Association for Public Policy Analysis & Management

We examine the cost effectiveness of the City Pair Program to facilitate air travel for federal employees. The current process is increasingly producing sub-optimal price outcomes, leading the GSA to overpay for travel.

We use a mixed method approach, tracing the gap between GSA contract rates and average market rates for commercial passengers. We will conduct qualitative analysis of minutes from meetings in which airline executives and GSA officials meet to discuss the annual procurement process. We use a regression equation that models the difference between the GSA fare and the lowest market rate, including variables such as market size, hub status, and potential federal demand.

The disparity between GSA contract and market rates grew sharply from 2001 to 2014, and after leveling off briefly, has continued to increase. We hypothesize that the creation of a fuel overcharge allowance minimized uncertainty and added another possible revenue source for the air carriers. We expect that hub status and market size will increase the gap as airlines attempt to pad their margins on these routes, and higher levels of potential federal demand will lead to worse outcomes.

While the GSA claims that the City Pair Program will save an estimated $2.38 billion in FY19, there is no readily available research to confirm or dispute this claim. Since federal employee travel accounts for approximately 3% of overall domestic air travel, the validity of this contention is important both in terms of airline revenue and government procurement costs. We believe that a deeper understanding of this process would be beneficial both to scholars and policymakers alike.