A Public Service Obligation (PSO) is a legal tool that allowsmaintaining air services deemed socially necessary but which cannot be provided commercially. However, under the current regulatory framework, there is an open question: should States’ intervention be limited to providing minimum-level, lifeline service, or be extended to organizing transport of convenience? The issue goes beyond the economic consequences of interventionist policy, but touches on the sensitive issue of States’ competences in the sphere of public services in the context of the ongoing process of ‘Europeanization’ of this domain. This paper provides an analysis of the current regulatory framework from the standpoint of the division of competences between the European Union andMember States, as well as its impact on the sector’s competitiveness.