How to solve financially sustainable growth in regional aviation

Regional aviation is the connective tissue of the global air transport system. Industry data combined with our own analysis shows regional aviation carries around 500 million passengers; a little more than one in 10 journeys flown worldwide, linking remote communities to national economies and supporting over four million jobs in Europe alone, and an estimated 12-15 million jobs globally.

Regional airlines generate a ‘catalytic’ economic impact by enabling the movement of people and goods that stimulate regional economies. Their presence improves opportunities for local businesses by facilitating access to larger markets, encouraging resource mobility, and enabling commuting between regions and capitals.

Yet, regional aviation is operating under increasingly challenging circumstances. These are the routes that link smaller communities to the national and international networks on which their economies rely; in Europe, regional aviation supports €228bn in gross value added and 4.8 million jobs in tourism enabled through regional aviation. Further afield in Australia, research combined with our own analysis reveals regional aviation contributes ~$1.2 billion annually to the national economy, supporting over 6,300 direct jobs, and many more indirectly through supply chains, tourism, and services.

However, regional aviation are also the services most exposed to financial exposure risks – not just because they generate the least commercial margin but also because much of their fleet is ageing. According to industry research combined with our own analysis of roughly 8,000 regional aircraft in service globally, more than 2,000 to 2,500 are already 25 years or older. A further ~1,400 aircraft will be over 25 years old by 2030, requiring a total 3,500-4,000 aircraft to be replaced over the coming decade. This presents an increasing financial challenge the longer it isn’t addressed and that risks negatively impacting the significant local and catalytic benefits to regional areas.

Regional aviation’s challenge is systemic, not commercial

Positioning regional aviation as core public infrastructure matters now more than ever. For remote, island, and regional communities, short‑haul air services are not a discretionary travel choice. They are often the only reliable link to healthcare, education, employment, freight supply chains, and national markets.

Despite regional aviation’s role in essential public infrastructure, rising operating costs with thin margins and ageing fleets and infrastructure have resulted in fragile regional aviation systems. The market alone will not resolve them, and policy has consistently tackled the symptoms in isolation, rather than the system as a whole.

Financially sustainable regional aviation depends on treating demand, intelligent infrastructure, and hub access as a single, integrated policy challenge – not as separate issues handled by separate parts of government. The question is how can policymakers and industry leaders apply an integrated policy deliberately and at scale?

Durable demand support is essential to regional aviation

Most demand‑side support mechanisms fail because they aren’t designed to last. Short funding cycles, discretionary grants, and annual budget decisions force airlines to plan defensively, and routes close because policy commitment disappears.

Evidence, such as Western Australia’s zone cap model, shows that resident‑focused, long‑horizon subsidy schemes outperform tourism grants and ad hoc route development funds. Schemes that cap fares for permanent residents target the affordability gap faced by people who rely on air travel as essential infrastructure, not discretionary consumption.

Longevity is crucial. A small, well‑designed scheme with certainty outperforms a larger programme that expires every two years. Airlines can’t commit aircraft, crews, or capital without confidence that the policy environment will still exist at the end of the planning horizon.

Actionable priorities: Anchor demand support in certainty, not political cycles

• Adopt a resident-focused subsidy scheme with a minimum five-to-seven-year funding commitment enshrined in legislation, not a ministerial budget line. Design it as a price cap rather than a production subsidy.
• Competitively tender PSO routes and embed them in national transport law rather than discretionary grant frameworks. Where a multilevel model is feasible, define the obligations of each level of government in advance so there is no single point of failure.
• Engage governments early on longevity requirements before committing to thin routes. A two- or three-year grant is not a planning horizon; document this clearly in any policy consultation and build it into commercial due diligence on route entry decisions.

Airport funding must be aligned to long‑cycle infrastructure needs

Regional airports are routinely treated as local government liabilities competing for discretionary grants. The result is a growing, and in some cases, safety‑limiting, infrastructure deficit. Competitive grant rounds and one‑off capital injections can’t address assets with 30‑ to 50‑year lifespans.

