airline Transport Pilot (ATP) certificate.

On the surface, this seems like a no brainer. More hours = more experience = safer flying. But there isn’t research proving that pilots with 1,500 hours consistently fly safer than someone with less experience. When this steep increase is implemented, it will create an artificial pilot shortage. Some pilots pay out of pocket or through loans to get to 250 hours. Getting to 1,500 hours on one’s own dime will push a bunch of would-be pilots out of the market. The shortage will push up wages to account for the lower supply and result in additional expenses.

In the fall of 2011, the Obama administration proposed creating a new $100 departure tax for all air carrier departures and general aviation jet departures. The proposal also increased security taxes on airline tickets and was given to the super committee for consideration. An impressive coalition of 30 organizations including airline trade groups, general aviation groups, unions, and manufacturers quickly got together to fight the proposal. The rally cry is that airlines and passengers already pay higher taxes than alcohol, tobacco and guns which are intentionally set high to discourage their use.

It appears that the White House quietly backed off the proposal because of the backlash it received during an election cycle. If the proposal was revisited and passed, it would have a disproportionate effect on regional airlines that carry fewer passengers each flight than their mainline counterparts. It’s much cheaper to spread $100 over 200 passengers than over 50.

Another debate in Congress has been the over subsidizing air service to small communities through the Essential Air Service (EAS) program. This program is designed to help provide small communities with air service that cannot, due to such low demand, support itself. I expect a haircut or possibly elimination of this program. Accordingly, many routes would cease to exist.

In isolation, each of these challenges would have a much smaller impact on the industry. Together, these policies would have significant negative economic effects and force airlines to cut flights on underperforming routes. And each flight lost in a small community has larger implications due to the community’s relative size.

These changes will burden an industry already struggling with consolidation and high fuel prices. Pinnacle is flirting with bankruptcy. SkyWest and Republic’s financials have been limping along since their acquisitions of ExpressJet and Frontier respectively. American Eagle’s anticipated spinoff from American Airlines will increase competition in an already saturated market. We’re seeing a steep decline in small jets which don’t work with today’s fuel prices. Turning a good profit in the regional industry is proving difficult even while their mainline counterparts are starting to enjoy being in the black.

Some municipalities and the airlines will come up with creative solutions to mitigate the effects. They will also need to continue lobbying the government to implement policies that have positive economic effects. Regardless, it appears that the end result will be fewer options in small communities.

Matt Tregre is an airline enthusiast and has held positions in finance, revenue management, pricing, customer service, and baggage tossing with stints at Southwest, ExpressJet, & Pinnacle. During school, he developed marketing plans for small airports. He now works in revenue strategies for a corporate aviation company and greatly misses having flight benefits.

[Original photo via Wikimedia Commons user Paranomia/CC 3.0]

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17 comments on “New and Proposed Regulations Will Hurt Small Communities (Guest Post)

  1. This is why we need this regulation:
    Colgan Air 3407

    The economic / ‘small communities will lose service’ argument is really cynical, when you think about it.

    1. Well I don’t think the Colgan crash necessitates a $100 departure tax per plane, which is purely for deficit reduction in the Federal Government.On the other side of the pond, EasyJet has advocated for a per plane tax on the basis that their A319’s with 156 seats are more eco-friendly per person and don’t clog up air traffic space as much as several ERJ’s.

      In the US, flights to really small cities depend on hub connections, so a carrier like Spirit could connect small places to its FLL (and soon LAS) hub. Until then we’ll only be seeing RJ’s.

      Another idea is that US carriers need to go back to props, which are significantly cheaper to operate. Or the bus :)

  2. Essential Air Service could use an overhaul in some areas. Driving time to the nearest other airport should be considered when grant EAS money. I’ve lived in large metro areas all my life and over the years have spent 2hrs each direction driving to/from work every day just as many others do. So someone having to drive a couple of hours to another larger city/airport should not be a big deal, so they should need funds for to pay for service to their smaller city/airport.

    If people in that smaller city traveled a lot then there would be a market airlines would just go into and not need EAS funds.

    If people can still hop on Greyhound or Amtrak to travel coast-to-coast, then someone can drive a few hours to get to a larger airport. Save EAS funds for where it’s really needed.

  3. Does anyone else think that this pricing and regulation pressure on the Big 3 regionals may lead to the revival of the small, indie commuter operators of yesteryear? It seems to me that demand does not ‘go away’ and the geography of some communities precludes economic viability of driving to larger airports.

    CapeAir is an example of the business model I am talking about: right-sized lift connecting smaller communities that interlines with others but is not shackled by a code-share agreement. Maybe I am being too nostalgic for the days of Ransome, Rio, BigSky, Air New England et al….but this seems like an opportunity for small independent operators to back-fill small community losses.

    1. Yes. The CapeAir model would be great. I actually wonder why we don’t see more of it. SeaPort tried something in Mississippi and it didn’t work all too well cause it wasn’t connected to a network hub.

      In India, all the legacies and SpiceJet fly props to Tier II and III cities with great success for both O&D and connections, despite a massive Indian Railways network. I’m fairly confident that the next generation of 10 seater props (whenever that might be) will make small city service reasonable and stable (unless the fed says more taxes).

