Air Midwest agent Jonathon McCommack, left, checked in a passenger last week before he departed for Phoenix on an Air Midwest commuter plane at the Prescott Airport in Prescott, Ariz. The carrier said it could not afford to fly to the mountain community of Prescott anymore and ended its service last Friday.
Soaring fuel costs jeoparding Essential Air Service program
Small communities are facing fewer available flights
PRESCOTT, Ariz. » The rejection from Air Midwest came swiftly on a one-page fax. The carrier couldn't afford to fly to the mountain community of Prescott anymore, officials said. The city would simply have to find a new tenant for its tiny airport.
"Everything was going fine - then, bam - the airline is gone," Mayor Jack Wilson said with a sigh. "That's just not how you do business."
It's a frustration felt across rural America.
The federal government guaranteed numerous small towns and cities air service 30 years ago when it deregulated the industry. But skyrocketing fuel prices have outpaced subsidies from the Essential Air Service program, and many carriers are either trying to re-negotiate their contracts or dropping out altogether.
According to the Department of Transportation, which administers the program, airlines have asked to opt out of subsidy contracts to 20 cities so far this year. That almost matches 2007's total of 24 cities. In 2006, airlines asked to drop contracts for 15 cities.
Meanwhile, the federal government plans to slash its Essential Air Service budget for 2009 to $50 million, less than half of its program budget in each of the last seven years.
Jim Corridore, an analyst at Standard & Poor's, said rural communities should get ready for even fewer flights in the future.
"This is not a charity," Corridore said. "Airlines are in a business to make money, and they're not. In fact, they're losing billions of dollars. So something needs to be cut."
The Regional Airline Association disagrees. Rural communities could keep their air service if the federal program was tweaked and given the funding it needs, said Faye Malarkey, a lobbyist for the association.
According to airline officials, the primary flaw with Essential Air Service is that it doesn't increase subsidies to meet rising operating costs like fuel.
So as jet fuel costs jumped, more than doubling from $1.86 per gallon at the beginning of 2007 to $3.96 per gallon in May, airlines were locked into the same subsidy. Some carriers raised fares, but that couldn't keep up with the cost of fuel.
"It's been years since we turned a net profit," Air Midwest President Greg Stephens said.
Stephens said Air Midwest tried to get out of its subsidized routes on the East Coast last year to save money, but the Department of Transportation forced it to honor some of those contracts for nearly 14 months because it couldn't find a substitute carrier to take over.
The company continued to lose money. Meanwhile, parent Mesa Air Group Inc., which also owns Hawaii interisland carrier go!, was forced to pay $52.5 million to settle a lawsuit with Hawaiian Airlines Inc. Mesa also learned that Delta Air Lines Inc. wanted to cancel a contract worth $20 million a month.
The company couldn't wait anymore, Stephens said.
Mesa Air Group decided to shut down Air Midwest, canceling service to 20 cities in 10 states by the end of June. Stephens said Mesa probably won't return to subsidized flights again. Another Hawaii interisland carrier, Island Air, has taken over some of Mesa EAS routes.
"We were trying to grow Air Midwest through EAS," he said. But "the customer is more than willing to hit the road" and drive to a major airport, despite high gas prices. "That's what we were competing with."
A Transportation Department spokesman said the agency agrees there's need for reform but is not in favor of creating flexible subsidies to reflect the rising cost of fuel. Its solution is to limit subsidies to only the most isolated communities.
"It's a necessity, not a luxury," said W. Gary Edwards, a town supervisor in Massena, N.Y., a community of about 11,500 near the U.S.-Canada border. Edwards said Big Sky Airlines pulled out of town in November, and Massena is now waiting for new service from Capital Air Services Inc. to begin in September.
Without air service, "are people going to stay here?" Mayor Wilson said. "No. If we lose the airline, we start losing people. We lose businesses as well."