LOW-COST carrier Ryanair has outbid competitors such as Aer Arann for a State-funded contract to operate daily flights between Kerry and Dublin.

The Minister for Transport, Noel Dempsey, yesterday named the airlines that have successfully bid for public service contracts to operate flights between airports in the southwest, west and northwest and Dublin.

The contracts will run for three years, and include a State subvention designed to ensure the routes are viable.

The Government did not say how much it would be paying the airlines but over the course of the last round, which began in July 2005 and is due to end next July, it paid the operators €45.8 million.

The State is offering a contract to operate a Kerry-Dublin service currently run by Aer Arann to Ryanair, which said last night it would review the deal before deciding to accept.

Ryanair chief executive Michael O'Leary has criticised the public service obligation system, and recently claimed that the Government had paid the airlines involved €108 million over the last six years.

Scottish regional carrier Loganair will lose the Dublin-Derry service it operates to Aer Arann, which was also awarded the contracts to operate flights between the capital and Galway, Donegal and Sligo.

While industry sources said that the loss of the Kerry service would be a blow to the Pádraig Ó Céidigh-run airline, it would still operate four of the six public service routes.

Yesterday its commercial director, Fergal Barry, welcomed the news. "We've been awarded two-thirds of the routes, and we're very happy with that."

Air France subsidiary Cityjet will replace Aer Arann on the Knock-Dublin route. Loganair was awarded this in 2005, but sub-contracted it to Aer Arann. Cityjet also tendered for the Donegal and Derry services.

The airlines base their bids for the routes on their projected costs, margins and revenues.

The Government subvention is designed to make up the shortfall between turnover on the one hand and the airlines' costs and margins on the other.