The US Government Program That Pays For Your Flights


This video was made possible by Curiosity
Stream. When you sign up at the link in the description
you’ll also get access to Nebula—the streaming video platform that Wendover is a part of. A quite reasonable question would be why the
American government is paying United Airlines $4,780,955 a year to fly from their hub in
Newark to the small, northern Maine town of Presque Isle. The question could also be asked for why they
pay Boutique Air $3,328,207 a year to fly from Dallas and Houston to the small Texan
city Victoria, or why United Airlines is paid $2,317,073 a year to fly from Denver to Pueblo,
Colorado. Well, these are subsidies, and in some cases,
quite hefty ones. Take that flight from Houston to Victoria,
Texas. Boutique will sell one of the seats on their
small prop plane for as low as $54 on this route. The government, however, will chip in an additional
$380 per passenger through this subsidy. Lastly, for Denver to Pueblo, United sells
tickets for $86 but then pockets $282 from the government. Each of these routes and hundreds more around
the US are part of a little-known US government program called the Essential Air Service. The premise of the program is simple. For the most part, and of course there are
exceptions, flying to small towns is not profitable for commercial airlines. This makes sense. When operating an airline, there are a number
of fixed costs for every flight operated. No matter if an aircraft seats six passengers
or 600, an airline is going to need to have check-in agents, baggage handlers, gate agents,
pilots, dispatchers, sales agents, and more. Since those fixed costs are distributed between
fewer passengers with smaller planes, the cost to operate per passenger tends to get
higher when you get down to the smallest sizes of planes. Of course, airlines could compensate for this
by raising fares on these routes, but, like many countries, the US has a significant economic
divide between its rural and urban parts. In general, the more populated a place is,
the wealthier its inhabitants are. So, say there’s a city of 1 million and
a town of 10,000. Barring any other variables, you would expect
the demand for flights in the city of 1 million to be about 100 times greater than in the
town of 10,000 since its population is 100 times greater, but when you add the real-world
variable of income, knowing that those in the town of 10,000 earn less, demand would
go down for flights from the town since its inhabitants are less able to pay. Therefore, considering income, you might expect
to have 150 times more demand from the city, even though its population is only 100 times
greater. When you then add the variable of price, given
that tickets average more expensive from smaller towns, that would further reduce their demand
so now, the city might have 200 times more demand, despite having only 100 times higher
population. Of course, airlines need demand to make a
route viable. Even if they’re only flying a tiny plane
to that 10,000 person town daily, they still need seats filled to make it commercially
successful. As we’ve just demonstrated, demand decreases
exponentially the smaller a town gets so the number of small towns that would actually
prove to be commercially viable to airlines in the US is small. That’s not to say they don’t exist, though. For example, let’s look at Colorado’s
13 commercial airports—Grand Junction, Cortez, Durango, Telluride, Montrose, Gunnison, Aspen,
Hayden, Eagle County, Alamosa, Pueblo, Colorado Springs, and Denver. Of these, clearly Denver and Colorado Springs,
as cities, are not going to be subsidized, but then the remaining 11 airports are all
in fairly small towns. However, of these eleven, only the service
to Cortez, Alamosa, and Pueblo are subsidized with the Essential Air Service program. Now, this is interesting considering that
Gunnison has a smaller population than Cortez, Hayden has a smaller population than Alamosa,
and Grand Junction has a smaller population than Pueblo. The difference between these three subsidized
airports and all the other small ones is that these are all in the mountains. Cortez, Alamosa, and Pueblo are not. That means that all these other airports are
near ski resorts and therefore have strong inbound demand from tourists. This is the major circumstance when service
to small towns is commercially viable alone—when it serves tourist hotspots—but in other
cases, it’s just extremely rare for these type of routes to make enough money for it
to be worth it airlines. So, very simply, the idea of the Essential
Air Service program is to close the gap between what it takes for a route to be worth it an
airline and how much they’ll earn from operating to a small city. Through a bidding process, airlines will be
granted the contract to operate these routes, getting paid anywhere from $144,000 a year—as
in the case of Mokulele Airlines’ service from Kahului to Hana, Hawaii—up to $4.7
million a year—as in the case of United’s service from Newark to Presque Isle, Maine. Now, airlines are paid per flight operated,
not per passenger, which means that they will happily and regularly operate flights with
just a couple or no passengers. Plenty of airlines running EAS routes would
be profitable without selling a single ticket—solely through the government’s payment—so a
whole industry has arisen around servicing these routes. While the large airlines like United, Delta,
and American do bid and operate these routes, the smallest plane they each operate is a
50-seat CRJ-200. Plenty of these routes have far less demand
than that, even if there’s just one daily flight. That’s why smaller airlines have evolved. Take the example of Air Choice One. They’re a tiny airline operating a dozen
Cessna Grand Caravans from Minneapolis to Ironwood, Mason City, and Fort Dodge; Chicago
to Ironwood, Mason City, and Burlington; Mason City to Fort Dodge and Burlington; St Louis
to Burlington, Fort Dodge, Jonesboro, and Jackson; and then finally Atlanta to Jackson. Of Air Choice One’s thirteen routes, every
single one is subsidized by the Essential Air Service. The airline earns $15.7 million in revenue
yearly through this before actual ticket sales. These sorts of small, regional airlines, of
which there are dozens in the US, would likely not exist without the Essential Air Service
