Passengers worried about rising jet fuel prices may assume higher costs will automatically lead to more expensive airfares. New research from Adelaide University suggests the reality is far more complicated.
A study published in Research in Transportation Economics has found that the impact of jet fuel price changes on Australian domestic airfares depends largely on what is causing those price movements in the first place.
The research examined Australian business class, restricted economy and best discount fares and found that different types of fuel price shocks can produce very different outcomes for travellers.
“Not all fuel price shocks are economically harmful in the same way. The source of the shock matters greatly,” said Professor of Aviation Shane Zhang from Adelaide University’s College of Engineering and Information Technology.
“At first glance, it may seem that fuel price increases can be easily passed on to consumers through higher fares. In reality, the relationship is more complex.
“Airfare adjustments are shaped not only by rising input costs, but also by airline pricing strategies, passenger behaviour, competitive pressures and consumer sensitivity to price.”
Jet fuel remains one of the largest expenses for airlines, accounting for between 25 and 40 per cent of operating costs. The issue is particularly relevant in Australia, where around 90 per cent of jet fuel is imported.
Using airfare data from the Bureau of Infrastructure and Transport Research Economics, researchers separated fuel price movements into three categories: supply shocks, aggregate demand shocks and jet fuel-specific demand shocks.
Supply shocks occur when fuel availability is disrupted by events such as conflict, natural disasters or supply chain interruptions. While these events can push fuel prices higher, the study found they often have little direct effect on Australian domestic airfares.
“This was one of the more surprising findings,” said Dr Yifei Cai from Adelaide University’s College of Engineering and Information Technology.
“Many people would expect airlines to immediately pass fuel cost increases on to passengers, but our results suggest airlines can often smooth these effects through fuel hedging, long-term supply contracts and other operational strategies.”
Researchers found that aggregate demand shocks, which are commonly associated with stronger economic conditions, had a clearer effect on ticket prices.
“When economic conditions are stronger, travel demand tends to increase, particularly among business travellers,” Professor Zhang said.
“That gives airlines more room to raise prices in these fare classes.”
The third category, known as jet fuel-specific demand shocks, produced the most varied results. These shocks can emerge when concerns about future fuel shortages, geopolitical tensions or climate-related risks lead market participants to buy or stockpile oil.
The study found these conditions could reduce business class fares in the short term while increasing discount fares, reflecting changes in traveller behaviour and corporate spending patterns.
“Oil-specific demand shocks are particularly destabilising because they can trigger sharp price increases without corresponding changes in actual supply or global demand,” Dr Cai said.
“Overall, the findings highlight that airfare responses are shaped not only by fuel costs, but also by passenger behaviour and broader macroeconomic conditions.”
The research arrives at a time when aviation fuel supplies and airline operating costs are attracting renewed attention globally.
Professor Zhang said fuel market disruption can influence airlines in different ways depending on the underlying cause.
“In the current context, fuel market disruption can act in more than one way,” Professor Zhang explained.
“On one hand, it can be understood as a supply shock, where the physical flow of oil or refined products is constrained. Our research suggests these supply shocks do not necessarily lead to immediate domestic airfare increases, because airlines may be able to absorb them.
“At the same time, uncertainty can create an oil-specific demand shock, where buyers respond to fears of future shortages. That can be more destabilising for aviation markets and may lead to very different fare responses across domestic and international routes.”
The findings offer insight into why airfare changes often appear uneven across routes and fare classes. They also raise broader questions for aviation policy, fuel risk management and future discussions around carbon pricing and sustainable aviation fuel as airlines work to manage costs while meeting environmental targets.
For travellers watching fuel prices rise and fall, the study suggests there is no simple formula linking the cost of jet fuel to the price of a ticket. The forces shaping airfares extend beyond the fuel market and into the wider economy, airline competition and consumer demand.
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