how to break the vicious circle? pso routes in norway

7/27/2019 How to Break the Vicious Circle? PSO Routes in Norway

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partner/sponsor:

How to break the vicious circle? Monopoly bidding for

public service obligation route networks in Norway

Branko Bubalo

GAP Research Project

[email protected]

GAB Final Project Meeting

Berlin, June 20th 2012

GAB Meeting Berlin 20.06.2012 Branko Bubalo Page 1
http://www.gap-projekt.de/mailto:[email protected]:[email protected]:[email protected]:[email protected]://www.gap-projekt.de/http://www.gap-projekt.de/http://www.gap-projekt.de/


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Contents

1. Introduction2. Problem description and available data

3. Set up of the matrices

4. Iterations and results for case study on Finnmark and

North-Troms Network5. Conclusions and further research

Page 2GAB Meeting Berlin 20.06.2012 Branko Bubalo


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Introduction

Norway has the largest PSO network in Europe The Norwegian Ministry spends increasingly more subsidies

for PSO routes each year (More than it receives from

Dividends)

For the majority of the tenders there is only one bidder (withtwo minor bidders for individual city-pairs)

Tender for 16 separate Networks

There are two main limitations for competition:

Mostly STOL runways (


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Motivation

Which routes require the most subsidies (per passenger)?

What causes increasing subsidies (with stable demand)?

Are the compensations/subsidies justified and how do theairline costs compare with other carriers?


Operating Year Year-on-Year change

2007 -

2008 +7.6%

2009 +15.7%

2010 +11.4%

2011 +5.5%

Increase 2007 to 2011 +46.1 %


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Prerequisites


Tender documents with historic data on O/D passengersand revenues

Annual subsidy paid for each PSO network segment

-> Objective: Calculating operating costs and subsidies by city-pair

Calculating average ticket fare


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Set up of the Origin-Destination Matrices

Given: PAX-[#]* *[#]:n

xn

-MatrixRevenue- [#]

Key: Km-Distances-[#]

Formulas:

Average Fare = Revenue- [#] / PAX-[#]

Revenue-Passenger Kilometer (RPK)-[#] = PAX-[#] x Km-Distances-[#]

Revenue per RPK-[#] (RRPK; Yield) = Revenue- [#] / RPK-[#]

Profit (-) or Subsidy (+) per RPK = Cost per RPK (CRPK) - RRPK



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Overview Finnmark and North-Troms PSO Network

Page 7

Distances in Kilometers

TO

FROM ALF BJF BVG HFT HVG HAA KKN MEH SOJ TOS VAW VDS

ALF 246 232 79 145 71 252 203 95 174 293 246

BJF 246 38 221 146 279 98 82 341 418 58 60

BVG 232 38 196 116 256 131 46 325 400 94 94HFT 79 221 196 86 61 257 156 143 211 275 240

HVG 145 146 116 86 147 206 73 226 297 204 180

HAA 71 279 256 61 147 304 217 89 151 331 292

KKN 252 98 131 257 206 304 165 344 423 83 38

MEH 203 82 46 156 73 217 165 292 365 140 131

SOJ 95 341 325 143 226 89 344 292 79 388 341

TOS 174 418 400 211 297 151 423 365 79 466 420

VAW 293 58 94 275 204 331 83 140 388 466 55

VDS 246 60 94 240 180 292 38 131 341 420 55

1/3 of the Total Subsidies Around 135.000 PAX p.a.

Average Fare about 490 NOK

(65 Euro)

1,500 NOK Subsidy per PAX(200 Euro)


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Subsidies per route for two Scenarios


Profit/Loss per Route in NOK (thousands) April 2008 March 2009 Route areas 1 and 2

TO

FROM ALF BJF BVG HFT HVG HAA KKN MEH SOJ TOS VAW VDS Totalt

ALF -633 -618 -93 -8,258 -9 -3 -26,574 -36187

BJF -5 -4,473 -57 -1,553 -65 -1,213 -4 -832 -8200

BVG -39 -12 -1,963 -1,087 -9 -109 -3 -964 -4184HFT -1,937 -1,626 -1,426 -3,849 -1,349 -4,652 -6,011 -10 -62 -14,105 -35027

