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Transitioning the U.S. Air Transportation System to Higher Fuel Costs James K.D. Morrison, Brian Yutko, and R. John Hansman The air transportation system enables economic the system as passenger travel is suppressed and growth and provides significant social benefits. airlines alter service frequency and network structure. Future increases and volatility in oil prices, as well Given the economic and social importance of the air as climate change policies, are likely to increase the transportation system, stakeholders must understand effective cost of fuel. We investigate the expected the impacts of higher fuel costs to design and impacts of higher fuel costs on the U.S. domestic air implement policies that will mitigate negative effects. transportation system and discuss policy options to The purpose of this paper is to investigate the expected reduce negative economic and social effects. The impacts of higher fuel costs on the U.S. domestic air 2004-08 fuel price surge is used as a historical case transportation system and to discuss policy options to study. A stochastic simulation model is developed reduce negative economic and social effects. using price elasticity of demand assumptions and flight leg fuel burn estimates to understand the impacts of higher fuel costs. It was found that a Motivation 50% increase in fuel prices is expected to result in a Climate change policies and oil markets are likely to 12% reduction in ASMs if all cost increases pass result in higher effective fuel costs. North American through to passengers. System revenues are revenue passenger miles (RPM) are forecasted to grow expected to decrease marginally for fuel price increases up to 50%, but higher increases may at a rate of 2.8% p.a. in the 2010-29 period (1). Historically, aircraft fuel efficiency has improved at a result in significant revenue reductions. Small airports are expected to experience relatively larger rate of 1.2-2.2% p.a. (2). Therefore, total CO2 emissions from aviation in the U.S. are expected to decreases and greater volatility in traffic. Older aircraft, flying sectors significantly below their continue to grow in the near term. Growing emissions optimal fuel efficiency range, are expected to will result in political pressure to take action to reduce experience the greatest reductions in capacity. An aviation’s climate change impacts. The International airline case study demonstrates that a regional Air Transport Association (IATA) set an average fuel efficiency improvement target of 1.5% p.a. from 2009 carrier may be less sensitive to increased fuel prices to 2020 (3). than other business models. Policy options to maintain small community access, to manage airport traffic volatility, and to improve fleet fuel Market-based Mechanisms to Reduce Aviation’s efficiency are discussed. To transition the U.S. air Climate Change Impacts transportation system to higher fuel costs, stakeholder action will be required. Market-based mechanisms increase the economic incentive of fuel efficiency improvements by pricing carbon emissions. Price regulations impose taxes on emissions, enabling emitters to choose their optimal 1. INTRODUCTION emission quantity. Quantity regulations cap the amount of emissions in the economy or sector and assign The air transportation system is a vital infrastructure property rights to emitters in order to create a market that enables economic growth and provides significant price for emission permits. In either type of system, the social benefits. Future increases and volatility in crude effective cost of fuel is increased as emitters are forced oil prices, as well as climate change policies, are likely to pay a price for the climate change impacts of to increase the effective cost of fuel. Increased fuel emissions in addition to the jet fuel price. costs may result in changes to supply and demand in Aviation will be included in the European Union’s Emissions Trading Scheme (ETS) in 2012, putting a Department of Aeronautics and Astronautics, price on carbon for all flights with origins or Massachusetts Institute of Technology, 77 Massachusetts destinations in the E.U. In the United States, the Avenue, Room 33-115, Cambridge, MA 02139. Corresponding author: J. Morrison, jmorriso@mit.edu Supreme Court ruled that the Environmental Protection TRB 2012 Annual Meeting Paper revised from original submittal.
