The potential impact of removing public service obligation regulations on air fares between the Italian Mainland and the island of Sardinia

Abstract

This paper assesses the potential impact on air fares as a result of removing Public Service Obligations (PSOs) that have been imposed on air services between the island of Sardinia and selected cities on the Italian Mainland. Results show that removing conditions and restrictions set by the PSO would result in higher fares and reduced fare stability. There are also likely to be traffic mix substitution effects with a greater proportion of inbound tourists at the expense of the Visiting Friends and Relatives (VFRs) market. Liberalisation is also expected to lead to higher load factors and reduced seating capacity in the summer months while lower load factors and reduced capacity/frequency would be expected in winter. These observations would be especially marked on routes between the Mainland and the Northern Sardinian airports of Olbia and Alghero.