Can air transport public service obligation subsidies become successful investments in peripheral development? A multiple case study exploration of UK regional routes

The benefits gained by passengers since the liberalisation of the European air transport market have been considerable and include increased choice, improved service, and reduced fares. However, these benefits do not accrue on routes that lack sufficient demand to create the necessary scale economies and market competition. Air transport public service obligations (PSO) are intended to protect such routes when they become vulnerable to market failures, as airlines concentrate their networks onto profitable routes with high demand. This thesis has aimed to identify the conditions in which PSOs can most substantially contribute to regional development in peripheral regions, which would in turn stimulate greater demand for a PSO service. New Economic Geography explains the influence of transport costs on a firm’s location choices and in creating the core-periphery structure dominating the economic landscape. Contemporary regional development theory emphasises the importance of endogenous strategies, that valorise place-based assets to achieve growth in lagging peripheral economies, over redistributive policies that direct economic activity towards them from leading core centres. However, aviation connectivity remains unevenly distributed and peripheral regions do not benefit from the same quality of access to external markets as core centres. What remained unstudied was the conditions necessary to increase demand for air transport connectivity from within the peripheral regions they serve, which in turn create the market environment for increasingly competitive PSO tenders and the reduction of public subsidy, while also creating the possibility for the marketisation of these routes. iii A multiple-case study method was used to compare the circumstances present in regions of the UK benefiting from a PSO service to London– Cornwall, Dundee, and Londonderry. A mixed-method approach, following a three-stage sequential exploratory order, consisting of documentary research, stakeholder interviews, and a questionnaire-based survey, was taken to investigate the circumstances present in each of these regions. Judgment sampling was used to select research participants from three stakeholder groups with the seniority and insights required by this study– Local Government, the Business Community, and Aviation Services Providers. The findings identify how the current regulatory and policy approach to funding, imposing, and administering PSOs is failing to fulfil the connectivity needs of peripheral passengers. The implications of which are set out in the new contributions the thesis makes to theory. The first contribution is that taking a new and contemporary view of the core parameters of New Economic Geography makes it possible to elucidate the greater contribution to endogenous development to be made by strategically imposed PSOs. The second is a new general systems theory model illustrating the role of PSOs in regional development in maximising the permeability of the boundary around place-based economic activity. A third contribution is a framework of technical and policy conditions necessary to stimulate greater demand for a PSO route, thereby reducing its dependency on public funding. The study has highlighted the need for a shift in the paradigm of PSO funding amongst policymakers if peripheral regions are to benefit from aviation connectivity that affords them competitive access to external markets, from that iv of subsidising an air transport service to an investment in the economic development of the peripheral regions they serve. This thesis provides policymakers with clarity about the strategic objectives for a PSO when imposed as part of an endogenous approach to regional development, which can guide them when making the strategic case in a PSO funding proposal business case. The research was conducted before the effects of Brexit or Covid-19 were fully understood. Though events are likely to add to, not detract from, the relevance and timeliness of these contributions