Public service obligation

[1] In EU transport law, a PSO is an arrangement by which a governing body or other authority offers subsidies in an auction, whereby the winning company will be obliged to operate a specified service of public transport for a specified period of time in return for the subsidy.

PSOs are aimed at routes which are unprofitable in a free market, but where there is a socially desirable advantage to transport being available.

In recent years, many markets have been deregulated, especially in Europe, by paying the lowest bidding operator to carry out services.

Net contracts give the operators an incentive to increase ridership and reduce risk to the auctioneer.

Rail services can be unprofitable even on major routes, and government subsidies are sometimes offered through PSO.

Ferry routes serving outlying islands in Hong Kong are also subsidised, as a result of rising oil price and therefore the cost of operation.

They must be offered for tender in the Official Journal of the European Union and be open to any transport operator registered in an EU member state.

This is especially evident in Scandinavia where there is very little international air traffic between cities other than through the capitals, where connections are commercially profitable.

The United States Department of Transportation (DOT) subsidizes airlines to serve rural communities across the country that otherwise would not receive any scheduled air service.