Many cities face flight cuts

At least 100 will see route cuts. Economic ripple effect may be broad.

from the June 12, 2008 edition

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Some aviation analysts, including Mr. Boyd, don't believe the big cuts will have the kinds of dire economic consequences that others predict. Instead, they say, travel will just be a bit more inconvenient, especially for people living in small and medium-size cities.

"Airlines are thinning. They're not wholesale removing themselves from markets," he says. "Delta Airlines is still serving Lansing, Mich., except they're not serving it from Atlanta anymore."

Still, thousands of people in small cities and towns where carriers are cutting back are now scrambling to make alternative arrangements, especially those booked for Thanksgiving and Christmas. One example is in Medford, Ore., where US Airways Express plans to discontinue service on Sept. 2. Four other carriers serve the airport, so passengers can still get out of town. But it may not be as easy as before and it will certainly cost more.

Some small communities, mostly in Alaska, have already lost all air service because the small airlines flying there went bankrupt due to high oil prices.

But air service will eventually resume in most because of what's known as the Essential Air Service Program (EAS). It was created in 1978 when the airlines were deregulated. At the time, Congress worried that small cities and towns that had airline service in the regulated market would lose it when regulations were lifted. So lawmakers set up a subsidy program to ensure that those cities and towns would continue to have air service even if it became unprofitable for carriers. For years, critics have said the complicated program needs a radical reform. The Bush administration has regularly cut EAS funding in half, only to have Congress restore it. Analysts say oil-price spikes are going to drive EAS costs higher, making reform an even higher priority. But they also note that the EAS issue, while tied to high oil prices, is entirely separate from the capacity cuts major airlines are making.

There's also disagreement over the economic impact of service cuts. Airports and the revenue they generate have a ripple effect on the communities where they're located, notes David Castelveter of the Air Transport Association, which represents the major carriers. Commercial and cargo airlines in the US drive an estimated $1.1 trillion of economic activity annually.

"When a carrier either leaves a city or begins a capacity reduction … its impact is broad, not just on the airline itself but on all of the [associated] businesses," says Mr. Castelveter, "whether it's the caterers of the airplanes, the people that fuel them or put in the magazines, the airport vendors. It has a huge hit."

To help put the aviation bind into perspective, think about this: In 2000, the average one-way ticket in the United States cost $175, according to Boyd. In 2007, the average was still $175, but 12 percent less of that now goes to the airlines because government fees have jumped. Airlines' fuel bills, meanwhile, have soared. In 2000, passenger and cargo carriers spent $16 billion on jet fuel. Last year, they spent $41 billion. They're expected to pay $61 billion this year.

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