The Role of Capital Costs for Airline Responses to Emission Charges

Achim I. Czerny

Journal of Transport Economics and Policy, 2015, vol. 49, issue 3, 475-495

Abstract: This paper analyses the role of capital costs for airline prices, frequencies, aircraft sizes, and fuel efficiency when fuel costs increase. The contribution is to consider general functional forms for per-aircraft capital costs and elastic demands, and to derive distributional effects. An increase in emission charges or the fuel price tends to increase equilibrium aircraft sizes if it is easier to increase fuel efficiency for larger aircraft. Surprisingly, the effects of an increase in the fuel costs on prices, carrier profits, and consumer surplus is generally ambiguous, and depends heavily on the shape of the capital cost function. © 2015 LSE and the University of Bath

Date: 2015
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