Why the Taxpayers Covered Most of My Flight to This U.S. State
Why the Taxpayers Covered Most of My Flight to This U.S. State
Sabrina Janelle Gordon/Shutterstock
https://www.fodors.com/news/news/why-u-s-taxpayers-subsidize-flights-to-small-cities-like-hattiesburg-mississippi
The Essential Air Service program helps keep flights running to smaller U.S. cities.
As I settled into my seat on my United Express flight from Houston’s George H.W. Bush Intercontinental Airport to the Hattiesburg-Laurel Regional Airport in southern Mississippi, I thought about some of the ways this flight was different from most of the others at the airport—a large hub for United Airlines.
The biggest one is that I knew that the federal government—and by extension U.S. taxpayers—had paid some $6.8 million on an annual basis to subsidize this particular flight. The reason why isn’t widely known, but the story is a fascinating one.
The Essential Air Service Act
Prior to 1939, commercial air transport in the United States was virtually unregulated. In 1939, the Civil Aeronautics Act created the Civil Aeronautics Board (CAB), which was charged with regulating aviation in the United States. The CAB’s main goal was to keep the nascent airline industry going, and it set fares and service levels to ensure that airline competition was spread evenly to all parts of the country, ensuring that smaller, less profitable cities would also get airline service.
It also kept airlines from competing recklessly. The number of airlines in a market was limited by the CAB through the issuance of limited numbers of route authorities. The agency dictated which airlines could fly where, and how much they could charge. They also provided subsidies for markets that weren’t profitable.
Ultimately, the CAB kept competition limited and airfares high. In some large states, airlines such as Pacific Southwest Airlines (PSA) in California could operate outside of the bounds of the CAB’s price-fixing, and served as models for what was possible when airlines, rather than the government, could set fares and service based on the demands of the free market.
The Airline Deregulation Act, passed by Congress and signed by President Jimmy Carter in 1978, ultimately spelled the end of this system, and of the CAB itself. Airlines could now fly where they wanted and charge whatever the market could bear. But there were still communities that had previously received subsidies who feared they would lose service if left completely exposed to market forces, so the Essential Air Service (EAS) Act was part of the compromise.
How Essential Air Service Works
The major stipulations of the EAS program are a minimum number of passengers per day (to ensure taxpayers aren’t funding empty airplanes) and a $200 cap on the per-passenger subsidy for airports within 210 miles of a large or medium hub airport designated by the FAA. Hattiesburg is 93 miles from Jackson-Medgar Wiley Evers International Airport, which is designated a small hub airport. The closest medium hub airport is New Orleans, 122 miles away.
The Department of Transportation (DOT) regularly calls for proposals from airlines wishing to bid on an EAS contract. The DOT awards give preference to airlines with demonstrated service reliability, interline or marketing agreements with larger airlines at the hub airport, community preference, and air carrier plans to market the flights. All of those being equal, the award typically goes to the lowest bid. Airlines can also propose to operate the service without subsidy, but they remain obligated by the DOT to operate the service. If a second airline enters an EAS market on its own to compete with a subsidized EAS carrier, the subsidy award is withdrawn in the interest of fair competition.
In the most recent round of bids for Hattiesburg, SkyWest Airlines submitted a bid to operate the flight from Houston (IAH) as a United Express carrier with a 50-seat jet. Boutique Air also submitted proposals to operate the flights from New Orleans (MSY), Atlanta (ATL) and Houston (IAH) with 8-9 seat propeller aircraft, offering more weekly flights, but also requesting a higher subsidy amount.
The DOT solicits comments from community members and gives weight to elected officials, who largely supported SkyWest’s bid.
SkyWest estimated that it would carry 23,088 passengers annually, and those passengers would pay an average fare of $120 (this is lower than the average fare between Hattiesburg and Houston because it includes pro-rated portions of fares for passengers continuing to other cities) with estimated annual revenues of $2.7 million. SkyWest projected it would cost them $8.3 million to operate the 12 round-trips per week required by the EAS contract, generating a loss of $5.5 million. The requested subsidy is the projected loss, plus an allowance to generate a 5% profit margin—in this case, $5.9 million for the first year, with annual increases the following three years before the contract goes back up for bid.
