Why aviation’s fuel risk is no longer just about jet fuel pricing

In brief

• Airlines operate on thin margins where fuel, SAF and carbon pricing are no longer separate costs; together they define aviation’s financial exposure.
• SAF supply constraints and rising carbon pricing are structural pressures; integrated fuel strategies are becoming a competitive necessity, not a compliance option.
• The transition is feasible but likely gradual and asymmetric; balance sheet strength and margin depth will determine which carriers lead, follow or absorb the costs.

Aviation's growth story is well established, but its profitability profile is less forgiving. Over the past two decades, only a subset of carriers have delivered consistent returns, while many airlines remain highly sensitive to fuel price volatility and economic cycles. This reality shapes how the sector approaches decarbonization.

Fuel has long been one of the largest cost components for airlines — often close to a third of total expenses and during periods of elevated fuel prices, approaching 30% to 40%. Even small structural changes to fuel economics can have an outsized impact on margins. As Sustainable Aviation Fuel (SAF) blending requirements expand and carbon pricing mechanisms such as EU Emission Trading System (ETS) and Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) evolve, airlines are absorbing additional costs at a time when profitability remains uneven across regions and business models.

The question is no longer whether decarbonization will happen — regulation suggests it will. The question is how far and how fast it can progress without eroding financial viability.

Mandates are accelerating change, but economics still matter

Policy frameworks are moving faster than the industry's traditional investment cycles. Sustainable aviation fuel production remains limited and carries a significant price premium over conventional jet fuel, while carbon markets are converting emissions into measurable financial exposure. For airlines operating with narrow margins, these developments create a structural tension between compliance and competitiveness.

A view emerging across the sector is that decarbonization is feasible, but not uniformly scalable in the near term. Higher-margin carriers and premium network airlines with stronger balance sheets may be better positioned to absorb SAF costs or invest in long-term offtakes. In contrast, low-cost operators and smaller regional players are more likely to prioritize operational efficiency and incremental measures, reflecting different economic realities. In this sense, trends in the aviation industry point toward an asymmetric transition rather than a uniform one.

From fuel management to integrated exposure

What is changing most significantly is how exposure is understood. aviation turbine fuel (ATF), SAF and carbon obligations are increasingly linked, reshaping procurement strategies and financial planning. Decisions around sustainable aviation fuel adoption can influence carbon liabilities, while expectations around carbon pricing can alter the economics of traditional hedging programs.

This integrated perspective does not eliminate cost pressures; in some cases, it highlights them more clearly. However, it can help airlines identify where decarbonization delivers operational value and where it introduces disproportionate financial strain. The feasibility of the transition lies less in eliminating cost increases and more in managing them through timing, portfolio approaches and stronger analytics.

A pragmatic path forward

The industry's pathway is unlikely to be defined by rapid transformation alone. Aviation decarbonization will more likely unfold through phased adoption — combining efficiency improvements, selective SAF uptake and more active carbon risk management. Regulatory clarity, production scale-up and technological progress will determine how quickly ATF and SAF cost trends converge with traditional fuel economics.

From a commercial standpoint, the most viable approach aligns environmental ambition with financial discipline. Airlines that treat decarbonization purely as a compliance exercise risk margin pressure. Those that integrate fuel, SAF and carbon decisions into a broader aviation decarbonization strategy may be better positioned to adapt.

Why it matters

Aviation's transition is ultimately a test of economic realism. Decarbonization is neither optional nor immediately cost-neutral, and its feasibility will depend on how effectively the industry balances regulatory expectations with structural profitability constraints. Organizations that acknowledge these trade-offs and develop integrated views of fuel and carbon exposure may be better equipped to navigate a future where sustainability and financial performance are increasingly intertwined.

Contributors:

• Kinjal Gwalani, Director, Risk Consulting, EY India
• Kartikey Singh, Senior Consultant, Risk Consulting, EY India