The asymmetric impact of sustainable aviation fuel adoption on airline industry

The decarbonization of aviation relies on the adoption of Sustainable Aviation Fuel (SAF), yet its economic impacts across airline business models remain poorly understood. This study develops an empirical framework to examine how SAF-induced fuel cost shocks propagate through airline costs, pricing, and passenger demand. Using a translog cost function and a stochastic-frontier markup model, we estimate firm-level costs, marginal costs, and markups for U.S. full-service airlines (FSAs) and low-cost carriers (LCCs). We simulate alternative SAF blending scenarios by allowing airfares to adjust through constant-markup pass-through, while passenger volumes respond endogenously according to business-model-specific demand elasticities. The results show that SAF adoption significantly increases costs for both airline types, but generates markedly larger passenger and revenue losses for LCCs. While FSAs are better able to buffer cost increases due to higher markups and less elastic demand, LCCs face substantial traffic contraction even under modest SAF blending. These findings highlight the importance of incorporating business model heterogeneity into SAF policy design to ensure an economically viable and equitable transition toward net-zero aviation.