program as the type of flying they do would certainly not be profitable. Worth mentioning is that a system of subsidies
for routes to small towns is not unique to the US. In Europe, they’re known as Public Service
Obligation routes, or PSOs. This system is a little more complicated than
the US’ with varying terms for when and how airlines get paid, but the amount of compensation
varies quite a bit more than in the US. For example, in the UK, the effective per-passenger
subsidy ranges all the way from $4.57 for FlyBe’s route from London Heathrow to Newquay,
up to, apparently, more than $1,000 per passenger in the case of Airtask’s routes in the Shetland
Islands. The US, though, has more federally subsidized
routes than the entirety of the European Union because, after all, the geography of the US
is quite different. The US is one of the least dense developed
countries in the world. If the population of the US lived as densely
as that of the UK, it would fit comfortably in just California, Nevada, Utah, and Arizona. Given this spread, it does have an issue with
transport. The rural areas of the US are just hard to
get to and from, and this can make a bad economic situation worse. As just one example, companies can and have
made the decision to move their operations, whether factories or headquarters, from smaller
towns to bigger ones in order to be closer to large airports. Outside the US, transport to rural areas is
often provided by train and, while part of the reason for the US’ minimal development
of passenger railroads is lack of interest, it would also be tough, in many places, to
build a financially viable passenger railroad due to the country’s vastness. Without these flights, the only public transportation
in or out of much of rural America would be the bus, at best. In the lower 48, this program helps communities. In Alaska, though, there are plenty of communities
that quite literally would not exist without these subsidies. 65 of the US’ 179 EAS routes are within
the state of Alaska. A big reason for that is that only 14% of
Alaska’s municipalities are connected to the outside world by road. The state is just so vast and harsh that building
roads to most of these areas wouldn’t make sense. In place of roads, Alaska’s rural towns
have airports, meaning that, in many cases, their essential air service subsidized flights
are the only ways in or out. So, the way the Essential Air Service works
is clear, but is it effective at its goal of elevating the economy of rural areas of
America? Well, according to one of the most comprehensive
studies done on the matter in recent years, every 1% increase in passenger traffic at
a subsidized airport leads to the per-capita income of that community increasing by 0.12%. It’s tough to know exactly how much of a
passenger number increase the program leads to, but this at least serves as evidence that
the underlying supposition of the program, that air service leads to economic opportunity,
is true. What’s also true, though, is that the Essential
Air Service program is not as efficient as it could be. For example, for the longest time, Southern
Airways Express has been getting $2.3 million a year to fly from Hagerstown, Maryland to
Pittsburg and Baltimore. That’s despite the fact that BWI airport
is just 67 miles or 108 kilometers away from Hagerstown. In the air, the flight takes about 30 to 40
minutes, given the slow speed of the Cessna Grand Caravan. Driving between the two airports takes about
70 to 80 minutes and, for anyone without a car, there are commercial airport shuttles
operating between Hagerstown and BWI. What’s more, Hagerstown is also an hours
drive from DC’s National and Dulles Airports, and Hagerstown Airport even has regular, non
EAS-subsidized routes to Myrtle Beach, Orlando, and Tampa. It’s safe to say that a town like Hagerstown
is benefiting far less from its multi-million dollar subsidy than a town like Adak, Alaska. That’s why, in late-October, 2019, Hagerstown
got the axe. It will no longer be subsidized by the Essential
Air Service program. Under increased scrutiny, the requirements
for this program have gotten stricter and stricter in recent years. Nowadays, to be eligible, a community has
to be more than 70 miles or 110 kilometers from the nearest major airport, has to cost
the government less than $200 per passenger if its within 210 miles or 340 kilometers
of the nearest major airport, and has to average more than 10 passengers per day unless its
further than 175 miles or 280 kilometers from the nearest major airport. With these requirements, more and more communities
are losing their funding. Some of these are clearly justified. While flights might be nice, nobody’s loosing
out on opportunity by having to drive or take the bus an hour from Hagerstown to BWI. There is, and long has been, though, talk
of completely eliminating the program. Now, without telling you what to think, I’m
just going to present some numbers. It costs the US government about $290 million
a year to run the Essential Air Service—a program that connects hundreds of communities
to the outside world. For that same amount of money, the government
could build about 40 miles or 65 kilometers of highway, it could pay to maintain all of
the US government’s empty or disused buildings for 62 days, or it could buy 1/7th of a B-2
Spirit Bomber. In government terms, $290 million just isn’t
that much. Some exciting news: I’ve just gotten back
from filming a documentary about something, somewhere. That’s all the info you get, aside from that’s
its actually good and that it’s a Nebula original meaning that you watch it when it
comes out at the end of November, you’ll have to head to Nebula—the streaming site
built by myself and a bunch of other creators. To make that easier, though, Nebula has partnered
with Curiosity Stream—the streaming site home to thousands of top-quality documentaries
and non-fiction TV shows. Curiosity Stream is worth signing up for by
itself—beyond just its great library, its available pretty much everywhere for a very
reasonable cost of just $3 a month. That $3 a month Curiosity Stream membership,
though, now also gets you access to Nebula if you sign up at CuriosityStream.com/Wendover. That’s really an amazing deal for two top-quality
streaming sites and, the best part is, you’ll be supporting myself and so many other independent
creators while you do it.




