Due to the natural characteristics of low daily passenger flow and high unit cost, the sustainable development of regional aviation is a common problem faced by all countries in the world. In China, in order to encourage and support the development of regional aviation, CAAC subsidizes regional routes and small and medium-sized airports through the Civil Aviation Development Fund. Although this policy has achieved positive results to a certain extent, it has not really activated the market, and the effectiveness of subsidy policy guidance still needs to be improved. In 2020, the novel coronavirus pneumonia brought heavy damage to the global aviation industry, and the immature branch aviation market was more fragile. Therefore, it is particularly important for the healthy and sustainable development of China's regional aviation to formulate a set of standardized, procedural and utility maximized subsidy system from the top-level design.

Today, Europe and the United States and other more developed regional aviation market, has formed a more mature operation mechanism and mode. Among them, the United States first proposed the concept of "basic aviation services" for regional routes, and then the European Union, Australia, Canada and other countries and regions have also introduced similar policies, and formed a more mature policy system and management mode. This paper focuses on the most typical service plan (PSO) policy of the European Union, and analyzes how the experience of these pioneers can be used for reference in the development of China's regional aviation.

EU public service plan

Public service observation (PSO) is a unified transport service specification formulated by the Council of the European Union for Member States. The PSO system establishes a set of standard system for the introduction of transportation operation for the remote and underdeveloped areas where the EU member states can not obtain sufficient transportation connections in the free market, so as to promote the economic development and cultural exchanges of these areas and balance the regional economic development The development of different regions in the region.

The content of aviation services in PSO system was first proposed in EU regulation 2408 / 92 in 1993 and revised in 2008. According to the regulations, the governments of EU member states can establish important aviation channels for remote and underdeveloped areas by means of PSO regulation outside the free market, which is the only exception to the EU's "open sky" aviation free competition policy.

At present, PSO is applicable to two types of scheduled routes connecting different airports in the EU. The first is the routes connecting remote areas and underdeveloped areas. The definition of "remoteness" is measured by the government according to the level of administration, business, education and health care; the degree of "underdevelopment" is measured by the government according to the per capita GDP and unemployment rate. The second category refers to the thin routes within the European Union. Most routes with annual passenger volume less than 100000 people belong to this category.

Today, PSO routes have spread all over the EU countries, making positive contributions to the economic development of many places. According to the European Union's PSO guidance document, with the establishment of PSO routes, every 10% increase in regional external connectivity, 0.5% increase in per capita GDP, and 1% increase in GDP, the local employment rate and social cohesion will be improved accordingly. As of September 2019, there are 176 PSO routes in the EU, some of which need long-term subsidy support. The PSO mechanism provides stable operation support for them. After years of cultivation, some PSO routes that used to need a lot of subsidies have become profitable routes that can operate independently.

Application threshold of PSO route

In the opening of PSO routes, EU Member States and the EU General Administration of transport under the European Commission complete the whole process of the PSO project. Member states are the founders, organizers, decision makers and payers of PSO projects, while EU supervises and guides member states.

Compared with the subsidy policies of other countries, PSO policy is more objective and normative, and its emergence provides the standard process of subsidy routes for EU countries. The opening of PSO routes in EU Member States needs to go through four stages, namely, the establishment of PSO projects, the application of open-ended PSO, the application of restricted PSO, and the performance operation and result evaluation.

If member states want to set up a PSO project for a certain route, they need to fully understand the actual situation of the route from the airport, aviation department and other relevant parties. At present, PSO is mainly used in domestic routes, but if the project involves another member country's domestic routes, or the project will affect the route operation of other member countries nearby, the initiating member country needs to communicate with it first, so as to avoid vicious competition of subsidized routes with overlapping business scope. After the parties reach an agreement, the initiating member states need to inform the EU of their intention to set up the PSO project, and provide the EU with information such as waypoints, types of PSO routes, start and end dates of operation, existing alternative transportation, reasons for application, expected effect, bidding scheme, etc. The European Union will evaluate according to the four principles of "regional economy, alternative transportation, purchasing power level and overall supply side impact", so as to make the whole evaluation process objective and fair. The assessment results of the European Union may change the content of the PSO project, or determine that the route does not meet the policy requirements and terminate the application.

