Politics count more than need in PSO game

 - October 8, 2007, 11:13 AM

Local politics–not economic necessity or distance from commercial centers–might influence the administration of Europe’s public-service obligation (PSO) air service contracts more than any single factor, according to an academic report for Scotland’s Highlands and Islands (H&I) regional authority. While PSO flights, usually flown by regional airlines, exist ostensibly as a function of geography, the study found that PSO provision “perhaps more importantly [reflects] political culture within government decision-making.” The report, by Cranfield University, compared specific examples in many countries and found many inconsistencies in the application of PSO procedures in different European Union (EU) member states.

Under 1992 European Commission air-transport liberalization rules, states may grant PSO status to routes serving peripheral or developmentally sensitive regions, including cross-border routes considered economically vital but where demand cannot sustain profitable airline service. States must also consider the adequacy of alternative transportation services. All EU-registered airlines–and those in Iceland, Norway and Switzerland–can tender to fly any number of PSO routes.

Airlines must submit tenders within a month of a general public invitation, which specifies minimum capacity, frequency and scheduling levels; limits on fares, fare types and rules; and regulations concerning contract changes and length and penalties for breach of terms and conditions.

For Basil O’Fee, managing director of Highland Airways, the process required too much time for paperwork and too little time for doing all the things necessary to serve a new market properly. “Anyone who has seen the size of the tendering package will know the amount of work involved in preparing a bid for a PSO route,” said O’Fee. “It costs time and money to prepare, and many airlines feel it’s just not worth the effort.”

O’Fee said that his airline’s successful bid for the Stornoway-Benbecula PSO in the Outer Hebrides–one of only three PSO routes in the UK–won confirmation just days before the planned start of service. He argued for more time to plan.

“It was a big bear,” said O’Fee. “Staff didn’t know where they stood. An airline needs time to acquire an aircraft, refurbish it, paint it in a new livery and register it. Then crews need to be recruited and trained and agreements reached with handlers. The PSO procedure at present is too rushed.”

A Unique Case
In Scotland, both local and central governments oversee the PSO process, a fairly unique circumstance among EU countries. However, complaints such as O’Fee’s appear to reflect more than bureaucratic bungling, but perhaps a lack of commitment to PSOs in general. In Scotland, for example, several island routes to mainland centers would be eligible for public subsidy “if the criteria adopted in other countries were applied,” according to the report.

As opposed to the attitude exhibited in the UK, the French central government responds vigorously to regional pressure for sustained air services to Paris. Similarly, local politicians in Norway successfully lobbied for PSO services and very high service levels, according to the report, in contrast with Scotland, for example, which it said exhibits a “fairly light touch.”

In Sweden, it appears the government’s high level of commitment to PSO subsidies has not translated into a similar attitude from those charged with providing the service, however. Johan Holmer of the Luftfartsverket (Swedish CAA) has called for a review of the rules governing the distribution of PSO routes. Sweden, he said, has increased its number of subsidized routes from one in 1993 to 21 this year. Last year alone saw 11 new routes established, principally in Sweden’s Lapland region. But Danish Air Transport, which won the rights to a number of the new routes, stopped service after just two months, citing “falling yields.”

“There needs to be proper procedures in place to prevent airlines from pulling out so soon after being awarded contracts,” said Holmer. Sweden plans to re-tender the routes next year. Meanwhile, other airlines temporarily fly the ex-DAT routes.
Although socio-economic conditions can leave no alternative to PSOs, the Cranfield analysis points to some anomalies. In Germany, such services operate alongside “fairly convenient” high-speed trains that undermine any PSO justification on the basis of distance. The study also questioned the justification for many of France’s 46 PSOs.

But even a seemingly valid case for a PSO often doesn’t draw the community support it needs to justify the money spent on it. “The route from Knock to Dublin saw just 10,000 passengers last year at an average exchequer subvention per passenger of E280,” said John Brown of Ireland’s Department of Transport. “It would be cheaper to hire a fleet of taxis.”

Conversely, the first two Irish PSO routes, Kerry and Galway to Dublin, saw 42,000 and 52,000 passengers in 1995; last year the figures had reached 82,000 and 97,000, respectively, and subsidies averaged just E57 and E56 per passenger.