HVG -11 0 -4,145 -525 -67 -30 -920 -5698

HAA -176 -30 -23 -735 -80 -2,458 -125 -3627

KKN -5,488 -2,240 -1,327 -6,978 -864 -2,133 -78 -2,915 -3,121 -25146

MEH -528 -38 -15 -8,158 -133 -441 -7 -962 -1,108 -11390

SOJ 2 -21 -8 -982 -116 -101 -3,810 -201 -5241

TOS -4,866 -3,255 -11 -1,471 -4,126 -4,313 -12 -18053

VAW -2,136 -28 -24 -2,904 -2,670 -138 -7900

VDS -20,017 -434 -175 -12,334 -916 -2,537 -1,735 -59 -551 -38758

Total -30321 -9940 -6875 -42764 -5830 -2820 -21918 -14248 -4475 -8582 -3550 -48087 -199410

Profit/Loss per Route in NOK (thousands) April 2008 March 2009 Route areas 1 and 2

TO

FROM ALF BJF BVG HFT HVG HAA KKN MEH SOJ TOS VAW VDS Totalt

ALF -116 -112 -2 -731 0 0 -3,562 -4524

BJF 1 -597 -5 115 -6 -10 2 41 -618

BVG -8 0 -338 -2 -1 -9 0 -38 -396

HFT -156 -261 -232 695 -75 -536 -113 -1 -9 -1,864 -3247

HVG -1 2 636 -78 -6 -5 -115 -204

HAA 28 0 2 -22 10 40 -2 -24

KKN -575 143 33 -821 -62 -180 -9 41 1,303 -1647

MEH -84 -3 2 -261 -3 -61 -1 -90 -85 -589

SOJ 9 1 1 -48 -20 -20 276 -21 -109

TOS -575 -346 -3 -90 -295 182 -3 -1310

VAW -351 9 1 -553 10 17 -904

VDS -2,094 17 -11 -1,739 -63 953 -221 -10 15 -4137

Total -3268 -956 -701 -4382 -135 -165 -1429 -841 -21 -113 -12 -5687 -17710

Scenario I:

Operating costs of 4 NOK

per RPK (0.53 EURO per

RPK)

Result in 17.7 million

Kroners (2.35 millionEuro) in subsidies.

Scenario II:

Operating costs of 13.6

NOK per RPK (1.81 EUROper RPK)

Result in 199.4 million

Kroners (26.5 million

Euro) in subsidies.


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Results for Finnmark and North-Troms PSO Network


y = 11,658x4 - 442,745x3 + 6,073,989x2 - 16,197,609x + 10,652,720

R = 1

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00

RouteNetworkSubsidiyi

nNorwegianKroners

Operating Costs in Norwegian Kroners per Revenue Passenger -Kilometer

13.6 NOK per RPK

199.5 mi llion Kroners

4 NOK per RPK

17.7 million Kroners

Assumptions:

133,000 Passengers

64,846,000 NOK Revenues

2010 Wideroe Blue1 SAS Norwegian Fed Ex

Southwest

Airlines Ryanair

CRPK in NOK 4.02 1.05 1.40 0.61 1.26 0.54 0.30

(Source: Own Illustration)

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Conclusions

Wideroe may have considerably lower operating expenses,as what is stated in the tender application.

Since Wideroe is the sole bidder, because of its unique fleet

of Dash-8 aircraft, it could claim whatever costs.

The current tender rules have no mechanism to deal withmonopoly bidders and abuse.

-> The Essential Air Services (EAS) system in the US awards

new carriers with the tender, in cases where this airline can

provide the service with lower or without subsidies, even

during the tender period (see Isabel Santana 2007).

-> More research needed in direct comparisons of the two

systems, the legal background and the required network

subsidies.


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Thank you for your attention! Questions?

Suggestions and Comments are welcome.

[email protected]

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how to break the vicious circle? pso routes in norway

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