There’s a wrinkle here that puts the service at risk. The subsidy amount works out to $259 per passenger—more than the per-passenger subsidy cap. The DOT issued a warning in their route award to SkyWest and the community to work together to lower the subsidy needed on the route, as communities that consistently come in above the cap are in danger of having their EAS eligibility revoked. It’s worth noting that the only airports that lost eligibility for exceeding the subsidy caps were more remote airports exceeding a $1,000 per passenger cap, or airports subject to a $200 cap that also failed to generate the required 10 passengers per day (traffic levels at Hattiesburg are significantly higher).
In fact, the subsidy for Hattiesburg also assumes a load factor (the percentage of seats filled on the aircraft) of around 37%—a number that SkyWest exceeded by a healthy margin most of the last 12 months. The actual subsidy per passenger dilutes the more passengers are actually onboard, so SkyWest may ultimately be in the clear—provided they work the higher traffic amounts into their next bid for the service in 2027.
What’s the Point of All This?
The EAS program isn’t without its critics—particularly cities in the contiguous United States that are relatively close to major airports (nearly a third of eligible communities are in Alaska, which has different eligibility requirements, as most of those communities have no alternative to air travel). Critics might ask, “Is it that bad having to drive a hundred miles to a major airport?” Hattiesburg is connected to a state highway and has Amtrak service (which receives federal subsidies and has never generated a profit). It’s worth noting that the Hattiesburg metro area has a population of 172,000—large enough to benefit from air service, but still too small to sustain it without subsidy. The area is also home to two universities and a U.S. Army training center, so there is national interest in keeping the community connected to the transportation grid.
In addition to educational and government traffic, having air service from a major airline makes the city’s business community more competitive. Thirty-five states and Puerto Rico also have EAS communities, and the program enjoys broad popular support in those states.
The flights also make tourism to Hattiesburg easier and more attractive. I spent my time there browsing antique shops (if anybody needs an Officer Big Mac Climb-In Jail from a 1970s era McDonaldland Playland, you can pick one up at Lucky Rabbit, which also has a replica Golden Girls set). I sampled sherbet, Dole Whip, and Orange Julius-flavored beers at Southern Prohibition Brewing, and toured the African-American Military History Museum at a historic USO—all treasures that might have been missed were the city less accessible than it is now. To learn more about the EAS program, visit the Department of Transportation. All route awards, subsidy amounts, and DOT decisions regarding the program are publicly available at regulations.gov.
A microscope on small businesses: Spotting opportunities to boost productivity
https://www.mckinsey.com/mgi/our-research/a-microscope-on-small-businesses-spotting-opportunities-to-boost-productivity?
By Anu Madgavkar, Marco Piccitto, Olivia White, María Jesús Ramírez, Jan Mischke, and Kanmani Chockaling
3. Looking through a microscope to fill the gaps
To move the needle beyond broad-brush solutions, we need to look in detail at variations in relative MSME productivity performance to identify specific opportunities to achieve potential additional value. Consistent with MGI’s micro-to-macro analytical approach, we have looked at MSME productivity through a microscope, homing in on 68 level-two subsectors and 219 level-three subsectors. See the technical appendix for details of each of the 16 countries in our sample.
A granular approach helps prioritize where to act to boost MSME productivity
MSME productivity ratios vary across sectors, but the spread is even wider at the subsector level (Exhibit 11). For instance, in Germany’s sectors, ratios range from 55 percent in manufacturing to about 100 percent in transportation. In subsectors, the range is even wider. The spread is largest in administrative services, where the ratio is about 20 percent in rental and leasing activities and about 120 percent in building services and landscaping activities. There is a wide range in manufacturing, too. Small businesses engaged in the manufacture of tobacco products are only 35 percent as productive as their larger counterparts, while those manufacturing basic metals are 85 percent as productive. In transportation, MSMEs engaged in postal and courier activities are less productive than large companies, while in warehousing, they are closely matched.