Comments
  1. I'm very excited to release that documentary that I teased in the ad-read at the end! It'll go up on Nebula at the end of November, but make sure to sign up for the Curiosity Stream/Nebula bundle so you can see that right when it comes out: http://CuriosityStream.com/Wendover

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  3. I fully support this and many other government subsidized public transportation programs. yea, yea capitalists will always tell me they are less efficient and earn less money and whatnot. I agree. Government programs aren't efficient. Its hard to judge demand and invest in areas that reap the most benefit.
    Private businesses are great at that due to supply and demand. But sometimes, the benefit isn't directly visible via capital. This program indirectly improve the economy of small towns even if it appears to be just spending money on routes that earn no money.

    And there's also China's Lanzhou-Xingjiang line. It is losing them a lot of money and supported by the other more successful lines. From a purely business/capitalistic view, we can cut that route off and earn more money. However it provides cultural benefits. It unites the far reaches of the country under one banner. Increases interactions and trade between the country. It also help these remote areas develop much quicker.

    And that is the core of government programs. Its not to earn profit, that is what private businesses are for. The government programs is to look in the long term and develop a stable foundation for future growth. That is something pure profit will never get you.

    Private enterprise don't care about going to the moon, that doesn't give them any money in the next 10 years. The government do however. Same for Mars, but of course there are exceptions.
    People like Elon Musk is doing it out of his own personal dream, but that is an exception, not the norm. Private businesses rarely venture out if there is no profit in sight. I can assure you, going to Mars will not earn Elon that much money. Even if it does, it will mostly be from the government and the latter won't be making that money back from their research programs. At least not directly. 50 years later, that research would bare fruit in the form of new technologies.

    Columbus believed he could find a new profitable trade route to China. No one sponsored his voyage because it did not seem promising. But the Spanish government did, and after his voyages, many private ventures started to go to the Americas. I like to think both have their place, and cutting the Essential Air Program is a massive loss for the US.

  4. so why does it cost so much to fly out of Hancock. It totally qualifies. We're a 6 hours drive from the nearest major airport…..

  5. Pueblo is nowhere near a small city. It has more than 20% of Edinburgh, sitting comfortably at over 111,000 proud residents.

  6. We can't get one high speed rail network in California in a faster amount of time,while the airlines million in subsidies cash to connect rural communities. That's bullshit!

  7. If the idea of the program is to increase economy in those rural areas, would it not be a better use of that money to just give the money to those communities? I get that the Alaska towns that dont have outside access other than through planes, but the other towns per se.

  8. When I fly into Chattanooga from Charlotte it's on a tiny plane from American Airlines that's always packed. When I fly in on Delta from Atlanta the plane is big and only 3/4 full.