  4. On the number of hours, it makes a difference how those hours are experienced. Getting those hours in an unstructured flight training program with no meaningful external review is different than getting those hours a well-structured professional flight training experience. Even so, when I think back to what I knew at 250 hours, I was not ready for the right seat on any level of commercial flying.

    Colgan was as much or more of an issue of scheduling and domiciling as inexperience.

  5. I think of the many small, regional airports I’ve been to with one terminal and two jetways. They see maybe two to three flights a day. As a business traveler, I probably would not go to these towns if I had to fly somewhere and then spend several more hours driving there. These towns depend on those flights to deliver the business people that serve their local industries. Without these connections, those industries could end up relocating to a larger, more metropolitan areas, taking with them the all the economics associated with their businesses. I’m thinking of some large names in white goods, building materials, and technical and engineering, just to name a few. Then think of all the hotel chains, rental car agencies and restaurants that rely on those out-of-town visitors to earn their living. What will happen to those towns? Where are the economic drivers? If industry polarize geographically, there would likely be less flying in general, leading to a decrease in demand for air travel overall. That could have a ripple effect quite the opposite of the intention when thinking of saving by cutting EAS monies.

  6. Perhaps airlines should re-brand themselves mobility companies that covers all modes of transportation. This way they can market, sell and provide door to door service using a network of airline branded buses, rails, boats, and taxis.

  7. Makes you kind of wonder if this country sees a future for the small community. Oh sure, send us your tax money, but please, “Just Drop Dead! If you can’t pay it yourself, or make it a go on your own, forget it.”

    Air service, a post office, a local government center, you name it.

    Do we want small communites to survive? Is there a future for them? Can they not expect a minimal transportation infrastructure, including air service, for which we all know they can’t pay, or even truly market such service on their own?

    No, these small communites, and the people who have business to travel there cannot expect 744 service to every corner of the earth, every day, every hour. But, a minimal amount of service at reasonable fares to where they can connect to a 744 doesn’t seem like something beyond the realm of possibilty.

    Oh, just get in your car, alone of course, or just rent some big ‘ol SUV and drive, alone, in and out of some horrific rush-hour traffic at that big ‘ol hub airport miles and miles away….!

    What does the future hold for this country?

    1. Since when has air travel been a right and a necessity?

      Local government and post offices are different since they are all paid for by taxes everywhere. If air travel was subsidized everywhere though, this argument would make sense.

      1. Air travel is subsidized everywhere – airlines don’t build their own airports. Let’s not kid ourselves – all transportation is subsidized, either directly or indirectly.

  8. Most of the people who live in these small communities served by regional airlines can easily drive to another larger airport and get a nonstop flight on a larger aircraft. Maintaining commercial service at small airports is more about civic pride and creating jobs than it is about providing transportation. And unfortunately, those of us who live in big cities have to pay taxes to subsidize these empty regional jets.

    Does anyone have any statistics on how many people who live in or visit small communities actually use these airports, rather than the nearest major airport?

  9. The national transportation grid policy must consider all modes. It cannot be exclusively tied with air travel.

    I can understand the EAS funds being applied to places like Little Diomede Island in Alaska, or connecting Pago Pago to Honolulu in the Pacific Territories. But as a taxpayer, I cannot understand the need of EAS applied to a community with an interstate highway or rail connection.

    EAS money would be better spent on subsidizing regional rail and bus service. Just as the FTA subsidizes urban transit systems.

  10. @Jim- I’m thinking of two small communities that I visited regularly, that can’t just jump in a car and be at a major airport quickly. Evansville, IN has a small two-terminal airport and the nearest major city is Louisville, KY. . .about 125+ miles and a two-hour drive. Second example is Minot, ND where the closest airport might be Bismark, Two hours and 110 miles away. These two are just one each example in two of 52 states. Take them and multitude by…? If I lived in either place and my career Required travel by air, in your world, I’d be out of luck. Bottom line for me is, it’s like many other minimum requirements that a civilized society. We need to have a consistent standard of living for everyone to have equal opportunity. Otherwise, we end up with the haves and the have nots!!

    1. Two hours is not that bad. It can easily take people who live in eastern LA or the Inland Empire two hours to get to LAX during rush hour. People who live in the suburbs of New York have to allow 2 hours to get to JFK or La Guardia in many cases. Should the feds subsidize a few more airports in these cities so everyone can have an airport 30 minutes away?

      The bottom line is that there are benefits and drawbacks to living in a rural community. You can’t move there to get the peace and quiet, the low taxes, and the neighborhood feel, and then complain about the lack of transportation. In my opinion, the only places that deserve federally subsidized air service are those that are not accessible by other modes of transportation.

      1. Jim you said it very well. Look at the hundreds of people who use Amtrak on the busiest train route in America BOS-NY-DC corridor everyday. If they can take a few hours to get between two cities that each have a lot of air travel options, then people in a rural area can drive/bus 2-3 hours to a bigger city/airport. Keep the funds where it’s needed like Alaska where there are very few roads connecting cities/villages.

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