Paying the pilot? The economics of subsidising international air travel to small remote island nations with large diaspora

Abstract

The tourism-air transport linkage may be complicated by the presence of substantial non-tourist leisure travel flows. This paper analyses the value of direct long-haul air service to Los Angeles for two small South Pacific nations, Tonga and the Cook Islands, which were faced with demands that they subsidise the current service to ensure its continuation. Both countries are tourist destinations, but both also have sizeable diaspora of economic emigrants living abroad, which generate considerable visiting friends and relatives traffic. It turns out that the economics of this travel are quite different from those relating to foreign tourism, such that it is possible that Tonga could actually lose by having the long-haul service. The bottom line is that the Cook Islands do gain, and that Tonga probably does, though in both cases by less than the amount of subsidies that they agreed to pay the airline.