With tens of billions of dollars in federal funding on the line the US aviation market is shifting its schedules. The Coronavirus Aid, Recovery, and Economic Security Act (the CARES Act) includes a significant pool of cash for airlines to fund their payroll but also comes with conditions. Most notable is the requirement to maintain reasonable service levels across the country. Congress left it to the Department of Transportation (DOT) to define what that means and the initial guidance quite clearly favored larger airlines and airports. With more than 30 responses now logged we can review what the objections are and consider the likely outcomes.
The Department recognizes that demand for air travel has significantly declined as a result of the COVID-19 public health emergency and that requiring covered carriers to operate their full schedules and networks as they did before the public health emergency would be counterproductive to the objectives set forth in the CARES Act. Therefore, the Department has tentatively determined to implement covered carriers’ Service Obligation by requiring only minimum service levels for each point served…
The initial proposal
The DOT’s initial proposal is relatively straightforward. Service must be maintained to all markets currently served. If an airline operated more than 5x weekly previously it must maintain 5x weekly service. If it operated 4x weekly or less it must maintain 1x weekly service. And the list of required service points would be based on what the schedules reflected for the last week of February.
Of significance in these definitions, a market can, in some cases, include multiple airports. These include the obvious multi-airport cities like Los Angeles, San Francisco and New York City but also smaller markets like Cleveland/Akron, Ohio and Norfolk, Virginia. It also leaves out some likely candidates such as Seattle/Everett, Washington.
The objections
Airports and airlines alike filed responses to the DOT’s proposal and the divide between larger and smaller operations is stark. Big airlines generally are comfortable with the rules. Smaller airlines and airports stand to lose significantly, however, and are pushing back.
Secondary airports concerned the CARES Act abandons them
Several secondary airports filed comments objecting to the use of “markets” to define the service obligations rather than airports. Akron (included in the Cleveland market) was one of the first, admitting that airlines are likely to serve Cleveland instead and leaving it without flights. The airport authority pushes the position that “the Akron-Canton region is different and distinct from the Cleveland Metropolitan Area” and that “within a 1-hour drive from CAK there are two (2) million residents who are closer to CAK than they are to CLE.” Newport News raised similar concerns vis a vis its proximity to Norfolk. Newport News plays on its high military and research facility density in suggesting that it requires a consistent level of service to remain.
While airports are concerned about losing service completely there are also some willing to acknowledge they should have less service than currently is scheduled. With Essential Air Service contracts tied to performance, even without passengers on board, a number of cities are petitioning the DOT to allow for reduction – but not elimination – of flights.
Three members of Congress (Torres, Napolitano, Calvert) also filed a brief on behalf of these smaller airports, suggesting “the potential decrease in service could create economic deserts where there was previously economic opportunity.”
Counterproductive for the U/LCCs
Among the US Low Cost Carriers the concerns are of a very different nature. They believe that the DOT plan is inherently flawed to a catastrophic level. It will require these airlines to add frequencies, not allow them to reduce operations, and will force resources to the wrong places.
Much of the trouble arises from the more seasonally dependent nature of LCC operations. Frontier had long planned to cut its service in April, for example, removing a number of routes and frequencies as the Spring Break travel peak ebbed. The carrier anticipates a need to add 460 weekly flights to meet the requirements proposed by the DOT.
JetBlue cut its operations deep while maintaining service in all markets for the time being. And the company “supports the flexible, common-sense proposals offered.” But the carrier also wants to make liberal use of the DOT’s authority to provide exceptions to the requirements. JetBlue wants “blanket service-level exemptions for the months of April and May while the situation stabilizes.” Frontier also suggests a suspension of the service obligation enforcement until June. This would, of course, see cut in service to a number of cities. But the idea comes with support from another smaller carrier.
Spirit Airlines raises the seasonal service objections similar to Frontier but goes a step further in suggesting that the DOT is forcing a significant excess capacity into the market, “It is not in anyone’s best interest to force carriers to fly empty aircraft, such as when a region is under a strict travel advisory, and a wasteful use of the CARES Act grants.” Spirit’s proposal would ensure that every market retains service and that some even retain competitive service, while alleviating significant burden from all airlines.
- For large and medium hub airports, the Service Obligation applies to the three largest carriers in terms of average weekly departures.
- For small hub airports, the Service Obligation applies to the two largest carriers.
- For non-hub airports, the Service Obligation applies to the single largest carrier.
- Nothing in the provision prevents carriers from continuing to serve airports where the Service Obligation does not apply to them.
Allegiant and Sun Country also highlight their seasonal route structure in comments to the DOT, suggesting that previously published future-looking schedules be consulted rather than past services. Sun Country also suggests that the required frequency of services see a much higher threshold. Rather than a 5x weekly route being required to maintain that level of operations the carrier proposes 25x weekly as a threshold, with a requirement of 3x weekly flights if it is reached.
Indeed, requiring near daily service from so many airlines to so many airports when only a handful of passengers are looking to fly makes little sense economically or environmentally.
The bigger players (mostly) don’t mind
Responses from United Airlines, Delta Air Lines, Southwest Airlines, and industry trade group Airlines for America all generally support the rules. These are the carriers that typically serve most their destinations from multiple hubs and multiple times daily. The therefore benefit disproportionally from the DOT’s idea of what reduced service looks like.
Hawaiian Airlines is an exception among this group, however. The carrier operates only two routes to the mainland today, owing to Hawaii’s strict quarantine rules for all arrivals on to the islands. Its eight other mainland destinations see no service to the islands and also no demand for that service. Moreover, they are all large airports served by multiple other carriers. Hawaiian is blunt in its suggestion that the rules not apply in its case, “It would make no sense to compel Hawaiian to fulfill a service obligation from its operating basin in Hawaii for flights with no demand or logistical need.”
The ridiculous
Beyond the trade groups and airlines and airports a couple other comments showed up in the docket from private individuals. And they provide some lighthearted distraction from the more serious comments. One comes from a marketing consultant who “worked shoulder-to-shoulder on long shoot days an in the editing bay” with senior airline marketing executives a couple decades ago, an experience that afforded him “the opportunity to learn much about the economics of running an airlines.” He also notes that he and his staff fly a lot so they are even better suited to provide advice. Their suggestion is that each airline be allocated a day or days that they are required to serve each airport to avoid overlap.
A second commenter used to opportunity to put in a plug for a commercial offering that would shift the slot allocations at the handful of US airports where they exist, making them an annual bid/lease object rather than allocated and held so long as they remain in use. Fortunately for airlines the slot usage rules are suspended for the Summer 2020 season and this proposal stands no chance of moving forward.
How will the DOT respond??
Given the general support for the rules from larger players it seems unlikely that the DOT will shift the policies too much. Hopefully they lend greater consideration to the seasonal scheduling and even consider reducing the number of required flights or adding a third tier of occasional but not frequent service as an option. That makes sense given the capacity that will remain in the sky far in excess of demand for months to come.
But no guarantees on anything, even as the airlines are negotiating with the Treasury for the first infusion of cash to arrive.
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