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Surcharge management of kerosene and CO2 costs for airlines under the EU's emission trading

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  • Girardet, Daniel
  • Spinler, Stefan

Abstract

We develop a fuel surcharge model for air transport in relation to kerosene and CO2. Price increases, however, induce demand reactions, which in turn may affect profitability. We incorporate demand reactions in our model to calculate an optimal kerosene and CO2 surcharge. We use a numerical example for an illustrative airline network and show that prices on inelastic long-haul routes are faced with the highest price increases, whereas elastic short-haul routes see relatively mild price increases. We compare our results with a traditional surcharge management approach and find them about 5% better.

Suggested Citation

  • Girardet, Daniel & Spinler, Stefan, 2013. "Surcharge management of kerosene and CO2 costs for airlines under the EU's emission trading," Journal of Air Transport Management, Elsevier, vol. 26(C), pages 25-30.
    • Handle: RePEc:eee:jaitra:v:26:y:2013:i:c:p:25-30
    DOI: 10.1016/j.jairtraman.2012.08.013
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    References listed on IDEAS

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    1. Brons, Martijn & Pels, Eric & Nijkamp, Peter & Rietveld, Piet, 2002. "Price elasticities of demand for passenger air travel: a meta-analysis," Journal of Air Transport Management, Elsevier, vol. 8(3), pages 165-175.
    2. Shy,Oz, 2008. "How to Price," Cambridge Books, Cambridge University Press, number 9780521715645, September.
    3. R. Bellman & I. Glicksberg & O. Gross, 1955. "On the Optimal Inventory Equation," Management Science, INFORMS, vol. 2(1), pages 83-104, October.
    4. Daskalakis, George & Psychoyios, Dimitris & Markellos, Raphael N., 2009. "Modeling CO2 emission allowance prices and derivatives: Evidence from the European trading scheme," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1230-1241, July.
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    Cited by:

    1. Hagmann, Carmen & Semeijn, Janjaap & Vellenga, David B., 2015. "Exploring the green image of airlines: Passenger perceptions and airline choice," Journal of Air Transport Management, Elsevier, vol. 43(C), pages 37-45.
    2. Nava, Consuelo R. & Meleo, Linda & Cassetta, Ernesto & Morelli, Giovanna, 2018. "The impact of the EU-ETS on the aviation sector: Competitive effects of abatement efforts by airlines," Transportation Research Part A: Policy and Practice, Elsevier, vol. 113(C), pages 20-34.
    3. Meleo, Linda & Nava, Consuelo R. & Pozzi, Cesare, 2016. "Aviation and the costs of the European Emission Trading Scheme: The case of Italy," Energy Policy, Elsevier, vol. 88(C), pages 138-147.
    4. Chao, Ching-Cheng & Lirn, Taih-Cherng & Lin, Hung-Chun, 2017. "Indicators and evaluation model for analyzing environmental protection performance of airports," Journal of Air Transport Management, Elsevier, vol. 63(C), pages 61-70.

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