Exhibit 11
Image description:
A dot-plot chart focuses on Germany and compares the ratio of MSME productivity to large company productivity for different subsectors in each of the ten broader sectors. The economic sectors are administrative services, accommodation and food services, utilities, trade, transportation, construction, professional services, mining, manufacturing, ICT, and other services. Within German sectors, the ratio of MSME productivity to large company productivity varies significantly, and the spread is even larger at the subsector level. The spread is largest in administrative services, where the ratio is about 20 percent in rental and leasing activities and about 120 percent in building services.
End of image description.
This granular view at the subsector level is important when setting aspirations for, and thinking about ways to boost, MSME productivity. No single country can be considered the north star for all MSME productivity. The truth is that the best-performing MSMEs are found in one country for one type of activity, but in another country for another type of activity.
MSME productivity ratios vary across sectors, but the spread is even wider at the subsector level.
The trade sector illustrates this (Exhibit 12). In the automotive trade, Japan’s MSMEs are more vertically integrated with large manufacturers than in many other advanced economies, including the United States (see chapter 5). This enables them to have more efficient logistics that follow just-in-time principles and respond effectively to market fluctuations, making them top-quartile performers.27 However, in retail and wholesale trade (excluding automotive trade), vertical integration among Japanese MSMEs appears to be weaker, and they fall into the bottom two quartiles of relative performance. In these sectors, the United Kingdom and Germany, respectively, present compelling benchmarks for Japan.
Exhibit 12
Image description:
A box-plot chart shows the ratio of MSME productivity to large company productivity for trade subsectors in different advanced economies. The three subsectors shown are automotive trade, retail trade, and wholesale trade. Trade is shown as an example of a larger trend: within subsectors, the productivity ratio varies significantly among countries. For example, Japan’s MSMEs are in the top quartile in automotive trade but lag behind MSMEs in other advanced economies in retail trade and wholesale trade.
End of image description.
Viewing MSMEs at a fine-grained level brings high-value subsectors into sharp focus. Considering manufacturing, for example, in almost all countries eight sizable subsectors (out of 24) account for more than 60 percent of the value from narrowing productivity gaps.28 In advanced economies, this ranges between five and 11 subsectors, while in emerging economies, the opportunity is more concentrated in four to eight subsectors.
While the sector overall contributes 18 percent of total value from narrowing productivity gaps in advanced economies and 25 percent in emerging economies, the opportunity is not uniform—the subsectors that offer the largest opportunities differ depending on the country (Exhibit 13). For instance, if we compare Indonesia and Australia, there are important differences. Manufacturing of basic metals, chemicals, rubbers and plastics, and food products is an important source of value in both economies. But in Indonesia, the apparel manufacturing subsector appears to offer meaningful value, whereas in Australia, the textiles subsector is a sizable opportunity. For Indonesia, electrical equipment and automotive manufacturing would be higher priorities, but in Australia, the comparable subsectors would be machinery and equipment, and fabricated metal.
Exhibit 13
Image description:
A stacked bar chart shows the contributions of different subsectors from narrowing productivity gaps in the manufacturing sector for ten advanced economies and six emerging economies. To measure the value of narrowing productivity gaps for each country, we assume that the productivity ratio of MSMEs in the country in each subsector reaches a benchmark level (top quartile among all advanced economies) in the same subsector. The takeaway is that the subsectors that offer the largest opportunities vary significantly by country.
End of image description.
Looking through the microscope also helps to tailor efforts to build MSME competencies
The importance of scale for productivity and the hurdles that stand in the way of MSMEs gaining that scale are well recognized. So, too, are ways to address this issue, such as building national infrastructure and providing access to markets, finance, and technology. But national-level action is only one aspect of the competencies that MSMEs require to thrive and raise their productivity.
