Cost pass-through in the U.S. aviation industry

Abstract

This paper analyzes disparities in the pass-through of fuel costs across legacy, low-cost, and ultra-low-cost carriers in the U.S. civil aviation industry from 2000 to 2019. We examine how the distinct business models of these carriers influence their pricing mechanisms. Using panel data and a fixed-effects regression approach, we assess which carrier type transfers more of the increased fuel costs on to consumers, drawing on detailed airfare and operational cost data. Our findings reveal that low-cost carriers are more inclined than legacy carriers to raise ticket prices in response to rising fuel costs, while ultra-low-cost carriers exhibit the lowest degree of cost pass-through.