Under the Airline Deregulation Act of 1978, Congress established the Essential Air Service (EAS) program to subsidize air transportation at eligible smaller airports. The Department of Transportation (DOT) evaluates applicants based on five statutory factors: reliability, interline arrangements, community preference, marketing plans, and total compensation. Additionally, communities within 175 miles of a large or medium hub airport must maintain an average subsidy per passenger of less than $650. In this case, the DOT selected Key Lime Air d/b/a Denver Air Connection over Boutique Air to serve Jackson, Tennessee. Boutique Air had previously been selected for this route in 2021 but terminated its service early, leading to a replacement contract with Southern Airways. Boutique Air argued the DOT's selection of Key Lime Air was arbitrary because it ignored cost differences, contradicted prior decisions favoring lower-cost bidders, and risked exceeding the statutory subsidy cap.
The court applied the arbitrary and capricious standard of review, requiring the agency to examine the relevant data and articulate a satisfactory explanation for its action. The court addressed three main arguments raised by Boutique Air. First, regarding cost, the court found the DOT adequately explained that the statute does not mandate selecting the least expensive proposal. The DOT highlighted Key Lime Air's reliability, interline agreements with three major carriers, and a robust marketing plan, contrasting these with Boutique Air's history of improper service termination and lack of interline arrangements. Second, the court rejected the claim of inconsistency with prior decisions. It distinguished the 2017 SkyWest and 2019 Cape Air selections, noting those carriers had proven reliability records and community support, whereas Boutique Air had proven unreliable and was opposed by the Jackson community. Third, concerning the subsidy cap, the court deferred to the DOT's judgment that providing reliable service was the best method to attract passengers and keep per-passenger costs within the statutory limit. The court emphasized that it cannot substitute its judgment for the agency's and must uphold decisions where the agency's path is reasonably discernible.
The decision affirms the DOT's authority to prioritize service quality, reliability, and community preference over the lowest cost when awarding Essential Air Service contracts. Key Lime Air retains the subsidy contract for Jackson, Tennessee. The ruling clarifies that while cost is a factor, it is not dispositive, and agencies have broad discretion to balance multiple statutory criteria. The order was issued without a published opinion under D.C. Circuit Rule 36(d), meaning the full reasoning is contained only in the brief judgment and the underlying administrative record.
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