The importance of completeness and clarity in air transport contracts in remote regions in Europe and Australia

Abstract

As a result of the recent financial crisis and in times of government austerity, clear contracts are of immense importance to transport authorities in order to achieve value for money when procuring air transport services. Good contracts can support them in stretching budgets as far as possible whilst ensuring that good quality, and at least minimum service level requirements, are delivered. Moreover, incomplete and unclear contracts can also have very detrimental impacts on the financial performance of regional airlines. If a contract is unclear it is likely to create uncertainty, and in the worst case, result in a lack of interest from any airline when tendered out. Weakly drafted contracts can also result in disputes and high transaction costs. This paper compares the current experience of PSO carriers in Europe and Australia. We use an internet survey to reveal what features of the contract airlines experienced ex ante with regard to contract clarity and then ex post regarding the completeness of their transport contracts. Our results show differences across carriers that go beyond differences associated with geographic region. We also find common themes for contracting PSO services, for example the importance of trust and good relationships between transport authorities and operators.