Carbon costs and network structure. A policy analysis on how CORSIA rewires airline strategies

Abstract

Global efforts to regulate aviation emissions increasingly rely on market-based instruments that aim to reconcile environmental objectives with continued growth in air transport. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), introduced by the International Civil Aviation Organization, represents a landmark intervention in this regard. While existing assessments of CORSIA primarily focus on emissions coverage and compliance costs, considerably less attention has been paid to how airlines strategically adapt their network structures in response to carbon constraints, and whether these adaptations align with policy intent. This paper examines how carbon offsetting regulation may induce unintended network restructuring in international aviation. Focusing on intercontinental airline networks operating in a competitive yet cooperative environment, the study analyses how airlines reconfigure routes, hubs, and market participation as regulatory stringency increases under CORSIA. Rather than treating airline networks as fixed, the analysis explicitly captures network reorganization as an endogenous behavioural response to carbon regulation. The results indicate that carbon constraints can lead airlines to restructure networks in ways that reduce direct long-haul connectivity, intensify hub concentration, and redistribute market shares across competitors. Importantly, these responses are heterogeneous: airlines with higher fuel efficiency are better positioned to preserve network reach, while less fuel-efficient carriers face stronger incentives to withdraw from certain routes or rely on indirect connections. Such dynamics suggest that CORSIA may influence competitive balance and regional connectivity outcomes beyond its emissions objectives. The study underscores the need for policymakers to account for network-level behavioural responses when evaluating the effectiveness of global aviation climate policies. By revealing how carbon regulation interacts with airline network design, the paper offers insights for improving the design, monitoring, and complementary governance of CORSIA to better align environmental goals with broader economic and connectivity considerations.