Should the Swedish government continue subsidizing unprofitable domestic flight routes? : A cost-benefit analysis of Swedish air PSOs

Abstract: Since 1992, the Swedish government and more specifically the Swedish Transport Administration (STA), has subsidized unprofitable flights in the country. Most of these flights are to remote towns in the northern half of the country in which alternative methods of transport are limited, and it is therefore argued that these flights need to be subsidized in order to make these towns easily accessible and to continue being economically stable. The purpose of this thesis is to determine whether or not the Swedish government should continue subsidizing unprofitable flight routes, or if it should subsidize some of the routes or simply none of them. This was done with a so-called cost-benefit analysis. The cost-benefit analysis comes to a conclusion that, likely, four out of the seven PSOs should be abolished, while three could possibly still be subsidized. However, since a cost-benefit analysis was used, it is difficult to test the result for statistical significance meaning the result is uncertain and open for discussion and future evaluation.