Environmental and welfare effects of airline fuel tankering strategy

Fuel tankering refers to loading an aircraft with extra fuel—beyond immediate flight needs—to avoid costly refueling at the destination, taking advantage of inter-airport fuel price differences. This study constructs a game-theoretic model to examine strategic adoption patterns of fuel tankering under competitive market conditions and investigate the associated environmental and welfare effects. We find that, first, the fuel price difference alone does not necessarily induce fuel tankering adoption; rather, the extra fuel consumption and strategic interaction between airlines are also essential factors in the airlines’ decision. Second, a prisoner’s dilemma may emerge where airlines use fuel tankering in equilibrium to save costs, but they end up with lower profits compared to the case where no one adopts the fuel tankering strategy. Third, the use of fuel tankering always results in higher equilibrium consumer surplus, but at the cost of an adverse environmental effect. It may also lead to reduced social welfare. In addition, welfare analysis shows the airlines’ inefficient bias toward fuel tankering. Finally, policy implications are discussed.