Swedish companies' willingness to pay a price premium for flights using bio jet fuel : a survey based on companies flying via Bromma Stockholm Airport

Abstract: An important source of carbon dioxide emissions is the aviation industry, which accounts approximately for 2 percent globally. Therefore, reducing these emissions has become a major challenge for air travel authorities worldwide. One solution to the problem is the deployment of bio jet fuel, which is a green alternative to the traditional jet fuel and can result in an 80 percent reduction in carbon dioxide emissions. The production of bio jet fuel, however, is to date more expensive relative to the production of traditional jet fuel and leads, as a result, to a higher price of flight tickets. Consequently, this study investigates Swedish companies’ willingness to pay for flying with 50 percent bio jet fuel by employing the contingent valuation method. The results obtained show that the average price premium is 11.5 percent, and that significant differences in the level of willingness to pay are found for different flight destinations; a result that provides valuable insights into pricing strategies for airlines operating on these destinations. The fact that companies employ certain booking policies have as well significant impacts on the estimated willingness to pay. Overall, the results of this study will increase airlines’ awareness about the economic possibilities for them to begin the process of implementing the green alternative.