The openness and transparency of PSO is the information disclosure of the whole process, which avoids the information asymmetry between the government and the aviation department, and between the aviation department and the aviation department. After the approval of PSO project by EU, the project information will be published in the official announcement of EU. The contents of the announcement will include the departure and destination airports, stop points, operation start date and other relevant information for each airline company to evaluate whether to participate in the application.

After the announcement, if an airline company applies for operation, it can obtain the operation right of the route after the evaluation of the European Union and the national government, and get the time reserved by the government in the first stage, but the airline company will not get any route subsidies, and during the operation of the route by the airline company, the operation right of the route will remain open to other qualified airlines, and other airlines will be approved in the application This kind of PSO route is called "open PSO route".

The advantage of "open PSO route" to the airline company is that it can obtain valuable time reserved by the government for the project and find new routes with profit potential. The policy purpose of open PSO is to give priority to market means to solve problems, which is also the lack of China's regional market subsidy system. If the route is really "uninvited" at this stage, it will enter the third stage, that is, the restricted PSO application stage.

After the third stage of PSO routes, the European Union and the member governments will invite the airline companies to apply through public bidding, and provide the winning airline companies with exclusive operation rights or a certain amount of financial subsidies. Such PSO routes are called "restricted PSO routes".

The bidding announcement issued by the European Union for restricted PSO routes includes the following main contents, including the information of the member states of the routes, the information of PSO routes, the validity period of PSO contracts, the acquisition method of bidding related documents, the deadline for submission of bids, etc. During the bidding period, the European Union allows the government to fully communicate with the bidding department, so that the bidding department can fully understand the route related information.

After the deadline for submission of bids, the member states shall select the bids according to the bids submitted by the aviation department. The selection criteria include whether the amount of subsidy applied is reasonable, whether the service quality of the route can be guaranteed (aircraft maintenance and replacement capacity, flight arrangement, transfer scheme, ticket price level, marketing ability, financial status, etc.), and whether the experience of operating PSO routes. The European Union and member states are very cautious about the choice of carriers for new PSO routes, because the operation and marketing ability of the airline company determines whether the route can be cultivated successfully or become a commercial route with sustainable profits. Those who do not meet the operation conditions, have no ability to improve the local economic development, and only hope to get subsidies through the opening of PSO routes, naturally, will not be the final winner. Although the weight of the selection criteria is set by the member states themselves, the EU will supervise the discretion of the Member States, so as to prevent the government from directly or indirectly supporting an airline company or an airport through the PSO mechanism and disturbing the fairness of the system.

After the selection, the European Union and Member States will jointly announce the bidding results, and the successful airline company will be granted the exclusive right to operate the PSO route and financial subsidies for its operation. The amount of financial subsidies given by the government will fully consider the possible income level of the route, and give the airline a reasonable profit margin on the basis of making up for the operating losses. The government will also adjust the amount of subsidy according to the intensity of bidding, so that the amount of subsidy can not only meet the market requirements, but also maximize the budget utility.

In the bidding process, if an airline company is willing to operate PSO routes without exclusive operation rights and subsidies, the application for restricted PSO routes will automatically terminate and return to "open PSO routes", which once again reflects the principle of giving priority to market means of PSO policy.

EU's "strict" management

No matter what kind of PSO routes are operated, the selected airlines need to sign an agreement with the EU and the government, and fulfill the relevant requirements according to the agreement.

One is the requirement of transportation capacity and time. Most of the PSO agreements will stipulate the minimum number of seats and the minimum flight frequency of the aircraft operated by the airline company, as well as the flight schedule, frequency and flight season to be observed. For example, in France, the time requirement for PSO routes is that the airline company should set up a shift in the morning and evening to facilitate commuters to and from work. Some countries will require that the time of PSO routes be connected with the flight time of hub airports.

Second, the requirements of the model. The PSO protocol also has requirements for the executive aircraft type, but when setting the requirements, it will still consider the specific situation of the airline company, so as to reduce the operating cost of the airline company as much as possible.

Third, the price of air tickets and discount requirements. The PSO agreement will also stipulate the maximum ticket price, as well as the priority tickets and discount tickets that local residents can buy, so that local residents can benefit from the opening of PSO routes and promote economic, cultural and social exchanges between shipping areas. For example, Portugal has stipulated that when operating the PSO route between the Madeira Islands and the mainland, the airline company should give the island residents and students studying on the island a 40% discount on air tickets.

