AER Arann is expected to apply for Public Service Obligation (PSO) licences to receive Exchequer funding to fly on the Dublin-Kerry and Dublin-Galway routes from early next year.
Aer Lingus is thought likely to withdraw from the routes when the current PSOs expire next January though an internal management task force will not finalise its plans for another month.
A person familiar with the situation said there was a "certain inevitability" about the decision. He added: "Aer Lingus may not have a future on these routes. It seems to be heading in that direction."
The State-owned airline carries about 40,000 passengers per year on both of the routes, but it claims the services are uneconomic. The airline has already decided to develop an all-jet fleet and it will sell its remaining propeller aircraft early next year.
The airline has already subcontracted its PSO on the Dublin-Sligo route to Aer Arann. An Aer Arann spokeswoman said it had not entered dialogue with Aer Lingus to extend this arrangement to the Galway and Kerry routes.
When asked whether the Co Galway-based airline would apply for new PSOs, she said: "We intend to become a regional carrier in Ireland."
Three other airlines said they had no plans to fly on the routes. Budget carrier Ryanair said the routes did not fit with its strategy; charter airline TransAer said it would not apply; and British European - formerly Jersey Airlines - said it had no immediate plans to develop services on the routes. Manx Airline's commercial director, Mr Michael Bathgate, said it had not looked at the routes but would consider any opportunities which arose.
Both PSO contracts expire on January 16th next. The Galway PSO will be worth £1.078 million (€1.37 million) to Aer Lingus this year, while the Kerry contract is valued at £734,000.
The value of the contracts is likely to increase as the Department of Public Enterprise has applied to the EU to expand the scope of its support, its spokeswoman said. The State supports three 100-seat return flights per day on the Galway route and it wants to extend this to four return flights for 150 people. It supports two 100-seat return flights on the Kerry route and is seeking to extend this to three 150-seat return flights.
Tenders will be sought early next month, it is believed, and Aer Lingus is not expected to bid. Tenders for PSOs on the Dublin-Sligo route and on Dublin-Donegal, also managed by Aer Arann, will also be sought.
While Aer Lingus uses propeller aircraft on routes to certain regional cities in Britain - including Newcastel, Leeds/Bradford and Bristol - it is thought unlikely that it will withdraw from these.
