ABSTRACT
Subsidies are a frequent form of public intervention that can be found in transport markets. In Spain, residents in the Canary and Balearic Islands, as well as those living in the autonomous cities of Ceuta and Melilla, are currently entitled to a 75 per cent discount when travelling on domestic routes originating/departing from their residence area. The carrier is not allowed to discriminate on price according to the region of residence, and thus, it must charge the same price for residents and nonresidents. A specific subsidy for residents consists of granting fixed amount to all passengers living in remote region independently on the ticket price. Besides the efficiency gain, the route-based policy has some other advantages that have not been specifically analysed in the earlier theoretical model. In the presence of a subsidy for resident passengers, people considered few completely opposite pricing strategies for the airline.
