Recent controversies in New Zealand and Australia highlight the debate over whether, how, and how much to subsidise regional air service.

New Zealand's prime minister John Key used the news of Air New Zealand's 45% profit rise to chastise the carrier for high fares on regional routes. Key admonished Air New Zealand to "continue the work it's doing while making sure that it reduces prices to the regions if it can".

Lest he be seen as meddling in the majority state-owned airline, Key added: "It's [up] to them to run their company. I was simply making the point that they're our national carrier and we expect them to deliver fair prices across New Zealand." New Zealand lacks any regional air subsidy programme. Despite Key's disclaimer, a leading Auckland newspaper warned: "Air New Zealand cannot now afford to ignore the prime minister's criticism of its expensive regional airfares."

The timing was probably coincidence, but less than three weeks later Australia's government announced the revival of a regional air subsidy programme axed by the previous government. The new programme, while scaled back from its predecessor, subsidises air traffic control charges for airlines flying certain routes into the outback. Australia's regional airlines had lobbied for this, but since its unveiling they have been equally vocal about the programme's eligibility restrictions and modest $1 million annual allocation. Neville Howell, chief operating officer of Regional Express, predicts that the programme will not prevent more regional air service cutbacks.

Support for regional services takes different forms around the world. In Europe, it mostly comes from airports. The European Commission has started restricting this, but it still allows airports to offer airlines limited start-up incentives. The rules are more relaxed for small airports. Tourist boards and local businesses in some parts of the world join with airports in trying to attract air service. In Latin America, military-operated airlines traditionally served remote communities. As those airlines phase out or become commercial carriers, transport ministers ponder how to retain regional air services. Brazil's answer was to launch a subsidy programme in July. Cynics claim it will mostly benefit Embraer, but its aim is to boost service on regional routes. So far, Asia, the Middle East and Africa have watched these developments from the sidelines.

Before deregulation, US airlines were required as a condition of their certification to serve rural communities. To ensure that those services continued after deregulation, Congress created the Essential Air Services subsidy programme. It has been a bone of contention ever since, with critics arguing that it is wasteful and unnecessary. Conservatives have failed several times to kill the programme, but have had some success in scaling it back.

To qualify under the EAS programme, a community now must be at least 90 miles from the nearest hub, average more than 10 passengers per day (unless it is farther from the hub), require an average subsidy of less than $1,000 per passenger, and have been part of the programme when Congress in 2010 barred new communities from qualifying. These restrictions do not apply in Alaska or Hawaii.

No matter how a country supports regional air service, several tensions are at play. John Thomas, managing director at Boston-based LEK Consulting and head of its global aviation and travel practice, points out that "rural air service has always proven to be a significant driver of economic growth. So it's totally rational [to support it]."

One of its biggest problems, however, is that passenger expectations keep going up. "In the '70s and '80s, it was fairly easy to operate these services with the likes of Piper Navajos and other piston-engine aircraft operating with single pilots," Thomas recalls. Now passengers want larger aircraft – even regional jets – on routes where they cannot be afforded. "The minimum number of seats and type of aircraft are driving the economics on many of these routes," he warns.

Regulators also keep raising the bar. No one disputes the need for safety, but new rules can have what Charles Howell, Great Lakes Airlines' chief executive, calls "unintended consequences". The Federal Aviation Administration's new pilot training, flight, and duty rules have forced Great Lakes to drop a number of EAS routes. The US Regional Airline Association had predicted this would happen.

Finally, as John Thomas also notes, even as regulatory-induced costs rise, lawmakers "complain that rural service subsidies should go down". The EAS annual budget has reached $241 million, but opponents still hope to kill the programme. Failing that, they will keep trying to cripple it by scaling back such metrics as the maximum passenger subsidy. As costs keep rising, the result is either service cutbacks, or as New Zealand illustrates when government support is absent, higher fares.

This multi-sided debate has no borders and apparently no end. The most regional airlines can hope for anywhere is a stalemate between these conflicting views.

Source: Cirium Dashboard