Which competencies matter most can vary depending on the type of MSME. For example, drawing on the World Bank Enterprise Survey, we find that more than one-third of MSMEs in the apparel manufacturing subsector report an “inadequately educated workforce” as their biggest obstacle to operations, but less than 15 percent in chemicals manufacturing do so. Because the business needs and hurdles to creating value are somewhat different in each subsector, solutions need to be tailored to local business and industrial contexts.
Because the business needs and hurdles to creating value are somewhat different in each subsector, solutions need to be tailored to local business and industrial contexts.
Take US construction as an example. This sector has one of the highest potentials for adding value because MSMEs perform poorly on productivity relative to large companies, at 46 percent against the top-quartile level of 60 percent in Germany. Large companies in the building construction subsector tend to concentrate on residential and nonresidential construction projects that typically involve larger projects, greater standardization, modular construction methods, and advanced technology and equipment—all of which help to boost productivity. However, MSMEs in the building construction subsector tend to focus on small-scale residential construction and refurbishments. They are subject to comprehensive building codes, regulations, and standards governed by local and state laws—factors that make it challenging for MSMEs to achieve higher productivity. This degree of stratification is not present in all countries in this sector. In the United Kingdom, for example, construction MSMEs receive incentives to participate in projects similar to those undertaken by large companies and are much more productive, relative to large companies, than their counterparts in the United States. Residential construction MSMEs in the United States could potentially diversify by becoming subcontractors to major players, helping them tap into potential additional value.
The 10 Coolest Sand Dunes in America
YayaErnst/iStockphoto
https://www.fodors.com/news/photos/the-10-coolest-sand-dunes-in-america
From hiking to off-roading to sandboarding, America’s sand dunes have something to offer every type of adventurer.
Sand dunes are completely underestimated. It’s easy to dismiss them as large piles of sand, but in reality, they are mountains of sand that tower up from desert valleys, alongside rugged coastlines, and near epic mountain ranges. Wind constantly shapes and reshapes them to create ever-changing landscapes: they shift, they sing, they sparkle. Sand dunes are one of the coolest natural phenomena on the planet. Each provides its own opportunities to hike, watch wildlife, board, sled, and camp. From Death Valley’s desert sand dunes to Oregon’s sculpted dunes, here are ten of the coolest sand dunes in the United States.
PHOTO: MARK NORTON/DREAMSTIME
1 OF 10
Coral Pink Sand Dunes State Park
WHERE: Kanab, Utah
Winds in southern Utah are so strong that they can push the dunes up to 50 feet per year. For thousands of years, those same winds slowly eroded red sandstone formations, leaving behind an ocean of uninterrupted salmon-pink sand dunes. The Coral Pink Sand Dunes State Park is as popular with photographers as it is with off-roaders because of the picturesque scenery. Whether you are sandboarding, hiking, riding ATVs, or horseback riding, make sure you schedule your activities for sunset. As you watch the fading sunlight bounce off the pink sand, you will not be disappointed.
PHOTO: BRENT 1/SHUTTERSTOCK
2 OF 10
Monahans Sandhills State Park
WHERE: Monahans, Texas
The 3,480 acres that form Monahans Sandhill State Park are just a drop in the bucket of the 200-mile sand belt that extends into New Mexico. The famous West Texas winds continuously create ripples in the sand and sculpt the sand dunes into peaks and valleys, sometimes overnight. Roadrunners, lizards, and other desert animals are commonly seen scurrying through the desert.
PHOTO: DEAN PENNALA/DREAMSTIME
3 OF 10
Sleeping Bear Sand Dunes
WHERE: Empire, Michigan
If you want more than just sand in your sand dune park, head to Sleeping Bear Sand Dunes in Upper Michigan. With 35 miles of sandy shoreline, miles of sweeping vistas, 70,000 acres of protected wilderness, bluffs, lush forest, clear lakes, and more greenery as the eye can see, it is no wonder this park is named the most beautiful place in America time and time again. The view from the top of the 300-foot Dune Climb is well worth the calf-burning effort to climb the sandy hill.
