Air Service Incentive Programs: History, Policy, and Finance Implications

Introduction: The Role of Incentives in Competitive Airport Markets

Since the 1990s, U.S. airport sponsors have used air service incentive programs (ASIPs), which the FAA officially calls the Air Carrier Incentive Program, — to attract new routes, new carriers, and expanded service. These programs offer time-limited financial incentives such as landing fee waivers, terminal rent reductions, and marketing support to carriers committing to new nonstop destinations or new entrant service. Based on FAA data, at least 200 U.S. commercial service airports operate some form of incentive program (FAA policy documents, 2023).

For airport finance teams, ASIPs present a strategic choice: whether the revenue forgone on targeted routes is justified by incremental revenue from that service and downstream traffic growth. For CFOs, the financial mechanics are clear: a cost reduced or foregone in the short term may be offset by new revenue in the base case or accepted as a strategic subsidy from non-participating carriers and non-airline revenue sources.

In December 2023, the FAA replaced its prescriptive 2010 Guidebook with a principles-based policy statement. The 2023 policy replaces detailed prescriptive rules with core principles, offering airports greater flexibility in program design while imposing a duty to document compliance with grant assurances governing economic nondiscrimination and exclusive rights (Federal Register, December 7, 2023). This article examines the regulatory evolution, explores the financial mechanics of ASIPs, and discusses implications for airport finance professionals.

Historical Context: From Ad Hoc Guidance to Structured Policy

Air service incentive programs emerged in the 1990s as airports competed for new routes in a deregulated market. The FAA's initial response was informal and case-by-case. In 1999, the FAA articulated its position in the Policy and Procedures Regarding Airport Revenue, confirming that certain costs of activities promoting new air service and competition at an airport are permissible uses of airport revenue, provided they comply with grant assurances.

On September 15, 2010, the FAA published the ASIP Guidebook, a 4-step framework outlined in FAA ASIP Guidebook (Sept 2010) that outlined four steps: (1) review grant assurances and applicable law, (2) identify program goals and service types, (3) define program timelines, and (4) design a properly structured incentive program. The Guidebook set forth detailed lists of permitted incentives, prohibited practices, and specific dollar limits on marketing support. From September 2010 through December 2023 — a 13-year period — the Guidebook served as the binding policy framework for airport sponsors.

On February 3, 2023, the FAA published a Draft Policy proposing a shift to principles-based regulation. After a 60-day comment period (closing April 4, 2023), the FAA received comments from airport sponsors, airlines, and legal experts. The final policy was published in the Federal Register on December 7, 2023, and became effective immediately.

The 2023 FAA Policy Framework: A Shift to Principles-Based Regulation

Five Core Principles

The 2023 policy established five core principles, departing from the 2010 Guidebook's prescriptive requirements:

1. Justified and Time-Limited Discrimination — Discrimination between carriers participating in an ASIP and non-participating carriers may be justified and time-limited. An incentive is not unjustly discriminatory if it applies to all carriers willing to provide qualifying service within the specified timeframe.
2. No Revenue Subsidy — An airport sponsor may not use airport revenue to subsidize air carriers. A fee reduction or waiver, if it involves no goods or services provided to the airport in return, may cross the line into subsidy depending on whether the incentive recovers costs.
3. No Cross-Subsidy of Incentive Carriers — An airport sponsor may not charge non-participating carriers or other aeronautical users for any costs of an air service incentive program. This principle binds rate-setting methodology: incentive costs cannot be passed to airlines not receiving incentives or to non-airline revenue.
4. Public Transparency — Airport sponsors are expected to post program terms and conditions on their website and provide at least 30 days' public notice of availability before entering into an incentive agreement with a carrier.
5. No Adverse Effect on Airport Operations — Use of airport funds for incentive programs may not adversely affect the resources needed for proper operation, maintenance, and capital replacement of the airport.

These principles give airports flexibility to design programs suited to their market position and financial capacity, but they also impose a duty of transparency and a requirement to ensure that incentive costs are properly allocated and funded.

Eligible Incentive Types

Under the 2023 policy, airport sponsors may offer the following forms of incentives to eligible air carriers:

• Fee Waivers and Reductions: Reductions or waivers of landing fees, terminal rent, gate rent, ramp fees, or other airport-imposed aeronautical charges. Fee waivers are used in programs at 12 of 31 large-hub airports based on a 2025 DWU survey.
• Marketing Support: Direct payment by the airport to a marketing provider on behalf of a carrier, or reimbursement to the carrier for documented marketing expenses incurred in promoting the new route. This differs from the 2010 Guidebook, which required airport sponsors to contract directly with marketing providers. The 2023 policy now allows carriers to submit invoices for reimbursement, which allows carriers to submit invoices for reimbursement rather than airport-direct contracts, as noted in the 2024 FAA FAQs.
• Facility Improvements for Specific Routes: Airport-funded modifications to terminal infrastructure, gate assignments, or facility improvements necessary to enable new service. These are distinct from capital improvements to the airport as a whole and may benefit the specific route or service.

