Essential Air Service in Alaska

First, this study investigates the effects of the Essential Air Service (EAS) subsidy on the airfares in Alaska. Second, the study will provide additional insight into the load factors and cost of EAS flights. This is relevant because the program has been criticized due to the underutilized air service and its costs (Grubesic & Wei, 2013). Lawrence et al. (1987) also concludes that the subsidy does not have its intended effect of increasing the quality of the air service, and that it might even deter it. However, the EAS subsidy might decrease airfares, which is beneficial for the public (Lawrence, Cunningham, & Eckard, 1987). Does the EAS subsidy act in favor of the public or of the supplier? The load factor is obtained using descriptive statistics. To obtain the results of the effect of EAS on the airfares, a linear regression model using OLS with robust standard errors, keeping the origin effects fixed was used. The main finding in this study is that the EAS subsidy does not have an effect on airfares. The second finding confirms that the EAS flights are also underutilized in Alaska. However, a surprising result was found: competition increases airfares in the market, which can imply a form of collusion. Based on these findings, it can be concluded that the subsidy can act as a wealth transfer mechanism for airlines, which is not beneficial for the public. On the other hand, if the EAS subsidy is abandoned by the next administration, some routes might not be viable with the same level of air service specified by the US Department of Transport (DOT). Further research should be conducted in comparing routes that function without and with the subsidy, to enable the use of the EAS subsidy in a more efficient manner.