The fourth is the requirement of operation period. The agreement of restricted PSO route will require the carrier to carry out the continuity of flight within the specified time. The operation period was initially set at three years, but considering that the initial cost of the airline company for new routes and training routes is difficult to recover within three years, the operation period has been extended to four or five years.

The fifth is the requirement of operation stability. This requirement usually includes two points: if the airline company wants to stop the operation of the route, it should inform the European Union and the government before the specified time; if the route has obvious seasonal characteristics, the airline company should also ensure sufficient capacity supply in the off-season.

In addition, agreements generally include some special requirements. For example, the language ability of flight attendants, luggage and food requirements, outsourcing restrictions, etc., reflect the flexibility of PSO system.

The PSO system does not limit the airline company to provide higher level services for the waypoint area, but the government will supervise whether the airline company performs the services specified in the agreement according to its obligations in the operation process. If the airline company fails to complete the services, the airline company will be punished accordingly. After the end of the exclusive operation right, the EU will make an "applicable evaluation" on the operation status of the closed PSO route, including counting the number of passengers in the operation period, reviewing the completion of the agreement of the airline company and determining whether the route needs to continue the PSO support, so as to evaluate whether the operation of the route meets the original intention. Passengers and other stakeholders will also be invited to participate in the assessment and give opinions and suggestions on the subsequent operation of the route. This assessment and assessment method is very worthy of reference for CAAC and local governments.

The reference significance of PSO policy in China

After years of construction, the PSO mechanism has become more mature. In the process of cultivating the regional aviation market, we can fully learn from its advantages to solve some problems encountered in the development of the industry.

First of all, we can learn from the relevant systems and procedures of PSO to improve our corresponding laws and regulations. The EU and its member states legislate at all levels to formulate the development and evaluation process of PSO routes. First, the market-oriented way of "open PSO routes" is adopted to solve the problems of regional aviation market, and then the government's guiding role is implemented through the way of "restricted PSO routes". It has a clear process and specification, avoiding the possible policies and challenges faced by airlines when they participate in regional aviation services in different regions Inconsistent standards.

Secondly, PSO adheres to the principles of "fairness, transparency and Appropriateness" from beginning to end, and establishes a system to implement these principles. PSO mechanism has perfect information disclosure mechanism, and selects the most suitable carrier by competitive bidding. The whole bidding process is supervised by the European Union, which makes the whole process of purchasing regional air transport capacity systematic, standardized, open, transparent and objective. The aviation department can not only obtain sufficient information to evaluate the application, but also actively move closer to the standard and provide better service.

Third, the combination of rights and obligations, looking for the best combination of public interests and airline interests. On the one hand, PSO gives airline companies the right to combine "exclusive operation" with "financial subsidies", which effectively prevents multiple airline companies from competing for subsidies or using subsidies to fight a "price war", resulting in oversupply in the market and waste of transport resources. On the other hand, the PSO agreement also stipulates the obligations of the aviation department to prevent the situation that the aviation department can not complete the task of supporting local economic and social development after receiving subsidies. At the same time, the PSO system also clearly stipulates that the government should "pay subsidies in full and on time" for the airline company to ensure the interests of the airline company.

Fourth, the establishment of performance evaluation mechanism, so that every penny invested by the government can get the maximum utility. The reward and punishment system based on the performance evaluation after sailing makes the operating performance of the airline companies operating the PSO routes directly linked with the amount of subsidy, which better ensures that the airline companies' route operation is consistent with the original intention of the PSO project. However, the PSO system is not perfect. Some scholars have said that the PSO system has only punishment for failing to meet the standard, but no reward for exceeding the task. This defect still needs to be improved.

Now, under the impact of the epidemic, due to the government subsidies in some regional markets, it has become the first choice for Air China to resume its service, and its performance is even better than that of some trunk routes. This also prompted us to think: how to continue the unique advantages of the branch line under the epidemic situation? How to stimulate more regional market vitality?

In addition to regional subsidies, many local governments have also encountered similar problems in their policies on international airline subsidies (especially intercontinental airline subsidies). The global epidemic situation is still grim, and the recovery of international routes is difficult. At this time, combing and reflecting on the past international routes subsidy policies will help the government to introduce better policies and better serve the local economic development. If it is said that the original intention and scope of application of PSO are still around the "remote area branch", then at the operational level, the details of its policy design will be able to provide a wide range of reference value for China's regional aviation market and even the development of international routes.

——This paper is published in the 78th issue of big plane by Zhang Hui.

Source: civil aviation resources network