The international comparison is pretty stark. Countries that invest sustainably in regional airport infrastructure do two things differently. Firstly, they remove funding from annual political discretion. Dedicated revenue mechanisms – whether aviation levies or hypothecated trust funds – provide stable, rules‑based capital insulated from short‑term budget competition. Secondly, they embed redistribution structurally, not rhetorically. National ownership or networked operating models allow profitable airports to cross‑subsidise regional ones as a matter of design, not negotiation.

This isn’t about spending more for its own sake. It’s about matching the funding architecture to the asset class and finding ways to unlock new revenue streams. Aviation infrastructure can’t be planned responsibly on a one‑year horizon.

There’s also a direct link between airport fragility and airline vulnerability. When a carrier fails, unpaid charges can tip a marginal airport into crisis almost overnight. Without a debt recovery or resilience framework, fragility cascades through the system.

Actionable priorities: Replace competitive grants with durable infrastructure funding

• Stop treating regional airport funding as a competitive grant programme. Move towards a dedicated rules-based mechanism outside annual appropriations; either through a hypothecated aviation levy or a national airport operating entity on the Avinor model. Publish a long-term national infrastructure plan for regional airports with a minimum 10-year horizon. Establish a debt recovery framework so that airline insolvency does not cascade directly to airport financial collapse.
• Commission accrual-based asset condition assessments and use them to make the deficit visible and specific. The political case for structural funding reform is much stronger when numbers are audited, attributed to named airports, and expressed in community impact terms; jobs, healthcare access, route loss rather than engineering cost codes.
• For investors and policymakers specifically, the per capita infrastructure investment comparison across Norway, US, Canada, and Australia is a powerful diagnostic. An equivalent analysis applied to any national or regional market will rapidly identify which governments are most exposed to network fragility and where the case for structural reform is strongest.

Slot policy is central to regional connectivity

Even where demand is underwritten and airports are funded, regional services still depend on access to major hubs. Slots are not merely commercial assets; they are the gateway through which rural and regional communities access national economies and so they should be treated as a community right, not just a market allocation outcome.

Reform doesn’t always require legislative change, some airports are already demonstrating what’s possible within existing frameworks. Local coordination guidelines can embed explicit regional connectivity criteria when competing slot requests are otherwise equal, prioritising connections that open previously unserved regions. This approach preserves the integrity of global allocation rules while addressing the ways those rules actively disadvantage regional services.

Actionable priorities: Shift slot policy from protecting incumbents to enabling regions

• Assess Frankfurt-style local slot coordination guideline as a successful working example. In many places this requires no legislative change. Where a connectivity mandate is shared between the airport and its government shareholder, embed a criterion that gives explicit priority to bids opening a previously unserved region when competing requests are otherwise equal.
• If designating a Public Service Obligation (PSO) Route or equivalent, simultaneously secure the slot access needed to operate it at the hub end. A PSO without a guaranteed slot is not a connectivity guarantee; it is a commercial aspiration. The two must be linked procedurally in the designation process rather than treated as separate regulatory questions handled by separate agencies.
• Sydney Airport highlights how difficult it is to protect regional connectivity through narrow slot interventions alone. The ring‑fence approach successfully preserved existing regional services, but it also demonstrated the limits of policies that focus on protection rather than long‑term growth, route development, and operator resilience. The experience underlines the importance of aligning slot design, financial sustainability, and network development from the outset, rather than addressing these elements sequentially.

Accelerating a joined‑up response

The countries that have made regional aviation work over the long-term, embed it deliberately in national transport policy, fund it through dedicated mechanisms, and protect it from short‑term political discretion.

Demand support, infrastructure funding, and hub access are entirely interdependent, not competing priorities. Addressing them in isolation guarantees fragility but treating them as one system with joined-up action unlocks sustainable growth.

Securing the future of regional connectivity requires deep collaboration across the entire aviation ecosystem. As active members of the European Regions Airline Association (ERAA), we work alongside airlines, airports, and policymakers to help design the integrated models and long-horizon strategies. By helping regional networks build structural and financial resilience, we can better serve these communities for the long-term.