A comparative analysis of policies to support air connectivity in remote regions

Introduction

The provision of air transport services is an important factor for regional integration and connectivity and a critical tool for regional development. The spectacular growth recorded by the international air transport market - the International Air Transport Association (IATA) estimates passenger numbers of 7.8 billion in 2036, almost doubling the 4 billion that flew last year - and the accompanying development of new markets have contributed greatly to improving global connectivity. However, only those routes and destinations that are commercially viable are able to experience the associated benefits. Indeed, under free market conditions, some destinations would not be supplied with proper transport links.

The need to connect communities forms an integral part of national policies in several countries and territories. Here the existence of remote areas — that is, those that under strict market criteria would not be transport supplied, due to their lack of commercial profitability — has seen the development of different public policies around the world aimed at providing air services for remote areas, which can be best summed up as air connectivity in remote areas (ACRA) policies. However, the definition oí remote area differs markedly across countries, and usually the definition opted for is linked to the specific objectives of the policy. According to Fageda et al. (2018), while no unambiguous definition of remoteness exists in relation to air connectivity (and governments may interchangeably use such terms as remote region, isolated communities, essential services, and non-commercially viable in reference to them), all associated policies involve situations in which there is a pressing need for third-party (that is, public sector) involvement to provide a necessary service and connect a region or community. However a four-way classification can be made of ACRA policies:

1 Route-based policies (public service obligations and traffic distribution rules)
2 Passenger-based policies (discounts to residents)
3 Airline-based policies (state-owned firms)
4 Airport-based policies (carrier incentive schemes and subsidies to airports)

In this chapter, we undertake a data analysis aimed at characterising and evaluating programmes aimed at supporting air traffic in remote regions. We exploit information at the carrier-route level provided by the Official Airlines Guide (OAG) and RDC aviation for 2015. We focus on countries that have a high number of routes affected by public service obligation (PSO) policies (and, in some instances, also by resident discount policies) and for which data are available. Thus, we consider eight European countries (France, Greece, Italy, Norway, Portugal, Spain, Sweden and the United Kingdom), the United States and Alaska (note we treat the two separately because their PSO mechanisms differ). Finally, we also include Malaysia, which represents an interesting case of a PSO mechanism implemented in conjunction with a state-owned firm; Colombia, illustrative also of a state-owned firm; and India, the leading example of traffic distribution rules. Unfortunately, our data do not allow us to examine the impact of airport-based policies.

We focus our study on five questions considered from a comparative perspective. First, we examine the specific instrument and the scale of the programme employed in each country and the characteristics of the routes deemed eligible. In this way, we can assess whether the routes affected by the policy actually serve remote or low-traffic areas and evaluate the magnitude and ambition of the programme. Second, we consider different indicators related to service levels, affordability and efficiency. This enables us to examine the impact of AGRA policies on key attributes that affect the well-being of both passengers and airlines. Third, we study the scope of competition in relation to the major airlines offering flights on the protected routes (i.e. routes affected by the policy), because one of the potential distortions of AGRA policies is related to competition. Fourth, we consider the degree of within-country heterogeneity to determine whether equity concerns call into question the implementation of the policy. Finally, we examine the degree of congruity between the policy objectives and results as a critical criterion for assessing the success or failure of the policy.