The Airline Deregulation Act, passed in 1978, gave air carriers almost total freedom to determine which markets to serve domestically and what fares to charge for that service.
The Essential Air Service (EAS) program was put into place to guarantee that small communities that were served by certificated air carriers before airline deregulation maintain a minimal level of scheduled air service.
The US Department of Transportation is mandated to provide eligible EAS communities with access to the National Air Transportation System.
This is generally accomplished by subsidizing two round trips a day with 30- to 50-seat aircraft, or additional frequencies with aircraft with 9-seat or fewer, usually to a large- or medium-hub airport. (US DOT)
The program was put into place to guarantee that small communities served by certificated air carriers before airline deregulation maintain a minimal level of scheduled air service. The US Department of Transportation is mandated to provide eligible communities access to air transportation and that is generally accomplished by subsidizing trips. (Jensen)
Transportation subsidies are not new – especially in the Islands.
“The Legislature of this Kingdom has just granted to the California, Oregon and Mexico Steamship Company the sum of $50,000, in consideration of running a steamer every twenty-one days between the port and San Francisco, at a stipulated price for freight and passage, carrying the mail free of charge to the Hawaiian Government.”
“Ben Halliday, Jr, has been here for several weeks piloting the bill through the House, and the skilful engineering displayed in the operation reflects credit on the business capacity of so young a man.”
“The subsidy question created, amongst all classes, a lively interest during its pendency.”
“The press was filled with animated discussion on the part of its enemies and partisans. The latter claimed vast benefit to the kingdom, in perspective, from steam communication with California, while the opposition argued that the Company would find it to their interest to run a steamer in any case …”
“… if not, some other Company would, and by appropriating the $50,000 to local improvements the country would derive a positive and visible benefit.”
“The members seemed to be equally divided, as the result of the vote will show, until the final passage of the bill by a majority of seven votes.” Following are some of the provisions of the steamer subsidy:
“Whereas, The maintenance of frequent and regular communication with San Francisco, by steam, is important to the welfare of this Kingdom; and, whereas, to establish such communication, an outlay is unavoidable at the outset, which cannot be fully remunerated from the business; therefore,”
“Be it enacted, by the King and the Legislative Assembly of the Hawaiian Islands in the Legislature of the Kingdom assembled:
Section 1. The Minister of the Interior, on behalf of the Government of this kingdom, is hereby authorized to contract with individuals or incorporated companies for running efficient and seaworthy vessels … between Honolulu and San Francisco …”
“… in consideration of which there shall be paid to said individuals or companies, a sum not exceeding twenty-five thousand dollars per year for the term of two years …”
“… provided that … trips shall be regularly run not less frequently than once in twenty one days from each end of the route, that the running the running time shall not be more than twelve days from port to port …”
“Sec 2. In order to carry the provisions of this act into full effect, the Minister of Finance, with the consent of His Majesty the King in Privy Council, is hereby authorized to issue from time to time the bonds of the government …” (Daily Alta California, June 30, 1868)
Back to the airline subsidies … the Airline Deregulation Act made communities receiving scheduled air service from a certificated carrier on October 24, 1978, eligible for EAS benefits.
At that time, there were 746 eligible communities, including 237 in Alaska and nine in Hawai‘i. According to a DOT estimate, fewer than 300 of these 746 communities received subsidized service under EAS at any time between 1979 and 2015. (Tang)
Starting October 1, 2012, no new communities can enter the program should they lose their unsubsidized service. Airports that were formerly eligible but did not receive subsidized service during the specified year are no longer eligible for subsidized service, and may not reenter the program. (Tang)
Communities in Alaska and Hawaii are generally exempt from almost all EAS eligibility requirements, except one measure that directs that no EAS funds “shall be used to enter into a new contract with a community located less than 40 miles from the nearest small hub airport before the Secretary has negotiated with the community over a local cost share.”
This requirement does not affect any Alaska EAS communities, since none is within 40 miles of the nearest small hub airport. However, one community in Hawai‘i, Kamuela, may be affected when its current service agreement expires in 2017, if the cost-sharing requirement for communities within 40 miles of a small hub is adopted in future legislation. (Tang) (Image shows SS California, a representative steam ship of the time)