Abstract How do changing jet fuel prices impact airline revenues? As expenses for jet fuel are one of the most relevant cost factors for airlines, their economic success largely depends on the ability to match changes on the cost side with an adaption on the revenue side. While previous studies primarily focused on the impact of fuel price changes to consumer prices, this paper empirically examines the ability of US airlines to pass-through lagged jet fuel prices to scaled operating revenues from an airline driven perspective. Our results suggest that the extent to which an exogenous increase in fuel prices can be passed on to revenues will deviate according to the competitive situation faced by an airline. Based on these findings our research should also be of interest for European policy makers who are discussing actions to exogenously increase jet fuel prices due to environmental reasons.
Highlights Many carriers in the US domestic market were able to decouple average scaled revenues from nominal jet fuel prices lately. Many carriers in the US domestic market were able to increase average scaled revenue levels after the market consolidation. Airlines pass-through jet fuel price changes to scaled revenues dependent on the competitive situation they are exposed to. Under high competitive pressure airlines pass-through approx. 30%–60% of absolute fuel price changes to scaled revenues. In recent years Ultra-Low-Cost Carriers passed-through fuel price changes to revenues to a larger extent than other airlines.
Commodity price pass-through in the US airline industry and the hidden perks of consolidation
2021-06-06
Article (Journal)
Electronic Resource
English
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