  9. Our government subsidise bus and trains (keeping the service alive, not making new lines). It's cheaper, and you produce less carbon imprint.

  10. This is pretty bad for the environment. Maybe if we develop electric airplanes or actually invest in high speed rail, I don't actually know how we can make this better

  11. Hi Wendover,
    Can you make a video on job generation by and at airport, like Heathrow or Dubai?
    You have loosely covered this topic, and I feel such a video will catch the attention of even policymakers :).

    Cheers!

  12. Biggest shock at the end…what the cost of this service could otherwise provide for infrastructure. With wages as low as they can be, it seems a lot of people are lining their pockets a bit too much when it comes to essentials of life. I'm not calling for communism, but a middle ground, or even a 10% ground toward that direction can be justified?

  13. 1:25 So professional sounding until… "…There are a number of…" Since when is a singular unit referred to as being multiple? Oh right, since everyone and their dog started thinking nothing about slicing and dicing the English language to their lackadaisical delight while putting on the airs of professionalism. It's not that difficult: "There is a singular unit," "there are multiple units." smh

  14. Build a financially viable passenger railroad in a big, mostly flat country? Challenge accepted. I will see you all on the first train from New York to L. A. with 32,000 hp steam turbines and auto service. 500 m.p.h. is possible. If the Japanese can do high speed through mountains, we can do it through the Midwest.

  15. Why incentivise people to live in nonviable small towns? Don't live in a backwater town if you want amenities … like museums, nice restaurants, or flights.

  16. Why subsidize inefficient living? Make idiots that CHOOSE to live in expensive places pay their full costs for transportation, so they see how expensive it is to live far away from everything and everyone. To give everyone opportunity, the government should subsidize moving to dense urban areas from sparse rural areas.

  17. Give it 5-10 years and self-piloting electric vehicles could operate these routes on an on-demand service, and with little or no subsidy.

  18. US Government: Uses its money inneficienctly
    Wendover Productions: it doesn't matter because it isn't that much. I

    Think about the opportunity cost of that money. It could be spent on subsidies to greener transportation, or on research and development, instead of subsidizing of of the least efficient ways to travel with huge GHG emmisions.

  19. You’ve missed part of why EAS exists as well: most of the communities had been served prior to deregulation so they get EAS flights so that there’s no economic impact if the airlines decide to leave because it’s not profitable.

  20. Fascinating and maddening. EAS is idiotic outside of HI and AK, since the lower 48 has roads. Also, small flights from subsidized and unsubsidized airports are clogging up airline hubs, with Delta operating to 300 airports in the US while Southwest serves the same area minus parts of North Dakota and Montana with about 100 airports.

  21. $290 million would pay for a lot of passenger train service, and dramatically lower the environmental impact. The ENTIRE annual operating loss for Amtrak is just $168 million in 2018. Best of all, subsidizing more trains would improve the economies of entire regions, instead of just one lonely town.

    https://apnews.com/d229959ca1334fb6bc0fb5780f0dcae0

  22. Real classy, just rub that exclusive paywalled content in my face.
    No harm in going broke paying for the increasingly splintering streaming world. Right?

  23. @Wendover Productions
    Why do those airlines not operate a bunch of Cessnas with 2 passenger seats (or whatever else is small)? If they waste money flying 50 seaters with no passengers, it seems that if the subsidy was instead "per passenger transported", you could connect perhaps a hundred more small communities for the same price. It seems that the structure of the subsidy is highly inefficient.
    Like they're mostly burning money for the sheer joy of it.

  24. The USA needs to get train infrastructure. To take a plain for such a short travel…well sure, why not. Anywho I know he covered this in other videos why USA dont.

  25. Essential? The US leaves people on the streets (especially veterans) because they have to pay the plane ticket of someone that is too lazy to drive a car or ride a train for a few hours…

  26. As usual, a government frustrates a market with a subsidy instead of letting the best product or service prove itself.

  27. Being such a great communicator about logistics, you should do some similar work about passenger rail services.
    On a recent trip to Europe, after both rail and flying, it was clear that passenger rail was the superior choice for intercity travel.
    It would be great to understand why, say, trains are full on some European routes yet are almost unviable in the US and Australia.

  28. Curiosity Stream or Nebula seem interesting. I'm interested but never visited them, all I know is they're Science Channel.
    It would be a lot easier to entice people to come over if they know some examples of show that's in there rather than telling people that they have specials (which of course they may or may not like).

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