By contrast, the 2023 policy explicitly prohibits:

• Direct cash subsidies or payments to carriers with no goods or services provided to the airport in return
• Revenue guarantees or minimum revenue guarantees (MRGs) funded with airport revenue, which constitute contingent transfers and are treated as prohibited subsidies
• Waivers of costs imposed by third parties (e.g., ground handling fees, fuel surcharges, FBO charges) not directly controlled by the airport
• Passenger cash incentives or payments to travelers to fly a route
• Rate increases on non-participating carriers or other aeronautical users to fund incentive costs

Eligible Service Types and Definitions

The 2023 policy expands the definition of "new service" eligible for incentives. Qualifying service includes:

• New Nonstop Destination: Any nonstop service to a destination not currently served with nonstop service from the airport. One-stop and connecting service do not qualify.
• New Entrant Carrier: Service by any carrier that has not operated any scheduled passenger service at the airport in the most recent 24 months (or 12 months for seasonal service).
• Capacity Increase: An increase in capacity on preexisting service. The policy does not mandate a specific percentage threshold; instead, airport sponsors determine what constitutes a significant increase for their market.
• Seasonal Service: Nonstop service offered for individual seasons of 3–7 consecutive months per calendar year. The policy explicitly permits incentives for seasonal service to continue for up to 3 years, recognizing that seasonal markets may require extended support to build consumer awareness and load factors.

Program Duration and Phase-Out Structures

The 2023 policy does not establish a hard maximum duration for ASIP incentives, but requires that all incentives be temporary — a bridge to sustainable service. In a sample of 8 reviewed programs (GRB, SFO, BWI, OAK, ALB, DAY, SFB, MHT), 6 include declining fee waivers, suggesting this is a common structure (DWU analysis of 2025–2026 documents). The following represent approaches observed in these reviewed programs:

• Year-Round Service to New Destinations: Limited to 12–24 months in reviewed programs (e.g., GRB, SFO; DWU analysis of 2025–2026 documents), though no regulatory maximum is specified.
• New Entrant Carrier Service: May extend 24–36 months if the sponsor believes the market requires extended support to achieve profitability.
• Seasonal Service: Explicitly permitted for up to 3 years, reflecting the longer ramp-up period required to establish seasonal markets.

For example, GRB waives 100% fees for 24 months on new routes (Green Bay ACIP, effective June 2025), then phases to zero. Airport sponsors may document the rationale for duration and phase-out schedules to demonstrate that the incentive is indeed temporary and not a permanent subsidy.

First-Mover Limitations and Transparency Requirements

The 2023 policy allows budget-constrained airports to limit incentives to the first carrier willing to establish service to a given destination, provided that:

• The airport provides at least 30 days' advance public notice that the incentive is available on a first-come, first-served basis
• The airport clearly defines and discloses the criteria for determining which carrier qualifies as "first"
• Any carrier willing to provide qualifying service could theoretically apply, preventing de facto exclusive dealing

This provision addresses the concern that airport sponsors might negotiate secretly with preferred carriers without transparent competitive process. The 30-day notice requirement and public disclosure of criteria reduce the risk of FAA compliance challenges based on discriminatory treatment.

Public Notice and Voluntary FAA Review

Airport sponsors are expected to:

• Post the existence and general terms of the ASIP on the airport website at least 30 days before entering into agreements with carriers
• Publish specific carrier agreements retroactively (not required in advance, due to competitive sensitivity)
• Make the ASIP available to all carriers and parties at the airport

The FAA does not approve individual ASIPs. Instead, airport sponsors may request voluntary FAA review and receive feedback on whether their program appears to comply with grant assurances. This shift from approval-based to advisory-based compliance reflects the principles-based philosophy of the 2023 policy. The FAA issued additional implementation guidance and FAQs in 2024 FAQs, addressing questions about marketing reimbursement mechanics, program design, and transition rules for pre-2023 programs.

Grant Assurance Foundations: Economic Nondiscrimination and Exclusive Rights

Grant Assurance 22: Economic Nondiscrimination

Grant Assurance 22 requires that an airport be available for public use on reasonable terms and without unjust discrimination. The assurance binds airport sponsors for 20 years following grant acceptance and applies regardless of whether the airport receives an FAA AIP grant in a given year. The core obligation is that each aeronautical user may be subject to comparable charges for similar use.

A fee waiver or discount offered to one carrier but not another is facially discriminatory. The question is whether the discrimination is justified and time-limited. The FAA's guidance on Grant Assurance 22 compliance (2023 Policy, 2024 FAQs) indicates that ASIPs are more likely to satisfy the assurance if they meet the following conditions:

• The incentive applies equally to all carriers willing to provide the qualifying service (nonstop to an unserved destination, or as a new entrant)
• The incentive is offered for a defined, temporary period (not perpetual)
• The incentive is based on objective criteria published in advance (not ad hoc or negotiated in secret)
• The program is not structured to favor a specific named carrier or benefit an airline that could not reasonably qualify for the incentive

Programs without notice may face challenges according to FAA guidance on Grant Assurance 22 (49 CFR Part 21, Appendix A) and the 2023 FAA ASIP Policy. The 2023 policy statement and 2024 FAA FAQs both emphasize transparency in ASIP design to support compliance with Grant Assurance 22 nondiscrimination requirements. Clear public notice, transparent criteria, and equal access for all qualifying carriers support compliance with nondiscrimination requirements.

Grant Assurance 23: Exclusive Rights

Grant Assurance 23 prohibits airport sponsors from granting exclusive rights to conduct aeronautical activity. An ASIP may not effectively limit participation to a single named airline. For example, if an airport announces incentives for service to "New Market X" but then reveals in negotiations that it will only award the incentive to "Airline ABC," the program may violate Exclusive Rights. By contrast, if the airport publicly posts that incentives are available to all carriers willing to provide nonstop service to New Market X, the program does not grant exclusive rights, even if only one carrier ultimately takes advantage of the incentive.

Airport Examples: Structures and Current Implementations

Detailed Comparison of Current Programs

The following table summarizes publicly available ASIP structures at selected large, medium, and small hub airports, based on airport-published program documents accessed in 2025–2026:

Program Design Patterns and Compliance Features

Across these programs, several structural patterns recur, reflecting both financial sustainability and compliance with the 2023 FAA policy.