The Impact of Fuel Price on Airline Fuel Efficiency and Operations

Abstract

Jet fuel prices have increased significantly during the past decade, resulting in fuel cost becoming airlines’ primary operating cost. Given the relevance of the air transport system for the economy, it is important that industry and policy makers are informed of past changes and likely future impacts driven by increased fuel prices. The prominence of this issue for policy makers is highlighted by the FAA Modernization and Reform Act of 2012, which explicitly required the execution of a fuel price impact study. Moreover, future market-based carbon constraint policies may further increase the effective price of jet fuel. Understanding the operational impact of fuel price increase may inform such policies. This analysis found that fuel price increase after 2004 is correlated to airline fuel efficiency improvement. Although fuel efficiency gains from new, more fuel efficient, aircraft appear to be limited between 2004 and 2010, data analysis and interviews provide evidence for a number of operational changes, such as cruise speed reduction, which may have led to improved airline fuel efficiency. It was found that increasing fuel price may have reduced short stage length traffic. However, there appears to be little impact on network structure and airport connectivity. Simulation of a number of future fuel price scenarios indicate that increasing fuel price would reduce the rate of growth of airline operations, but total operations would continue to grow through to 2025. Simulation results also demonstrate an important link between GDP and fuel price in relation to airline operations. GDP growth can increase fuel price, but also dampen the impact on airlines of fuel price increase, relative to a reduced GDP growth scenario. A key finding of this paper is that increased fuel price appears to lead to improved airline fuel efficiency, but slow investment in new aircraft in the short term.

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