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Effectiveness of carbon tax and congestion cost in improving the airline industry greening level and welfare: A case of two competing airlines

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  • Dixit, Aasheesh
  • Kumar, Patanjal
  • Jakhar, Suresh Kumar

Abstract

In this paper, we examine the combined impact of carbon-tax policy, congestion cost and greening investment decisions of airlines. We model a Bertrand duopoly sequential move game to analyze the impact of airlines' decisions on ticket fare and greening effort, as they contemplate upon the cost option of greening investment and carbon tax. We model a duopoly market where incumbents and new entrant airlines compete in similar market. Our findings suggest that marginal utility of flight frequency decreases with ‘congestion toll’. In its absence, airlines have the opportunity to operate smaller aircrafts with high frequency. Secondly, our findings also suggest that airlines have higher ‘greening interest’ when emission taxes are imposed; without which, airlines are reluctant to invest in green technology. Additionally, our numerical simulations suggest that carbon tax, combined with congestion cost, may be used as an effective instrument to improve an airline's social welfare, and drive it towards green development. In fact, an efficient investment strategy can guide an airline to use greening services for their competitive advantage.

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  • Dixit, Aasheesh & Kumar, Patanjal & Jakhar, Suresh Kumar, 2022. "Effectiveness of carbon tax and congestion cost in improving the airline industry greening level and welfare: A case of two competing airlines," Journal of Air Transport Management, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:jaitra:v:100:y:2022:i:c:s0969699722000035
    DOI: 10.1016/j.jairtraman.2022.102182
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    2. Qiu, Rui & Xu, Jiuping & Zeng, Ziqiang & Chen, Xin & Wang, Yinhai, 2022. "Carbon tax policy-induced air travel carbon emission reduction and biofuel usage in China," Journal of Air Transport Management, Elsevier, vol. 103(C).

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