Delta Air Lines Seeks Increased Essential Air Service Subsidy

US major Delta Air Lines has notified the US Department of Transportation (DOT) of its request for additional subsides to support Essential Air Service flights to a number of domestic markets. This is to help offset the $14 million annual losses its makes on its services to these small communities.

The airline has said that it plans to adjust its schedules to 24 small markets as it retires its Saab 340 turboprops from passenger service, revealing that flights to these markets operate with an average load factor of just 52 per cent, versus its domestic network average of 83 per cent. In some markets, according to Delta, the loads are as low as 12 per cent, making the route highly unprofitable for the carrier.

In its notification to the DOT it says that it “would prefer to continue serving these communities,” but “the new reality of mounting cost pressures” faced by the industry means it “can no longer afford to provide this service.” The airline adds that the retirement of its Saab turboprops and some 50-seat regional jet aircraft will further “hinder the financial viability of serving these smaller markets”.

The Essential Air Service program was created to ensure small communities continue to have access to passenger air service and in some cases these are subsidised by the government, but in the current marketplace where operators are being forced to make widespread savings to react to added cost pressures, such routes can no longer be sustained. In Delta’s case it is retiring its Saab 340s and other regional equipment as part of a 140 aircraft cull as it looks to generate more than $100 million in annual savings.

Delta’s notification to the DOT provides a 90-day notice of its intention to suspend services to the majority of these 24 markets, although it confirms that it is “coordinating with other carriers” to bid to continue some of these routes. In the meantime it will continue to serve the affected communities through its Delta Connection partners until the DOT selects a replacement carrier and appropriate funding is available. In addition, Delta says it “will to continue service” in some subsidised and non-subsidised markets, but “the subsidy rate must be higher” in order to fly larger regional jets on the routes in question.

The table below shows the markets that Delta has highlighted in its DOT notification and the average load factors it is currently flying to the destinations.

Source: Delta Air Lines (DOT Notification)

Delta says that according to The Airline Deregulation Act of 1978 an operator is entitled to receive compensation "to pay for the fully allocated actual cost to the carrier of performing the ...service ... plus a reasonable return on investment that is at least five per cent of operating costs; and to provide the carrier an additional return that recognizes the demonstrated additional lost profits from opportunities foregone [by continuing to be held in and providing service]."