Scottish airline Loganair will take over the Donegal to Dublin air service after winning the contract from Aer Arann.
The service is one of only two remaining state-subsidised routes after former transport minister Noel Dempsey axed public service obligation (PSO) contracts for several regional air routes including services between Dublin and Derry, Galway, Sligo and Knock.
But despite losing the Donegal service, which it had operated for years, Aer Arann won the tender process for the Kerry to Dublin route. Ryanair was forced to pull its Kerry service because of the new arrangements.
Transport Minister Leo Varadkar said the newly awarded three-year contracts, to start on November 3, will involve two return flights each day on both routes. They will cost the taxpayer around 7.6 million euro a year.
"Donegal and Kerry are the most remote of the regional airports from Dublin," said Mr Varadkar. "This was a key factor in the Government's decision to continue funding for the PSO air services to these two airports for a further three years, despite the current public funding constraints."
Mr Varadkar said renewal of the contracts in 2014 will depend on how well the services are used as well as the state of the public finances.
"These links will contribute towards balanced regional development in terms of business and tourism," he added. "People in Donegal or Kerry will be able to conduct commercial or personal business in Dublin and to return home the same day.
"It will also support the tourism industry in Donegal and Kerry, as tourists on relatively short breaks can reach their holiday destinations quickly through onward connections between Dublin and Donegal or Kerry."
Four airlines submitted tenders for the two routes, which were assessed by an evaluation panel. The winning tenders were the lowest priced, according to the Department of Transport.
Aer Arann chief executive Paul Schutz said: "We have worked very closely with the team at Donegal airport for many years to grow passenger numbers and we regret that the Donegal services will no longer form a part of our network."