Within the air routes operated in the Highlands and Islands there are several which without support would not be commercially viable.
Subsidy has been paid by the Scottish Government since the mid-1970s on the Glasgow-Tiree and Glasgow-Barra route. However under European regulations, public service obligations (PSOs) were imposed in the mid 1990s to enable subsidy to continue being paid on these routes and on the Glasgow-Campbeltown route.
A PSO is an obligation imposed on a carrier to provide a set level of service on a particular route in order to ensure that the service satisfies fixed standards of continuity, regularity, capacity and pricing.
The Scottish Government's contract with Loganair for these three routes runs until 31 March 2013.
PSOs have also been imposed on routes within Shetland, Orkney, Comhairle nan Eilean Siar and Argyll and Bute Council, all of which are subsidised by the local authorities. The subsidy ensures that these isolated communities have air links with a main centre. Under the terms of the Regulation, it is necessary to seek competitive bids on an EU-wide basis to allow subsidy to be paid.
Regulation (EC) No 1008/2008 which consolidates and updates the set of liberalisation measures known as the "Third Package" adopted in 1992, sets out the economic framework for air transport in the Community. Under the Regulation, provision has been made for the imposition of public service obligations PSOs for the maintenance of lifeline air services. The Regulation provides the basis on which non-commercial but economically and socially necessary air services can be subsidised by national or local authorities after the imposition of a PSO to ensure continued operation.
