Interview with Ginés de Rus: Fixed subsidy and more competition, a “solution” for transport

The professor at the University of Las Palmas de Gran Canaria, Ginés de Rus is an authority on Economics and the research team to which he belongs -Economy of Infrastructures, Transport and Tourism- has a long history in economic analysis of national and international projects. international. 

With this endorsement, it is not surprising that the Independent Authority for Fiscal Responsibility (Airef) chose it to outline the methodology for evaluating the incidence of the 75% discount for residents on inter-island and peninsula flights. This is a study that aims, above all, to shed light on whether the discount mechanism is benefiting the end user (which is the objective of the subsidy) or whether it is causing price increases, with the consequent damage, not only for residents, but also for peninsular people on a work trip, relatives of canaries and the tourist market.

In the absence of completing the study, the professor emphasizes that his answers in this interview are exclusively personal and are not attributable to Airef, in addition to not answering some of the questions due to the confidentiality agreement signed with the organization. Along these lines, and in contrast to recent opinions in the academic, political and business world, the professor de Rus insists on distinguishing the evolution of the average rate (without subsidy) in the last ten years and the change in the average rate (without subsidy) in the last year when going to 75% «It is true that the increase in the percentage of subsidy has raised the average fare without subsidy on flights with the Peninsula, remaining almost constant on inter-island flights (subject to regulated prices) but inferred from this data, very short-term by the way, which is the solution public service obligations (PSO), collides with the following fact: the average fare without subsidy for flights with the peninsula has not stopped falling in the last ten years , while in the inter-island flights it has remained constant or with a slight rise ”.


The air market with the peninsula differs from the inter-island in several aspects that possibly explain why the average fare goes down without subsidy on those flights and not on the inter-island. One of them is the presence of several airlines on flights with the peninsula, while on inter-island flights a single company practically controls the market. On inter-island flights, almost 90% are residents, while on flights with the peninsula, only 45%. There is therefore a majority of travelers on these flights who are not entitled to the discount and therefore companies risk losing part of the income of this group of users when they raise prices to benefit from the subsidy. Therefore, Ginés de Rus warns of the risk of introducing regulatory changes in a hasty manner that could harm most of the passage, which would reduce the potential of the Canary Islands as a destination for peninsular tourism. “On inter-island flights there is OSP and on flights with the peninsula there is, despite which the reductions in the average fare during the last decade on flights with the peninsula have not occurred in the Canary Islands.”

With those ingredients on the work table, Ginés de Rus advances that it is the increase in competition and not its limitation that we need: “The promotion of competition together with the reform of the subsidy mechanism is the way”, underlines the professor. And he adds that “the subsidy as an instrument to compensate for the remoteness is not what is in question. What must be avoided is that the mechanism used ends up becoming an incentive for the company that provides the service to raise the price. Today is exactly what happens. The more expensive the plane ticket, the more subsidy the company receives. For a trip of 100 euros to residents, the company receives 300 euros more from taxpayers. If the resident pays 200, the airline receives 600 more. As simple as that”. But immediately afterwards he emphasizes that it is not a question of “blaming the companies, whose boards of directors seek the profitability of their shareholders, but rather those who establish regulatory mechanisms that penalize the company that sets a low price, rewarding the one that charges the most.”

On the other hand, the current system gives more subsidies to the traveler who uses more expensive fares, which does not seem to be an objective of the Government.

As a result of these reflections, and while waiting for the conclusion of the study commissioned by Airef – in which, in addition to Ginés de Rus himself, Pilar Socorro, Javier Campos and Jorge Valido – the ULPGC professor points out that a possible formula is to replace the percentage subsidy with “a fixed amount of discount per trip, different on each route, with the guarantee of its periodic evaluation and review in accordance with the usual procedures in this type of regulation.”

Finally, Ginés de Rus warns of the fact that the defenders of the subsidy, in current terms, are surely its worst enemies, given the risk that a disproportionate increase in the cost of the discount for the public coffers could turn against the Canary Islands and its differentiated fiscal model. According to some estimates, the cost of the discount for the State is on the way to 700 million euros, approximately.

Source: Canarias7

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