Air access to remote Finnish and European regions

Background
Air access to remote areas can receive state aid in the form of public subsidies when low passenger demand prevents the private market from offering profitable air services. Then, to cover their costs, an airline may receive subsidies through a public service obligation (PSO) under EU law. This is the study of three Finnish routes with a PSO. For low-traffic airports, the EU allows for state aid of 75% of investments and 80% of operations. Conversely, in Finland, the airport operator cross-subsidizes the infrastructure of these three airports through earnings from profitable airports under the network principle.  

Results
Examining air services between Helsinki and three remote areas in Finland, this study finds that low passenger numbers, high costs, lack of scale economies and profit prevent aviation services at market prices. Subsidies, such as a public service obligation (PSO) to airlines and mandatory cross subsidies by the airport operator, are in place and necessary for continued operations. Our study estimates these to amount to about €200 per passenger. Thereby, three quarters of air fare cost are subsidies and state aid while more than half of airplane seats are empty. 

The economic impact of these air services on the remote regions is similar in size to the subsidies with €19 million as the sum of the direct, indirect and induced economic impact. Related economic activity – tourism, trade, innovation, and productivity – is of similar size but less geographically tied to these locations.