PSO subsidises more than just the flight. The DUB PSO contracts require red-eye flights, so the small airports charge out of hours fees for early/late handling and ATC services when they might otherwise be closed.
This indirect support to the airports has probably kept the normal charges/operational costs down and thus cross subsidized REs commercial routes and allowed them the financial cushion to rapidly expand in the last few years. Without the PSO routes an airport like Sligo/Galway will probably have to scale back opening hours raise charges. So RE face losing a significant revenue stream and higher costs.
Bloxham Stockbrokers column in yesterdays Independent noted the unsustainable level of subvention:
"Mr Gill pointed out that between 2002 and 2008 Aer Arann received €108m in subsidies to operate so-called public service obligation (PSO) routes to small regional airports in a period when it carried a total of just six million passengers....These are remarkable sums of money and help explain why PSOs are unlikely to be sustained after 2011,"
'Radical overhaul' needed for Irish airports to contribute to recovery - Irish, Business - Independent.ie