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Congress looking at subsidy cuts for small airports
February 11, 2011
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  • By Stella Davis

    February 4, 2011

    CARLSBAD – A program that subsidizes air service to small airports, often in remote communities, is shaping up as an early test in the new Congress of conservatives’ zeal for shrinking the federal government.

    Sen. John McCain, R-Ariz., has proposed an amendment to an aviation bill pending before the Senate in order to eliminate the $200 million essential air service program. The program pays airlines to provide scheduled service to about 150 communities, including Carlsbad.

    In the House, the Republican Study Committee – a group of conservative lawmakers – has also proposed killing the program.

    Greg Kahlstorf, Pacific Air Holdings chief executive officer, said the company’s subsidiary company, New Mexico Airlines that services Carlsbad, will not pull out of the community if the program is killed.

    “I want to offer Current-Argus readers the same assurance I gave Mayor Dale Janway: New Mexico Airlines will not abandon Carlsbad,” Kahlstorf said. “We will not allow subsidies – or the lack thereof – to determine the future of the city or the airline. We feel like a part of the community, and I am personally committed to continue serving it, no matter what develops with EAS.”

    Kahlstorf met with Janway and other city officials on Wednesday to discuss the air service and make a pitch to city officials recommended to the federal government to continue its EAS contract with New Mexico Airlines and the air service it offers in Carlsbad.

    New Mexico Airlines has a three-year contract with the city and is entering into the third year.

    At the city council meeting two weeks ago, Janway appointed a committee to make a recommendation to the council on the essential air service carrier that will best service Carlsbad.

    In addition to New Mexico Airlines’ bid to continue, there are two other carriers seeking to become Carlsbad’s essential air service carrier.

    The recommendation of the committee, and the council’s concurrence, will then be submitted to the federal government for approval.

    Janway said although New Mexico Airlines still has 12 months left on its contract, the federal government wants the city’s recommendation to be submitted to Washington by Feb. 22.

    The committee includes Mayor Pro tem Wes Carter; councilors Dick Doss and Judy Waters; Harry Burgess, city administrator; former councilman Ned Elkins; George West, airport manager; and John Beasley, community development director.

    Kahlstorf said he thought his meeting in Carlsbad went well.

    “The mayor was very gracious. We discussed the success of our partnership (with the city), how we (the airline) have kept fares at the same level for more than two years, and how the partnership has enabled us to invest with confidence in Carlsbad for the long term,” he said.

    Kahlstorf said he also discussed the McCain amendments, and how the city’s decision to ink a three-year contract with the airline had allowed it to develop viable plans for “precisely this contingency.”

    “The success of our partnership is evident,” he said. “Fares are under $100; a third daily flight to Albuquerque has been added; annualized passenger growth in excess of 10 percent and not a single documented complaint in the past 24 months. Since our partnership contemplates timely, documented disclosure of any problems, the absence of any such reports indicates to me that our agreement is doing exactly what the city and the airline intended.”

    Kahlstorf said he feels a loyalty to Carlsbad because when surrounding communities (Roswell and Hobbs) were pushing regional jet services, Carlsbad’s leadership chose to stick with his airline.

    “I take that commitment very seriously and I have no intention of letting city leaders down,” he said.

    New Mexico Airlines is reportedly ending its Essential Air Service partnership in Hobbs after the community opted to pursue jet service to Houston. Roswell also does not participate in the EAS program. It has jet service to Dallas.

    “In March, and like Roswell, Hobbs will lose its federal entitlement to subsidized Albuquerque flights as a result,” Kahlstorf said. “New Mexico Airlines is terminating service to Hobbs the day regional jet service is launched. Economically, it makes no sense to remain there when Carlsbad is so close, and we can offer fares so much lower through our partnership. This will leave Carlsbad as the only city in Southeastern New Mexico with direct air service to Albuquerque.”

    He said New Mexico Airline is seeing an increase in the number of Hobbs residents commuting to Carlsbad and flying to Albuquerque from Cavern City Air Terminal. He said the number of Hobbs residents leaving from the Carlsbad airport helps offset the loss of passengers who drive to Roswell (and soon to Hobbs) to use regional jet service instead of flying out of Carlsbad and connecting through Albuquerque.

    Kahlstorf said that while subsidies help the airline to contain fare prices, it has served Hobbs without them for two years – although the fares are higher than Carlsbad – and New Mexico Airlines is prepared to do the same with Carlsbad, should funding cuts or other developments necessitate.

    Currently, a one-way ticket between Carlsbad and Albuquerque is $87, while the same ticket from Hobbs to Albuquerque costs about $300. The lower price for Carlsbad travelers is due to the federal subsidy, and a major reason some Hobbs residents are catching a flight from Carlsbad because of the lower fare, Kahlstorf noted.

    Touching on the issue of the canceled flight service from Carlsbad to El Paso, Kahlstorf said the airline was forced to cancel the service when passenger loads fell off immediately after Roswell introduced jet service to Dallas. However, the airline replaced the El Paso flight with an additional unsubsidized non-stop daily flight to Albuquerque.

    In doing that, he said it demonstrates the airline’s ability to react effectively to changing business conditions within the scope of its agreement with the city of Carlsbad.

    The Essential Air Service Program was created to ensure that less-profitable routes to small airports wouldn’t be eliminated when airline service was deregulated in 1978. But critics say the airports often serve too few people to merit the amount of money spent in subsidies. Urban growth over the past three decades has also placed transportation alternatives – other airports, trains and bus service – within a reasonable distance of some communities receiving subsidies.

    Studies show that in a lot of those communities, people drive to larger airports to get better service at a lower cost than they can get at the smaller airport, even with subsidized air service, said Severin Borenstein, a University of California-Berkeley business professor who is an expert on airline competition.

    “Some communities can make a credible claim they need the service, particularly in Alaska, but I think those are a relatively small part of the program,” he said.

    The program has been remarkably resilient, partly due to the protection it receives from lawmakers from rural states and districts. It has been proposed for cuts or elimination many times over the years, but continues to grow.

    “It’s exactly in the political sweet spot,” Borenstein said. Lawmakers don’t feel it’s worth upsetting the few people the program serves to achieve what amounts to a modest savings in federal budget terms, he said.

    Supporters say the small airports and their air service are important to the communities’ ability to attract investment and jobs. The Obama administration sought an increase in the program last year.

    Four Democratic senators – Mark Begich of Alaska, Ben Nelson of Nebraska, Robert Casey of Pennsylvania and Joe Manchin of West Virginia – are circulating a letter among their colleagues for signature. It urges McCain to give up his attempt to kill the program, citing potential economic consequences.

    “Eliminating the program will have a devastating impact on the economies of rural communities,” their letter says.

    “At a moment when the nation’s economic recovery is starting to gain momentum, it makes little sense to reduce personal and business travel volume by cutting off residents of rural areas,” the letter says. “And at a time when jobs are already so hard to come by in our rural communities, it makes even less sense to enact cuts that will only make the problem worse.”

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