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Boutique Air lost gamble on restoration of federal subsidy

News analysis

JAMESTOWN — Boutique Air bet that promises of a better airline service would be enough to convince the federal government to restore an Essential Air Service subsidy to the Chautauqua County Airport at Jamestown.

The airline was wrong.

When the federal Department of Transportation issued an order denying a proposal by Boutique Air and Chautauqua County to resume air service at the airport through the federally-funded Essential Air Service program last week, it did so with instruction to come back with a better plan.

The Jamestown airport lost its Essential Air Service subsidy for violation of two tenets of the program: the requirement that airports that receive EAS subsidies average 10 passengers per day and the “$200 Rule,” which stipulates that a community’s average Essential Air Service subsidy be less than $200 per rider.

It is no secret that the Jamestown airport had struggled to meet the 10-passenger-a-day rule for the past several years, but it was also one of the most expensive airports in the Essential Air Service program on a subsidy per rider basis at $573 per rider, according to an analysis by Rachel Y. Yang for the Congressional Research Service in March 2017. Yang’s analysis showed only the Altoona, Pa., airport, at a subsidy of $642 per rider, and the Beckley, W.V., airport, with an average subsidy of $599 per rider, were more expensive than Jamestown.

Boutique Air’s proposal for flights to Pittsburgh estimated 12,564 passengers a year and barely met the $200 rule with an average subsidy cost per rider of $190.26, according to its proposal amended in November. And, even if the airline had met its passenger estimate, it likely wouldn’t have met the federal government’s 10-rider per flight rule (12,564 passengers on 2,070 estimated completed flights equaling about 6.07 riders per flight).

THE BIGGEST ISSUE

Improved service may increase ridership, but federal officials reason that the biggest problem with the Jamestown airport is its proximity to the Buffalo Niagara International Airport and the Erie International Airport. The airport has had service to a variety of hubs: Pittsburgh, Washington-Dulles and Cleveland. None of the changes in hubs brought the airport into compliance with the federal guidelines.

“The conditions and rationale identified in Order 2017-12-2 to deny Jamestown’s petition for waiver continue to apply,” wrote Joel Szabat, Transportation Department assistant secretary of aviation and international affairs. “Given Jamestown’s close proximity to several other commercial service airports and our analysis of Jamestown’s historical passenger levels and subsidy needs, the department finds that the joint proposal submitted by Chautauqua County and Boutique Air is not reasonable.”

Under the government’s reasoning, Boutique Air’s 12,564 passenger estimate is not likely to be reached; the Jamestown airport hadn’t seen that kind of usage since 2005. And, the department decided that Boutique Air’s estimate of 74 percent ridership on its flights was also overly optimistic. 2016 ridership totaled 4,408 passnegers, or about 1.8 passengers on each of four round trips, or a 20 percent load factor.

“Taking into account the totality of Jamestown’s situation, and performance over the past several years, it appeared highly unlikely that the community would come into compliance in the future,” Szabat wrote regarding the Transportation Department’s decision to remove the Essential Air Service subsidy in January 2018. “We, therefore, found that the community failed to demonstrate to the department’s satisfaction that its decline in enplanements was temporary or that it could satisfactorily address its Subsidy Cap non-compliance.”

MOVING FORWARD

According to Chautauqua County Executive George Borrello, U.S. Rep. Tom Reed, R-Corning, had a conference call with Essential Air Service program officials about a new, revised application being submitted as soon as possible. Borrello said the county has received “actionable feedback on how we may adjust and improve our application” that he said may lead to future approval of an Essential Air Service subsidy.

In addition, county officials said Boutique Air remains committed to the effort of developing routes that are economically viable under the EAS program and has signaled its intention to redouble its efforts, in collaboration with local business and community leaders, to put Jamestown back on the commercial air service map.

“With our recent route expansion into Pittsburgh, Pa., Jamestown makes even more sense now for Boutique Airlines,” said Shawn Simpson, Boutique Airlines president and CEO. “Further, our partnerships with United and American Airlines give us an unprecedented level of service and convenience not seen before in Jamestown, or the southern tier of New York.”

The Transportation Department did say in its ruling that the docket will remain open pending further department action, so what must the county, Boutique Air or another air service provider do to convince federal officials to restore an Essential Air Service designation to the Jamestown airport?

Federal officials need to be convinced that Jamestown is in position to capitalize on its proximity to airports in Buffalo and Erie rather than have ridership in Jamestown cannibalized by the bigger airports. Other than a belief that ridership projections in the updated Boutique Air proposal seemed unrealistic, Szabat spent a lot of time discussing the Transportation Department’s belief that competition is what killed the Jamestown airport, not poor service from prior providers.

Secondly, from the language used in the denial of subsidy, it sounds as if Borrello, Simpson, Reed and others trying to restore air service must do more to convince federal officials Pittsburgh is enough of a draw for riders given that that particular hub has failed to meet ridership projections twice in the recent past. Federal officials will need to be convinced ridership will jump from roughly four passengers per flight to 10 per flight given that Buffalo and Erie are still competitors for business.

“Jamestown had received service to a variety of hubs: first, Pittsburgh, then Washington-Dulles, then Cleveland, and for approximately three years, Pittsburgh again,” Szabat wrote. “Not only did these various service options fail to have a meaningful impact on Jamestown’s compliance posture, but Jamestown’s close proximity to other commercial service airports providing access to the national transportation system made it difficult to recover enplanements.”

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