Models for the Procurement of Subsidized Air Services : Conventional Aircraft and the Adoption of Electric Aircraft

Abstract: In liberalized air transportation markets, governments often adopt subsidy schemes through which they ensure air services along routes that are deemed commercially non-viable but economically and socially essential. The objective of these subsidized air service routes is to ensure a minimum level of services to outlying communities or remote regions that are difficult to access—by other modes of transportation—from the capital, other main cities or a hub airport yet can not be served commercially due to thin demand. Through these subsidy schemes, transportation authorities offer compensation—usually in form of subsidies—to airlines in exchange for air services. Subsidized air services face two main criticisms: their misuse, for example selecting routes that may sufficiently be served by other modes of transportation; and the excessive subsidies spent by transportation authorities. Addressing these criticisms is key for the planning of socially and economically efficient subsidized air service networks. However, decision support models to address these criticisms are scant in both literature and current practice. Furthermore, past studies have naturally focused on models specific to the existing aircraft technology (i.e, conventional aircraft) with no attention towards electric aircraft yet, (1) their uptake appears faster today than predicted, and (2) they are expected to be more environmentally friendly with zero CO2 emissions during operation) and cheaper to operate than conventional aircraft.This thesis develops decision support models using the conventional aircraft as well as electric aircraft. Specifically, the thesis contributes with optimization models that can be used by transportation authorities to select the routes to subsidize, to set appropriate level of service requirements that should be met by the airlines (while either minimizing the subsidies or total social cost), and to strategically plan for the adoption of electric aircraft on subsidized routes. The usefulness of the models is demonstrated through applications to the subsidized air service network in Sweden, and this gives three main insights. First, transportation authorities can use an optimization model to improve accessibility of outlying regions to given destinations and at lower subsidy cost. Second, having a requirement on the maximum airfare but not the minimum number of flights provides an appropriate set of service requirements that should be met by the airlines. Third, leveraging the many currently under-utilized regional airports during the adoption of electric aircraft has accessibility and infrastructure-investment benefits; however, the isolated adoption of a homogeneous fleet of electric aircraft with limited seat capacity, slow speed and short range capabilities is not sufficient to serve remote regions. In the short run—at least until the the battery technology develops further—a hybrid network consisting of both these electric aircraft and the larger, faster and longer range conventional aircraft can be leveraged to provide a better services to the people.