PHOTO: YAYAERNST/ISTOCKPHOTO
4 OF 10
White Sands National Park
WHERE: Dona Ana County, New Mexico
New Mexico’s glistening white sands at White Sands National Park are one of the world’s great natural wonders. The miles upon miles of rare, stark-white gypsum sand contrasted with the deep blue sky make the location a favorite on Instagram. If you want to do more than just take photos of the great white expanse, there are several hiking trails and sand sledding available. Don’t be afraid to take your shoes off. White sand does not absorb heat, so even on the hottest days, the sand will not burn the bottom of your feet.
PHOTO: STEVEN_KRIEMADIS/ISTOCKPHOTO
5 OF 10
Imperial Sand Dunes
WHERE: Brawley, California
The largest sand dune fields in southeastern California’s Imperial Sand Dunes might look familiar to Star Wars fans. Directors used the massive desert as the filming location for the scene in Episode V: The Return of the Jedi when Luke Skywalker tries to free his friends. The barren landscape near the Arizona border was also a filming location for Jarhead and The Scorpion King. Stop here to reenact your favorite Star Wars scene, or simply hike, climb, or slide down the sand dunes.
6 OF 10
Sand Master Park
WHERE: Florence, Oregon
Sand Master Park is the world’s first park built specifically for sandboarding. The niche extreme sport, similar to snowboarding, has risen in popularity during the last two decades. In 2000, sandboarding enthusiast Lon Beale opened the park with 40 acres of sculpted sand dunes, a 40-foot ramp, and a full-time pro shop. Lessons make the park a great stop for newbie sandboarders as well.
PHOTO: SAM STRICKLER/SHUTTERSTOCK
7 OF 10
Bruneau Sand Dunes State Park
WHERE: Mountain Home, Idaho
Visit Bruneau Sand Dunes State Park for the tallest single sand dune in North America and stay for the stars. Climbing the monster 470-foot dune is no small feat, but it is worth it for the views from the top. Rent a sandboard or a sled to get back down quickly. The fun does not stop once the sun goes down. These dunes are protected from light pollution because they are home to Idaho’s one and only public observatory. When it gets dark, it gets really dark, letting you see an explosion of stars, planets, and the Milky Way.
PHOTO: JSATTERTHWAITE/ISTOCKPHOTO
8 OF 10
Jockey’s Ridge State Park
WHERE: Nags Head, North Carolina
The western half of the United States has the majority of the country’s sand dunes, but with Jockey’s Ridge State Park, the East Coast is still represented. The towering sand dunes here are the tallest in the Eastern United States and make the coastal town of Nags Head look like the Arizona desert. Shifting winds constantly shape and reshape the 420-acre park and make for great kite flying and hang gliding, the park’s two most popular sports. Hang gliding is one of the park’s most popular activities. Although the Wright Brothers flew their homemade gliders five miles north, the smooth wind makes Jockey’s Ridge an ideal location for aviation recreation.
PHOTO: MICHAEL7153/DREAMSTIME
9 OF 10
Eureka Sand Dunes
WHERE: Death Valley, California
The Eureka Sand Dunes are not the tallest or the steepest dunes on the list, but they are the loudest. The dunes are one of a handful around the world that experience the auditory phenomenon known as singing sands. If the sand is completely dry, it will make a low rumbling noise similar to the bass note of a pipe organ during an avalanche. Or, after hiking up the dune, shuffle your feet against the sand on your way down to hear the sand sing. Scientists do not know what exactly causes the sand to make noise.
PHOTO: JOECHO-16/ISTOCKPHOTO
10 OF 10
Great Sand Dunes National Park
WHERE: Mosca, Colorado
No list of American sand dunes would be complete without mentioning the Great Sand Dunes National Park in Colorado. The 30-square-mile park is known for having the tallest dunes in North America. The highest is an impressive 750 feet above sea level. Not only that, the area is the quietest area in the United States, ensuring a good night's sleep after all that dune climbing.
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