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PSOs and Publicly Funded Services

Public Service Obligation (PSO) contracts are an essential component of transport services in remote regions and an important public-policy tool for regional development and territorial coherence.

However, the structure of some PSOs can leave them vulnerable to being seen as political tools which do not deliver effective and targeted incentives for the desired outcomes.

Similarly, Route Development Funds (RDFs) have been successful in delivering new air services, but it’s a challenge to demonstrate a clear causal link between RDF funding and sustained new service.

What is the role for publicly-funded air links in this time of budgetary stringency, environmental concern, and improvements in other transport modes?

How can we design an incentive scheme which achieves our public policy objectives in a cost-effective and targeted way and doesn’t distort competition?

Public subvention of transport services remains relevant and valid, whatever the transport mode, whether for reasons of social cohesion or because airlines’ risk appetites are insufficient for the free market to “try out” potentially profitable services.

But especially in a time of increasing pressure on State and public budgets, it’s essential that state support for air services is not only proportionate (and, where appropriate in line with European regulation), but also that it cost-effectively delivers the desired public-policy goal.

This means that PSO contracts should be carefully structured, not only to allow the widest possible range of qualified providers to make reasonable bids, but to focus spending on the specific target.

We have considerable experience in this area:

1. Successful negotiation with an RDF on behalf of an airline, resulting in the establishment of a new base

2. Assistance in the administration and evaluation of several RDF schemes, including preparation and delivery of proposals to airlines

3. Responsibility for PSO contract bidding on behalf of a regional carrier, successfully winning a contract

Advice to regional airports on options for non-PSO and post-PSO strategies

Patrick Edmond tweets occasionally in a personal capacity. For topical airline and airport insight, why not follow us on Twitter at PEdmondAero ?